05082015 case Keywords Abstract FullText Sources Print Close Date: 17.11.1995 Country: Arbitral Award Number: VB/94124 Court: Hungarian Chamber of Commerce and Industry Court of Arbitration Citation: nttp://www.unilex.info/case.cfm?id=217 ‘A Hungarian seller and an Austrian buyer that had a longstanding business relationship concluded a contract according to which the seller had to make several deliveries of mushrooms to the buyer. The buyer would secure payment for deliveries by a bank guarantee in favor of the seller which should be valid until a certain date. The said guarantee, however, was neither given by the buyer nor requested by the seller before that date, ‘The seller started to deliver the goods, but as the buyer failed to make payment, stopped further deliveries and declared the contract avoided. On a later date, the parties agreed that the seller would resume delivery on condition that the buyer provide the required guarantee. The buyer finally sent a guarantee which however bore the expiry date originally agreed upon and therefore was no longer valid, The seller commenced arbitral proceedings claiming payment and interest. ‘The Court held that the contract was governed by CISG as at the time of its conclusion the parties had their places of business in contracting States (Hungary and Austria) (Art. 1(1)(a) CISG). The Court further stated that ISG was applicable since the parties agreed - during the proceedings - on CISG as the applicable law. Moreover, ISG was also applicable as the parties had chosen the law of two contracting States (Hungary and Austria) as the law governing the contract (Art. 1(1)(b) CISG). ‘The Court held that the buyer had to pay the purchase price for the delivered mushrooms (Arts. 53 and 62 cis) In the Court's opinion, the issuance of a bank guarantee which had already expired would be contrary to the principle of good faith (Art. 7(1) CISG) and to the understanding that a reasonable person would have had in the same circumstances (Art. 8(3) CISG). ‘The Court justified its reference to Art. 7(1) CISG, pointing out that, in its view, the observance of good faith is not only a criterion to be used in the interpretation of CISG but is also a standard to be observed by the parties, in the performance of the contract. Since, in accordance with Art. 54 CISG, the buyer's obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract to enable payment - such as the Issuance of a bank guarantee - the buyer's fallure to secure payment constituted a breach of its obligation to pay the price. ‘The Court held that the seller was entitled to suspend performance of its obligation as the buyer had not given adequate assurance of payment of the price through a valid bank guarantee (Art. 71(1)(b) CISG). ‘The Court further held that the seller was entitled to declare the contract avoided according to Art. 73(2) CISG since the buyer's refusal to give a bank guarantee gave the seller good reasons to conclude that the buyer would not pay with respect to future deliveries, ‘The Court found that the seller was entitled to interest on the unpaid price (Art. 78 CISG). After noting that CISG does not specify the interest rate, the Court held that it would be improper to determine it according to. the law otherwise applicable to the contract (Hungarian law, as agreed upon by the parties), in particular taking into account the different inflation figures in the two countries involved (Hungary and Austria). Since payment was to be made in Austrian Shillings, the Court disregarded the provisions of the Hungarian Civil Code fixing the interest rate at 20 % and granted interest at 5 % in accordance with the law of the State in whose currency payment was to be made. Fp shwwr uniexeftcase cmp w