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CISG CASE PRESENTATION

China 17 July 2000 High People's Court [Appellate Court] of Henan Province (Minterrnet S.A. v. Henan Local Product Import and Export Company) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000717c1.html]

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

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Case identification

DATE OF DECISION: 20000717 (17 July 2000)

JURISDICTION: People's Republic of China

TRIBUNAL: High People's Court [Appellate Court] of Henan Province

JUDGE(S): Wenpin Tong (Chief judge); Ziaodong Peng, Gang Feng (Agent adjudicators)

CASE NUMBER/DOCKET NUMBER: (2000) No. 256, Final Decision of Yu Economic Cases

CASE NAME: Minterrnet S.A. v. Henan Local Product Import and Export Company

CASE HISTORY: 1st instance Zhengzhou Intermediate People's Court

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

BUYER'S COUNTRY: Switzerland (defendant)

GOODS INVOLVED: Dried sweet potatoes


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 75 ; 77 [Also cited: Articles 12 ; 29(1) ; 60 ; 61 ; 78 ]

Classification of issues using UNCITRAL classification code numbers:

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

75A [Damages established by substitute transaction];

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

Descriptors: Damages ; Cover transactions ; Mitigation of loss

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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): CISG-China Case [HPC/08]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=93>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

High People's Court of Henan Province [17 July 2000]

(Mintermet S.A. v. Henan Local Product Import and Export Company)

(2000) No. 256, Final Decision of Yu Economic Cases

Translation [*] by Guo Xin [**]

Edited by Xu Meihua [***]

[PROCEEDINGS]

PARTIES AND COUNSEL. Appellant (Defendant in the first instance): Mintermet S.A. Company (hereinafter, [Buyer]); Address: No. 1 Theatre Street 1005, Rawson, Switzerland. Legal Representative: Alain Scheinin, Director, General Manager; Attorney: Shuzhou Zhao, lawyer of Guangzhou Maritime Affairs Law Firm. Appellee (Plaintiff in the first instance): Henan Local Product Import and Export Company (hereinafter, [Seller]); Address: 115 Wenhua Road, Zhengzhou, Henan Province; Legal Representative: Yaoxian Lei, General Manager; Agent: Zhuoqing Lv, officer of the [Seller]'s company; Attorney: Guojian Huang, lawyer of Zhongzhou Law Firm, Henan Province.

TRIAL PARTICULARS. The [Buyer] appeals to this court because it took objection to (1999) Zheng Jing Chu Zi No. 386 decision made by Zhengzhou Intermediate People's Court regarding the dispute over the sales contract between [Buyer] and [Seller]. The court established the tribunal and held an open hearing according to the law. Shuzhou Zhao for the [Buyer] and Zhuoqing Lv and Guojian Huang for the [Seller], participated in the court session. The case has been concluded.

[FACTS DETERMINED BY THE COURT OF FIRST INSTANCE]

The Court of First Instance identified the facts during the trial as follows:

On 23 October 1992, [Seller] and [Buyer] signed Contract Confirmations No. 93CHFSD007 (hereinafter, "Contract No. 007") and No. 93CHFSD008 (hereinafter, "Contract No. 008").

Contract No. 007 includes the following terms:

   -    Contract goods: Chinese dried sweet potatoes;
   -    Quantity: 18,000MT, 5% plus or minus loading, to be decided by the [Seller];
   -    Unit price: US $130/MT FOBT;
   -    Shipping period: December 1992;
   -    Shipment port: The seller can choose any port among Lianyungang, Yantai and Qingdao;
   -    Inspection: The quality, quantity and weight should be based on the inspection certificate issued by China Commodity Inspection Bureau (hereinafter, the "CCIB") or the document provided by the [Seller].

Contract No. 008 includes following terms:

   -    Contract goods: Chinese dried sweet potatoes;
   -    Quantity: 10,000 MT;
   -    Unit price: US $129.50/MT;
   -    Shipping period: March to April 1993, to be decided by the [Seller];
   -    Shipment port: Lianyungang;
   -    Payment terms: The [Buyer] should open an irrevocable spot L/C in favor of the [Seller] before 5 February 1993;
   -    Other terms are the same as in Contract No. 007.

On the same day, the two parties also signed a supplement to Contract No. 007, reducing the price from US $130/MT to US $128/MT. On 26 November 1992, [Buyer] opened an irrevocable L/C for Contract No. 007. On 9 February 1993, [Buyer] notified [Seller] that ship AYANE that it rented was to arrive at Lianyungang port to load the goods between 15 to 25 February 1993. However, the ship's loading capacity was only 15,000 MT and the quantity actually loaded was 13,580 MT. On 28 February, [Buyer] sent a letter to [Seller], stating that:

"As we know, your company had prepared a sufficient quantity of goods to be delivered, but because the loading company refused to load the goods up to the top of the hold, only 13,580 MT of goods were loaded. You are not responsible for this."

To perform Contract No. 008, [Seller] had prepared 10,446.618 MT of goods which were stored in the warehouse of a storage company located in Yuanyang Courtyard of Lianyungang City, and were waiting for [Buyer] to take delivery of them. However, [Buyer] neither opened a L/C nor sent a ship for the goods. Under this circumstance, to prevent the goods from becoming moldy, which could enlarge the losses, on 10 June 1993, [Seller] sold the remaining 4,420 MT of goods under Contract No. 007 to Hayden Company of England at a unit price of US $82/MT, and received the payment on 3 July 1993, and sold 10,000 MT under Contract No. 008 at the price of US $95/MT to Italian Molina Company and received the payment in June the same year.

The Court of First Instance also ascertained that:

The dried sweet potatoes [Seller] prepared for Contract No. 007 were purchased from HuaNong Trading Company of Lianyungang at a unit price of renminbi [RMB] 868/ton, i.e., US $92.83/MT, based on the exchanging rate of 1:9.35 on 30 July 1993. The goods provided for Contract No. 008 were purchased from External Trade of Livestock Products Company of Xuchang City and Shangqiu Business Company, Henan Province. The unit price was RMB 799.23/MT, i.e., US $85.94/MT, based on the exchanging rate of 1:9.3 on 8 June 1993.

[Seller] brought a lawsuit before the court, claiming that [Buyer] should compensate [Seller] a total of US $ 800,000 for its losses, including losses of price difference, storage charge, interest, and wastage, etc. due to the [Buyer]'s breach of contract.

The Court of First Instance concluded that:

The English name and address of the [Buyer] listed in the original lawsuit were correct, but there were translating errors, which were corrected by the [Buyer] in the amended complaint; therefore, the litigants were the initial ones, and it did not constitute a new lawsuit. Consequently, it did not exceed the statute of limitations in this case.

The countries of [Seller] and [Buyer], China and Switzerland, are Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (hereafter, the "CISG"), and the sales relationship between the two parties was not within the scope of exclusion stipulated in Articles 2 and 3 of the CISG; therefore, the CISG is applicable to this case.

Contracts No. 007 and No. 008 signed by the two parties reflected their true minds, which were in accord with the CISG and effective. The [Seller] fulfilled its obligations stipulated in the contract by preparing enough goods and storing them at the place of delivery. However, during the performance of Contract No. 007, even though the [Buyer] opened a L/C according to the contract, it failed to perform the contract fully due to the lack of capacity of the ship that it sent.

[Buyer] argued that the parties had reduced the quantity in Contract No. 007 to 15,000 MT, but [Buyer] did not provide evidence of this. The letter [Buyer] sent to [Seller] after receiving the goods indicated that [Seller] would not be liable for the delivery shortage. For the performance of Contract No. 008, [Buyer] argued that it had reached a reconciliation with the [Seller] and had remitted a compensation for non-performance of this contract, totaling US $10,000, to the bank account of Hong Kong Sanyi Company' (hereafter, "Sanyi Company") as directed by the [Seller]; however, the [Buyer] could not provide any written proof of the reconciliation or any written evidence showing that the [Seller] had entrusted the [Buyer] to make such a payment to Sanyi Company. Moreover, the court would not adopt the testimony on this subject as evidence made by an employee of the [Buyer] due to his subordinate relationship with the [Buyer]. Therefore, the [Buyer]'s aforesaid arguments were not accepted, and [Buyer] should bear the responsibility for its breach of Contract No. 008.

After [Buyer]'s breach of contract, the [Seller] resold the remaining goods in order to mitigate the loss, which was in accordance with the contract. Therefore, [Seller]'s claims that the [Buyer] should pay the price difference between the contract price and the price for resale and the [Buyer]'s attorneys' fee were acceptable. However, the amount of the compensation should be calculated according to the quantity stipulated in the contract.

Although it was stipulated in the contract that the seller could decide 5% plus or minus loading, the [Seller] did not request to increase the quantity of the goods during the performance of the contract; therefore, the increased part was not acceptable.

In accordance with Articles 60, 61, 74, 75 and 78 of the CISG, the court ruled that the [Buyer] should compensates [Seller] as follows within fifteen days of the date this judgment became effective.

1. The loss of price difference between the contract price and the price for resale for the remaining 4,420MT of goods under Contract No. 007, totaling US $203,320, and the interest on it (the calculation method is: (128 - 82) 4,420; the interest shall be calculated from 30 July 1993 to the date of payment determined by the court, based on the bank saving interest rate at People's Bank of China at that time);

2. The loss of interest of US $15,190.72 under Contract No. 007 for the [Buyer]'s delay of payment (method of calculation: 4,420 92.83 6.45‰ 30 179 days);

3. The loss of price difference between the contract price and the price for resale for the unsold 10,000MT of goods under Contract No. 008, totaling US $345,000, and the interest on it (the calculation method is: (129.5 - 95) 10,000; the interest shall be calculated from 8 June 1993 to the date of payment determined by the court based on the bank saving interest rate at People's Bank of China at that time);

4. The loss of interest of US $4,590.44 under Contract No. 008 caused by the [Buyer]'s breach of contract (method of calculation: 10,000 92.83 6.45‰ 30 23 days).

5. [Buyer] shall bear the [Seller]'s attorneys' fee of RMB 80,000 and case procedure fee of RMB 42,900.

[POSITION OF THE PARTIES]

[Buyer]'s position

[Buyer] took objection to the decision of the Court of First Instance and appealed to this court, claiming that:

1. The quantity of the goods under Contract No. 007 had been changed to 15,000 MT by reconciliation between the two parties. It was wrong that the Court of First Instance did not confirm this fact, raising lack of evidence. The ship AYANE only loaded 13,580 MT of goods due to the reason of the loading company. According to the delivery term of Contract No. 007, [Seller] should have taken the responsibility. [Buyer] sent a letter to the [Seller] on 28 February only to show that [Buyer] had abandoned the right to have [Seller] take the responsibility. However, the Court of First Instance held that the [Buyer] was liable based on this letter, which lacked legal basis.

2. [Buyer] provided sufficient evidence at the first trial showing that the two parties had reached an oral reconciliation on the performance of Contract No. 008 and had in fact performed; therefore, it was incorrect that the Court of First Instance did not adopt the fact of reconciliation because there was no written proof.

3. The Court of First Instance failed to confirm the losses of [Seller] clearly, which lacked of evidence. The [Seller] failed to mitigate the loss by making disposal of the goods in time, with the result, the price for the goods was decreased from US $95/MT to $82/MT; therefore, the [Seller] should bear the enlarged losses by itself. There is no legal basis for the Court of First Instance to rule that the [Buyer] bear the attorneys' fee.

To sum up, [Buyer] had fulfilled its obligations under Contract No. 007, and the two parties had reached a reconciliation on Contract No. 008. The Court of First Instance made mistakes in confirming facts and applying the law; therefore, the [Buyer] asks the court to reverse the decision of the Court of First Instance and dismiss the [Seller]'s claims.

[Seller]'s position

[Seller] argued that:

1. It lacks of factual basis for the [Buyer]'s claim that the two parties had changed the quantity of goods under Contract No. 007. [Seller] agreed to accept the ship AYANE, and the [Buyer] expressed clearly that the remaining goods could be loaded onto the next ship to Lianyungang Port, without indicating that it was not going to take delivery of the remaining goods; therefore, the two parties did not modify the quantity of the goods. The [Seller] had prepared enough goods for delivery; less than 15,000 tons of goods were loaded onto Ship AYANE due to its lack of capacity; therefore, the [Buyer] should be liable for this.

2. [Seller] had conferred with [Buyer] on the compensation issue for the [Buyer]'s breach of contract, however, no agreement was reached. The [Seller] has not received the so-called compensation of US $10,000. [Buyer] claimed that the parties had reached reconciliation without providing corresponding evidence; therefore, this claim cannot be established. The Court of First Instance clearly identified the facts and processed this case properly, and the [Buyer] should be liable for the losses caused by its breach of contract. The [Seller], therefore, asks the court to dismiss the appeal and affirm the decision of the Court of First Instance.

REASONING OF THE APPELLATE COURT

The court ascertains that:

1. On 8 February 1993, [Buyer] sent a letter to [Seller], informing that for the 18,000 tons of sweet potatoes under Contract No. 007, [Buyer] had arranged the shipment by the ship AYANE, which could hold 15,000 MT of goods, and that for the remaining goods which could not be loaded at this time, [Buyer] could ship at any time as directed by the [Seller], and they could also be loaded onto the next ship coming to Lianyungang port. On the next day, [Seller] sent a letter to the [Buyer], confirming the ship AYANE and asking the [Buyer] to modify the L/C in time. [Buyer] then modified the L/C and [Seller] received the payment stipulated in that L/C, based on which the [Buyer] alleged that the two parties had negotiated and modified the quantity of the contract. However, the [Seller] argued that its request to modify the L/C only was to negotiate the payment smoothly.

2. The [Buyer] alleges that it did not arrange shipment for the remaining goods under Contract No. 007 since the [Seller] did not make such a request; therefore, the [Buyer] should not be responsible for the non-performance of the remaining goods. [Seller] argues that it had orally asked [Buyer] to send a ship many times, which the [Buyer] denied. [Seller] presented as evidence the letter it sent to [Buyer] on 19 March 1993. In this letter, [Seller] calculated the loss it suffered due to the non-performance of Contract No. 008, totaling US $359,685.86, and stating that this amount did not include the loss the [Seller] suffered under Contract No. 007, by which the [Seller] wants to prove that it did not abandon the right under Contract No. 007.

3. [Buyer] presented the following documents:

      I. A memorandum issued by Sanyi Company, by which the [Seller] asked the [Buyer] to pay the [Seller] the compensation of US $10,000 to Sanyi Company's account at Overseas Chinese Commercial Bank.

      II. A notice issued by Credit Suisse Bank of Switzerland sent to [Buyer], with the content that they had remitted the compensation of US $10,000 caused by the [Buyer]'s non-performance of contract to Overseas Chinese Commercial Bank as requested by the [Buyer].

      III. A notice of Overseas Chinese Commercial Bank, dated 23 July 1993, stating that they had remitted US $10,000 to Sanyi Company's account as a compensation for non-performance of contract.

By providing the aforesaid evidence, the [Buyer] wants to prove that the two parties had reached an agreement on Contract No. 008. [Buyer] performed the oral agreement by paying US $10,000, and the remaining facts are the same as ascertained by the Court of First Instance.

The Appellate Court concluded that Contract No. 007, Contract No. 008, and the supplementary agreement signed by the two parties are valid and effective. In the letter [Buyer] sent to [Seller] on 8 February 1993, [Buyer] expressed clearly that the remaining goods which could not be loaded, could be shipped later by other ships, and to negotiate the payment smoothly, the [Seller] asked the [Buyer] to modify the L/C after accepting the ship AYANE; therefore, the reason stated by the [Buyer] that the [Seller] agreed to modify the quantity of the goods under Contract No. 007 because it accepted the ship AYANE and asked the [Buyer] to modify the L/C cannot be established.

In the letter sent to the [Seller] on 8 February 1993, the [Buyer] stated that it would send another ship to deliver the remaining goods which could not be loaded onto the ship AYANE as requested by the [Seller], and the [Seller] did not object to this in its replying letter. Therefore, it can be concluded that the two parties reached an agreement on the performance of the remaining goods. [Seller] claimed that it had repeatedly orally urged the [Buyer] to send a ship, which was denied by the [Buyer]. The [Seller] had no other evidence showing that it had sent such requests; therefore, the [Seller]'s claim to have the [Buyer] bear the responsibility for non-performance of the remaining goods is not accepted. There were errors on the decision and resolution made by the Court of First Instance on responsibility for contract violation, which will be adjusted by this court.

The [Buyer] appealed that the two parties had reached a reconciliation on Contract No. 008 and had in fact performed it; however, the evidence it provided only shows that [Buyer] paid US $10,000 as compensation to Sanyi company, without indicating whether it was a compensation for Contract No. 007 or for Contract No. 008. This could not prove that it was the entire compensation amount agreed by the two parties. The [Seller] denies that the two parties had achieved any reconciliation, and the [Buyer] did not offer sufficient evidence to prove the content of the reconciliation; therefore this claim of the [Buyer] is not supported by this court.

The Court of First Instance properly ruled that [Buyer] should take responsibility for the non-performance of Contract No. 008; however, it was incorrect to rule that the [Buyer] shall undertake the interest on the price difference and the delayed payment, which are corrected by this court.

The [Buyer] raised objection to the price difference claimed by the [Seller] without giving evidence, therefore, the court does not accept this claim due to lack of evidence.

Paying the attorneys' fee accords with international practices; therefore, [Buyer]'s claim to cancel that portion of the judgment will not be supported.

DECISION MADE BY APPELLATE COURT

Based on the above, part of [Buyer]'s claims are established. According to Articles 12, 29(1), 60, 61, 74 of CISG and Article 153 Section 1 (3) of the Civil Procedure Law of the PRC, the court makes the following decision after discussion:

   -    The court sets aside items 1, 2, 4 of (1999) No. 386 Zheng Jing Chu Zi decision on Economic Cases handed down by the Zhengzhou Intermediate People's Court;
 
   -    The court modifies item 3 of the aforesaid decision to "paying the loss of price difference between the contract price and the price for resale for the undelivered 10,000 MT of the goods under Contract No. 008, totaling US $345,000;
 
   -    The court upholds item 5 of the aforesaid decision.

The case procedure fees for the first and the second trail are RMB 42,900 each, which shall be shared half and half by the two parties.

This is the final decision.

Chief Judge: Wenpin Tong
Agent Judge: Xiaodong Peng
Agent Judge: Gang Feng

17 July 2000

Clerk: Weijie Dong


FOOTNOTES

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

** Guo Xin is in her fourth year in DUT Law School (Dalian University of Technology, PRC). Also she is a preparative graduate student of Jilin University Law School for her first ranking in DUT. Her major is Civil and Commercial Law. She has earned a certificate of BEC Higher.

*** 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 related case study.

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