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CISG CASE PRESENTATION

China 11 January 2000 CIETAC Arbitration proceeding (Aureomycin case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000111c1.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20000111 (11 January 2000)

JURISDICTION: Arbitration ; China

TRIBUNAL: China International Economic & Trade Arbitration Commission [CIETAC] (PRC)

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2000/07

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: People's Republic of China (claimant)

BUYER'S COUNTRY: Germany (respondent)

GOODS INVOLVED: Aureomycin


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 53 ; 80

Classification of issues using UNCITRAL classification code numbers:

53A [Buyer's obligation to pay the price];

80A [Failure of performance caused by other party: party causing non-performance (loss of rights)]

Descriptors: Price ; Failure of performance, other party

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Zhong Guo Guo Ji Jing Ji Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 2000 vol., pp. 1183-1186

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC (PRC) Arbitration Award

Aureomycin case (11 Jan 2000)

Translation [*] by WEI Shu [**]

Edited by LIN Zhongming [***]

The Shanghai Sub-Commission of the China International Economic and Trade Arbitration Commission (hereafter as "the Arbitration Commission") accepted the arbitration contract dispute based on:

   -    The arbitration clause of the contract for the sale of aureomycin (hereafter "the Contract") entered into by the Claimant Chinese P City ___ Biochemical Company (hereafter "the [Seller]") and the Respondent S City ___ Company of Germany (hereafter "the [Buyer]") on 5 March 1996; and
 
   -    The Arbitration Application submitted to the Shanghai Sub-Commission by the [Seller] on 1 July, 1999.

This case is subject to the Arbitration Rules effective as of 10 May 1998.

The amount in dispute does not exceed renminbi [RMB] 500,000 yuan; thus the Summary Procedure is applicable according to Article 64 of the Arbitration Rules. Since the [Seller] and the [Buyer] failed to jointly appoint or jointly entrust the Chairman of the Commission to appoint the sole arbitrator within the period required in the Arbitration Rules, the Chairmen of the Sub-Commission appointed Mr. A as the sole arbitrator, who formed an Arbitration Tribunal on 14 October, 1999 to hear the case.

The Arbitration Tribunal reviewed the Arbitration Application and its attachments and the Statement of Defense, and held an oral hearing on 12 November 1999 in Shanghai. The Representatives of the parties appeared before the Tribunal, made statements about the case, argued on the legal relationship of this case, and responded to the questions of the Tribunal. With the consent of the parties, the Arbitration Tribunal sought to conciliate the dispute, but was unsuccessful. The parties, nevertheless, still hoped for conciliation, so the Tribunal extended the time period to 11 January 2000 after approval by the Secretariat of Shanghai Sub-Commission. However, they failed to resolve the dispute.

All the relevant legal documents, notices, and other materials had been sent to the parties by the Secretariat of the Shanghai Sub-Commission in accordance with Articles 76 and 77 of the Arbitration Rules.

The trial of the case is completed. The facts, the Tribunal's opinions and award are as follows:

[A.] DETAILS OF THE CASE

The [Buyer] and the [Seller] had had many import and export deals on aureomycin from October 1995 to August 1996, including a sales contract they entered on 5 March 1996 involving the purchase by the [Buyer] from the [Seller] of eight containers totaling 144 tons of aureomycin:

   -    Unit price: US $2,260 per kilogram; FOB S city;
   -    Payment terms: tele-order;
   -    Shipments: Four container shipped in April, 1996, and four containers in May.

After this Contract was concluded, the [Seller] shipped four containers of the goods on 10 May, 1996. The [Buyer] paid to the [Seller] US $152,354.72 through New York ** Bank when receiving the goods.

However, the [Seller] alleged that the total price of the goods was US $162,720.00, and the [Buyer] should pay US $158,354.74 after deducting money for pharmacopoeia US $2,943.50 and sample price US $1,421.76. [Seller] alleged that there was no legal basis for the [Buyer] to deduct a commission fee of US $6,000; therefore, the [Seller] applied to the Shanghai Sub-Commission for arbitration.

[B.] POSITION OF THE PARTIES

Claims of the [Seller]

The claims of the [Seller] were:

   1.     The [Buyer] should pay the remainder of the price of the goods, US $6,000 (RMB 49,62.80 yuan) and the late fee of US $2,100 (RMB 17,365.95 yuan);
   2. The [Buyer] should be responsible for the arbitration fee of this case.

[Buyer]'s defense

The [Buyer] argued that the [Buyer] had entered into another export contract for aureomycin with the P City __ Company in 1995, and that P City __ Company did not pay a commission fee of US $6,000 due to the [Buyer] after the goods had been paid for. On 6 October 1995, Mr. L, the general manager of P City __ Biochemical Company (the [Seller]), had sent a fax to the P City __ Biochemical Company's clients, suppliers and friends, saying that P City __ Company was renamed P City ___ Biochemical Company (i.e.. the [Seller]). Therefore, it was reasonable that both the obligee's rights and the obligor's obligations between the [Buyer] and P City ___ Company should be balanced by dealings with P City __ Biochemical Company (the [Seller]). Accordingly, the [Buyer] deducted the US $6,000 in performing the contract of 5 March 1996 for the purchase of aureomycin from the P City __ Biochemical Company.

[Seller]'s response

The [Seller], P City __ Biochemical Company demurred to the [Buyer]'s defense, alleging that:

   -    P City __ Company is a different legal entity than the [Seller]. The shareholders of the P City __ Biochemical Company are P City __ Biochemical Manufactory and ZD Group Company, while the shareholders of P City __ Company were P City __ Biochemical Manufactory, __ Develop District Parent Company in F province, and Hong Kong HM Group SY Company.
 
   -    In addition, the legal representative of the P City __ Biochemical Company was Mr. Q, while P City __ Company had Mr. T.
 
   -    Furthermore, the P City __ Company had been dissolved in 1995 and its obligee's rights and the obligor's obligations were assumed by P City __ Biochemical Manufactory.

Therefore, the P City __ Biochemical Company (the [Seller]) had no legal obligation to assume the obligations of P City __ Company.

Moreover, the fax by [Seller]'s general manager Mr. L had no legal binding force on the [Seller] for one reason that the fax was not specially sent to the [Buyer] alone; for another reason, Mr. L is not the legal representative of the [Seller], so his private letter was not for the business of the [Seller].

[Buyer]'s response

The [Buyer] argued in the court hearing that the letter by Mr. L, general manager of the [Seller], on 6 October 1995 was legally binding on the [Seller], because the title of the letter was "to our valuable customers, suppliers, friends" and the [Buyer] was a client of the [Seller]; The statement in the letter that P City ___ Company's name was changed to the [Seller]'s name showed that it was the [Seller] who told the [Buyer] that the foresaid two parties were the same legal entities; Mr. L was the general manager of the [Seller], a position in charge of external business, so his behavior was on behalf of the [Seller]. To sum up, the [Buyer] believed that it was not lawful for the [Seller] to object to the [Buyer] deducting the US $6,000.

[C.] THE ARBITRATION TRIBUNAL'S OPINION

I. The applicable law

The [Seller] is a limited company registered in P city, F province, China, a Chinese legal person; The [Buyer] is a company registered in Hamburg, Germany. They did not set forth in their contract the applicable law for resolution of disputes. In view of the [Seller]'s business place in China and the arbitration place in China too, according to the "closest connection" principle of international conflict law, the Contract should be governed by the law of China. Furthermore, according to Article 6 of Foreign-related Economic Contract Law of P. R. China which provides that "where an international treaty which is relevant to a contract, and to which P. R. China is a contracting party or a signatory, has provided differently from the law of the P. R. China, the provisions of the international law shall prevail." China and German are both Contracting States of Convention on Contracts for International Sale of Goods (CISG), so the Arbitration Tribunal held that Chinese law was applicable in this case and the CISG prevails.

II. Terms of reference

The [Seller] applied to Shanghai Sub-commission of the Arbitration Commission for arbitration of the dispute under the aureomycin contract of 5 March 1996. The Shanghai Sub-commission accepted the case according to the arbitration clause in the Contract, and formed an arbitral Tribunal to hear the case. The terms of reference of this case are to examine the dispute arising from the contract concluded by the [Seller] and the [Buyer] and to render an award on the claims of the [Seller].

III. The effectiveness of the Contract

The sales contract was entered into on 5 March 1996 by the representatives appointed respectively by the [Seller] and the [Buyer]. This sales contract reflected the true intentions of both parties, and was signed by their authorized representatives; thus, the sales contract was effective, and the [Seller] and the [Buyer] should perform their rights and duties as prescribed in the contract.

IV. Payment of the price

It was determined by the Tribunal that the [Seller] had sent four containers of goods, totaling 72 tons on 10 May 1996, and the [Buyer] received the goods. The Contract price for these 72 tons of goods was US $162,720. After deducting a commission fee of US $6,000 (applicable to another transaction), money for pharmacopoeia: US $2,943.50, and sample cost of US $1,421.76, the [Buyer] paid by remittance to the [Seller] US $152,354.74 through New York ** Bank. The [Seller] confirmed the receipt of this payment. The [Seller] confirmed the deduction of the money for pharmacopoeia and the sample cost. However, the parties had not stipulated in the Contract or in their faxes that the [Buyer] had the right to deduct the commission fee of US $6,000. In other words, the [Buyer] had no contract right to deduct this commission fee. The [Buyer] believed that P City __ Company was the [Seller] because the general manager of the [Seller] had sent a letter to its clients to inform that P City __ Company had been renamed as P City __ Biochemical Company (which is the [Seller] in the contract of 5 March 1996). P City __ Company had owed the [Buyer] a commission fee of US $6,000 in another deal, so the [Buyer] deducted the foresaid amount when balancing the price of the contract of 5 March 1996.

It was determined by the Tribunal that, according to "Waijingmaozizi" (89) No. 529 Reply of F Province Foreign Economic and Trade Commission, P City ___ Company was a foreign joint venture with total investment of RMB 35,600,000 yuan, and registered capital of 21,600,000 yuan, the shareholders of which were P City __ Biochemical Manufactory, F Province __ Development Company, and Hong Kong HM Group SY Limited Company, pursuant to the terms of a joint venture of ten years duration. The main products of this company were forage aureomycin and "920" Biochemical products, etc. It was established by other evidence that P City __ Company was dissolved in August 1995, and the obligee's rights and obligor's obligations were taken over by P City __ Biochemical Manufactory. In addition, the certificate issued by P City Administration for Industry and Commerce verified that "P City __ Biochemical Limited Company is a joint venture of the P City ___ Biochemical Manufactory and ZD group. The Chinese party has 30% of the shares, and foreign party 70%. This was ratified on 25 August, 1995.

As to the fact that the general manager of the [Seller] sent a letter to its clients saying that the name of P City ___ Company was changed to P City __ Biochemical Company (the [Seller] in the contract of 5 March 1996), Article 23 of Chapter V of the Regulations of the People's Republic of China on Administration of Registration of Companies provides that:

"to change some registered items, a company shall apply for registration of modification with the original company registration authority. Where the registration of change had not been approved, a company shall not presumptuously change any of the registered items."

Article 25 provides that:

"a company which changes its name should apply for registration of change within 20 days from the date of making the resolution or decision on change."

If P City __ Biochemical Company wanted to change its name, it should have applied to the local registration authority. Only with approval by the authority, could the name of this company be changed. The [Seller] and the [Buyer] had not presented relevant evidence on this point, and in light of the evidence examined in the court hearing, it is apparent that P City __ Company had many differences from the P City __ Biochemical Company [Seller] in shareholders and capital structure; therefore, it was obvious that P City __ Company and P City __ Biochemical Company (the [Seller] in the contract of 5 March 1996) are two different legal entities. In view of these facts, the Arbitration Tribunal holds that the P City __ Company did not "change" into the P City __ Biochemical Company, the [Seller]. In other words, in terms of regulations of the law and facts, the obligee's rights and obligor's obligations of P City __ Company were not taken over by the P City __ Biochemical Company, the [Seller], and the commission of US $6,000 should not be paid by P City __ Biochemical Company, the [Seller].

According to Article 52 of CISG, "the Buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention." [Translator's note: Although the award refers to Article 52, it is obvious that Article 53 was intended.] The Arbitration Tribunal holds that, because the [Buyer] had accepted the 72 tons of goods under the Contract, the [Buyer] should pay the price to the [Seller], that is, the [Buyer] should pay the residual price of the goods of US $6,000 which had been deducted by [Buyer].

The Arbitration Tribunal noted, however, that the letter on "changing the name of the company" by the general manager of the [Seller], Mr. L, in fact gave the [Buyer] an inaccurate impression that the P City ___ Company was the P City __ Biochemical Company (the [Seller]), which led the [Buyer] to deducted the US $6,000 when balancing the price with the [Seller]. In addition, P City ___ Biochemical Manufactory, one shareholder of the [Seller], was once the shareholder of P City ___ Biochemical Company; therefore, the P City __ Biochemical Company should have known that P City ___ Company, with which the [Buyer] had obligee' rights, had been dissolved in August 1995, with its rights and obligations undertaken by P City ___ Biochemical Manufactory.

However, the [Seller] omitted such facts in its dunning letters to the [Buyer] on 1 August, 1996 and 4 September, 1996, etc. It was not until on 12 November 1996 at the court hearing that the [Seller] presented a certificate on the dissolution of P City ___ Company in August, 1996, and a written statement of the legal representative, Mr. L, that the rights and obligations of P City ___ Company were taken over by P City ___ Biochemical Manufactory after its dissolution, and explained that P City ___ Company owed US $6,000 to the [Buyer]. The foresaid behavior of the [Seller] in fact caused the [Buyer], as a bona fide creditor, to lose the best time to claim for US $6,000 commission against the P City ___ Company. However, the [Buyer] still had the right to reimbursement of the commission from P City __ Biochemical Manufactory, the entity that took over the rights and obligations of P City __ Company.

To sum up, the Arbitration Tribunal held that the [Seller] had a share of the fault in the dispute over the deduction of US $6,ooo from the [Buyer]'s payment; therefore, the claim of the [Seller] on the late fee was rejected.

In view of the extent to which the Tribunal supported the [Seller]'s claims, the Arbitration Tribunal held that the [Seller] should assume 40% of the arbitration fee, and the [Buyer] 60%.

[D.] THE AWARD

   1. The [Buyer] should pay to the [Seller] US $6,000 by remittance within 45 days from the date of handing down this award.
   2. The claim of the [Seller] for the [Buyer] to pay the late fee of US $2,100 was rejected.
   3.     The [Seller] should pay 40% of arbitration fee and the [Buyer] 60%.

The award is final, effective from the date it was handed down.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of the People's Republic of China is referred to as [Seller] and the Respondent of Germany is referred to as [Buyer]. Amounts in the currency of the United States [dollars] are indicated as [US $]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

** Wei Shu, LL.M. Peking University School of Law, Beijing, P.R. China, 2004; LL.B. Peking University School of Law, 2000.

*** LIN Zhongming, LL.M. China University of Political Science and law. Major: International Economic Law.

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