ICC Arbitration Case 8213 of March 1995
                 [Digest of presentation at ICAB, Vol. 11/No. 2 (Fall 2000) 49-52]

                                    Digest by Albert H. Kritzer

Facts. The parties entered into two agreements for the supply of steel billets. Upon delivery, the
goods were shipped to buyer's customer who encountered problems when processing them. Claimant
buyer alleged that the goods were defective and not suitable for hot rolling, as required by the
agreements. Respondent seller filed a counterclaim ascribing the fault to the customer's
installation.

Applicable law. The Terms of Reference of the arbitration stipulates:

"(a) the Purchase Agreement dated . . . was governed by the law of the State of New Jersey,
including the New Jersey version of the Uniform Commercial Code ('NJUCC'); and

"(b) the Purchase Agreement dated . . . was governed by the United Nations Convention on Contracts
for the International Sale of Goods (Vienna, 1980) ('UNISG')." [page 50]

Burden of proof. The Arbitrator ruled: "The buyer, under each legal system, who claims goods
delivered are defective bears the burden of proving both the existence of an express specification
or an implied warranty and the breach by the seller of that specification or warranty. Neither of
these codified commercial laws contains any provision which affects the general provisions of law
placing the burden of proof on the claiming party. For the claims based on breach of the Purchase
Agreements, the Arbitrator has considered the burden of proof to be on Claimant [buyer] and for the
counterclaim, the burden is on Respondent [seller]. [page 50-51]

Conformity of goods [express and implied warranties]. Citing counterpart provisions of the CISG and
the UCC (CISG Article 35(1), 35(2)(a), 35(2)(b); UCC Sections 2-313, 2-314, 2-315), the Arbitrator
stated:
  * Express warranties. "Under each of the applicable laws, Respondent [seller] had the obligation
to deliver billets which conformed to the description in the Purchase Agreements, i.e., the
expressly warranted quality. . . . Claimant [buyer] failed to prove Respondent [seller's] billets
did not meet the express specifications in the Purchase Agreements, either as to the content of the
steel or as to the capacity of the billets to be hot-rolled to plain bar."
  * Implied warranties. "The governing laws place additional implied warranty burdens on
Respondent, as the seller of goods, insofar as the Purchase Agreements have not expressly excluded
such implied warranties. These are statutory as opposed to contractual warranties, which the buyer
has the right to rely upon, if not excluded in the contract.

  * Fitness for the purpose for which the goods would normally be used. "The Arbitrator has
considered that the phrase in the Purchase Agreements 'For production of HR plain bar in coil' is
the expression of an express warranty of fitness for use. The evidence establishes that one of the
ordinary uses for the quality of billets purchased by Claimant [buyer] under the Purchase
Agreements was for hot-rolling into plain bar. Respondent [seller] is fully bound by the express
warranty, which effectively matches the statutory implied warranty under each legal system."
  * Fitness of purpose for a particular use. "A more difficult question arises, however, with
respect to th[is] second implied warranty . . . As expressed in each of the relevant laws, this
implied warranty comes into effect (assuming it is not excluded, which it is not in the Purchase
Agreements) only if two conditions are met: (i) that the seller knows or has reason to know of the
particular purpose intended by the buyer (i.e. a particular purpose expressly or impliedly made
known to the seller, and (ii) that the buyer has relied upon the sellers' skill or judgment in
providing the goods in question to meet that particular purpose.

- "The particular purpose which was not met and on which the Claimant [buyer's] claim . . . is
based, is the hot-rolling into plain bar at [Claimant's customer's] mill . . . Since the Arbitrator
has found, above, that Respondent [seller] was not aware at the time of entering into the Purchase
Agreements of the identity of the end-user, he must conclude that Respondent, as seller, did not
know or have reason to know of such a particular purpose intended by Claimant, as buyer. Hence this
implied warranty cannot come into play.

- "If Claimant [buyer] had proposed a further express specification that the steel billets would be
capable of being hot-rolled in [Claimant's customer's] mill, and such a term had been accepted by
Respondent [seller] (the evidence suggests it might not have been), the failure of the billets to
pass successfully through that mill could well have constituted a breach of the Purchase
Agreements. But no such specification was proposed or accepted. [page 51] Or if Claimant [buyer]
had purchased the billets for rolling in their own mill, which mill was known to Respondent
[seller], the case on an implied warranty of fitness for a particular purpose would have been much
closer. Here, the billets were purchased for rolling in the mill of an unnamed customer of Claimant
[buyer], whose identity at the time of contracting was intentionally kept from Respondent [seller]
for commercial reasons . . ." [page 52]

Usages and practices [Art. 9] / Intent [Art. 8]. The Arbitrator points out: "A further legal
question is presented as to whether Respondent [seller] is obligated, under either or both
governing laws, to comply with alleged steel industry standards and/or practices, that no billets
should be delivered with such a high level of 'inclusions', even though no such express requirement
on this [was] included in the Purchase Agreements.
  * "Claimant [buyer] argues, in effect, they contracted to purchase billets meeting industry
standards or inclusions, which according to them, if met would have made the billets suited for hot
rolling at [Claimant buyer's customer]. Respondent [seller] denies it had any separate contract
obligation under either governing law relating to the level of 'inclusions'. The evidence supports
Respondent [seller's] view that the billets, whatever their inclusion content were suited for the
contractually-specified intended purpose of 'producing hot-rolled plain bar in coil', as that term
is used generically.
  * "Since such a requirement is not expressly stated in the Purchase Agreements to be binding on
Respondent [seller], the Arbitrator finds it would have to constitute an implied term of the
Purchase Agreements, or to be the subject of an implied warranty under the governing laws . . .

  * "To find there is an implied term of a contract for sale of goods under either applicable law,
Claimant [buyer] would have had to demonstrate by the preponderance of the evidence that the
parties had agreed to such term. That evidence can be derived from the conduct of the parties or
any other factual element which proves the parties' mutual agreement on the unwritten term (NJUCC
2-204 and 2-207(3), UNISG Art. 18(1)).
  * "The evidence in the record does not support a finding that there was any mutual agreement or
hence any implied term as to the level of inclusions. Respondent [seller] made no promises or
representations to Claimant [buyer] at the time of entering into the Purchase Agreements, or at a
later time, related to the inclusion content. Neither is there evidence to support a finding of an
implied warranty under the criteria noted above relating to the inclusions in steel billets used
for hot-rolling of plain bar.
  * "Moreover, Respondent [seller's] evidence is accepted, in this sale to Claimant [buyer] as a
'middle- man', Respondent [seller] -- as a matter of company policy -- sold the steel billets only
on the basis of the size, chemistry and the other specifications expressly set forth in the
Agreements. The Arbitrator found that this was accepted by Claimant [buyer] in their pre-delivery
correspondence to Respondent [seller] where Claimant [buyer] confirmed they had not guaranteed to
[their customer] the tensile and other mechanical properties of the billets.

  "In these circumstances, the Arbitrator rules Claimant [buyer] ha[s] not met the burden to prove
Respondent [seller] failed under the governing substantive laws to comply with applicable steel
industry standards or practices as to the level of inclusions in the delivered billets and no
responsibility can be placed on Respondent [seller] on such a ground."[page 52]