## Facts

- A Hong Kong seller (claimant) and a German buyer (respondent) entered into a sales relationship under which the price and delivery time were set separately for each order.
- The buyer ordered and received large quantities of goods over time and accumulated unpaid amounts for past deliveries.
- The seller later experienced financial problems and demanded (i) advance payment for future orders and (ii) payment of all outstanding debts from prior deliveries as a condition for making further deliveries, although those conditions were not part of the parties’ contract terms.
- The buyer refused the added conditions and asserted that the seller’s refusal to deliver amounted to breach, entitling the buyer to remedies under the CISG, including avoidance and damages.
- The seller commenced arbitration before the Court of Arbitration of the Hamburg Chamber of Commerce seeking payment of the price for goods already delivered.
- The buyer asserted a set-off, alleging damages for non-delivery under later orders and additional losses connected to the broader commercial relationship.
- In a later phase addressing costs, the seller sought recovery of its attorneys’ fees incurred in the arbitration; the buyer argued the seller had not first fixed an additional period for payment.

## Issues

1. Whether the CISG applied to the dispute via CISG Article 1(1)(b) through the forum’s conflict-of-laws rules.
2. Whether the seller’s refusal to deliver unless the buyer paid arrears from earlier deliveries and made advance payment for future orders constituted an unlawful refusal of performance giving the buyer CISG remedies, including avoidance and damages.
3. Whether the buyer could set off alleged damages against the seller’s claim for the unpaid price, and whether damages under CISG Article 74 could include losses tied to the parties’ broader distribution/commercial relationship rather than breach of a particular sales contract.
4. Whether the seller could rely on CISG Article 79 to excuse non-delivery based on financial distress in its supply chain or related procurement difficulties.
5. Whether the seller could recover attorneys’ fees for the arbitration as damages under CISG Articles 61 and 74, and whether the seller had to grant an additional period for payment under CISG Article 63 where the buyer refused payment based on set-off.

## Decision

- The tribunal held that the CISG governed under Article 1(1)(b) because the applicable law determined by the forum’s conflict rules was the law of a CISG Contracting State.
- The tribunal awarded the seller the outstanding price for goods that had been delivered and accepted but not fully paid.
- The tribunal treated set-off as available only to the extent the buyer proved a counterclaim grounded in breach of a specific CISG sales contract; it rejected claims framed as losses arising from the general distribution/commercial relationship as not compensable under Article 74.
- The tribunal stated that a seller may be deemed to have unlawfully refused performance where it conditions delivery under a current sales contract on payment of arrears from earlier contracts, even where advance or cash payment had been discussed for particular orders.
- The tribunal rejected the seller’s reliance on Article 79; difficulties tied to the seller’s own financial situation and supplier-side problems were allocated to the seller’s sphere of responsibility and did not amount to an exempting impediment.
- In the later award on costs, the tribunal allowed the seller to recover its arbitration attorneys’ fees as damages under Articles 61 and 74, subject to the CISG’s requirements for loss and causation.
- The tribunal held that the seller was not required to fix an additional period for payment under Article 63 where the buyer did not merely pay late but refused payment by asserting set-off.

## Legal Principles

- The CISG can apply via Article 1(1)(b) where the forum’s conflict-of-laws rules select the law of a CISG Contracting State, even if the other party is located in a non-Contracting State.
- A seller’s price claim for delivered and accepted goods may be enforced under the CISG notwithstanding disputes about later deliveries.
- Set-off against a CISG price claim is limited to counterclaims that are established and that qualify as damages or other claims arising from breach of a contract of sale governed by the CISG.
- Damages under CISG Article 74 must result from breach of a sales contract; alleged losses tied only to an overarching distribution or business arrangement, without the required link to breach of a particular sales contract, are not recoverable as Article 74 damages.
- A seller may act wrongfully by refusing delivery under a current sales contract unless the buyer first pays arrears from prior sales contracts, even where payment-in-advance was contemplated for a given order.
- Supplier-side financial distress and related procurement problems generally remain within the seller’s responsibility and, without more, do not satisfy the requirements for exemption under CISG Article 79.
- Attorneys’ fees incurred in pursuing an arbitration may be awarded as “loss” under CISG Articles 61 and 74 when the requirements for damages are met.
- When a buyer refuses to pay on the basis of asserted set-off, the seller need not first grant an additional period for payment under CISG Article 63 before pursuing remedies.

## Conclusion

In CLOUT Case 166, the Hamburg Chamber of Commerce tribunal applied the CISG via Article 1(1)(b), ordered the German buyer to pay the outstanding price for goods already delivered, limited set-off and Article 74 damages to losses tied to breach of specific sales contracts (not the parties’ broader business arrangement), rejected an Article 79 exemption based on the seller’s financial and supplier-side difficulties, and in a later costs award allowed recovery of arbitration attorneys’ fees while finding no Article 63 additional-period requirement where the buyer refused payment by asserting set-off.


Unilex, D. 1996-3.21, CLOUT Case 166 (1996)