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CISG CASE PRESENTATION

China 8 August 2000 Supreme People's Court [Supreme Court] of the People's Republic of China (Lianhe Enterprise (US) Ltd. v. Yantai Branch of Shandong Foreign Trade Co.) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000808c1.html]

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

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Case identification

DATE OF DECISION: 20000808 (8 August 2000)

JURISDICTION: People's Republic of China

TRIBUNAL: Supreme People's Court [Supreme Court] of the People's Republic of China

JUDGE(S): Wang Yun (Chief Judge), Chen Bailing and Qian Xiaochen (Assistant Judges)

CASE NUMBER/DOCKET NUMBER: (1998) Jing Zhong Zi Di No. 358

CASE NAME: Lianhe Enterprise (US) Ltd. v. Yantai Branch of Shandung Foreign Trade Co.

CASE HISTORY: 1st instance Shadong Province High People's Court

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

BUYER'S COUNTRY: United States (defendant)

GOODS INVOLVED: Garlic


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 1(3) [Also cited: Article 53 ]

Classification of issues using UNCITRAL classification code numbers:

1C2 [Basic rules of applicability: nationality of parties irrelevant]

Descriptors: Applicability

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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): Click here for Chinese text of case; see also CISG-China Case [SPC/03]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=103>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Supreme People's Court of the People's Republic of China
Lianhe Enterprise (US) Ltd. v. Yantai Branch of Shandong Foreign Trade Co.

8 August 2000

Translation [*] by Zheng Xie [**]

-   Facts identified by the Court
-   Ruling of the Shandong Province High Court
-   [Buyer]'s appeal
-   [Seller]'s response
-   Holding of the Supreme People's Court

-   Comments by a scholar of China

The Appellant, Lianhe Enterprise (US) Ltd. [Buyer], objected to the Shandong Province High People's Court's Civil Judgment (1998) Lu Fa Jing Chu Zi Di No. 11 on the dispute with the Appellee, Yantai Branch of Shandong Foreign Trade Co. [Seller], regarding their sales contract and appealed to this Court. Judge Wang Yun as the Chief Judge, Assistant Judge Chen Bailing, and Assistant Judge Qian Xiaochen formed the collegial bench to hear this case. Clerk Huang Xiaoli recorded the hearing. This case was closed.

FACTS IDENTIFIED BY THE COURT

On 16 June 1993, the [Buyer] and the [Seller] signed the first of three contracts, Sales Confirmation No. SY931232 stipulating that:

   -    The [Seller] should sell to the [Buyer] 1,300 tons of garlic with diameter of 5cm and length of 1.5cm;
   -    The unit price was US $580 CIF, and the total price was US $750, 000.

On 5 August 1993, the parties signed two additional contracts: Sales Confirmation Nos. SY931215(A) and SY931215.

Sales Confirmation No. SY931215(A) confirmed that:

   -    The [Seller] should sell to the [Buyer] 1,300 tons of garlic with diameter of 5cm and length of 1.5cm;
   -    The unit price was US $480 CIF, and the total price was US $786,500.

Sales Confirmation No. SY931215 confirmed that:

   -    The quantity was 1,200 tons;
   -    The unit price was US $480 CIF, and the total price was US $624,000, but did not stipulate the specification.

All three of these contracts stipulated that:

   -    The shipping period was June to December 1993;
   -    The loading port was a port in China;
   -    The payment term was a 100% irrevocable sight L/C valid 15 days after shipping and negotiated in China;
   -    Regarding objections to the quality or quantity of the goods: The [Buyer] should claim damages based on quality problems within one month after the goods arrive at the destination port, and should make claims based on quantity problems within fifteen days after the goods arrive at the destination port.

After signing the Sales Confirmations, from 3 July 1997 to 6 November 1997, the [Seller] shipped thirty-nine installments from Qingdao port and Yantai port to New York, Chile, Los Angeles, etc., respectively, totaling 3,974 tons of garlic for the total price of US $2,055,972.50. The [Buyer] paid the [Seller] US $120,000 at the end of 1993, but still owed US $1,935,972.50 of the contract price.

In addition, this Court also found that on 9 December 1993, the [Buyer] informed the [Seller] of the quality problem of the goods. Thereafter, the parties negotiated through correspondence, but did not reach any agreement. On 7 and 12 July 1994, the parties signed two Memorandums confirming that:

   -    1993 units totaling 3,974 tons were shipped and received;
   -    The bills of lading were issued for installments one through thirty-nine, respectively;
   -    Before the goods arrived at the destination port, the [Seller] delivered thirty-eight sets of documents (including bills of lading, invoices, packing lists, commodities inspection certificates, plant quarantine certificates, etc.) to the [Buyer].

The parties also confirmed that:

   -    The quantity complied with the Sales Confirmations, and the documents were consistent;
   -    The first thirty-one installments, totaling 119 units, had no severe problems, and had been sold out;
   -    However, among the thirty-second through thirty-ninth installments, totaling eighty units, twenty units had not been inspected by USDA, and the other sixty units had been inspected by USDAI which found some quality problems;
   -    The problems should be negotiated by the parties to determine liabilities.

On 25 February 1998, the [Seller] filed its lawsuit with the Shangdong Province High People's Court requesting the [Buyer] to pay the remaining contract price of US $1,935,972.50, and to compensate for the relevant loss and liquidated damages, and to bear the litigation fee.

RULING OF THE SHANDONG PROVINCE HIGHER PEOPLE'S COURT

After hearing this case, the Shandong Province Higher People's Court held that:

      On 16 June and 5 August 1993, the parties confirmed three contracts for sales of garlic. These contracts reflected the parties' true intent, and did not violate the relevant law. These contracts were therefore legally valid.

      On 7 July 1994, in the meeting memorandums, the parties confirmed that the first thirty-one installments, totaling 2,379.25 tons in 119 units, which the [Seller] shipped to the [Buyer], had no severe problems and had been sold out; and that the [Buyer] should pay the [Seller] the contract price of US $1,214,642.50 and an overdue penalty of US $623,416.97.

      As to the thirty-second to thirty-ninth installments which the [Seller] shipped to the [Buyer], because the goods had some quality problems, the issue should be decided after the parties resolved the quality problems, and the [Seller]'s claims on these installments should be dismissed.

According to Article 53 of the United Nations Convention on Contracts for International Sales of Goods (CISG) and other relevant laws, the Court handed down the following judgment:

   -    The [Buyer] should pay the [Seller] the contract price of US $1,214,642.50 and the overdue penalty of US $623,416.97 within ten days after this judgment took effect;
 
   -    The [Buyer] should bear the litigation fee of RMB 90,150.

[BUYER]'S APPEAL

The [Buyer] objected to this judgment and appealed to the Supreme People's Court claiming that:

1. The Court of First Instance had no jurisdiction over this case. The contracts were signed in the U.S.; none of the contracts was performed in China, nor was the subject matter of the contracts in China; the [Seller] had no representative office and no property, which could be preserved, in China; in addition, there was no issue on locus delicti commissi; therefore, the lawsuit should be filed in the U.S.

2. The Court of First Instance severely violated the procedure stipulated in the law when hearing this case.

   (1)   The Complaint was not served through the requisite diplomatic method;
 
   (2)   The court session was held before the [Buyer]'s legal representative's proof of position and authorization was notarized;
 
   (3)   The time to submit relevant documents stipulated in the notice of responding to the action was unreasonable;
 
   (4)   The [Buyer] was deprived of the right to collect and submit evidence and respond to the action.

3. The Court of First Instance mistakenly identified the facts and mistakenly applied the law. The quality problems occurred in the U.S. Because the Court deprived the [Buyer] of its right to collect evidence, this caused the facts to be mistakenly identified. According to the principle of most proximate connection, the laws of the U.S. should apply. The Court of First Instance mistakenly applied only the United Nations Convention on Contracts for the International Sales of Goods. The places of delivery were in the U.S. and other countries. According to international customs, the quality of the goods should be determined by the inspection conducted at the place of delivery. The garlic, which the [Seller] delivered to the [Buyer], was inspected by the commodities inspection bureau of the U.S., which found quality defects. The [Buyer] has claimed for damages through U.S. courts and requests the Supreme People's Court to revoke the judgment handed down by the Court of First Instance.

[SELLER]'S RESPONSE

The [Seller] responded that the Court of First Instance had jurisdiction, and the procedure was consistent with the law, and the application of law was correct, so the judgment of the first instance should be sustained.

HOLDING OF THE SUPREME PEOPLE'S COURT

This Court holds that:

      All of the price terms stipulated in the three contracts were CIF; the loading ports were Qingdao or Yantai, China; therefore, all of the places of performance of these three contracts were in Shandong Province, and the Shandong Province High People's Court had jurisdiction in accordance with Article 243 of the Law of Civil Procedure of the People's Republic of China.

      The [Buyer]'s allegation that this case should be litigated in the U.S. lacks legal and factual basis, so this Court does not sustain it. In addition, the [Buyer] did not raised any objection to jurisdiction during the time to submit response, so according to Article 243 of the Law of Civil Procedure of the PRC, the [Buyer] lost the right to raise objection to jurisdiction, and this Court dismisses the [Buyer]'s objection to jurisdiction.

      The parties did not stipulate the applicable law in the contracts. Because the [Buyer] is a U.S. company, and the U.S. and China are Contracting States of the CISG, the CISG should apply to this case. The Court of First Instance correctly applied the CISG to the case. This Court does not sustain the [Buyer]'s allegation that the application of CISG in the first instance was wrong.

      The Court of First Instance served the Complaint on the [Buyer]'s legal representative, which did not violate the relevant law of the PRC; this was legally valid.

      During the proceedings before this Court, this Court requested the [Buyer] to submit a response to the issue on quality problems, etc., and the relevant evidence, and gave the [Buyer] sufficient time, but the [Buyer] did not submit; therefore, the [Buyer]'s allegation that the Court of First Instance did not provide it reasonable time to collect evidence, and violated the Law of Civil Procedure of the PRC was not established. As to the issue on quality of the goods, because the [Buyer] did not provide sufficient evidence, this Court does not sustain its allegation. Because the [Buyer] did not pay the remaining contract price according to the contracts, the ruling made by the Court of First Instance that the [Buyer] should pay the price was not inappropriate, so it should be sustained.

In sum, the Court of First Instance correctly identified the facts and correctly applied the law, and the judgment was appropriate, so it should be sustained. According to Article 153 of the Law of Civil Procedure of the PRC, this Court handed down the following judgment:

   -    The litigation fee for the first instance should be paid according the judgment of the first instance; and
   -    The litigation fee of RMB 90,450 for the second instance should be borne by the [Buyer].

This judgment is final.


Comments by a scholar of China

The disputes on payment of the contract price in this case arose in international sales of goods. The application of law, especially the United Nations Convention on Contracts for International Sales of Goods (CISG), was an issue in this case. Article 1 stipulates its sphere of application, i.e.,

"(1) This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State ..."

In addition, according to Article 6, the CISG is not a mandatory convention, "[t]he parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions." In other words, the parties can decide the applicable law in the contract; if they select the laws of one country as the applicable law, the laws they select should apply. However, when the parties do not stipulate the applicable law, the CISG shall apply to the contract. The application of CISG should be determined by the business places, not by the parties' nationalities; in other words:

   -    Even if the parties have the same nationality, the CISG shall apply if the conditions are satisfied;
 
   -    By virtue of the same reason, even if the parties have different nationalities, when their business places are in the same country, the CISG shall not apply.

If a party has more than one place of business, the place of business shall be determined by the principle of the most proximate connection. Furthermore, Article 2 and Article 3 stipulate the exclusion of application of CISG in some circumstances.

The parties in this case have different nationalities, i.e., China and the U.S. The facts described in the case show that the parties' domiciles were in China and the U.S., respectively. However, the parties' places of business were not described during the hearing of this case. Nevertheless, the facts indicated that the parties' places of business were in China and the U.S., respectively. If the parties' places of business were really in China and the U.S., respectively, the application of law decided by the Court was correct, but the reasoning of the Court was not sufficient. The [Buyer] alleged that:

   -    The Court of First Instance mistakenly applied the law and that, according to the principle of the most proximate connection, the contracts were signed in the U.S., and neither the performance place nor the subject matter of the contracts was in China, so the laws of the U.S. should apply; and that
 
   -    The Court of First Instance mistakenly applied the CISG.

The CISG provides that parties of different Contracting States can select the laws of one country as the applicable law and exclude the application of the CISG, but if the parties do not stipulate the applicable law, the CISG shall apply. The [Buyer]'s allegation that according to the principle of the most proximate connection, the laws of the U.S. should apply was not appropriate. In addition, the sales between the parities in this case were not excluded by Article 2 or Article 3 of CISG; therefore, because the parties' places of business were in China and the U.S., respectively, CISG should apply to the case.

The Court of First Instance held CISG should apply to the case; the Supreme People's Court held that because the [Buyer] was registered in the U.S., and because China and the U.S. are Contracting States of CISG, the application of the CISG by the Court of First Instance was correct. It seems obvious that the Supreme People's Court applied the CISG after considering the countries where the [Seller] and the [Buyer] are registered, i.e., their nationality. Such reasoning would be defective. Although China and the U.S. are Contracting States of the CISG, the application of the CISG is determined by the places of business of the parties not by the parties' nationality, so the reasoning of the Supreme People's Court was inappropriate.


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]; Defendant / Appellant of the United States 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].

** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.

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