Top Pearl (Plaintiff) v/s Pacific Rose Farms Ltda (Defendant)

Authored By: Karishma Shah

Basic Information:

Case Name- Top Pearl (Plaintiff) v/s Pacific Rose Farms Ltda (Defendant)

Citation– C-7527-2010

Court (Jurisdiction)– 26º Juzgado Civil de Santiago (Court of First Instance No. 26 of Santiago)

Date of decision– January 27^th 2012

Judges/Bench of Composition –

Humberto Provoste Bachmann (Sole judge) and
Isabel Espinoza Morales (Court Secretary)

2. Introduction:

Context and Significance of the Case – The case is highly relevant because it states that despite the buyer and the seller choosing the United Nations Convention on Contracts for the International Sale of Goods (UN CISG), the Court ended up considering the Chilean rules for important legal issues that were addressed by the Parties & hence, no explanation was given on the same for the chosen law.

Why it is important/landmark – It states various provisions of the Convention that were cited by the Court i.e. Part I: Sphere of Application & General Provisions (Articles 01, 04, 07, 09, 28, 30, 31-35, 38, 39, 45). As both nations, China and Chile (Part of South America) are contracting states, the laws of the Convention by default apply to the Parties & was explicitly chosen as well. In addition, it also states about Part III, Chapter II of the Convention – Obligations of the Buyer (Article 53) & lastly, Part III, Chapter V – Provisions Common to the obligations of the Seller and of the Buyer (Article 71)[1]. It also mandates the category of goods delivered by the Seller to the Buyer, i.e., Vegetables and Fruits.[2]

Facts of the Case:

In June, 2009, on the 25^th, Top Pearl i.e. the Chinese exporter or the plaintiff & Pacific Rose Farms Limitada (ed) i.e. the defendant, entered into an International Sales Contract that had the understanding of delivering two containers of Chinese Garlic categorised as a vegetable under the categories of goods.

Subsequently, on June 30^thin the same year, both parties entered into another International Sales Agreement (Second Agreement) for an additional two containers of the same product – Garlic.

Totally, four (4) containers were supposed to be delivered to the buyer. The total gross weight was 99,200 kilograms (kgs). Each container consisted of 24,800 kgs of garlic that was shipped in the nation. The dimensions of the two containers were between 5.5 to 6 centimetres (cms) and 6 to 6.5 cms for the other container.

Post two months, around July or August 2009 – The Exporter/plaintiff complying with his duty delivered all four (4) containers to the buyer & then received the containers at the Port of San Antonio in Chile where the buyer’s place of business is established.[3]

In 2010, due to the payment milestones fixed between the parties and the non-conformity of the goods along with the quality standards not being met, the seller was forced to file a lawsuit against the buyer, who did not comply with the transactions, and a docket number was accordingly registered bearing No. C-7527/2010 before the Chilean Courts.

Finally, after two years, in 2012 the Court of First Instance No. 26 of Santiago delivered its judgment.

Background circumstances – The dispute arose between the exporter and the importer mainly on the non-payment of the dues. It was a standard commodity that was related to Agriculture. As the parties are from the CISG Contracting States, it eventually fell under the scope of international sales law. At the same time, the case also focuses on how the Agreements should include the quality standards, inspection procedures, price-adjustment mechanisms, Incoterms, documentary requirements & remedies for non-conformity of goods. For the first two containers, regarding the payment arrangements, the buyer was supposed to pay within one week of the delivery of the goods/after the sale. The second contract had the condition that 50% of the amount was supposed to be paid against the Bill of lading document and 50% after the sale of the commodity.

Parties involved – The main parties involved in the lawsuit were: The buyer, which was based in China & the seller who represented by the nation of Chile. The Chinese Company – Top Pearl being the Seller/Exporter/Plaintiff was duly registered and incorporated under Chinese Law and the one who had suffered major losses by not being paid by the Buyer/Importer/Defendant – Pacific Rose Farms a commercial entity/enterprise represented by its’ Trade Agent under the laws of Santiago, Chile.

Facts material to the legal issues – The core facts that should be taken into consideration are – a) It focuses strictly on Contract Formation, b) It also focuses on the untimely and non-payment from the buyer to the seller along with physical delivery of goods. The total price was 80+ lakh in Indian Rupees & it was supposed to be paid in instalments.

Legal Issues –

Whether Top Pearl failed to fulfil the obligations by delivering the agricultural commodity – garlic, that allegedly contained worms, sprouts and rot and therefore was of inferior quality?

A) Arguments presented by the Plaintiff – The Chinese Exporter maintained and remained firm on the Agreements dated 25^th June and 30^th June 2009 respectively that were made and executed between the Parties. The container of the goods that had Chinese garlic was fully delivered and duly received at the destination port of San Antonio. Total USD Dollars that was defaulted was not minimal amounting to 84,816, which is 80,86,209/- Indian Rupees. The goods were shipped and delivered accordingly which in turn was received by the Buyer/Importer at the Port. The Plaintiff also claimed that the Defendant, in spite of the Agreement made between the parties, breached the payment terms that were mutually agreed and stated in the Contract. Another contention made by the Buyer was that though the document was in a foreign language i.e. Spanish, the translation was equally authentic and considered valid and as the original one[4]. As the goods were delivered on time, only part of the payment was paid & the remaining amount was to be completed as mentioned in both Agreements. The seller also argued upon the phytosanitary documentation that was reviewed and authored by the Chilean health authorities upon entry into the country. If the counterclaim would have been true, the entry would have been restricted at the port by the authorities. The buyer also argued on the term of “Free on Board,” which is an acronym for FOB. This FOB is a commercial term that is included in the group/set of eleven (11) Incoterm rules i.e. international commercial terms that establish the rules between the parties for delivery of goods. The party states that it is the responsibility of the defendant i.e. the seller to fulfil the obligation by loading the merchandise on the ship along with the transport risk and customs expenses.

B) Arguments presented by the Defendant– The aggrieved party also stated that the garlic contained sprouts, worms & rotting, therefore had to be discarded. As the garlic was supposed to be used for human consumption, the quality standards did not meet the expectations of the buyer i.e. Pacific Rose. The contention made by the Party was under Article 35 of the UN CISG. It states about the Conformity of the goods & Third-party claims. Approximately 1,478 of garlic had to be discarded because of the quality standards provided by the Exporter. It also made the claim that the Exporter should be charged for expenses that were incurred, the lost profits should be calculated accordingly & losses that resulted from the defective garlic. Concerning the payment consideration, Pacific Rose argued that the prices mentioned in the contracts were mutually agreed, but it was with reference to the Chilean Markets. The defendant also argued on the FOB incoterm, the seller always took responsibility on the basis of the previous sales agreements that were completed.

C) Statutory provisions, precedents, and principles cited: Article 1 states about the practical application of the parties i.e. the Convention will apply to the sale of goods & as both parties are CISG contracting states, the rules of private international law apply too. About Article 4, the Convention governs only the formation of the Contract of sale, obligations of the Buyer and the Seller and neither the effect which the Contract may have on the property in the goods sold. In addition, the Convention isn’t concerned with the validity of the Contract. Good faith is one of the important provisions of the Convention, with specific performance taken into consideration. The court also cited the obligations of the seller with regard to conformity of the goods with the buyer’s examination of the goods. The court also cited the provisions of the convention specifying the Notice from the buyer and the seller as stated in Article 39. It also discusses the remedies for breach of contract from the seller. Obligations of the buyer have also been specified in Article 53 and interest that is mentioned in Article 78. The principle “Pacta Sunt Servanda” also applied in this case as it is an established principle that says “All Agreements must be kept.” The court applied this principle to acknowledge Article 26 of the Vienna Convention[5].

Court’s Reasoning and Analysis – First and the foremost thing that the court took into consideration was the documentary evidence that was presented by both the parties. The commercial intent was put forward and accepted by both the parties and hence was approved by the Court. The Court applied Chilean law but the provisions of CISG (Convention on Contracts for the International Sale of Goods) were cited. The court’s analysis was that the seller had fulfilled his obligation to deliver the four garlic containers in accordance with the Agreement mutually agreed by the parties. The courts reasoning was based on Articles 1489, 1552 and 1698[6] of the Chilean domestic law which stated compensation for damages in contractual liability for the non-breaching party either with specific performance or termination of the contract and general rule for the burden of proof (onus probandi).
Judgment and Ratio decidendi – The Court of First Instance No. 26 of Santiago held the judgment in favour of the Plaintiff (Top Pearl). The seller should pay the outstanding amount to the buyer along with the applicable interest as specified in Article 78 of the CISG. The buyer had taken delivery after the seller fulfilled his obligations, and hence, under the CISG it remains valid for the defendant to claim the damages caused to him.
Weakness of the judgment/gaps – By an academic study, the major weakness of this case was the scope of the application of the CISG through the application of the Chilean Courts. The parties themselves opted in to the CISG, but the court ultimately decided the case against its principles and applied Chilean domestic law. It somewhat questions the provisions of the CISG jurisprudence and also criticizes the judgment passed by the Court only because the provisions of the Chilean commercial code were applied.[7]

Conclusion – Future inferences are regarding the contracts that were performed by the parties’ by themselves. When the parties enter into a Commercial contract, an intent is established & it becomes an obligation for both parties to comply on the terms and conditions outlined in the Agreement. The most crucial part concerns the other aspects too. Illustration – Thorough inspection of the goods by the buyer and the seller, regardless of the category decided by the parties, remedies for future disputes (if any). Cross-border bilateral trade has remedies that are predictable. This case also makes us comprehend that international sales contracts can be and are enforceable when delivery is completed but the payment structure drops down & fails, leading to a dispute between the parties. The lasting impact is that it remains a useful reference in the CISG database[8].

Strong statement: Stiffness between Uniform International Sales Law and Domestic Law, which one is better?

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