Pursuant to a 1994 contract governed by Swiss law and subject to the application of the 1980 United Nations Convention on Contracts for the International Sale of Goods, a Swiss company (Claimant) undertook to sell a chemical product to a company from Chinese Taipei (Respondent). Part of the purchase price remained unpaid, and Claimant commenced arbitration proceedings to recover the outstanding sum. Respondent objected that the goods were defective and requested that the amount it owed Claimant be offset against the damages due to it for the defective goods.

'2. The contract stipulated the following relevant conditions:

. . . . . . . . .

3. Terms of Delivery

The goods to be delivered on terms C & F F.O. one of ports of Taiwan. According to incoterms 80 discharge at Taiwan port is for the Buyer's account.

4. Price

The price for the goods sold under the present Contract is fixed as follows: USD . . . per metric ton net including packing on terms C & F FO one port of Taiwan, discharge at Taiwan port is for Buyer's account.

. . . . . . . . .

14. Incoterms 1990

Incoterms 1990 and its subsequent amendments to apply, where not in conflict with the other conditions of the contract.

. . . . . . . . .

36. According to sect. 3 of the contract (Exhibit C 2) the goods were to be delivered "C & F. F.O. one of ports of Taiwan". This Incoterms-clause implies according to well established trade usages that the risk passes from the seller to the buyer at the moment the goods have passed the rail of the vessel at the port of loading.

Claimant may not rely on that clause even though the "Inspection Report" by [inspector] . . . stated: "the cargo .... was of white colour, clean, dry and in good condition (as far as checkable)". [Inspector] was not the contractually agreed upon quality surveyor. According to sect. 7 of the contract this was the firm [X]. Since Respondent . . . had insisted prior to loading that the inspection be performed by [X], Claimant was not allowed to employ [inspector] for this purpose. Claimant's letter of . . . could not unilaterally alter its contractual obligation.

37. In addition, the Arbitrator is convinced that [inspector's] certificate . . . is worthless.

That follows from the serious doubts which the Master of the vessel . . . evidently had concerning the condition of the [product], when he requested from the Russian supplier of the goods . . . two guarantee letters . . ., while issuing at the same time a clean bill of loading . . . The procedure chosen by [supplier] and by the Master of the [vessel] is highly unusual, not in accordance with trade usages and clearly bordering on fraud.

Claimant has used its supplier . . . as an auxiliary person in the sense of art. 101 Swiss Code of Obligations while performing its contractual duties towards Respondent. Claimant is therefore liable for any acts of [supplier] (see Obligationsrecht I - Wiegand, 2nd. ed., art. 101, ann.2, 9).

The Arbitrator's conviction is also sustained by the Expert's Report, p. 6, sect. 6, where the Expert suspects that there may have been "some serious quality problems at the time of ex-factory delivery".

38. The risk concerning the quality of the goods stayed therefore with Claimant until the [product] was discharged at Taichung port and taken into custody of Respondent.

Even if the [defect] was caused by high humidity during the vessel's voyage from Novorossisk to Taichung port, as Claimant alleges, this would fall into its sole responsibility.'