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CISG CASE PRESENTATION

China 11 February 2000 CIETAC Arbitration proceeding (Silicon metal case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000211c1.html]

Primary source(s) of information for case presentation: Wu Dong

Case Table of Contents


Case identification

DATE OF DECISION: 20000211 (11 February 2000)

JURISDICTION: Arbitration ; P.R. China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2000/02

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Inland China (Respondent)

BUYER'S COUNTRY: Hong Kong, China (Claimant)

GOODS INVOLVED: Silicon Metal


Classification of issues present

APPLICATION OF CISG: The Tribunal elected to apply the CISG as the gap-filling law

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 7(1) ; 25 ; 74 ; 75 ; 76

Classification of issues using UNCITRAL classification code numbers:

7A3 [Observance of good faith];

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

74A [General rules for measuring damages: loss suffered as consequence of breach];

75A2 [Damages established by substitute transaction: repurchase by aggrieved buyer];

76B ; 76C [Damages recoverable based on current price; Reference-point as to place]

Descriptors: Good faith ; Damages ; Burden of proof ; Cover transactions

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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): [2001.5] Guoji Shangfa Luncong [International Commercial Law Review], Vol. 3, Beijing: Falv chubanshe [Law Press]

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Chinese: WAN Jun, Shiyong lianhegue guoji huowu xiaoshou hetong gongyue de zhongcai anli liangze shuping [Comments on Two Arbitral Cases Applying the CISG], in Guoji Shangfa Luncong (cited above) at pp. 161-200

English: Dong WU, CIETAC's Practice on the CISG, at nn.23, 41, 116, 149, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation)

Queen Mary Case Translation Programme

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

Silicon metal case (11 February 2000)

Translation [*] by YUAN Xiaotong [**]

Translation edited by Meihua Xu [***]

I. Details of the case
II. Positions of the parties
     -   Claims of the [Buyer]
     -   [Seller] position
III. Opinion of the Arbitration Tribunal

1. Choice of law
2. Quantity of goods to be delivered by [Seller]
3. [Buyer] duty to amend the Letter of Credit
4. [Buyer] claims
5. Attorneys fees and travel expenses
6. Arbitration fees
IV. The award

In accordance with the arbitration clause contained in the contract between [Buyer] and [Seller], China International Economic & Trade Arbitration Commission (formerly China Council for the Promotion of International Trade Foreign Economic and Trade Arbitration Commission) (hereinafter CIETAC) accepts this arbitration case concerning the sale of Silicon Metal under the aforesaid contract. The arbitration procedure shall observe the Arbitration Rules of CIETAC in effect since 10 May 1998.

The amount of the claim in this case totals not more than Renminbi [RMB] 500,000; therefore, Summary Procedure will be applicable to this case and one sole arbitrator will hear the case according to Article 64 of Arbitration Rules of CIETAC. Because the parties neither jointly appointed the one sole arbitrator nor entrusted the Chairman of the Arbitration Commission to appoint the one sole arbitrator, the Chairman of the Arbitration Commission finally appointed one sole arbitrator to form an Arbitration Tribunal to hear the case.

I.  DETAILS OF THE CASE

Claimant [Buyer] is a company whose place of business is in Hong Kong, while Respondent [Seller] is a company whose place of business is in inland China. On 16 November 1998, [Buyer] and [Seller] entered into a sales contract via facsimile for Silicon Metal. The contract stipulated:

"[Seller] shall sell 300 tons of Silicon Metal at the price of US $870 / mt, CIF (Gdynia, Poland). The goods shall be delivered in three instalments with each of 100 tons in December 1998, January 1999 and February 1999, respectively. [Buyer] shall pay for the goods by irrevocable and sight Letter of Credit [L/C]."

After the contract was concluded, [Seller] did not deliver the goods. In order to settle the dispute, the parties carried on several negotiations, but no result was achieved. The goods were never delivered. [Buyer] filed an application for arbitration before the CIETAC according to the arbitration clauses incorporated in the contract.

The Arbitration Tribunal reviewed the written Statement of Claim and Statement of Defense (including Counterclaim) and the evidence raised by [Buyer] and [Seller] and heard this case on 2 November 1999 in Beijing, People's Republic of China (PRC). In accordance with the circumstances of the hearing, the Arbitration Tribunal issued this award.

II.  POSITIONS OF THE PARTIES

     -  Claims of the [Buyer]

  1. Damages of US $40,199.09;
  2. Attorneys fees and travel expenses totaling US $3,000, caused by the arbitration;
  3. Arbitration fees and handling fees for the arbitration procedure.

     -  [Seller]'s position

  1. The parties had reached an agreement to reduce the amount of goods subject to this contract from 300 tons to 180 tons, which decreases the damages claimed by [Buyer].

  2. [Buyer] had the duty to amend the letter of credit. [Buyer]'s non-performance endangered [Seller]'s interest in the contract and constituted a fundamental breach of contract. [Buyer] thus lost its rights to claim delivery of the goods and compensation against [Seller].

III.  OPINION OF THE ARBITRATION TRIBUNAL

     1. Choice of law

According to Article 2(6)(1) of the Supreme Court of the People's Republic of China, the place of arbitration, Answer to Some Problems of Application of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interests which was published on 19 October 1987, "contracts for the international sale of goods shall be governed by the law of the seller's principal place of business when the contract is concluded." The contract in dispute is a contract for the international sale of goods. The Respondent is the seller in this contract with its principal place of business in inland China. Therefore, Chinese law shall be the law applicable to this contract.

Further, if any specific issue is raised in this case in which Chinese law does not provide clear stipulations, the Arbitration Tribunal shall apply the United Nations Convention on Contracts for the International Sale of Goods (hereinafter CISG) of which China has been one of its Contracting States. The Arbitration Tribunal makes this choice of law for two reasons:

     2. Quantity of goods to be delivered by [Seller]

It has been adequately proved, by the letters and facsimiles communicated between the parties during their transaction that [Seller] did not deliver the goods as stipulated in the contract and consequently committed a fundamental breach of contract. The facts supporting this argument will be articulated in the next part. However, [Seller] stated that the parties had reached an agreement to reduce the quantity of goods subject to this contract from 300 tons to 180 tons. If this statement is true, the basis for calculation of [Buyer] damages will change. Whether this claim is tenable relies on the facts presented in three faxes: fax sent by [Seller] on 10 February 1999, fax sent by [Buyer] on 11 February 1999 and fax sent by [Seller] on 12 February 1999.

The fax sent by [Seller] on 10 February 1999 stated:

"Concerning 300 tons of Silicon Metal, we have made efforts and gained an agreement with our supplier for 180 tons of Silicon Metal. But as for the remaining 120 tons of goods, we ask your company to cancel it. Once we receive the confirmation which cancels 120 tons of goods from your company, we will transport the goods to the loading port and decide the time of shipment."

In its fax of 11 February 1999, [Buyer] replied:

"We shall cancel 120mt Silicon Metal provided you ship balance for C/N: TNT 98-SO21 of 180mt Silicon Metal with the approval of SGS inspection."

The fax of [Seller] dated 12 February 1999 stated:

"We agree to carry out SGS inspection for 180 tons of Silicon Metal at the port and the inspection fee will be charged to your company. We will arrange the inspection and shipment after the Chinese Spring Festival."

In its fax sent afterward, [Seller] raised no objection to bearing the inspection fee.

In the context of these faxes, the Arbitration Tribunal finds that the parties made an agreement to reduce the quantity of goods from 300 tons to 180 tons subject to the condition that [Seller] deliver 180 tons of Silicon Metal and that the goods must be inspected in compliance with the conditions required by the contract. That is to say, [Buyer]'s consent to reduce the amount of goods will not be effective without the actual delivery of goods by [Seller] after the agreement was reached.

What happened after this agreement was that [Seller] did not deliver any goods to [Buyer]. Therefore, the agreement never became effective and [Seller] still had the duty to deliver 300 tons of Silicon Metal to [Buyer].

     3. [Buyer]'s duty to amend the Letter of Credit

[Seller] contended that [Buyer] did not perform its duty to amend the letter of credit, which caused [Seller]'s contractual rights not to be protected and constituted a contract violation; [Buyer] therefore lost its rights to claim. In the light of the faxes between the parties, the Arbitration Tribunal finds:

  1. In the fax of 12 February 1999, [Seller] promised to arrange inspection and shipment after the Chinese Spring Festival.

  2. On 24 February 1999, [Seller] informed [Buyer] that the goods were supposed to be shipped on 20 March 1999.

  3. In the fax sent by [Buyer] on 26 February 1999, [Buyer] urged [Seller] to ship the goods and confirm the time of shipment and the amount of the goods.

  4. On the same day (26 February 1999), [Seller] asked [Buyer] to extend the Letter of Credit to 15 April 1999 and change the amount of goods to 180mt.

  5. On 16 March 1999, [Buyer] sent a fax inquiring of the [Seller]: Since [Seller] had informed [Buyer] that the goods would be shipped on 20 March, why had [Buyer] not yet been informed of the date of shipment?

  6. In the fax sent by [Buyer] on 18 March 1999, [Buyer] required [Seller] to transfer before 20 March the documents of shipment which indicated that the goods would be shipped to [Buyer] on 20 March.

  7. In the fax sent by [Buyer] on 5 April 1999, [Buyer] required that [Seller] deliver the goods in seven days, otherwise [Buyer] would take legal action against [Seller].

  8. In the fax of 7 April 1999, [Seller] replied, "since your company delayed amending the Letter of Credit, we have suffered economic losses." At the end of its fax, [Seller] stated:

    "The losses of both parties may be compensated in future deals between us. If your company insists on the claim for compensation, it will be worthless to the cooperation between us and will waste both time and money."

All of these words indicate that [Seller] declined to deliver the goods.

Based on the above faxes between the parties, the Arbitration Tribunal concludes: although [Seller] promised to ship 180 tons of goods on 20 March 1999, [Seller] did not find a supply of the goods or was unwilling to deliver the goods before 20 March. In the contract, the price term is CFR which requires [Seller] to do the chartering. In the practice of international trade, the party who bears the responsibility to do the chartering shall reserve the ship and cargo space before the time of delivery. In this case, if [Seller] were able and willing to deliver the goods, it should have informed [Buyer] of its detailed arrangement of delivery at a time before the shipment. However, even after [Buyer] pressed on 16 and 18 March 1999, very near to the time of delivery, [Seller] did not notify [Buyer] of the shipping arrangement.

In the light of aforesaid facts and following reasons, the Arbitration Tribunal concludes that [Seller] cannot be released from the duty of delivery and liability for breach of contract with the argument that [Buyer] did not perform its duty to amend the letter of credit.

In terms of the customs in international trade, if it is stipulated in the contract that the payment should take the form of a Letter of Credit, opening a L/C by [Buyer] is the prerequisite for [Seller]'s preparation of goods. This general rule aims to provide a guarantee for [Seller] to receive the payment so that the risk of losses incurred by breach of contract of [Buyer] after the preparation or delivery of the goods can be lowered. But, it is not an absolute or immutable rule. Taking this case as an example, completely following this rule will hardly bring us to an objective and just decision for the two parties and will deviate from the good faith principle set up in Article 7(1) of CISG.

     4. [Buyer]'s claims

(1) Damages of US $40,199.09

[Buyer] claims damages of US $40,199.01 on the basis that it bought goods in replacement.

The Arbitration Tribunal finds the following facts. In the fax sent by [Buyer] on 1 February 1999, [Buyer] notified [Seller] of its plan to buy goods in replacement at the price US $1,015 / mt, C&F Gdynia. In a later fax on 22 March 1999, [Buyer] informed [Seller] that it had purchased substitute goods in two installments: 120 tons at the price of US $16,200 / mt; and 100 tons at the price of US $16,500 / mt.

Article 75 of CISG states that, when [Seller] does not deliver the goods as stipulated in the contract, the party claiming damages may recover the difference between the contract price and the price for substitute goods or recover the difference between the price fixed by the contract and the current price. The Arbitration Tribunal holds: When the former difference occurs, [Buyer] has the right to claim damages because such difference indicates the real losses of [Buyer]. But if the former difference is higher than the latter, [Buyer] bears the duty to prove that the substitute purchase is made for the contract in dispute rather than other non-related deals.

[Seller] questioned the necessary connection between the purchase in replacement and the contract in dispute. For example, [Seller] asked why [Buyer] still required the delivery of 300 tons of goods from [Seller] on 5 April after [Buyer] had obtained two batches, totaling 220 tons of substitute goods before 22 March. [Buyer] did not make explanations to [Seller]'s demurs. Based on the facts, the Arbitration Tribunal concludes [Buyer] may claim the price difference between the contract price and the current price instead of that between the contract price and the price for substitute goods.

To determine the current price, three factors should be examined: (1) the current price at what place; (2) the current price at what time; and (3) how to calculate the comparable price to this contract.

The Arbitration Tribunal goes to the comparable price to this contract. The price fixed by the contract is CFR Gdynia, Poland, plus 1% commission. The cost, hereunder, should be the result of total price fixed by the contract minus freight and commission.

As for the freight, neither party submitted convincing evidence which can indicate the freight cost of shipping Silicon Metal from Guangzhou to Gdynia in December 1998 to May 1999. The Arbitration Tribunal inquired of the China National Foreign Trade Transportation (Group) Corporation and obtained the information that the freight for 300 tons of Silicon Metal not transported by containers from Guangzhou to Gdynia was approximately US $20,000. The Arbitration Tribunal informed the parties of this price and heard their opinions on it. Since no tenable objections to this freight were raised by the parties, the Arbitration Tribunal holds that the freight for 300 tons of goods subject to the contract in dispute from Guangzhou to Gdynia totaled approximately US $20,000 and US $66.67 per ton (20,000/300).

The commission was stipulated to be 1% of the sum of cost and freight, namely US $8.61 / mt (870/101). Consequently, the cost was US $794.72 / mt (870-66.67-8.61). Comparing this cost and the FOB price prevailing at main ports in China gives the price difference as the comparable price to the acceptable FOB price.

On the basis of aforesaid calculation, the Arbitration Tribunal rules that [Buyer] may claim damages of US $18,084 [(US $855 / mt US $794.72 / mt) x 300 tons]. The Arbitration Tribunal shall not take other damages claimed by [Buyer] within US $40,199.09 into account because [Buyer] gives no explanation and argument to this part.

     5. Attorneys' fees and travel expenses

As concluded by the Arbitration Tribunal, the failure of this contract resulted in [Seller]'s fundamental breach of contract. The Arbitration Tribunal shall sustain [Buyer] claim of attorneys' fees and travel expenses which total US $3,000 against [Seller].

     6. Arbitration fees

[Seller] shall bear all the arbitration fees for this case.

IV.  THE AWARD

The Arbitration Tribunal hereby holds:

  1. [Seller] shall compensate [Buyer] for losses resulting from the difference in price in the amount of US $18,084.

  2. [Seller] shall bear [Buyer]'s attorneys' fees and travel expenses of US $3,000 in this arbitration.

  3. All the other claims raised by [Buyer] are dismissed.

  4. [Seller] shall bear all of the arbitration fees.

FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Hong Kong is referred to as [Buyer]; Respondent of inland China is referred to as [Seller]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of the People Republic of China (Renminbi) are indicated as [RMB]. Weight unit appears as mt. (metric ton) or ton.

** YUAN Xiaotong, LL.M. candidate, Faculty of Law McGill University, Montreal Canada, 2001 to present; LL.B. Renmin University of China Law School, 2001.

*** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.

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Pace Law School Institute of International Commercial Law - Last updated July 10, 2006
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