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CISG CASE PRESENTATION

China 27 July 2000 CIETAC Arbitration proceeding (Steel scraps case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000727c1.html]

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

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Case identification

DATE OF DECISION: 20000727 (27 July 2000)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2000/03

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: U.S. (respondent)

BUYER'S COUNTRY: P.R. China (claimant)

GOODS INVOLVED: Steel scrap


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 49 ; 74 ; 84(1)

Classification of issues using UNCITRAL classification code numbers:

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

49A [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract];

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

84A [Restitution of benefits received: seller bound to refund price must pay interest]

Descriptors: Avoidance ; Fundamental breach ; Damages ; Profits, loss of ; Restitution ; Interest

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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): Chinalaw Retrieval System, Database of Arbitration Cases and Awards by Beijing Peking University Yinghua Technology Ltd. Co.; see also Zhongguo Guoji Jingji Maoyi Zhongcai Caijueshu Xuanbian [Selected Compilation of Awards of CIETAC] (1995-2002), Law Press, at page 482

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.58, 104, 105, 158, 165, 223, 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), Shanghai Commission Arbitration Award

Steel scraps case (27 July 2000)

Translation [*] by YUAN Xiaotong [**]

Edited by JIANG Chi [***]

[Introduction]
I.   Facts of the Case
II.  Opinion of the Arbitration Tribunal
      1. Applicable law
      2. Termination of the contract
      3. The prepayment and interest
      4. Loss of profit
III. Award

In accordance with the arbitration clause contained in the steel scrap sales contract between [Buyer] and [Seller], and the [Buyer]'s Application for Arbitration, China International Economic & Trade Arbitration Commission, Shanghai Commission ("CIETAC Shanghai Commission") accepted the arbitration application with regard to the dispute arising out of the above-mentioned contract.

In accordance with the Arbitration Rules of CIETAC, the presiding arbitrator and two arbitrators formed the Arbitration Tribunal to jointly hear this case.

The Arbitration Tribunal held an oral hearing on 7 May 2000 in Shanghai. [Buyer] attended the hearings, while [Seller] was absent. [Buyer] addressed the facts and legal issues of this case and answered the questions raised by the Arbitration Tribunal. After the hearing, [Buyer] was informed that [Seller] might have been liquidated and gone out of business. So [Buyer] undertook an investigation into the status of [Seller]. Pennsylvania Secretary of State Corporation Division verified that [Seller] was still in good standing.

The Arbitration Tribunal carefully reviewed all evidence. In accordance with Article 42 of the Arbitration Rules of CIETAC, the Arbitration Tribunal rendered its award by default.

The facts of the case, the opinions of the Arbitration Tribunal and the award are presented as follows.

I. Facts of the Case

[Buyer] and [Seller] entered into a sales contract of purchasing steel scrap on 1 January 1993 [(the "Contract")]. The Contract provided that [Seller] would supply 20,000 tons of steel scrap to [Buyer] at the price of US $142/mt CIF ZhangJiaGang (a port of China). The total price amounted to US $2,840,000. [Under the Contract,] the goods were to be shipped by the end of February 1993. The terms of payment were as follows: [(1)] [Buyer] shall pay [Seller] US $100,000 [in cash] in advance, [(2)] Buyer shall then issue a letter of credit [L/C] in the amount of US $2,272,000 within twenty days after the signing of the Contract; and [(3)] [Buyer] shall pay the remaining amount of US $468,000 by remittance within seven days of receipt of the goods.

After the Contract was concluded, [Buyer] remitted an advance in the amount of US $100,000 to [Seller], and opened the [L/C] according to the Contract. At the request of [Seller], [Buyer] modified the [L/C] several times. Finally, the time of delivery was changed to 20 May 1993 and the term of the [L/C] was amended to be valid until 10 June 1993. Later, [Seller] asked [Buyer] to increase the amount of prepayment because of its financial problem. [Buyer] subsequently made four remittances to [Seller] with an aggregated amount of US $496,000. With the advance of US $100,000, [Buyer] had so far paid [Seller] US $596,000, of which US $270,000 was set off for another transaction between [Buyer] and [Seller]. Accordingly, [Seller] still held an advance of US $326,000 paid by [Buyer]. However, [Seller] failed to deliver the goods according to the Contract. [Buyer] filed an arbitration application in March 1994 to request [Seller] to deliver the goods and pay punitive compensation for the delay of delivery. The Arbitration Tribunal in charge of the arbitration in 1994 rendered its award in support of [Buyer]'s claims. However, [Seller] still refused to perform its obligations to deliver the goods despite the arbitration award. Five years later, namely 1999, [Buyer] filed this arbitration application with the following claims:

  1. The contract in dispute shall be ruled to be terminated;
  2. [Seller] shall return the prepayment of US $326,000 to [Buyer]. In addition, at the annual rate of 5%, [Seller] shall pay interest for the period from 25 May 1993 to 25 May 1999, in the amount of US $117,300, and interest from 25 May 1999 through the date when the arbitration award is rendered.
  3. [Seller] shall compensate [Buyer] the economic loss of US $284,000 arising out of [Seller]'s failure to deliver the goods;
  4. [Seller] shall bear all the arbitration fees; and
  5. [Seller] shall bear [Buyer]'s attorneys' fees for this arbitration in the amount of Renminbi [RMB] 80,000.

[Seller] did not present its statement of defense.

II. Opinion of the Arbitration Tribunal

     1. Applicable law

[Buyer] is a company established in accordance with the laws of the P.R. China, while [Seller] is a company established in accordance with the laws of the Commonwealth of Pennsylvania. The Contract in dispute contained no provisions on the governing law. The two parties chose P.R. China as the place of arbitration and both of the parties' places of business are within States that are Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (CISG). In addition, neither party excluded the application of CISG in their Contract. In accordance with Article 6 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interests, the Arbitration Tribunal thereby decides that the CISG shall be the applicable law to this case.

     2. Termination of the contract

The Arbitration Tribunal finds that [Buyer] had performed its obligation of opening the L/C in compliance with the Contract. But [Seller] failed to deliver the goods before 20 May 1993 which was stipulated as the deadline of delivery by the two parties. In addition, despite the fact [Buyer] filed the previous arbitration application to CIETAC Shanghai Commission on 4 March 1994, and the Arbitration Tribunal for that case rendered an award ordering [Seller] to deliver the goods to [Buyer] on 16 November 1994, and despite the constant requests from [Buyer] even until this arbitration case, [Seller] showed no intent to perform its obligation to deliver the goods. The Arbitration Tribunal notes that since 20 May 1993, the date on which [Seller] was supposed to deliver the goods, [Buyer] had afforded [Seller] more than seven years to perform its obligations under the Contract. The non-performance by [Seller] constituted a fundamental breach of the Contract. Furthermore, the breach of the Contract by [Seller] deprived [Buyer] of the economic benefit [Buyer] [reasonably] expected under the Contract. Accordingly, the continued existence of the Contract becomes futile. The Arbitration Tribunal hereby confirms [Buyer]'s claim to terminate the Contract.

     3. The prepayment and interest

[Seller] did not deliver the goods to [Buyer] under the Contract, so [Seller] shall return the advance of US $326,000 paid by [Buyer]. In addition, [Seller] shall also pay the accrued interest of US $140,300 for the advance.

     4. Loss of profit

[Buyer] claimed that the calculation for the loss of profit shall be based on the minimum profit expected in similar transactions, that is, 10% of the total purchase price under the Contract. However, the Arbitration Tribunal finds no legal and factual grounds for the calculation method alleged by [Buyer]. The [Buyer]'s claim for the loss of profit is dismissed.

III. Award

The Arbitration Tribunal hereby decides:

  1. The Contract is terminated from the date the award is rendered;
  2. [Seller] shall return the prepayment of US $326,000 to [Buyer] with interest of US $140,300;
  3. The claim for compensation for loss of profit by [Buyer] is dismissed;
  4. The arbitration fees for this case shall be shared, 30% by [Buyer] and 70% by [Seller]; and
  5. [Seller] shall bear [Buyer]'s attorneys' fees for this arbitration in the amount of Renminbi [RMB] 80,000.

This award is final.


FOOTNOTES

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

*** JIANG Chi is an Associate with the New York office of Debevoise & Plimpton LLP.

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