C.A. 306/85 Datalab Management v. Pollak, P.D. 43(2) 309

Facts: The Israeli respondent sold to the Australian appellant sterile gauze pads that were paid for and later found to have defects. The buyer returned the goods, and it was agreed between the parties that the defect in the replaced merchandise would be no more than 1%. The seller then redelivered a part of the supposedly corrected merchandise. Several months later, the buyer claimed that a large portion of the new merchandise (around 17%) was still defective. Negotiations between the parties to settle the matter were not successful, and the buyer refused to accept the rest of the merchandise. The seller then sold this merchandise to a third party for a higher price. The buyer sued the seller for the return of the full payment. One of the issues discussed in the case is how the buyer can fulfil its obligation to examine the goods immediately under ULIS Art. 38(a), when because of the nature of the goods (sterile pads), to open them up for examination would mean to spoil them for future use.

The Supreme Court ruled:

1. According to ULIS Articles 38(a) and 39(b), the buyer had forfeited the right to rely on the goods’ lack of conformity as grounds for damages since it had failed to examine the goods immediately.

2. Under Art. 38(a) “the buyer must examine the goods or cause them to be examined immediately”. According to ULIS Art. 11, “immediately” is to be interpreted as within as short a period as is practicable in the circumstances. The objective of the Article is to promote the economic stability of the international market by preventing the damage caused by a lengthy delay in the giving of the notice on a good’s lack of conformity. Under certain circumstances the buyer would not be expected to examine the merchandise on site if this would ruin the merchandise, causing a wrong to the buyer or lead to a superfluous waste of resources. The buyer claimed that since it passed the goods on to its client and did not actually use them, it would have been very difficult and expensive to examine them and reveal defects on site. This would also have caused a delay in the performance of its contract and have resulted in further financial loss. The Court, however, ruled that considering the history of the merchandise, the buyer should have tested a sample or it should have asked its client to use the merchandise at the earliest possible opportunity in order to ascertain its quality. Both of these methods would have been relatively inexpensive and would have resulted in an adequate allocation of resources without causing a lengthy delay. In failing to do so, the buyer did not meet the requirements of ULIS Art. 38. Therefore under ULIS Art. 39, the buyer should have discovered the defect and given notice to the seller at an earlier period. In failing to do so, he has lost the right to rely on lack of conformity.

3. As for the goods that had been returned to the seller and subsequently sold by him to third parties, the Court ruled, based on the Israeli law of contract remedies, that the contract had implicitly been annulled by both parties, and that consequently the seller was required to return the payment received from buyer for that portion of the merchandise.