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CISG CASE PRESENTATION

China 27 April 2000 CIETAC Arbitration Proceeding (Wool case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000427c1.html]

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

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Case identification

DATE OF DECISION: 20000427 (27 April 2000)

JURISDICTION: Arbitration ; P.R. China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2000/05

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Australia (claimant)

BUYER'S COUNTRY: People's Republic of China (respondent)

GOODS INVOLVED: Wool


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 75 ; 77

Classification of issues using UNCITRAL classification code numbers:

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

75A1 [Substitute transaction after avoidance: resale by aggrieved seller];

77A [Obligation to take reasonable measures to mitigate damages]

Descriptors: Damages ; Cover transactions ; Mitigation of damages

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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): Zhongguo Guoji Jingji Maoyi Zhongcai Caijueshu Caijueshu Xuanbian [Selected Compilation of Awards of CIETAC]: 1995-2002, Law Press, pages 460-468

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

Wool case (27 April 2000)

Translation [*] by Meihua Xu [**]

Edited by John Zhu [***]

The China International Economic and Trade Arbitration Commission (hereafter, the "Arbitration Commission") accepted the case according to:

   -    The arbitration clause in Sales Contract No. LD441 signed by Claimant [Seller], Australia __ Company, and Respondent [Buyer], China __ Industry Company on 14 November 1997;
 
   -    The arbitration clause in Common Trade Terms for Purchase of Wool or Wool Tops issued by China Raw Materials Import and Export Corporation on 1 July 1990; and
 
   -    The written arbitration application submitted by [Seller] on 5 February 1999.

Since the amount of [Seller]'s claim is less than renminbi [RMB] 500,000, according to the Arbitration Rules which became effective on 10 May 1998, this case is qualified to use summary procedure.

According to Article 65 of the Arbitration Rules, the Chairman of the Arbitration Commission appointed Mr. P as the sole Arbitrator, and formed the Arbitration Tribunal to hear this case on 13 February 2000.

The Arbitration Tribunal held a court session in Beijing on 31 March 2000. Both parties sent arbitration agents to the court session. They made statements on the facts, presented arguments and answered the Arbitration Tribunal's questions. After the court session, the two parties submitted supplementary documents.

The Arbitration Tribunal handed down this award based on the existing materials and the court session.

The following are the facts, the Tribunal's opinion and award.

I. FACTS

On 14 November 1997, the [Buyer] and the [Seller] signed Wool Sales Contract No. LD441 by fax through a middle man, Huarui Spinning Company, (hereafter, "Huarui Company") on the following terms.

Products and pricing: 50 tons of T58FNF 24.1 micron Australia oily sweepings; 2% more or less loading is allowed; US $4.50/kg CIF Shanghai, totaling US $225,000;
Shipment period: Before 15 December 1997;
Payment terms: [Buyer] shall issue an irrevocable forward Letter of Credit [L/C] B/L 180 days before 1 December 1997.

After the conclusion of the contract, on 28 November, the [Seller] notified the [Buyer] that the goods had been prepared, and asked the [Buyer] to issue the L/C. On 27 December, the [Buyer] sent the L/C application form via Huarui Company, and also through Huarui Company, the [Buyer] asked the [Seller] to postpone the shipment period to 20 January 1998 and to change the destination port from Shanghai to Gaogang without modifying the contract price. The [Seller] responded by proposing that the [Buyer] issue the L/C before 31 December in order to enable the [Seller] to load the goods on 20 January, and that the extra transportation fee incurred be paid by deducting 1% of the commission which the [Seller] would pay Huarui Company. The [Buyer] did not agree with this.

On 18 February 1998, by fax, the [Buyer] asked the [Seller] to reduce the price of the goods. This request was rejected by the [Seller]. On 19 February, the [Buyer] asked the [Seller] to reduce the price to US $4.20/kg CIF Gaogang and to accept 180 days forward L/C. Twice, on 24 February and 11 March, the [Buyer] asked the [Seller] to perform the contract and to accept as a precondition to issuance of the L/C, inspection results comparable to those on the goods of a contract [Buyer] signed with another Australian Company.

On 11 March 1998, the [Seller] asked the [Buyer] to issue the L/C before 20 March, otherwise, it would be deemed that the [Buyer] had unilaterally avoided the contract of 14 November 1997, and the [Seller] would ask compensation from the [Buyer] by law. The [Buyer] did not issue the L/C, and the contract was not performed.

[POSITION OF THE PARTIES]

[Seller]'s position

The [Seller] alleges that:

The main reason for the [Buyer]'s refusal to perform the contract was the decreasing market price. However, decreasing market price is a common business risk, which should not be the reason for the [Buyer]'s non-performance of the contract. The [Buyer] asked the [Seller] to bear the extra transportation fee from Shanghai to Gaogang within Changjiang River, to decrease the unit price of the goods, and accept that the inspection result on the goods of the contract it entered into with another Australian seller be a precondition for its performance of the contract. This was unexpected and the reasons for these requests could not be established, therefore, the [Buyer] has violated the contract.

Since China and Australia are Contracting States of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), the CISG should be the law applicable to the dispute in this case.

The contract in this case was avoided on 20 March 1998. Article 75 of the CISG stipulates that:

"If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under Article 74."

Article 74 of the CISG states that:

"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. ..."

The [Seller] claims compensation based on the aforesaid provisions of the CISG.

The [Seller] also alleges that after the avoidance of the contract, the [Seller] decided to resell the goods, and on 24 March 1998, the [Seller] signed a contract with __ Raw Materials Import & Export Company to resell the goods at a unit price of US $4.20/kg.

   -    The quantity of the goods resold was 50,000kg;
   -    2% more or less loading was allowed;
   -    The shipping period was before 30 April 1998.

The __ Raw Materials Import & Export Company's serial number of this resale contract was No. 831048AU; in the [Seller]'s company it was LD542. The price difference between the [Seller]'s contract with [Buyer] and the resale contract was US $15,000. The actual loading date of the goods under the resale contract was 28 April 1998.

The damages claimed by the [Seller] are:

  1. Loss of price difference of US $15,000;
  2. Loss of interest on [Seller]'s fund calculated from the loading date of the goods under the original contract to the loading date of the goods under the resale contract, totaling US $5,444;
  3. Storage fee incurred from the loading date of the goods under the original contract to the loading date of the goods under the resale contract, totaling US $4,860;
  4. Loss of management fee of US $4,500;
  5. Attorneys' fee of US $2,985.

The above totals US $32,789. The [Seller] also asks the Arbitration Tribunal to rule that the [Buyer] bear the entire arbitration fee.

[Buyer]'s defense

The [Buyer] counter argues that:

The provision of the contract indicates that the [Buyer]'s issuance of the L/C is a pre-condition for the [Seller] to prepare and ship the goods. If the [Buyer] did not issue the L/C on time, the [Seller] need not prepare the goods. The [Buyer] alleges that, according to international trade usages, if it is stipulated in the contract that the payment is to be made by L/C, the [Buyer] is obligated to issue a L/C. However. the nature of this obligation is either a pre-condition for the contract to take effect or a pre-condition for the [Seller] to perform its obligation to deliver the goods. If it is the former, the contract only becomes effective after the [Buyer] has issued the L/C, otherwise, no effective contract exists; if it is the latter, the [Seller] has the right to refuse further perform its obligation under the effective contract provided the [Buyer] does not perform its obligation to issue the L/C. If the [Seller] suffered actual losses due to its performance of the contract, it is entitled to receive compensation for the actual losses from the [Buyer].

Pursuant to the stipulations in the contract in this case, the [Buyer] should issue the L/C first, then the [Seller] needs to prepare the goods, and there is no stipulation in the contract requiring the [Seller] to prepare the goods first. Therefore, the [Buyer] asserts that the [Buyer]'s performance of its obligation to issue the L/C was a pre-condition for the contract to be effective. Before the [Buyer] issues the L/C, the contract has no binding effect on the parties.

The [Buyer] did not issue the L/C because the price for oily sweepings was decreasing in the international market at that time. The market situation had changed, if the [Buyer] performed the contract based on the original contract price, it would violate the principle of equity. Therefore, the [Buyer] needed to re-discuss price term of the contract with the [Seller]. During the discussion, the [Seller] agreed to make modifications on the destination port, L/C issuing date, and loading date, which indicated that the [Seller] had renounced the contract in this case, and was discussing a new contract with the [Buyer]. Since the two parties failed to reach an agreement on the new contract, the contract in this case has no binding effect on the parties.

As to the [Seller]'s claims for damages, the [Buyer] argues that they should be dismissed due to lack of factual and legal basis and relevant evidence.

[Seller]'s response

With regard to the [Buyer]'s defense, the [Seller] argues that there is no such international trade usage as asserted by the [Buyer]. The rights of the two parties should be determined either by the contract or by law. After the conclusion of the contract, the two parties had been discussing modifications on the contract, however, no agreement was reached, therefore, the contract in this case was not renounced.

The evidence provided by the [Seller] on 30 March 2000 indicates the following facts:

  1. The [Seller] and __ Raw Materials Import & Export Company signed Sales Contract No. 831048AU on 24 March 1998. This was the resale contract. The quantity of that contract was 50,000kg (the net weight), and 2% more or less loading was allowed;

  2. A B/L issued by __ Sea Transportation Company on 28 April 1998, which mentioned Contract No. 831048AU. However, __ Raw Materials Import & Export Company was not indicated as either consignee or notifying party. There were 377 packages of goods totaling 70,639 kg, in the B/L, among which Sydney - 117 packages, totaling 21,311kg; Melbourne - 77 packages, totaling 14,452kg; Brisbane - 112 packages, totaling 21,497kg; and remaining 71 packages, totaling 13,379kg.

  3. A proof issued by Independent Wool Dumpers Pty. LTD to the [Seller] on 30 April 1998, showing that the storage cost of the goods was 14.5 Australia cents per package per day.

The [Seller] alleges in a supplementary statement to its arbitration application submitted on 7 April 2000 that:

  1. As to the loss of storage fee, the [Seller] alleges that it exports large quantities of wool and it is impossible to ask the storage company to balance the account under each order separately for just a couple of hundred packages of goods. After a careful investigation, the staff of [Seller]'s storage and shipping department discovered that the goods under Contract No. LD442 were not stored in the warehouse of Independent Wool Dumpers Pty. LTD, which the [Seller] has used for a long time, but in the warehouse of another Company, Independent Wool Service Pty. LTD, of which the [Seller] was a long time user as well. This storage company only charged 14 Australia cents per package; therefore, the [Seller] was willing to adjust the damage accordingly, which would reduce the storage fee to US $4,699.

  2. Half of the contract goods were purchased from G.H. Michell & Sons (Australia) Pty. Limited (Forward Sale Contract). The purchase date was 20 November 1997 and the delivery date was 12 December 1997. The remaining goods were purchased directly from the auction market in Sydney. According to the trade record, the [Seller] purchased 8,525kg of goods through a broker on 25 November 1997, and purchased another 17,776kg of goods on 27 November 1997. Because 2% more or less loading was allowed in Contract LD441, the aforesaid two purchases exceeded 25,000 kg.

The [Seller] also attached a document issued by Independent Wool Service Pty. LTD on 5 April 2000, stating that according to computer data, there were 377 packages of oily sweepings under Contract LD441 in November 1997, but in April 1998, the marks for those goods were changed to 831048.

[Buyer]'s response

The [Buyer] responded to [Seller]'s supplementary statement of 7 April 2000, alleging that:

The attachment provided by the [Seller] cannot fully prove the facts that the [Seller] had purchased and stored the goods under the contract. On the contrary, the [Seller]'s statement indicates that it did not purchase the goods under the contract.

"The facts regarding the [Seller]'s purchase of wool are as follows. Usually the [Seller] would purchase wool from different places and from different suppliers based on the supply of the goods and the price, and the [Seller] would keep some of them in storage. Meanwhile, the [Seller] would keep in touch with other major wool exporters to keep supply-demand relations. ... in October and December... many exporters purchased certain amount of wool to export."

II. OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The contract referred to and incorporated the Common Trade Terms for Purchase of Wool and Wool Tops issued by China Raw Materials Import and Export Corporation on 1 July 1990. Therefore, these terms constitute part of the contract. Since the business places of the [Buyer] and the [Seller], China and Australia, are Contracting States of the CISG; therefore, the CISG shall also be applied.

2. The effectiveness of the contract and the [Buyer]'s contract performance

The contract in this case was signed by the two parties after negotiation. It reflects the true minds of the parties, and is legal and effective. It was not stipulated in the contract that the [Buyer]'s issuance of the L/C was a pre-condition for the contract to take effect or for the [Seller] to perform its obligation to deliver the goods. Therefore, the [Buyer]'s assertion that the contract had no binding effect on the two parties has no legal basis.

Based on the contract, the [Buyer] should have issued the L/C with the [Seller] as the beneficiary before 1 December 1997; however, the [Buyer] did not issue the L/C through the bank. This did not conform to the contract and constituted a violation of the contract. Therefore, the [Buyer] shall take responsibility for contract violation accordingly.

3. [Buyer]'s responsibility for [Seller]'s damages

The [Seller] claims the losses based on the price difference caused by reselling the goods and the actual losses incurred thereof. Regarding this issue, it should be decided first whether the goods under Contract No. 831048AU of 1998 were the goods purchased by the [Seller] in November 1997. The Arbitration Tribunal deems that the resale of the goods cannot be established due to the following reasons:

   (1)   The [Seller] provided evidence showing that the goods under the contract were stored at the warehouse of Independent Wool Dumpers Pty. LTD, and later it corrected that the goods were stored at the warehouse of Independent Wool Service Pty. LTD. The Arbitration Tribunal notes that the wool involves a large amount of goods. The storage company's specifying that the wool in the warehouse was under a specific contract even before the [Buyer] issued the L/C is contrary to trade practices of the wool business.
 
   (2)   The proof issued by Independent Wool Services Pty. LTD to the [Seller] indicated that there were 377 packages of goods under Contract LD441 in this case in November 1997, however, other evidence provided by the [Seller] shows that half of the goods under Contract LD441 was purchased from G. H. Michell & Sons (Australia) Pty. Limited, and that the delivery date was 12 December 1997. The two pieces of evidence conflict with each other; therefore, the storage company's proof submitted by the [Seller] is not acceptable.
 
   (3)   The [Seller] alleges that half of the goods under Contract LD441 was purchased from G. H. Michell & Sons (Australia) Pty. Limited, and the other half was purchased at the auction market in Sydney. However, the B/L of Contract 831048AU indicated that the goods were loaded from Sydney, Melbourne, and Brisbane. Even though the Arbitration Tribunal cannot exclude the possibility that the goods were stored at three different places, the existing evidence provided by the [Seller] cannot prove the rationality of this situation.

Since it cannot be confirmed that the goods under Contract 831048AU were the goods prepared by the [Seller] at the end of 1997 for the contract in this case, the price difference claimed by the [Seller] cannot be confirmed either; therefore, under this circumstance, the Arbitration Tribunal cannot accept the losses on interest, storage fee, and administration fee claimed by the [Seller].

The [Buyer] admits that it did not issue the L/C as required by the contract due to the decreasing price at the wool market. When the price for wool was decreasing, [Buyer]'s violation of the contract would definitely cause certain economic loss to the [Seller], for which the [Buyer] shall make compensation. Meanwhile, the [Seller] had the obligation to mitigate the loss. However, the existing evidence shows that the [Seller] failed to urge the [Buyer] to perform the contract after 1 December 1997, when the L/C issuing date had passed, or within a reasonable time after 15 December, when the loading date had passed, but made response on 27 December after receiving the [Buyer]'s L/C application form.

Above all, the Arbitration Tribunal holds that based on principles of equity, the [Buyer] shall compensate certain amount to the [Seller], and US $10,000 would be reasonable.

4. The arbitration fee

In accordance with the situation in this case, the [Buyer] and the [Seller] shall bear the arbitration fee half and half.

III. THE AWARD

The Arbitration Tribunal rules that:

   (1)   [Buyer] shall pay the [Seller]'s loss of US $10,000;
 
   (2)   The arbitration fee in this case is US $__. The [Buyer] shall bear US $__, and the [Seller] shall bear US $__. The [Seller] has paid the entire arbitration fee in advance, therefore, the [Buyer] shall pay back US $__ to the [Seller];
 
   (3)   [Seller]'s other claims are dismissed.

Above all, the [Buyer] shall pay a total of US $__ to the [Seller] within 30 days of this award by one payment, otherwise, 6% annual interest shall be added.

This is the final award


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Australia is referred to as [Seller] and Respondent of the People's Republic of China 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].

** 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 a 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.

*** John Zhu, LL.M. China University of Political Science and Law (National Graduate Scholarship); Bachelor of Law, Southwest University of Political Science and Law; Double Degree, English Literature, Sichuan International Studies University, Chongqing, China. Focus: International Economic Law.

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