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CISG CASE PRESENTATION

China 6 November 2000 CIETAC Arbitration proceeding (Marble building materials case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/001106c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20001106 (6 November 2000)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2000/12

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Singapore (claimant)

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

GOODS INVOLVED: Marble building materials


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade Arbitration
Commission (CIETAC) (now South China Branch) 6 November 2000 (Marble building materials case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/112],
CLOUT abstract no. 1105

Reproduced with permission of UNCITRAL

Abstract prepared by Weidi Long

A Chinese buyer and a Singaporean seller entered into a contract of sales of marble stone. The buyer delayed part of the payment to the seller after receiving the goods. Following fruitless discussions with the buyer, the seller initiated arbitration proceedings in accordance with the arbitration agreement in the contract, and asked the Arbitration Tribunal to order the buyer to pay the money and the interest. The buyer, on the other hand requested the Tribunal to order the seller to replace the goods that did not meet the required standard of quality and to compensate the buyer for the damages caused.

The parties did not establish in the contract which law would govern it. The Tribunal therefore determined, on the basis of such links as the place of business of the buyer and the place for the delivery of goods, that the law of the country most closely connected to the contract, i.e. the domestic law of China, would be applied. The Tribunal further held that, since the place of business of both the buyer and the seller was situated in the territory of two States Parties to CISG, the Convention should take precedence for the settlement of disputes relating to the contract.

Concerning the dispute over the payment for the goods, the Tribunal held that the contract clearly provided that the method of payment was a letter of credit. The seller would hand the original copy of the bill of lading over to the buyer only on condition that the buyer requested and promised to accept all risks to allow him to take delivery of the goods. In view of this and the principle of good faith (Article 7 (1) CISG), the Tribunal ruled that the buyer had an obligation to make prompt payment for the goods (Article 53 CISG) upon receiving the original bill of lading and taking delivery of the goods. This obligation to pay immediately for the goods was not affected by the dispute over the quality of the goods, which arose after they had been accepted.

Concerning the buyer's counterclaim with regard to the quality of the goods, the Tribunal held that, under Article 38 CISG, as long as the buyer had a reasonable opportunity to inspect the goods at the port of destination, it should not normally delay inspection till the goods had arrived at a new port of destination. Since the buyer had failed to inspect the goods at the port of destination, it was difficult to determine whether the defects in the goods had existed prior to delivery or had occurred during their onward journey from the port of destination to Shanghai. The Tribunal finally ruled, however, in view of the relevant evidence, that the seller must accept appropriate responsibility for the quality of the goods.

The Tribunal's final decision was that the buyer ought to pay the seller for the goods plus interest (Article 78 CISG), after a deduction for the defective goods delivered by the seller.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 7(1) ; 38 ; 39 ; 53 ; 62 ; 78

Classification of issues using UNCITRAL classification code numbers:

7A3 [Observation of good faith];

38A [Buyer's obligation to examine goods: time for examining goods];

39A2 [Requirement to notify seller of lack of conformity of goods: buyer must notify seller within reasonable time];

53A [Buyer's obligation to pay price of goods];

78A [Interest on delay in receiving price or any other sum in arrears]

Descriptors: Good faith ; Examination of goods ; Lack of conformity notice, timeliness ; Price ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Unavailable

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

Marble case (6 November 2000)

Translation [*] by Meihua Xu [**]

Translation edited by William Zheng [***]

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

   -    The arbitration clause in the contract signed by Claimant [Seller], Singapore __ Company, and Respondent [Buyer], China Ningbo __ Import & Export Company; and
 
   -    The written arbitration application submitted by [Seller].

On 26 November 1999, the Secretariat of the Shenzhen Commission sent the arbitration notice to the two parties.

After receiving the [Seller]'s arbitration application and the evidence and the arbitration materials sent by the Secretariat of the Shenzhen Commission, the [Buyer] raised a jurisdiction objection to the Arbitration Commission on 17 December 1999. On 26 April 2000, the Arbitration Commission made its jurisdiction decision, confirming that the Shenzhen Commission had jurisdiction over this case, and that the arbitration process should be continued. The [Buyer] submitted its arbitration defense later.

According to the Arbitration Rules of the Arbitration Commission (which became effective on 10 May 1998, hereafter, the "Arbitration Rules"), on 9 May 2000, Arbitrator D appointed by the [Seller], Arbitrator Y appointed by the [Buyer], and the Presiding Arbitrator H appointed by the Chairman of the Arbitration Commission on behalf of the two parties, formed the Arbitration Tribunal to hear this case. After a discussion with the Secretariat of the Shenzhen Commission, the Arbitration Tribunal decided to hold a court session in Shenzhen on 20 June 2000.

The Secretariat of the Shenzhen Commission sent the Arbitration Tribunal formation notice and the court session notice to the two parties. On 20 June 2000, a court session was held in Shenzhen. Both parties attended the court session. The Arbitration Tribunal heard the parties' statements and arguments, asked questions, and made investigations. The [Buyer] submitted an arbitration counterclaim at the court session.

According to Article 18 of the Arbitration Rules, the Arbitration Tribunal deemed that since the [Buyer] raised a jurisdiction objection over this case, the deadline for the [Buyer] to file a counterclaim should properly be postponed, and that the counterclaim should be processed together with this case. Considering that the [Seller] should be given a reasonable time to submit a defense to the [Buyer]'s counterclaim, the Arbitration Tribunal decided to hold a second court session at a proper time.

On 10 August 2000, the Arbitration Tribunal held a second court session in Shenzhen. Both parties attended the court session. They made statements and arguments on the [Buyer]'s counterclaim. The Arbitration Tribunal asked questions and conducted investigation.

This case has been concluded. The Arbitration Tribunal handed down this award. The following are the facts, the Tribunal's opinion and award.

I. FACTS

In May 1998, the [Buyer] and the [Seller] signed the contract in this case, by which the [Buyer] was to purchase cream arena marble. During the performance of the contract, the parties had a dispute.

[Seller]'s claim

[Seller] filed an arbitration application with the Shenzhen Commission based on the arbitration clause in this case, asking the Arbitration Tribunal to rule that:

   1. [Buyer] should immediately pay the price in arrears, i.e., US $68,849.76, and the contract violation fee for the delayed payment of US $9,638.82 (calculated to 12 November 1999, totaling 350 days, based on 4/1000/day);
 
   2.     [Buyer] should bear the arbitration fee and the attorneys' fee;

Later, the [Seller] modified the first claim, the ending date of the contract violation fee, to the day of the first court session.

[Buyer]'s counterclaim

The [Buyer] counterclaims that:

   1.     [Seller] should exchange the non-conforming 249.68m marble;
 
   2.     [Seller] should pay the financial loss of the [Buyer] due to the non-conforming goods it provided, i.e., US $10,577.22 (price difference of US $14/m 755.516 m);
 
   3.     [Seller] should bear the counterclaim fee and the [Buyer]'s attorneys' fee.

[POSITION OF THE PARTIES]

[Seller]'s position

The [Seller] alleges that:

On 8 May 1998, via corresponding faxes, the two parties drafted a sample of the contract for the sales of cream arena marble in this case.

   -    On 11 May, the [Seller] suggested some modifications to the [Buyer];
   -    On 18 May, the [Buyer] notified the [Seller] that the L/C had been issued;
   -    On 30 June, the [Seller] requested to modify the loading date and the expiration date of the L/C to 30 July 1998 and 15 August 1998;
   -    On 7 July, the L/C issuing bank, __ Commercial Bank Ningbo Branch in Zhejiang Province (hereafter, "A Bank") issued an L/C modification notice, changing the loading date to 30 July and the expiration date to 15 August;
   -    On 9 July, the [Buyer] asked the [Seller] to modify the destination port for the remaining goods to Hong Kong.
   -    On 13 August, as requested by the [Seller], the [Buyer] agreed to modify the L/C again;
   -    On 14 August, the L/C issuing bank modified the loading date to 15 August and 15 September 1998;
   -    On 17 August, the [Buyer] asked to take delivery of the goods in Hong Kong;
   -    On 27 August, for the convenience of the [Buyer] to receive the goods in Hong Kong, the [Seller] provided the original B/L for the 1,110.48 m marble in the sixth delivery to the carrier, and the [Buyer] received the goods on time. The [Buyer] indicated that it was going to inform the bank to accept the inconsistency between the L/C and B/L under the circumstance that the [Seller] was unable to provide the original B/L;
   -    On 7 September, the [Buyer] alleged that according to the new regulation, banks were not allowed to make payment without a B/L and asked the [Seller] to re-issue the B/L from the shipping company immediately in order to negotiate the payment on time;
   -    On 23 October, A Bank gave notice to the [Seller]'s bank in Singapore, confirming that the [Buyer] was to accept the price on 22 November 1998, however, the [Buyer] has not yet paid the US $68,849.76 for the 1,110.48m marble to the [Seller].

[Buyer]'s defense

The [Buyer] counter argues that:

The goods which the [Buyer] purchased are provided to JD Stone Company (hereafter, "JD Company"- note by the Arbitration Tribunal) for construction. The contract stipulated that the [Buyer] shall make delivery of the goods by 24 August 1998. Because the [Seller] (it was indicated as [Buyer] in the original text - noted by the translator) repeatedly extended the delivery deadline, the [Buyer] breached the contract with JD Company.

In order to receive the goods as soon as possible and mitigate the loss, the [Buyer] had to ask the [Seller] to make delivery of the goods to Hong Kong to shorten the transportation time. When the [Buyer] was asking to take delivery of the goods in Hong Kong, it informed the [Seller] clearly that there was no risk of payment being rejected as long as the documents are complete and in accordance with the L/C.

On 27 August 1998, the [Seller] stated clearly by written document that it would be a severe inconsistency with the L/C to negotiate payment without a B/L, and asked the [Buyer] to explain to the L/C issuing bank to accept this inconsistency, which indicated that the [Seller] was willing to bear the risk after knowing that the inconsistency could result in non-payment.

The [Seller] gave the original B/L to others in its own judgment; therefore, it should be liable for the non-payment under the L/C.

The goods in the first delivery had defects. The [Buyer] had raised this issue by written document, asking for the [Seller]'s prompt response. On 6 August 1998, due to the still existing severe defects, the [Buyer] informed the [Seller] again, asking the [Seller] to guarantee the quality of the goods to be delivered later.

On 29 August 1998, [Buyer]'s customer, JD Company, marked the marble with severe defects after receiving a large quantity of goods with cracks, and informed the [Buyer] by written document. The [Buyer] faxed the aforesaid document to the [Seller], seeking settlement. That which was unacceptable by the [Buyer] was that the goods in the last delivery made by the [Seller] still had severe defects.

On 4 September 1998, the [Buyer] sent a fax demonstrating the defects including the crack situation to the [Seller], asking the [Seller] to send staff immediately to settle the problem.

On 20 October 1998, the [Seller] sent an employee to the warehouse to check the goods, confirming that there were severe defects in the goods and listing as many as eighteen kinds of defects.

On 26 October 1998, the representative of the [Seller], Xia, Yuanqing, informed JD Company and the [Buyer] in writing that it had confirmed the defects on the goods and agreed to deduct part of the quantity of the goods. However, due to its unreasonable calculation method, the [Buyer] did not accept this.

The [Seller] was rejected payment due to lack of B/L, and the [Seller] realized the severity of the problem by receiving the quality objection raised by the [Buyer]. Therefore, the two parties signed an agreement on 18 January 1999, by which the [Buyer] was to sort the defective goods from the conforming ones, and the [Seller] was to exchange them for marble with the same area. The [Buyer] was supposed to make payment after exchange. This agreement reflected the true minds of the two parties, confirming that the [Buyer]'s making payment was a civil act with conditions.

On 2 February 1999, the [Buyer] faxed the written document indicating the defects on the goods sorted by delivery, asking for exchange. On 4 February the same year, Xia, Yuanqing of the [Seller] faxed to the [Buyer], alleging that "we are going to complete exchanging goods soon to receive the payment that you should pay to us", which again confirmed the "exchange before payment" principle.

[Seller]'s response

The [Seller] alleges that:

Based on the [Buyer]'s request and promise, the [Seller] agreed to modify the destination port when the goods were being transported, bearing the risk that the bank might reject payment due to the inconsistency between the L/C and the B/L. The [Seller] also returned the original B/L to the carrier without receiving payment to enable the [Buyer] to take delivery of the goods in Hong Kong, with the result that payment to the [Seller] was rejected because it was unable to provide the original B/L.

After receiving the goods, the [Buyer] promised to make payment by L/C, and asked the [Seller] to re-issue an original B/L merely due to the inconsistency between the L/C and the B/L. On 23 October, the [Buyer] asked A Bank to promise to the [Seller] that the payment would be made on 22 November.

The above facts indicate that the [Buyer] was promising to make payment after receiving the goods for two months without raising any objection. However, the [Buyer] failed to make payment in accordance with the contract, and later delayed and even refused to make payment raising quality problems.

The [Buyer]'s refusal to make payment by raising quality problem is not in accordance with the objective facts.

Marble is a natural product, and it is fragile and gets crackled easily. Based on business usages, the buyer is required to inspect the goods on site at the departure place; meanwhile, the marble sample was just a sample, and the goods should be considered conforming if they basically conform to the requirement. The [Buyer] was clearly aware of this; therefore, it indicated in its fax sent on 6 May 1998 that it was to send an employee to check the goods.

On 11 May 1998, the [Seller] mentioned in section 5 of the fax sent to the [Buyer] that the [Buyer] shall send staff to check the goods at the departure port, and the [Buyer] had not raised any objection to this by written document. During the performance of the contract, the [Buyer] actually sent staff to check the goods. On 9 May and 11 May 1998, the [Buyer] sent a fax to the [Seller]'s Shenzhen Office, asking for the [Seller]'s help to apply visa and prepare related entry documents. The [Buyer] did not raise a quality objection after inspecting the goods.

After inspecting goods in the first delivery, the [Buyer] did not send staff to check the goods for the remaining deliveries afterwards, but indicated in the L/C clause that the [Seller] shall issue two inspection certificates. The [Seller] has fulfilled this obligation.

Based on the contract in this case and the written documents, the [Seller] made the first five deliveries to Ningbo, and the sixth delivery to Hong Kong. After the goods arrived at Ningbo and Hong Kong, the [Buyer] redirected the goods to Shanghai. Even though the contract did not stipulate that the goods should be inspected at the departure port, in accordance with trade usages, they should be inspected at the destination port. However, the [Buyer] failed to provide any written evidence showing that the goods were inspected at the destination port and that there were defects on them.

Now the goods have been transported to another place other than the destination port, have been resold to a third party, and have been inspected by a third party without the presence of the [Seller]. Not mentioning the reliability of the inspection result issued by the inspection agency, or whether there were damages during the transportation, based on the original inspection list prior to storage provided by JD Company, there was only 197.04m of marble with cracks or shortness provided by the [Seller].

The [Seller] was acting with discretion after knowing that about 200m of goods it delivered to the [Buyer] had defects. Even though the contract stipulates that the [Buyer] shall inspect the goods at the departure port, and that the [Seller] is not responsible for the quality problems occurred afterwards, considering the two parties' long term business relationship and the nature of marble, on 20 and 22 October 1998, the [Seller] sent its staff at its Shanghai Office to a third place to re-inspect the goods. The re-inspection was conducted in the presence of the [Buyer] and the third party, and there were only 25.353 m of marble with defects even calculated under a loosened size requirement.

The [Seller] made a compromise with the [Buyer] after the re-inspection, agreeing to exchange the 25.353 m of marble, however, the [Buyer] not only showed no cooperation to the exchange but also refused to make payment. [Note: For this 25.353 m of marble, the [Buyer] and the [Seller]'s Shenzhen Office had reached an agreement on the delayed payment case filed with the Intermediate People's Court in Ningbo City, and the Shenzhen Office agreed to deduct this potion of the goods.]

On 25 January 1999, the [Buyer] alleged again that there were 800m of marble with defects.

Since the marble was under the control of the [Buyer]. In order to mitigate the loss, the [Seller] even agreed to exchange 200m of marble as alleged by the [Buyer]. However, the [Buyer] was insatiable, and the quantity of the defective goods was increased tremendously from the original 200m to 800m. Having no alternative, the [Seller] had to file the arbitration claim, seeking protection under Chinese law.

II. OPINION OF THE ARBITRATION TRIBUNAL

The [Buyer] and the [Seller] did not stipulate the applicable law in this case. Since the [Buyer]'s place of business is in China, the contract was formed based on the [Buyer]'s conditions and offer, and the deliveries were made at the [Buyer]'s place of business (except the place for the sixth delivery was modified to Hong Kong), based on the proximate connection principle, the Arbitration Tribunal deems that the applicable law of the contract including the applicable law to the dispute in this case should be Chinese domestic law.

In addition, the [Seller]'s place of business is in Singapore, and the [Buyer]'s in China. Both Singapore and China are Contracting States of the United Nations Convention on Contract for the International Sales of Goods (hereafter, the "CISG"); therefore, the CISG has priority to be applied in this case.

(1) The content and the effectiveness of the contract

After investigation, the basic facts regarding the contract formation in this case are:

The [Buyer] first sent the contract draft to the [Seller], and the [Seller] suggested certain modifications. The contract was then signed after several negotiations and modifications. The date indicated on the contract was 8 May 1995. After negotiation and modification, the contract was actually formed on 15 May 1998.

The Arbitration Tribunal notes that the contract was formed based on the two parties' equal negotiation, which reflects the true minds of the two parties; therefore, it is effective and has binding effect on the two parties.

The contract has the following terms:

The [Buyer] was to purchase cream arena marble from the [Seller].

      1. Name of the goods, specification, unit price, and total price

            A. Specification: cream arena marble 2cm thick; quantity: 3,000m; unit price: US $62/ m; total price: US $186,000;

            B. Specification: cream arena marble 5cm thick; quantity: 30m; unit price: US $100/ m; total price: US $3,000;

Total quantity: 3,030m; price: US $189,000

      2. Price term. CNF Ningbo, China

      3. Payment term. 90 days irrevocable L/C at sight of B/L

      4. Packaging. In wooden box

      5. Loading port. Singapore

      6. Destination port. Ningbo, China

      7. Shipping requirement. The first delivery of goods must include 30m of 5cm marble and at least two of 20' containers of 2cm marble and should be loaded by 5 June. The remaining goods should be loaded by 30 June.

      8. Expiration date. 15 July 1998

      9. Quality requirement. The color, veins of the goods should conform to the sample goods signed by Mr. Huang, Hanhao, and the [Seller] should guarantee that at least 50% of the entire goods have no dark spots, no obvious crackles, and the base is cream color.

      10. Documents

(1) Four copies of business invoices with contract number and L/C number;
(2) Full set of clean B/L;
(3) Four copies of packing list;
(4) Two copies of Quality certificate;
(5) Certificate of Origin;

      11. Delivery of documents. The [Seller] shall send the negotiating documents to the negotiating bank within eight business days after loading, and shall fax the invoice, packing list, and B/L to the [Buyer].

      12. Compensation clause. The [Buyer] shall claim compensation within 30 days after the goods arrive at Ningbo port if it has objection to the quality of the goods; the [Buyer] shall claim compensation within 15 days from the [Seller] if it has objection on the quantity of the goods.

(2) The price for the goods

It was found that the goods were delivered by installment shipment. The [Seller] has confirmed that the [Buyer] has made payments for the first five shipments by L/C, and the [Seller] is asking payment for the sixth delivery. The two parties agreed that the payment for the sixth delivery, i.e., US $68,849.76 is in dispute.

The Arbitration Tribunal notes that the payment term in the contract was "90 days irrevocable L/C" at sight of B/L", and the destination port was Ningbo, China.

The evidence shows that:

On 17 August 1998, the [Buyer] sent a letter to the [Seller], saying that the [Buyer] was badly in need of cream arena marble for construction use. In order to save time, the [Buyer] asked to take delivery of the goods in Hong Kong, and the [Buyer] promised that it would be responsible for the result that occurred due to that.

On 18 August 1998, the [Buyer] sent a letter to the [Seller] again, asking for the [Seller]'s agreement on taking delivery of the goods in Hong Kong, which would enable the [Buyer] to receive the goods earlier. The [Buyer] clearly indicated that the [Seller] could negotiate payment from the bank as long as the documents conform to the terms in the L/C, and that there was no risk to the [Seller].

On 27 August 1998, the [Seller] sent a letter to the [Buyer], alleging that the shipping company would not inform its Hong Kong agent to release the goods unless the [Seller] provided the original B/L to the shipping company, therefore, the [Seller] had to negotiate payment without the B/L, which was a severe inconsistency with the L/C. The [Seller] asked the [Buyer] to have the bank issue a confirmation letter on US $68,849.76 P.O. payment with the content that the bank would accept the inconsistency, and that the bank would make payment as soon as the documents were received.

On 27 August 1998, the [Buyer] replied that it had already informed the bank to accept the inconsistency. The goods had arrived in Hong Kong, and the [Buyer] asked the [Seller] to contact the related company to release the goods, otherwise, a demurrage charge would be incurred. The [Buyer] alleged in this letter that, under this circumstance, only the [Seller] was qualified to contact and authorize the shipping company to settle the issue.

Based on investigation, after being requested by the [Buyer] repeatedly, the [Seller] indicated to the carrier to deliver the original B/L to the [Buyer] after the goods in the sixth delivery arrived in Hong Kong. The [Buyer] took delivery of the goods in Hong Kong after receiving the B/L. However, after taking delivery of the goods, on 7 September 1998, the [Buyer] sent a letter to the [Seller], alleging that in accordance with the latest regulations, banks were not allowed to negotiate payment without the B/L. The [Buyer] has not made payment of US $68,849.76 for the sixth delivery.

The Arbitration Tribunal notes that it was clearly stipulated in the contract that the payment should be made by L/C, and the [Seller] provided the original B/L to the [Buyer] to take delivery of the goods under the situation that the [Buyer] requested and promised that it would bear the entire risk. Based on the facts and the principle of good faith, the [Buyer] was obligated to make payment after receiving the original B/L and taking delivery of the goods. This obligation should not be affected by the related organization's announcement or by quality objection.

At the court session, the [Buyer] argued that it did not make payment because the [Seller] wanted to bear the risk that the inconsistency between the documents and the L/C might cause it to be unable to receive payment and the requirements for its making payment were not satisfied. The [Buyer]'s aforesaid argument lacks factual basis. The Arbitration Tribunal does not accept it. The [Buyer] should pay the price in arrears, i.e., US $68,849.76, and the interest on it.

Based on related evidence, the [Buyer] received the original B/L on 27 August 1998. In accordance with the stipulation that the payment should be made 90 days after receiving the B/L, the [Buyer] should have made payment on or before 25 November 1998. Referencing the bank loan interest rate, the [Buyer] should pay interest to the [Seller] calculated from 25 November 1998 to the day of actual payment at a 7% annual interest rate.

(3) Quality problems with the goods

The evidence shows that the [Buyer] and its customer, JD Company, signed a sales contract for imported marble on 27 April 1998.

On 18 May 1998, the [Buyer] sent a letter to the [Seller], stating that since the goods were to be used for construction, special specifications were required, such as that the 2cm thick marble should be more than 1.3m height, and the length should be 1.8 ~ 2.5m. On the same day, the [Seller] replied that the goods to be delivered were higher than 1.3m, and that the length of the goods were 1.8 ~ 2.4m.

On 9 June 1998, the [Buyer] sent a letter to the [Seller], alleging that there were goods shorter than 1.3m in the packing list of the first delivery and asking the [Seller] to guarantee that same thing would not happen to the remaining deliveries.

On 3 July 1998, the [Buyer] sent a letter to the [Seller], claiming that among the goods in the first container, No. 1 batch had insufficient polishing and obvious cracks were discovered on the diagonal lines in No. 5 batch.

On 6 August 1998, the [Buyer] sent a letter to the [Seller], alleging that No. 112 and No. 113 batches of goods delivered the day before had severe cracks on the diagonal lines and uneven polishing; No. 112 batch were short of quantity; colors on the polished surface in No. 108 and No. 109 batches are different from that of the sample and there were crackles on many places and non-conforming veins on the surface in No. 102, 110, and 111 batches, there were cracks and veins and defect on color,.

On 4 September 1998, the [Buyer] resent a letter to the [Seller] advising that the quantity shortness that it was alleging had sufficient evidence. The [Buyer] asked the [Seller] to send staff to check the size and the locations of the cracks.

On 20 to 22 October 1998, the [Seller] sent staff to the [Buyer]'s place to check the condition of the goods. On 28 October, the [Seller] sent a letter to the [Buyer], confirming that based on "inspection list prior to storage by Chenchang Brother Stone Company" (hereafter, "Chenchang list") provided by the [Buyer], the [Seller] had sent staff to the site to re-inspect the goods. Pursuant to the re-inspection result, the sizes of the goods conformed to the original list. As to the cracks, the [Seller] would give proper consideration, but for the size, the [Seller] could only give a 25.353m deduction.

The Arbitration Tribunal notes that based on the "Stone inspection list prior to storage" issued on 25 January 1999 by JD Company (hereafter, "JD list") provided by the [Buyer], the quantity of marble which needed exchange was 857.318m, however, the quantity in the [Buyer]'s exchanging list was 249.681 m. These goods involved No.1 ~ No. 6 batches of goods. Only No. 1 and No. 5 batches were found in both the JD list and the [Buyer]'s exchanging list; however, these two batches of goods were not listed in the Chengchang list, which has been re-inspected by the [Seller].

The Arbitration Tribunal also notes that the [Buyer] has admitted that it had "negotiated with JD Company to discount the price for the defective goods which were to be used on other constructions." JD Company has not paid for this marbles, raising that there were more than 200m of marble which could not be used at all and is still stored in the ware house.

The Arbitration Tribunal notes that the goods were sold at a discounted price due to the defects on the goods. Normally, the purchaser of the discounted goods has no reason to raise objection on the quality of the goods knowing that the goods are discounted for poor quality.

In order to discover the facts, at the court session, the Arbitration Tribunal asked the [Buyer] to submit the agreement it reached with JD Company on the discounted goods. However, the [Buyer] failed to submit any document to prove that it had actually sold the defective goods to JD Company at a discounted price; therefore, the Arbitration Tribunal cannot accept the [Buyer]'s assertion that it had sold the goods at a discounted price and that 249.681m of the goods still could not be used. The [Buyer]'s claim to exchange the aforesaid 249.681m of goods is not acceptable either.

The evidence shows that the [Buyer] imported 1,050m of 20mm marble from Taiwan. The [Buyer] asserted that most of the aforesaid goods were used to replace the defective goods provided by the [Seller].

The Arbitration Tribunal notes that the name of the 20mm marble the [Buyer] purchased from the [Seller] was Cream Arena at a unit price of US $62/m, and the name of the marble imported from Taiwan was Golden Beige at a unit price of US $76/m. The names of the goods are different and there is a price difference of US $14/m between the two.

The [Buyer] alleges that it imported Golden Beige to replace Cream Arena, however, it failed to prove that the Golden Beige which it purchased was actually 755.516 m. On the contrary, based on the court session, there were consistent and incomprehensive conflicts on the [Buyer]'s calculation of quantities of the goods delivered and those to be exchanged. In addition, as analyzed above, since the [Buyer] failed to prove that it actually sold to JD Company the goods which could not be used on construction at a discounted price, its allegation that it imported goods from Taiwan to replace the defective goods provided by the [Seller] lacks basis.

Moreover, the [Buyer] failed to prove that the marble imported from Taiwan was actually used to replace the [Seller]'s defective goods; therefore, the [Buyer]'s claim that the [Seller] should pay the price difference of US $10,577.22 for 755.516m of marble because the defective goods provided by the [Seller] could not be used on construction, and the [Buyer] had to import goods to replace them, lacks sufficient evidence, which is not acceptable.

It was stipulated in the contract that the [Buyer] shall claim compensation from the [Seller] within 30 days after the goods arrived at Ningbo port and that for a quantity objection, the [Buyer] should raise its objection within 15 days after the arrival of the goods. However, no evidence shows that prior to filing the arbitration counterclaim, the [Buyer] had claimed damages from the [Seller] within 30 days after the goods arrived at the destination port based on inspection. Based on related evidence, the [Buyer] sent staff to the departure port, Singapore, to inspect the goods in the first delivery, and the remaining goods were inspected in Shanghai.

According to the CISG, the examination should not be deferred until after the goods have arrived at the new destination after redirection or re-dispatch if the [Buyer] has reasonable opportunity to inspect the goods at the destination port. Based on related evidence and the court session, the [Buyer] had a reasonable opportunity to inspect the goods at the destination port. Moreover, the contract goods in this case, marble, is fragile. Therefore, the [Buyer] should have inspected the goods at the destination port. Since the [Buyer] failed to inspect the goods at the destination ports, Hong Kong and Ningbo, it is difficult to determine whether the defects on the goods existed prior to delivery or occurred during the redirection from the destination port to Shanghai.

However, based on related evidence, part of the goods delivered by the [Seller] had problems, such as cracks and polishing. Obviously, these problems could not occur after the [Buyer] received the goods. Moreover, the evidence shows that the [Buyer] had repeatedly raised quality objections on the goods to the [Seller] after it inspected the goods in Shanghai. The [Seller] alleges that the [Buyer] had never raised quality objection before taking the sixth delivery, which does not conform to the facts, and the [Seller] should take certain responsibility for the defects on the goods.

The evidence shows that the [Seller] clearly indicated that it would give a 25.353 m deduction after the inspection in Shanghai. Based on the facts and the evidence, and the principle of equal and reasonableness in the Civil Code of the PRC, an additional 20 m of deduction should be added to the original deduction confirmed by the [Seller], i.e., 25.353 m, totaling 45.353 m and US $2,811.87. This amount should be deducted from the price which the [Buyer] should pay to the [Seller], i.e., US $68,849.76; therefore, the [Buyer] should pay US $66,037.89 and the interest on it to the [Seller].

(4) Attorneys' fee and arbitration fee

The two parties claim to have the other party bear the attorneys' fee and the arbitration fee. The [Seller] only submitted an agent entrustment contract as the evidence for attorneys' fee. The Arbitration Tribunal deems that this is not sufficient to prove that the [Seller] has actually paid US $10,000; therefore, this claim of the [Seller] is not acceptable.

As to the [Buyer]'s attorneys' fee, the Arbitration Tribunal dismisses it.

The [Seller] shall bear 30% of the arbitration fee and the [Buyer] shall bear 70%.

III. THE AWARD

The Arbitration Tribunal rules that:

      (1) The [Buyer] shall pay to the [Seller] the price for the goods of US $66,037.89 and the interest on it within 30 days of this award. The interest shall be calculated from 25 November 1998 to the day of actual payment at a 7% annual interest rate, 7% annual interest shall be added to late payment;

      (2) [Buyer]'s and [Seller]'s other claims are dismissed;

      (3) The [Buyer] and the [Seller] shall bear the arbitration fee jointly.

This is the final award.

Presiding Arbitrator:

Arbitrator:

6 November 2000 in Shenzhen


FOOTNOTES

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

** 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.

*** William Zheng is a graduate of the Pace University School of Law. He is Special Counsel with the Shanghai office of Sheppard Mullin Richter & Hampton, LLP.

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Pace Law School Institute of International Commercial Law - Last updated January 20, 2012
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