Mr. Jacques Poulet (Mr. P) is the French Canadian President and sole shareholder of CanCo, a successful, yet still "small-scale" manufacturer of chemical containers.

In January 2001, Mr. P visited the web-site of DanCo, a medium-sized Danish manufacturer of heavy machinery. Mr. P, who speaks French (but who also understands and can speak some English) was particularly impressed by the illustration of DanCo's "Model 2000" which was described as "a new and revolutionary, high-speed & high capacity machine, capable of producing strong and extremely durable containers."

In February 2001, Mr. P. visited the DanCo facilities in Denmark where he was taken to one of DanCo's customers in order to inspect the first (and, as yet, the only) Model 2000 manufactured by DanCo. Mr. P admired the machine, which was operating smoothly, but he noted his need for a much larger model, as the containers produced by CanCo (for the Canadian market) were of a substantially larger size than the typical European containers which the Model 2000 machine was originally designed to produce. DanCo confirmed its willingness to produce and deliver such a larger machine: including both the central hydraulic part of the "machine" itself as well as the specially designed "mould" which formed the particular product/container to be mass- produced. The parties then agreed upon the price (equivalent to $10 million Canadian), and CanCo agreed to "draw up the papers" and send them to CanCo for signature.

The main terms of the 10-page contract subsequently sent to CanCo and signed by the parties during the month of June 2001 included the following:

"26. The Seller draws the buyer's attention to the fact that we (DanCo) answer for the function of the machine, but we cannot give you (CanCo) any guarantee for the quality of the products you want to produce.

...

"29. Terms of delivery: Ex works (DK factory) according to General Conditions NL 92 E"

...

The last page of the contract ends with the following words: "Enclosed: NL 01 E"

Once the machine (and mould) were delivered to CanCo and put into operation, it quickly became clear that the plastic containers which the new machine produced were not fit for CanCo's intended purposes. Many of the containers were of such poor quality that they could not even be sold, and many of the containers which were sold to CanCo's regular customers were subsequently returned as defective; the main problem, it seems, was that the sides of the containers were of uneven thickness, and that they therefore tended to leak, especially when filled with certain common kinds of mildly corrosive fluids and chemicals. Although the walls of the containers produced by the smaller (European) version of the machine were all even in thickness, CanCo maintained that DanCo should have anticipated that the new and much larger machine might suffer from such a problem (although DanCo constructed a machine large enough to contain the larger mould which DanCo designed on the basis of the product drawings and product dimensions which CanCo had supplied, DanCo did not conduct actual "production tests" on the new machine and mould prior to shipment to CanCo).

For several months, DanCo representatives attempted to correct the problem by making adjustments to the CanCo machine, the plastic "mix" etc. When these efforts failed to succeed, CanCo elected to terminate the contract. DanCo, however, denied CanCo's right to terminate, claiming that CanCo was at fault (either because of CanCo's drawings and/or the kind of plastic ingredients available in Canada). Ultimately, CanCo saw no alternative but to employ a Canadian engineering company to supply a new mould at a cost of nearly $1 million.

CanCo now demands that DanCo reimburse them for that $1 mill. mould, as well as an additional $20 million as compensation for profits lost (in the booming Canadian container market) and the damage done to CanCo's general reputation in Canada.

In accordance with Clause 39 of the NL 01 E General Conditions, DanCo insisted that the dispute should "be finally settled by arbitration in accordance with the law on arbitration applicable in the Seller's country." Although CanCo claims that it never received - or even saw - these NL 01 General Conditions (or the previous, 1992 version of them: NL 92 E), they have nonetheless agreed to arbitrate "in accordance with the law on arbitration applicable in Denmark." The parties have now agreed upon the selection of a panel of three arbitrators, but they strongly disagree on the following points:

1. the law(s) which should govern the arbitration (note in this connection that according to NL Clause 40: "All disputes arising out of the contract shal be judged according to the law of the Seller's country");

2. whether DanCo breached contract, and (if so) the amount of damages (if any) which DanCo should pay to CanCo.

ADDITIONAL MATERIALS ENCLOSED:

1. General Conditions (NL 01 E). This represents the latest (2001) English (E) language version of Nordiske Leveringsbetingelser, a 2-page ("fine print") standard form contract widely used by Scandinavian sellers of heavy machinery. The text of NL 01 E is also available on the Internet at http://www.vi.se/files/uploadfiles/nl01eb.pdf.

2a. The 1980 CISG Convention (on Contracts for the International Sale of Goods), also available at http://cisgw3.law.pace.edu/cisg/text/treaty.html

Please note in this connection that Denmark, upon its ratification of the CISG, made a declaration pursuant to Article 92, stating that it would "not be bound" by CISG Part II (Articles 14-24). Note also that Canada originally ratified the CISG pursuant to an Article 95 declaration, but that reservation was subsequently withdrawn, so the (entire) CISG is applicable in Canada (including Quebec).

2b. CISG "case law": http://cisgw3.law.pace.edu/cisg/wais/db/cases2/990517u1.html

3a. The Danish Contracts Act (Aftaleloven): http://sprog.asb.dk/sn/aftalelov-en.htm

3b. Excerpts from The Danish Damages Liability Act (Erstatningsansvarsloven): http://www.cbs.dk/departments/law/sources_of_law/statutes/damages.doc