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CISG CASE PRESENTATION

China __ February 2001 CIETAC Arbitration proceeding (Equipment, material and services case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/010200c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20010200 (__ February 2001)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2001/01 [Case file: 98 Shen Guo Zhong Zi No. 50]

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (respondent)

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

GOODS INVOLVED: Equipment, material and services (features of "turnkey" contract present)


Classification of issues present

APPLICATION OF CISG: Unclear. In their presentations, both Buyer and Seller cited provisions of the CISG as applicable. The Tribunal ruled that the law of China applies without specifically stating which law(s) of China it applied.

APPLICABLE CISG PROVISIONS AND ISSUES

CISG provisions cited: Articles 26 ; 33 ; 54 ; 71 ; 72 ; 77

Classification of issues using UNCITRAL classification code numbers:

Unavailable

Descriptors: Unavailable

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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): Unavailable

Translation: (English): Text presented below; see also China's Foreign Trade, Issue No. 306 (October 2002) 37-57 and Selection of Arbitration Cases-Commercial Arbitration <http://www.arbitration.org.cn/en/viewcontent.asp?id=55>

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

China International Economic and Trade Arbitration Commission
CIETAC (PRC) Arbitration award

Equipment, material and services case (__ February 2001)

Redaction [*] of translation by Guo Xiaowen

   Part One: The Facts and Issues

  1. Nature of the Contract
  2. The Performance Security
  3. The Issue of Opening the Letter of Credit
  4. Late Delivery of Equipment/Materials
  5. Short Delivery and Quality Inferiority
  6. Design and Technical Documents
  7. Installation and Training
  8. The Installation and Insurance Issue
  9. The Fourth Phase Project
  10. Mitigation of the Alleged Damages
  11. The Procedure to Terminate the Contract
   Part Two: The Tribunal's Findings
  1. Some Stipulations of the Contract
  2. The Applicable Law
  3. Issuance of Performance Security
  4. The Nature of the Contract, the Contract Validation Date, etc.
  5. The Issuance of the L/C
  6. Late Delivery
  7. Short Delivery and Quality Inferiority
  8. Design and Technical Documents
  9. Installation and Training
  10. Insurance
  11. Fourth Phase Project
  12. Procedure to Terminate the Contract
  13. The Buyer's Claims
  14. The Seller's Counterclaims
   Part Three: Award

[...]

Arbitral Award: (2001) Shen Guo Zhong Jie Zi No. ___

In accordance with the arbitration clause contained in Contract No. 96ML44-9328US ("the Contract") signed by and between the Buyer and the Seller, and the written Application for Arbitration submitted by the Buyer, CIETAC Shenzhen on June 22, 1998 took cognizance of the case arising from the above contract between the parties. (Case File: 98 Shen Guo Zhong Shou Zi No. 50).

The CIETAC Arbitration Rules effective as from May 10, l998 apply to the procedure of this case. According to the arbitration clause, the official language of arbitration shall be English.

The presiding arbitrator Mr. Zhang Yuqing, appointed by the Chairman of CIETAC due to the parties' failure of joint appointment, together with arbitrator Mr. Wu Xingguang appointed by the Buyer and arbitrator Mr. Wang Jiafu appointed by the Seller, formed on August 20, 1998 an Arbitration Tribunal to hear the case.

Mr. Wang Jiafu was not able to act as arbitrator in this case. On October 15, 1998, the Seller appointed Mr. Jerome Cohen as arbitrator to hear the case. On November 23, 1998, the Buyer made a formal request in writing to the Arbitration Commission for the removal of Mr. Cohen as an appointed arbitrator from his office. On January 4, 1999, the Chairman of the Arbitration Commission decided as follows:

1. The Buyer' request for the removal of Mr. Cohen from his office is rejected;

2. The proceedings shall continue according to the Arbitration Rules.

On July 22, 1999, the Tribunal held the first oral hearing in Shenzhen, China. The Buyer and the Seller appeared at the hearing.

From October 25 to 29, 1999, the Tribunal held the second oral hearing in Shenzhen. The Buyer and the Seller appeared at the hearing.

The parties to this case tried to settle the disputes by themselves and under the Tribunal's mediation. It unfortunately produced no results.

On May 7, 1999, November 1, 1999 and April 28, 1999, the Secretary-General of CIETAC Shenzhen, upon the request of the Tribunal, agreed to extend the time limit for four times to March 7, 2001. 

On ______, 2001, the Tribunal rendered the Award. The facts, the Tribunal's findings and the award are as follows.

PART ONE: THE FACTS AND ISSUES

On January 18, 1996, Claimant ["Buyer"] and Respondent ["Seller"] entered into Contract 96ML44-9328US, as amended on March 22, 1996, by which the Buyer agreed to purchase and the Seller agreed to supply the Equipment, Materials and Services which constitute the Works to be used in the Third Phase Expansion of the Dongjiang-Shenzhen Water Supply Project.  The Contract contained an arbitration clause according to which, unless otherwise settled by the parties, any dispute arising between the parties out of or in connection with the Contract shall be settled by arbitration conducted by CIETAC in accordance with its arbitration rules.

Disputes arose between the parties during the course of performance of the Contract. The Buyer later started arbitration proceedings before CIETAC, Shenzhen.

Buyer's claims

The Buyer' claims, which were finalized on June 15, 2000, are as follows:

A. Contract No. 96Ml44-9328US concluded by and between the Buyer and the Seller on January 18, 1996 shall be terminated.

B. The Seller shall compensate for the losses of the Buyer for Seller's fundamental breach of the contract as follows:

(1) The costs of US $2,220,455.00 for continuing to accomplish the project;

(2) The price of the short-delivery: US $281,746.00;

(3) The compensation for the disqualified equipment: US $110,170.00;

(4) Claims of the fine for the delayed delivery: US $175,273.00;

(5) Tariff levied by Customs due to the Seller's delayed delivery: US $688,766.00;

(6) Expected profit loss: US $4,342,433.00:

   -    First, the profit expected to gain from the operation of the new efficient equipment under the Contract is US $1,072,433;
   -    Second, employees will be reduced after the project starts to run and the running fees of US $3,650,000.00 would be lowered;

(7) Losses suffered from the stop of power generation, amount: US $3,393,566.00;

(8) The supporting engineering expenses: US $722,890.00.

C. The Seller should pay the arbitration fee and lawyer fees: US $110,050.00 and US $63,855.00 respectively.

In total, the Seller shall pay an indemnity of US $11,935,299.00, and pay for the arbitration fee and counsel fee of US $173,905.00.

Seller's counterclaims

On September 9, 1998, the Seller lodged his counterclaims. On June 15, 2000, the Seller finalized his counterclaims and requests an award of US $4,367,272.75 for the following items: (amount in US $)

A. Value of the Contract

(1) Unpaid Balance of the Contract       1,068,000.00
(2) Performance Security                         712,000.00
(3) Interest at 12% from May 12, 1998   445,000.00

             Subtotal                                  2,225,000.00

B. Extras Outside the Scope of Work

(4) Additional Digital Input and Output point Not included the Contract
Total DI Points in Original Contract    1,174
   Total DI Points Provided 4,656
   Difference 3,482
Total DO Points in Original Contract 650
   Total DO Points Provided 3,016
   Difference 2,366
Total Points Not in Contract 5,848
Total Cost Per Point Mounted, Wired
and Applied Software @ 72.00 each

 421,056.00
(5) Ten (10) additional Enclosures for Places Not in Material List Difference 10 @ US $4,600.00              46,000.00 (6) Sixteen additional Fiber Optic Modems @ 500.00      8,000.00
(7) Design of Fiber Optic Cable Plant by Anhui Design Institute  36,000.00
(8) Fiber Optic Cable Plant Materials not in Material List
Dulmisson Suspension Change 40,062.00
Preformed Suspension Clamps 134,637.00
Sachs Pole Clamps 6,854.00
Subtotal 181,553.00
(9) Fiber Optic Cable to Flood and Relief Gates        46,286.00
(10) Increased cost for 17 ALCATEL L1.1 Aggregators                                        46,895.00
(11) Increased ALCATEL cost for 96-2 wire cards and 12 Ringing Generators     101,564.00
(12) ALCATEL network Management Software and Sun Workstation                 120,408.00
(13) ALCATEL Spare Parts
Allotment per contract      (24,000.00)
Actual cost 69,068.00
Total 45,068.00
(14) Delay costs from January 1, 1997 to May 1, 1998
Personnel                  233,850.00
Expenses 130,133.00
Total 363,983.00
(15) Absolute Optical Level Encoders
Actual cost 61,600.00
Cost per Material List    42,750.00
Less 8 1/2% (Credit) Increase     (39,116.00)   22,484.00
(16) Oracle Developer 2000                  18,366.00
(17) Instruments & meter
Revised per Third Liaison Meeting    209,500.00
Original Contract (187,800.00)
Less 8 1/2% (171,837.00)
Increase    37,663.00
(18) Additional Cost of Yagi Antennas for Meteorological stations         4,068.00

Total value of extras                              $1,499,394.00

C. Total fees/expenses

Attorneys' fees/costs               $533,878.75
Arbitration expenses $109,000.00

The points of disputes between the parties under the Contract are as follows:

I. NATURE OF THE CONTRACT

1. Buyer's contentions

The Buyer states that the Contract under dispute is a turnkey contract. To support this statement, the Buyer cites some relevant stipulations of Clause 1.3 and Clause 1.5 of the Modifications for Bidding Documents and Clause 2.1 of the Contract, and Clause 1.4 of the Contract Amendment. Moreover, the Buyer states that in the Contract and Bidding Document, there are many specific stipulations about the responsibility of the Seller concerning the design, technical document, installation, training, commissioning, trial run and inspection, etc. They also agreed that the turnkey nature of the Contract should not be denied simply because of certain obligations such as the installation team that should be provided by the Buyer or because the parties to the Contract are referred to as Seller and Buyer, or because the Contract price is mainly for the price of equipment and materials.

2. Seller's contentions

The Buyer's insistence that the project is a turnkey project disregards the plain and unambiguous language of the Contract; namely, as a condition precedent to the Seller's timely performance, the Buyer was required to provide the Seller with the detailed civil works design and electrical system design for the existing water supply system. The Buyer repeatedly failed to do so. Secondly, the Buyer's argument is untenable given that the Buyer failed and refused to provide installation teams that were of "sufficient size and quality" to complete the project. Most importantly, the Seller could never complete the project so long as the Buyer unjustifiably interfered with the Seller's contractual right and obligation to be the final decision-maker on technical issues. Thus, the parties could not collectively begin installation until the Seller was provided with information about the existing system, until quality installation crews prepared installation sites, and, in general, without the cooperation and participation of the Buyer. As a cooperative project with a clear division of responsibilities, this Contract was not a traditional turnkey relationship but one that required the mutual assistance of both parties. The Buyer's insistence that the Contract was a purely "turnkey" contract ignores its own circular reasoning.

II. THE PERFORMANCE SECURITY

1. Buyer's contentions

According to Clause 32.1 of the Contract, the notification of award shows that the date of the Bidding acceptance was before January 3, 1996. Therefore, the Seller ought to present the performance security before Feb. 3, 1996. But the fact was that the Seller's performance security was not provided until Feb. 12, 1996, and that this performance security was issued by an insurance company in Hong Kong instead of by a bank as required by Contract Article 32.1, which stipulated that "the Performance Security shall be issued by a first rate American Bank". The performance security provided by the Seller was apparently not in compliance with the Contract requirements. As a result, the Buyer sent a letter to the Seller on Feb. 27, 1996, refusing to accept the performance security issued by the insurance company in Hong Kong.

On March 22, 1996, a Contract Amendment was reached by the two parties concerning the replacement of equipment to be supplied by the Seller. In accordance with this Amendment, "the Seller is required to provide the Performance Bond for the Amended Contract within 45 days after signing this Contract Amendment". As the Amendment was signed on March 22, 1996, forty-five days after the signature should be May 6, 1996. That is to say, the Seller was supposed to provide its Performance Bond for an amount of US $712,000.00 prior to May 6, 1996. However, the Seller persisted on the provision of a Performance Bond issued by an insurance company in Hong Kong, which was absolutely refused by the Buyer in its letter.

The Seller was unable to provide a Performance Bond as stipulated in the Contract until May 17, 1996, at which time a performance bond with an amount of US $712,000.00 was issued by Banque National de Paris, Hong Kong Branch. The Buyer received the performance bond only after May 20, 1996.

2. Seller's contentions

After the Contract was signed on January 18, 1996, the Seller promptly applied through Firemen's Fund, a unit of Allianz Cornhill Insurance, for a performance security pursuant to Clause 32 of the Contract. On February 12, 1996, and within 30 days of the time required in the Contract, the Seller obtained and submitted a performance security issued by the Hong Kong office of Allianz Cornhill Insurance (Far East) Ltd., a division of the Allianz Group. The Buyer rejected the performance security of Allianz for the stated reason that it was an "insurance company", despite the Seller's insistence that Allianz was a large financial institution with an international reputation as a surety. The Seller maintains that the rejection of Allianz was the first in a series of frustrating tactics by the Buyer and Machinery Co. that substantiate that the Buyer' acted unreasonably and in bad faith during the course of the parties' relationship.

On March 21, 1996, the Seller provided a performance guarantee, issued by the Banque National de Paris (Hong Kong branch). the Buyer accepted the BNP-issued performance security. On March 25, Machinery issued a notice of validation of the Contract pursuant to Clause 28.2, and as amended on March 22, 1996 (hereinafter referred to as "March 25, 1996 Contract Validation Date"). The March 25, 1996 Contract Validation Date is a benchmark for the performance of many of the tasks under the parties' Contract.

III. THE ISSUE OF OPENING THE LETTER OF CREDIT

1. Buyer's contentions

The Buyer states that under the Contract, the Buyer' opening of the L/C should depend on the preconditions of the Seller's provision of performance security and export license. Stipulations can refer to Clause 6.2 of the Contract which states that: "...". However, the Seller persisted in issuing the advance payment guarantee by a Hong Kong insurance company and could not provide the export license issued by the U.S. Government as the equipment/materials under this Contract were high-tech products whose export was prohibited by the U.S. Government according to the Paris Convention. The advance payment guarantee was issued on Sept. 17, 1996, four months later than Contract stipulations. The Seller's failure to provide the performance security and export license in time were the reasons for the Buyer's failure to open the L/C under the Contract. Therefore, the Buyer believes that the responsibility for late opening of the L/C should be borne by the Seller.

The Buyer also state that it advised the Seller many times that because of the late provision of the performance security and the export license by the Seller, the L/C opening date would be postponed and the L/C terms and conditions would be adjusted accordingly. The Buyer requested in its letter to the Seller dated April 30, 1996 that 90% of the L/C be opened instead of 100%, and that even the 90% L/C be split into two parts, one for 75%, the other for 15% (as per Attachment 22).The Seller accepted the above requests and agreed to leave the problem of the 15% L/C to be solved in the Second Liaison Meeting (as per Attachment 23). The Buyer concludes that the amendment of the L/C was based on mutual understanding and agreement by the two parties.

2. Seller's contentions

The Seller contends that the Buyer's position is untenable for the following reasons:

Clause 6.1 of the Contract expressly provides that the Buyer was required to open an irrevocable Letter of Credit in favor of the Seller for an amount "equivalent to the total Contract price" of US $5.8 million within 45 days of the March 25, 1996 Contract Validation Date. Pursuant to the Contract, the Buyer was expressly required to open a letter of credit for 100% of the Contract Price on or before May 9, 1996, or 45 days after the March 25, 1996 Contract Validation Date. Rather, on April 30, 1996, Buyer demanded that the payment terms be amended. Specifically, Buyer demanded that the Seller accept a letter of credit on 75% of the Contract price, 15% of the retention, with the down payment of 10% to be made by wire transfer. This was a significant change over the Seller's expectations under the Contract terms. In response, the Seller requested that the 75% and 15% letters of credit be combined and issued together. The Buyer unilaterally decided that the 15% letter of credit would be discussed at the Second Design Liaison Meeting scheduled for July 1996. The Seller had no choice but to accept the modification to the payment terms. As the Seller warned the Buyer repeatedly, the financing arrangements with its bank required that the letter of credit in the full Contract price be opened to permit the Seller to finance the purchases of the equipment and materials. Without the agreed upon 100% letter of credit, the Seller could not (and would not) obtain the financing from its financial institution to purchase the equipment and materials required under the Contract.

The Buyer opened the 75% letter of credit on July 5, 1996 (received by the Seller on July 8, 1996). This was exactly 100 days after the March 25, 1996 Contract Validation Date, over double the 45-day time limit required in Clause 6.1 of the Contract. On August 27, 1996, the Buyer finally opened the additional letter of credit for 15% of the Contract price. Receipt of this portion of the letter of credit was 153 days after the March 25, 1996 Contract Validation Date. To the Seller's detriment, the Buyer failed to comply with this important condition and, as a result, the Buyer interfered with the Seller's efforts to purchase the equipment and materials required to timely perform the contract. The Seller cannot be held accountable for any delays that may result from the Buyer's refusal to open the required letter of credit in the full amount and at the stipulated time. Most importantly, a failure to open the required letter of credit breached the parties contact and is in violation of Article 54 of the CISG which provides that the "buyer's obligation to pay the price includes taking such steps and complying with such formalities as may be required under the contract or any laws and regulations to enable payment to be made."(CISG, art. 54)

IV. LATE DELIVERY OF EQUIPMENT/MATERIALS

1. Buyer's contentions

Annex 3 to the Contract "Schedule of Contract Implementation" stipulates that the delivery of SCADA equipment should be with 9 months after the signature of the Contract. The Buyer states:

(1) The preliminary work schedule is an integral part of the Contract. It could not be changed without the consent of both parties;

(2) The delivery time in the preliminary work schedule was nine month after the signature of the Contract. The Contract was signed on Jan. 18, 1996 and the delivery should be made prior to the end of Nov. 1996;

(3) The Seller once requested in its letter of June 7, 1996 that the final delivery be changed to Dec. 15, 1996 and the Buyer rejected the request by its letter of June 12, 1996. With the agreement of the Seller, the final shipment of the equipment under the Contract remained unchanged, that was on or before Nov. 30, 1996. The preliminary work schedule was thus finalized;

(4) The Buyer opened the relevant L/C and the time of shipment was Nov. 30, 1996, according to the agreement reached by both parties.

It can be seen from the above that the delivery time was definite. However, the actual shipments by the Seller were as follows:

(1) The first shipment shipped on October 16, 1996;

(2) The second shipment shipped on December 3, 1996;

(3) The first portion of the third shipment shipped on January 10, 1997;

(4) The second portion of the third shipment shipped on August 26, 1997;

(5) The third portion of the third shipment shipped on November 17, 1997;

(6) The Fourth portion of the third shipment shipped on December 19, 1997;

None of the shipments was made in time except for the first shipment. Late delivery by the Seller caused the Buyer to have suffered tariff loss and the delay in project completion.

The Buyer states that the reason why the Buyer insisted that the delivery be finished by the end of Nov. 1996 was that the import tax on the equipment/materials under the Contract could be exempted before the end of Nov. 1996, of which the Seller was fully aware. At that time, the Chinese General Customs Office made the announcement in all major newspapers including "China Daily" that it would eliminate the import tax exemption treatment for equipment of foreign related enterprises. The Buyer passed this information to the Seller and both parties talked about it many times on the phone or in the meetings. On June 13, 1996, the Buyer pointed out the importance of delivering the equipment/materials before the end of 1996 in its letter to the Seller. The "key point" mentioned in the letter referred to the tax exemption. The Buyer made it very clear in its letter of Dec. 11, 1996 that "we assume you quite understand that the delivery of the goods to destination port later than the end of 1996 will cause heavy tariff to our end-user. That's why we strictly stipulated the shipment term in the L/C. Our end-user had already undertook the losses and risks to agree to your request". In this letter, the Buyer not only stated the matter of tariff, but also mentioned that the Seller would be responsible for the losses due to late delivery.

The tariff levied by the Customs due to the Seller's delay delivery totaled US $688,766.00.

2. Seller's contentions

The Seller holds that the Buyer's position is untenable for the following reasons:

1. The schedule referred to in the Contract Documents was "preliminary" in nature and was not binding upon the Seller.

2. The Buyer was required to provide the technical information and data concerning the existing equipment as an express condition for the Seller's timely performance.

3. The Buyer failed to open the required letter of credit in an amount and at the stipulated time, as required under the Contract.

4. The Buyer's failed to make the advance payment in a timely manner.

5. The Buyer failed to coordinate the efforts and tasks between the Seller and the various subcontractors such as Anhui Design Institute, Dong Wang Enterprises Company, and China North-East Engineering Institute.

6. The Buyer failed to provide installation teams of "sufficient size and quality" to proceed with the installation in a timely manner.

7. The Buyer failed to prepare the work sites for installation and, for example, failed to complete the structural improvements to the Dispatch Center for a period of 7 months after delivery of the equipment.

The document entitled Schedule of Contract Implementation, which is attached to the Terms and Conditions of Contract as Annex 3, is expressly entitled Preliminary Work Schedule. Contrary to Buyer's allegations, the plain and unambiguous reference to the work schedule as a "preliminary work schedule" is indicative that Annex 3 is not a binding implementation schedule. Preliminary means that it is subject to change. Moreover, the Preliminary Work Schedule was part of the Seller's 1995 bid which was radically changed as a result of the Contract Amendment and Modification to the Bidding Documents. Under Article 33 of the CISG, in situations where the parties have not agreed upon the delivery date, the seller may deliver the goods "within a reasonable time after conclusion of the contract." Under the contract law, "if the time for performance is ambiguous, the obligor may perform at any time [Contract Law, arts. 62(4), 139]

Secondly, and most importantly, the Seller did comply with the Contract term by timely scheduling the three design liaison meetings; by scheduling the various training programs for the Buyer personnel; by purchasing the subject equipment and materials; by providing the technical documents and diagrams; by providing the information and test procedures for the equipment and materials; and by shipping and delivering the equipment and materials required in the Contract. The Seller provided the Buyer with two separate schedules with respect to the installation supervision phase (April 1997, April 1998), both of which were ignored by the Buyer.

In addition, the Contract expressly provides that two key preconditions must be met by the Buyer to hold the Seller responsible for delays. In this regard, Clause 7.2 of the Contract provides in full.

Under Clause 13.3, the Buyer was required to supply the Seller with the "civil works design" and "electric main scheme". The logical interpretation of this requirement is that these provisions require the Buyer to supply the Seller with detailed information concerning the existing equipment. Supplying this information is a condition precedent to the Seller's timely performance. The Buyer's failure to provide the Seller with the "civil works design" and "electric main scheme" design is the root of all the problems given that the Seller could not fully implement the Contract without the information concerning the existing system. The Seller's repeated requests were ignored. Clearly, the Seller cannot be held accountable for any delays that may result from the Buyer's refusal to provide the technical information.

In addition to the above, the Buyer's delay in opening a letter of credit for 100% of the Contract price -- as expressly required by the Contract -- significantly and adversely affected the Seller's ability to timely perform and specifically with respect to the procurement of the equipment and materials.

In addition to the delay created by the Buyer's failure to supply the required technical information concerning the existing system and the Buyer's failure to open the required letter of credit, the Buyer failed to timely advance the ten percent (10%) down payment and thereby further delayed the scheduled equipment purchases. In this regard, Clause 6.2 of the Contract expressly obligates the Buyer to provide a ten percent (10%) advance payment (US $583,590.40) within 45 days of the March 25, 1996 Contract Validation Date. Here, the Buyer was thus contractually obligated to make an advanced payment on or before May 9, 1996. The advance payment was not made by the Buyer until October 14, 1996.

The stated reason for the Buyer's refusal to advance the down payment is its insistence upon receiving an "export license" with respect to the subject equipment and materials. Although the Contract -- as drafted by the Buyer or its agents -- requires that the Seller produce a valid export license for the equipment and materials, the Seller repeatedly advised the Buyer that an export license was not required.

The Buyer finally accepted the U.S. Government's "Return Without Action Letter" as proof that an export license was not required and made the advance payment on October 14, 1996 (over 6 months after the Contract validation date and 5 months from the due date of the down payment). To withhold the funds after the Seller provided information from DEC and the BXA was wholly unreasonable and a restrictive interpretation of an onerous requirement that the Buyer had placed in the Contract. Without the required funds (and the letter of credit), it was not possible for the Seller to purchase the required equipment and materials. As a result, any delay in the Seller's performance is excused as a result of the Buyer's breach of its own obligations under the Contract.

Furthermore, the Seller cannot be held accountable for delay created by the Buyer's third party subcontractors and suppliers. In this regard, the Contract provides that the Buyer "shall assist the coordination between the Seller and other suppliers." Here, the Buyer failed to coordinate the efforts of Anhui Design Institute, Dong Wang, and China North-East Engineering Institute even after repeated requests for assistance. A failure to coordinate these efforts amounted to interference with the Seller's contractual obligations, as well as a disregard for the Seller's final decision-making authority over technical design issues as required under Clause 13.1.1 of the Contract.

The Seller is also not liable for the delay created by the Buyer's failure to retain qualified installation teams. Under the Contract, the Buyer was obligated to provide installation teams of "sufficient size and quality" in order to accomplish the installation of the equipment and materials in a timely manner. The Buyer was also required to "coordinate and control the installation" with respect to the existing civil works at the water supply system, as well as to prepare the work site for installation.

In addition, any delay in the installation of the equipment was created by the Buyer's failure to prepare the work sites for installation. Indeed, the Dispatch Center improvements were completed by the Buyer 16 months after the March 25, 1996 Contract Validation Date and over 7 months after the computer supervisory control equipment was delivered to the Buyer. The Seller was unable to begin its task of supervising the equipment installation at the Dispatch Center until after a delay of over 7 months.

As to the matter of loss of duty, Buyer cannot claim any damages for the alleged delay in delivery, liquidated or actual, given that Buyer is wholly unable to prove that the Seller was responsible for any delays in delivery of the equipment. Any delay in delivery is a result of Buyer' failure to open the 100% L/C as required by the Contract. Secondly, the delivery schedule set forth in the Preliminary Work Schedule is not binding given that it is "preliminary" in nature. In addition, and specifically with respect to the loss of duty-free treatment, this claim should be summarily dismissed for the following reasons:

(1) The Contract requires that the Buyer pay for all customs duties and this contractual obligation was never amended.

Clause 26.1 of the Contract provides that the Buyer is required to pay duty and the Seller never agreed to be liable for duty. The duty exemption (and potential loss thereof) was never mentioned in the 1st Design Liaison Meeting Minutes (May 9, 1996), the 2nd Design Liaison Meeting Minutes (July 30, 1996), or the 3rd Design Liaison Meeting Minutes (October 23, 1996), or the Factory Acceptance Test Memorandum (January 10, 1997). These documents are fully recognized as an integral part of the Contract Documents, but none of these documents amend or modify Buyer express obligation to be responsible for customs duties per Clause 26.1. (See Exhibit G, Contract Documents)

(2) The subject equipment and materials are not used for processing, assembling, and compensation trade and any claim of such use is fraud on the Chinese Government.

Obviously, Buyer has either mischaracterized the purpose of the equipment to China Customs and MOFTEC, or the decision to grant the exemption was incorrect. Buyer is not entitled to damages for loss of duty free treatment based upon a fraudulently procured exemption, or an exemption incorrectly granted by MOFTEC.

(3) The Seller never received timely notice that delivery by the end of 1996 was a condition of duty free treatment.

The letter of December 11th is only a warning, which by that point is way too late to deliver the goods by year's end. Without proper notice of the issue, such damages are not foreseeable at the time the parties entered into the Contract.

(4) Buyer's evidence does not support its position.

At Tab 38, Buyer submits two documents which appear to be an application to MOFTEC to extend the grace period for the duty-free exemption. In both documents, Buyer advises MOFTEC that the project is "progressing smoothly" and there is no mention of fault of the Seller. In addition to "progressing smoothly," Buyer also clearly stated to MOFTEC in the letter of January 14, 1997 that the subject equipment could not be imported until "after the building projects have been completed." This statement unequivocally supports the Seller's position that installation of the subject equipment could not begin until Buyer completed the construction work on the dispatch center control room.

Buyer submitted no verifiable evidence of actual payment. Buyer misconstrues attachment 64 as proof of payment with respect to the customs duties purportedly owed on the equipment the Seller provided. Note that these documents are merely listed as "invoices " and specifically concern a contract "90ML-8335", which is unrelated to the contract that is the subject of this arbitration ("96ML44-9328US"). These "invoices" also refer to "processing equipment" and, again, the equipment and materials provided by the Seller cannot be characterized as equipment related to the processing, assembly, or compensation trades. In addition, the chop stamps are so light that they are unreadable.

(5) Claims for late delivery are limited to 5% per the Contract.

Assuming the Tribunal finds that the Seller is liable to Buyer for the alleged loss of duty free treatment, the parties' Contract strictly limits damages for delays in delivery to 5% of the total value of the contract, or US $356,000. The Contract provides that the Seller is liable for liquidated damages if it fails "to make the delivery and shipment in accordance with the time schedule given in the Contract." Such liquidated damages are strictly limited to 5% of "the total value of the Contract equipment involved in the late delivery." Any claim for late delivery in excess of US $356,000 is inconsistent with the limitations on liability provisions of the Contract.

V. SHORT DELIVERY AND QUALITY INFERIORITY

1. Buyer's contentions

In addition to late delivery, the equipment/materials delivered by the Seller are of poor quality, which was confirmed in the letters from both parties. The Seller admitted in its list of equipment on April 21, 1998 that the miser source program, Developer 2000 and LQ1900k printers had not been delivered and the length of the gate sensors for measuring was 6 meters instead of 10 meters as stipulated by the Contract. With regard to the item of video system, delivery was made without the Buyer's test and acceptance. The Buyer pointed out the problems upon receipt of the equipment and requested the Seller to solve them in the ex-factory acceptance meeting. The Seller in its fax of March 31, 1997 recognized the fact by saying that: "It's a pity that Mr. Webber failed to do what he was told." Although the fiber optic cable communication system on the list was designed by Anhui Design institute, according to Clause 2.3 of the Contract and the principle of the liaison meetings, it should be provided by the Seller because the design agreement was signed between the Seller and Anhui Design institute. Therefore, the Seller should be responsible.

Furthermore, on April 21, 1998, Mr.Henry, the president of the Seller, took away without permission the net-work software worth US $100,000.00 and Mr. Liu Zheng admitted it when he was questioned by the police. What Mr. Henry took away is the original CD and its instructions including the license. The software in the computer is absolutely different from the possession of the original CD. Also, if the Buyer does not possess the original CD and license, the Buyer would easily be considered by the owner of the intellectual property right to have infringed his right. When the Buyer bought the software, of course, it bought the CD and its instructions and when there is some problem, the Buyer can use the CD and its instruction to correct it. The whole value of the software lies in the CD and its instructions including the license.

The Buyer also claims that based on its initial estimation, the price of the undelivered equipment/materials is about US $280,000.00.

2. Seller's contentions

The Seller holds that:

a. At no time did the Seller ever refuse to supply the equipment and materials required under the Contract. On May 5, 1998, the Buyer provided the Seller with a chart entitled "The problems about the equipment discovered in the Buyer project up to now". In response, the Seller stated, in essence and among other things, that the equipment and materials had been shipped and delivered to the Buyer; that the fiber optic cable hardware demanded by the Buyer is not required to be supplied by the Seller and no Contract Documents exist; that the equipment that the Buyer claims is deficient meets the Contract specifications, meets factory tests and is appropriate for the system; and that if there is any missing equipment, it would be supplied in due course.

b. The Buyer failed to comply with the claims procedures required in the Contract.

c. The Buyer's reasons for rejection of the equipment and materials is insufficient as a matter of law.

d. The Buyer invoked the remedy of liquidated damages and, as a result, has no right to make a claim for additional compensation.

Furthermore, the Seller contends that it supplied all of the equipment and materials required under the contract except for the printers and the software source code documentation. In situations where the buyer discovers shortages or inferior equipment and materials, the Buyer is required to "lodge his claim against the Seller by letter or facsimile" and to attach evidence demonstrating the shortages or damages goods such as an inspection certificate. At no time has Buyer ever provided to the Seller or the Tribunal the evidence demonstrating such shortages or inferior goods. Specifically, the Seller responds to Buyer' arguments as follows:

A. Network Management Software

The Buyer's claim that the Seller failed to provide certain software programs is wholly untrue. Even Buyer admitted during the October hearings that it never turned on the computers to determine if the software had been loaded into the computers. In fact, the software was indeed loaded into the computers as shipped to the work site following the Factory Acceptance Test on January 9, 1997.

B. 19 Dot Matrix Printers

The only items that had not been delivered are the dot matrix printers, which are the last items to be installed. In April 1998, the Seller advised the Buyer that the printers would be shipped and installed when all the other equipment was installed. It made no sense to ship these items and have them lying around collecting dust and to become obsolete during the interim period. Thus, it was in the Buyer's best interest to purchase and supply the printers upon completion of the installation and integration process. At no time did the Seller ever refuse to provide these items.

C. Source Code Documentation

The source code is installed in the computers and the documentation concerning the source code is subject to a license agreement that was not negotiated at the time of termination. In addition, Clause 10.2 of the Contract provides that the equipment and software is to remain in the Seller's care until it passes the provisional acceptance. The Buyer has no right to claim that the Seller improperly removed the network management software given that the integration and testing of the system was still left to be completed. Indeed, the Buyer admits in its letter of May 12, 1997, that "modifying the software to meet the custom requirement in the field is very normal for every SCADA project." Mr. Hoge testified in the October hearings that the source code could be purchased directly from Digital Equipment Corporation for approximately US $10,000.

D. Gate Sensors

The Seller provided gate sensors for the Oiling dam substation that are designed for 0-6 meter gates. Without providing any substantiation for its position, the Buyer claims that this was inappropriate. The insistence upon the 0-10 meter gate sensors interfered with the Seller's contractual right of final decision authority with respect to technical design. The Seller has repeatedly advised the Buyer personnel that the 0-6 meter sensors were sufficient for the existing equipment.

E. Additional Suspension Hardware (per Anhui for Fiber Optic System)

The Buyer demanded that the Seller supply the "suspension" hardware as requested by the Anhui Design Institute. Anhui Design Institute, without explanation, rejected the Seller's use of the "Dead End" method and advised the Buyer to adopt the "Suspension" method of attaching fiber optic cable to the power lines. Although the "Suspension" method is an acceptable method of installation, the user is unable to control the sag of the cable or to minimize bending of the cable. By rejecting the Seller's design, the Buyer thereby demanded that the Seller provide additional hardware specifically for purposes of meeting Anhui Design Institute's request for additional hardware (hereinafter "the suspension hardware"). The suspension hardware demanded by the Buyer was either wholly unnecessary to install the fiber optic cable as designed by the Seller using the Dead End method, or included the clips and clamps which the Buyer was required to provide pursuant to the Second Design Liaison Meeting Minutes. In any event, the Seller succumbed to the Buyer's insistence and agreed to buy the additional hardware which was shipped in the Fifth Shipment on November 10, 1997. Unfortunately, the Buyer's use of the Suspension Method to install the fiber optic cable may ultimately prove to be unsafe.

Except for the source code documentation and the dot matrix printers (which the Seller advised the Buyer would be provided after installation), the Buyer has received all of the equipment and materials pursuant to the parties' contract. Both the source code documentation and the printers would have been delivered to the Buyer if Buyer had not taken steps to terminate the contract.

VI. DESIGN AND TECHNICAL DOCUMENTS

1. Buyer's contentions

The Buyer holds that:

With reference to Clause 13.2 of the contract, Clause 2.12 of IFB-1, Bidding Documents and Clause 1.3 of Modification for Bidding Documents, judging from the above stipulations, the conclusion is very clear that it is the Seller who shall assume the obligations for all design works.

Referring to IFB-2 Technical Part Bidding Documents, Clause 15.1and 15.4.1 of the Contract, the above clauses show that the Seller should provide the Buyer with all necessary design documents including manufacturing and engineering drawings, diagrams, schematics system descriptions, installation drawings, operation and maintenance instructions and manufacturing record photographs and should assume all the technical responsibilities for design. Without the above design drawings and technical documents, it is impossible to complete the project in time.

Up to now, the Seller provided only some of the design documents on three occasions, instead of a complete set of design documents. The first time was on May 8, 1996, just before the closing of the First Liaison Meeting, with 44 drawings being provided most of which were system drawings; it was one month later than the Contract stipulated time. The second time was on April 10, 1997 with 239 drawings being sent by mai1, inc1uding modifications to the drawings provided on the first time and 40 Fibber Optic installations drawings which were not used later; it was nine months later than the Contract stipulated time. The third time was on April 21, 1998, with Fiber Optic installation drawings designed by Anhui Design institute on behalf of the Seller being delivered; it was about twenty months later than the Contract stipulated time.

The Seller's failure to deliver the design drawings documents in accordance with time schedule and technical demands of the Contract severely affected the preparation for installation site and all the other preparations which is an important reason why the installation work can't be finished in time.

As to the interfacing design, according to Bidding Documents and other clauses of the Contract, the interfacing design falls in the scope of the Seller's obligations. While there is no stipulation in the Contract or the stipulation is not clear the clear stipulations in other documents annexes shall be applied, Clauses 2.12.2 1 & 3 of Technical Part II of Bidding Documents IFB-1 stipulates that "the Seller must bear responsibility for the design work of all hardware and software "and "For the project items of cooperation and coordination that the Buyer participates in, the Seller must bear the general responsibility The participation of the Buyer will not lighten any responsibility of the Seller". The conclusion can be drawn from the foregoing clauses that (a) the Seller shall be responsible for the interfacing design; (b) the Buyer's participation will not lighten any responsibility of the Seller. According to the Contract, the Seller is responsible not only for the coordination of interfacing design between the equipment under the Contract and the existing equipment but also for the interfacing design because the project is contracted on a turnkey basis.

As to the issue of Auhui Design Institute, the Buyer contacted Anhui Design Institute at the request of the Seller and the agreement signed between the Seller and Anhui Design Institute is the expression of the Seller's true wil1 which has nothing to do with the Buyer. The design fee stipulated in the agreement between the Seller and Auhui Design Institute is US $36,000.00 and the Seller on1y paid US $l8,000.00. According to their agreement, Anhui Design Institute should complete the design for the optic cable within 3 weeks but it came out with the design drawing as late as April 23, 1998 because the Seller failed to make the design payment in accordance with their agreement. Anhui Design Institute did the design work on commission of the Seller and the Seller should be liable for the de1ay by Auhui Design Institute. The Seller's failure to provide the optic cab1e installation design drawings is another important reason for not completing the works on schedule.

2. Seller's contentions

The Seller holds that:

A. The Seller continually supplied the Buyer with technical documents and drawings consistent with the term of the Contract and industry standards.

B. The Seller's drawings and documentation were based upon the untimely, incomplete, inaccurate, and repeatedly modified technical information provided by the Buyer.

C. The Buyer repeatedly failed and/or refused to approve, reject, or comment upon the Seller's submissions in a timely manner.

D. The Buyer consistently ignored the Seller's technical design final decision making authority by rejecting and/or ignoring the technical submissions provided by the Seller.

As required by the Contract terms, the Seller agreed to supply all "manufacturing and engineering drawings, diagrams, schematics, schematics system descriptions, installation drawings, operation and maintenance instructions and manufacturing record photographs." The Contract provides that all technical documents be in the English language and are required to be consistent with the standards in the specifications.

During the course of the parties' relationship, the Seller supplied to the Buyer technical documents at a time and in a form consistent with the Contract Documents. As substantiated by the testimony of expert witness, Dr. Daniel Sze, the technical documents supplied by the Seller were consistent with both the Contract Documents and the standards required under the Contract Documents.

The Seller duly performed its contractual obligations by providing technical documents, information, guidance, and installation supervision as required under the parties' Contract.

The Contract further provides that the Seller is required to provide the Buyer with installation drawings, installation instructions, and all information to enable the Buyer to prepare the installation site. The Seller provided the Buyer with voluminous information and drawings concerning the methodology for installing the subject equipment. In addition, the Seller provided Buyer with a wealth of information on the installation process for fiber optic cable including training time at the Seller's headquarters in California.

As a condition precedent to the Seller's timely performance, the Buyer was expressly required to provide the Seller with "all technical data and approvals in compliance with the requirements in the Contract." Specifically, the Buyer was required to provide "detailed design of civil works for the Works and design of electric main scheme." Without the detailed civil works design and electrical system design for the existing system, the Seller could not successfully integrate the new equipment and materials with the current system. Nor could the Seller adequately prepare the design documents without accurate and detailed information concerning the existing equipment at the stations. As a result, the Seller had every right to suspend its performance until the Buyer provided the required information and documentation. The Buyer flagrantly failed and/or refused to provide the contractually required detailed civil works design and electrical system design for the existing water supply system.

The Contract also provides that the Seller is responsible for discrepancies, errors, or omissions in the drawings and information supplied by the Seller except in situations where the errors or omissions are "due to inaccurate drawings or information furnished to the Seller by the Buyer." On numerous occasions, the Buyer supplied the Seller with erroneous and/or superficial information and the Seller proceeded to prepare drawings, diagrams, and technical documents based upon this information. Then, the Buyer would unilaterally reject or ignore these submissions. As a result, the Seller cannot be held accountable for design documents prepared with erroneous data and information supplied by the Buyer.

In addition, the Buyer was also expressly required to review all submissions made by the Seller immediately and such submissions are "deemed as examined and approved" by the Buyer if it failed to reply or respond in 30 days. The evidence substantiates that the Buyer repeatedly failed and/or refused to timely respond to the technical submissions of the Seller. In any case, the Buyer misinterprets the Contract by stating that it has a right to reject "unqualified" drawings given that the Contract only grants the Buyer a period of 30 days to reject the drawings or they are deemed approved per 15.3.6 of the Contract.

Most importantly, the Buyer was obligated to defer to the Seller on all technical design issues. In this regard, the Contract provides that the Seller "shall make the final decisions and take the full responsibilities" for the technical design of the systems. Rather than accepting the Seller's recommendations, suggestions, guidance, and technical advice, the Buyer on a number of occasions ignored technical design final decision authority.

VII. INSTALLATION AND TRAINING

1. Buyer's contentions

The Buyer relies on the relevant stipulations of Clauses 16.1.1.1, 16.1.1.2, 16.1.1.3, 16.1.1.4 and 16.1.1.5 of the Contract to raise claims.

According to the work schedule of Annex 3 of the Contract, the Seller must start the installation work in ten months after signing the Contract (before October 1996). However, the installation couldn't be started on schedule in October due to the Seller's delay in delivery of equipment. Therefore, in the liaison meeting on October 23, 1996, the Seller was officially informed to send personnel for installation. After the shipment arrived at the beginning of 1997, the Buyer sent another letter, urging the Seller to send personnel for installation. Up till August 8, 1997, the Seller notified the Buyer that it would send Mr. Liu Zheng for installation supervision. Only 10% of the installation works were completed up to April 1998, four months later than the schedule. The Seller's failure to fulfill its installation obligations was another important reason for not completing the works on schedule.

(1) The Buyer sent many letters, asking the Seller to send people for installation supervision. But the Seller answered in its letters on May 29 and June 2, 1997, refusing to send the people for installation supervision because the accommodations were not up to the American standard; the Seller never mentioned the preparation of the installation sites.

In reality, the Buyer provided the accommodations in accordance with the Contract requirement. As to whether it should be up to the American standard, there is no stipulation in the Contract. The Buyer had gotten the sites ready for installation beforehand. One clarification is that there were 12 sites, 11 were the existing sites ready for installation except for the operation center. The preparation for the operation center was completed in April 1997. If the operation center was not ready, it would not affect the Seller's installation work on the other 11 sites. In fact, the Seller never had any complaint to the installation sites. The Seller's allegation that the accommodations were not up to the American standard and the installation sites were not ready is entirely another excuse to shirk its installation responsibilities.

(2) The Seller's failure to provide a qualified and experienced engineering team.

The Seller submitted a resume of Mr. Gus before the first hearing, saying that Mr. Gus was the engineer sent by the Seller to Shenzhen for installation supervision. Before that time, the Buyer didn't receive any notice that Mr. Gus was sent to Shenzhen for installation supervision. As far as the Buyer knows, Mr. Gus was fired after 3 months of work because the Seller was not satisfied with his work.

During the second hearing, Mr. Henry of the Seller said that three engineers (Mr. Webber, Mr. Liu Zheng and himself) were sent for installation supervision. But Clause 1.1.2 of Annex 4 to the Contract stipulates:

"The Seller shall, 30 (thirty) days prior to the dispatch of personnel, send by telex to the Buyer the information about the personnel to be dispatched including the following:

-       personnel data such as name, birth date, sex, nationality, passport number
-       position in the Seller's organization
-       technical specialty
-       occupation
-       health certificate issued by qualified medical authority
-       curriculum vitae including education background."

As mentioned above, Mr. Li Zheng's resume was provided on Aug. 15, 1997 and the resumes of Mr. Hoge and Mr. Webber were never provided. The Buyer was not told formally that it was responsible for the installation supervision. In fact, Buyer never did any installation supervision work. Mr. Liu Zheng said in the hearing that his major was electrical engineering, and he had once served as a teacher for two years and engaged in electrical projects for many years. But the project under this Contract is a computer controlled monitoring system, involving computer, hydrology, communication, electricity and machinery. In order to fulfill the design, installation and test of this project, an engineer team should consists of at least the engineers specialized in the above-mentioned sectors. It is almost impossible for Mr. Liu Zheng with his education background and little experience to undertake the installation supervision work for such a complicated project.

(3) The fact is, the Seller neither organized the installation to be carried out orderly and smoothly, nor trained, instructed and supervised the Buyer's installation team(s) to perform the installation and arranged the daily works for the Buyer's installation team(s), not mention to act as stipulated under Article C of Clause 2.1 of the Contract to "absolutely Guarantee the installation and conduct tests on completion, commissioning and trial operation of the works with participation of the Buyer."

According to Clauses 17.3 and 17.4 of the Contract, the training consists of the training in USA and the on-site training. The Seller only conducted the training in USA and no on-site training was conducted. It's almost impossible for the installation team provided by the Buyer to do any of the installation work without receiving prior on-site training.

(4) The Seller not only failed to complete the installation work, but also failed to test the 10% completed work and submit any report on it.

According to Clause 16.1.1.5 of the Contract, the Seller must submit installation progress reports to the Buyer on a monthly basis. But up to now, the Seller has not provided any installation progress report to the Buyer. The Seller argued that it did not provide the progress report because the Buyer refused to sign it. It is a mere lie because (a) the submission of the progress report needs no signature from the Buyer; (b) the progress report should be presented to the Tribunal if there is any progress report. Regretfully, the Seller has no progress report and of course cannot present it to the Tribunal.

According to Clauses 18.1.4, 18.4.2, 18.4.3 and 18.4.7 of the Contract, the Seller must submit test reports within 30 days after completion of test. The Seller said during the hearing that it had tested the installed equipment and it was up to the standard. If the installed equipment is up to the standard, the Seller should submit the test records or the test reports to the Buyer as required by the Contract. But up to now, the Buyer has received neither test records nor test reports from the Seller. The Seller did not present any test records/reports to the Tribunal. It is worthy to mention that the Seller presented a so-called test report in the hearing, which in reality is an ex-work test records and quite different from the installation and commissioning test records. It serves to show that the Seller lacks the basic knowledge of an engineering project.

(5) The installation drawing provided by the Seller is not in conformity with the requirements and has great mistakes.

As mentioned before, the Seller provided an installation drawing for the Third Phase Shenzhen Power Plant which was a sketch presented by the Seller at the first hearing. The sketch was an altered drawing designed by Guangdong Hydropower Design Institute with no designer's signature or the Seller's signature on it. The Seller talked with Guangdong Hydro-power Design Institute about it and they said the drawing could not be put into use because it was not in conformity with the technical requirements for there were many mistakes and no signature of the designer or the Design Institute on it. The Institute emphasized that it is an infringement act of their intellectual property against which they reserve the right to claim.

The Buyer rejected such an unqualified drawing and stated in its letter of June 5, 1997 to the Seller that the Seller should send people to start the installation at the sub-stations and operation center and the Seller shall be liable for all the problems arising from the unqualified design if he thought that the design was in conformity with the requirement. The Seller did not send the people for installation supervision until Feb. 20, 1998. The Buyer emphasized its above opinion in its letter of June 5, 1997 and the Seller eventually sent people and started the installation for the Third Phase Shenzhen Power Plant on Feb. 23, 1998, seven and a half months later than June 5, 1997.

The entire project should have been completed by the end of 1997. But only 10% of the installation was fulfilled up to April of 1998, to say nothing of the commissioning, trial operation and acceptance test.

2. Seller's contentions

The Seller had assigned at least one employee full-time to be the on-site supervisor from November of 1996 (shortly after the Third Design Liaison Meeting) and up to the date of the contract termination (May 12, 1998). In addition to full time on-site supervisor, the Seller also had a number of other engineers and technicians work on-site in Shenzhen over the course of the parties' relationship including Clarence Weber, Vic Dubets, Gus Hoffman, Hal Spence, and Henry Hoge. The Seller's employee, Michelle Tsai provided the necessary translation and coordination support. Furthermore, the Seller had assigned a score of its staff at its headquarters to conduct training courses, engineering work, system design, etc.

There are a number of key reasons why the installation of the equipment and materials did not take place immediately after delivery in January 1997, and all such reasons were the fault of the Buyer and not the Seller, including:

1. Rejection of Fiber Optic Cable Design/Retention of Anhui Design Institute

The Buyer unjustifiably rejected the Seller's design of the fiber optic cable communications system and demanded in December 1996 that a Chinese design institute be hired by the Seller. The requirement to hire a Chinese design institute was not mentioned in the bidding documents or the Contract Documents. Nor was this requirement mentioned during the contract negotiations or at any time prior to December 1996. As per the Third Design Liaison meeting minutes (Oct. 23, 1996), the parties were prepared to commence installation on December 1, 1996. In addition, the Buyer never formally rejected the Seller's Design because of improper design. At the time of the Third Design Liaison Meeting (October 1996), the Buyer had in its possession the Seller's AT&T approved design, the reels of fiber optic cable, and the hardware to install the fiber optic cable.

The Seller even warned the Buyer that its changes to the design of the fiber optic system was improper and not the Seller's responsibility. In its correspondence, the Seller protested the decision to involve Anhui: June 5, 1997 (the Seller Letter No. 81): "The Buyer has made critical decisions in secret. The Anhui Design Institute was employed by the Buyer long before we had any knowledge. August 29, 1997 (the Seller Letter No. 110):"the Seller has carefully laid out the fiber optic cable arrangement considering ADSS cable types, spares, splice locations, and reel assignments; and can see no reason to change these plans. Any change made without the Seller's authorization will void any Seller responsibility."

2. The Buyer's Failure to Complete Improvements to Dispatch Center

The second reason that the equipment could not be installed soon after delivery in January 1997 is because the Buyer failed to complete the improvements to the Dispatch Center until August 1997. The Dispatch Center, the nerve center of the entire system, was not ready for installation of the equipment until after the Buyer had completed the improvements and the environment was appropriate for the delicate computer equipment. As required under the contract, the Buyer gave the Seller notice to commence installation on August 18, 1997. This was over 8 months after the SCADA equipment was delivered to the Buyer.

In addition, the Buyer failed to properly assess the appropriate locations for the hydrological sites (instruments designed to, among other things, gauge rainfall and are radio controlled). Since the hydrological sites chosen by the Buyer (and as specified in the Contract documents) were poor sites given that the terrain prohibited clear radio transmissions, the Seller was unable to supervise the installation of the hydrological equipment.

3. The Buyer's Failure to Provide Wiring Diagrams for Existing Equipment

As a condition precedent to the Seller's timely performance, the Buyer was expressly required to provide the Seller with "all technical data and approvals in compliance with the requirements in the Contract." Specifically, the Buyer was required to provide "detailed design of Civil works for the Works and design of electric main scheme." Without the detailed Civil works design and electrical system design for the existing system (and as was substantiated by expert testimony during the hearings), the Seller could not proceed to integrate the various systems unless and until the Buyer provided information and data concerning their existing equipment; namely, the wiring diagrams for the existing equipment and drawings depicting the changes to the existing equipment. The Buyer even acknowledged and promised to provided the requested drawings, but failed to do so. The Seller sent scores of letters requesting that the Buyer provide the needed drawings of the existing equipment.

After repeatedly requesting that the Buyer supply the requested wiring diagrams and information concerning the existing equipment, the Seller's personnel had to physically go through the Buyer's files to locate the demanded wiring diagrams. Then, the Seller was forced to mark up the Buyer's wiring Diagrams to reflect the actual layout of the electrical systems of the various substations given that the Buyer's wiring diagrams in some instances contained inaccurate information. In response, the Buyer would repeatedly claim that the contract was a "turnkey" arrangement in flagrant disregard of its obligation under Clauses 7.2 and 13.3 of the Contract. Notwithstanding the language of the Contract, it is common sense (as well as international practice in similar types of projects) for the owner of the existing equipment to locate and make available all information and data concerning the existing equipment that is to be integrated with the new equipment.

4. Failure to Provide Qualified Installation Crews

The Buyer repeatedly failed to provide installation teams of "sufficient size and quality" as required in the Contract. No amount of supervision or training (on-site or off-site) could prepare inexperienced workers for installing the subject systems. the Seller fulfilled its supervisory duties by repeatedly lodging written objections to the work performance of the installation teams, but the Buyer ignored the Seller's requests. Short of installing the systems itself, which is clearly not contemplated in the Contract, the Seller could do nothing more than to object to the installation crews' lack of experience. In addition, the Buyer never provided the Seller with the qualifications of the installation crews as is required under the Third Design Liaison Meeting Minutes (October 23, 1996). The Seller repeatedly complained about the Buyer's work crews in various communications.

5. The Buyer's Failure to Install the Equipment

The evidence demonstrates that the Buyer failed to mobilize its work crews to complete the installation. And, the Buyer's crews installed equipment improperly or out of sequence, notwithstanding the Seller's attempts to supervise the Buyer's personnel and subcontractors.

6. The Buyer's Ongoing Changes to the System Design

In addition to the change of design with respect to the fiber optic system, the Buyer repeatedly attempted to change the design of the SCADA system in a number of other areas. The Seller's correspondence reflects the situation.

7. Failure to Provide Required Transportation for the Seller's Supervisors

The Buyer ignored its obligations under the contract which provided that the Buyer would "arrange at site for the Seller's personnel free of charge ... transportation at the site." The Seller demanded that the Buyer fulfill this obligation.

In response, the Buyer refused to provide the Seller with the transportation that it needed to accomplish the installation supervision.

VIII. THE INSTALLATION INSURANCE ISSUE

1. Buyer's contentions

In accordance with the Clauses 11.1.1 and 11.2.2, the Seller should take out insurance at its own expenses, not only transportation insurance but also installation insurance. But in fact, the Seller only took out transportation insurance. The insurance policy presented at the hearing by the Seller was not an effective policy for installation. The Buyer requested these discrepancies in the insurance policy be corrected by sending letters to the Seller and mentioned the matter once again in its letter to the Seller dated March 5, 1998, which was ignored by the Seller.

2. Seller's contentions

The licensed insurance broker confirmed that the policies issued to the Seller were "All Risk" policies which covered all risks associated with the design, installation, and testing of the subject equipment, that CEAR coverage was provided, and that Buyer was an additional insured under the policy.

Although an argument can be made by Buyer that the Seller could have done a better job at explaining the insurance coverage procured by the Seller for the project, such a shortcoming does not amount to a material breach in light of the fact that the Seller provided the certificates of insurance during the course of the project. Furthermore, Buyer has failed to produce any evidence that it sustained any damages as a result of the Seller's alleged breach.

IX. THE FOURTH PHASE PROJECT

1. Buyer's contentions

The Buyer holds that the following points:

A. The "Phase 4 Project" was not started by the Buyer;

B. The "Phase 4 Project" has nothing to do with this case. The Tribunal is kindly requested not to put it on the agenda of the hearing;

C. The project under this contract should be continued even if there is a Phase 4 Project;

2. Seller's contentions

The Seller maintains that the replacement of the existing open channel water supply system with the Hong Kong-funded Closed Aqueduct/Pipeline System is indicative that the Buyer terminated the parties' Contract because it no longer has a need for the equipment, and not as a result of any breach on the Seller's part. If the Buyer needed the system, they would have completed the installation a long time ago. Indeed, the Buyer claims that its installation crews from the Dong Wang Enterprises Company were so sophisticated that they "completed the installation and commissioning of the computer supervisory system and communication system in the Tai Yuan Pump Station, the biggest and the most sophisticated pump station in Guangdong and successfully put the system into operation once of all, being appraised as a quality installation." Interestingly, the Tai Yuan Pump Station will be part of the new Closed Aqueduct/Pipeline System. If the Dong Wang Enterprises Company was sophisticated enough to complete the Tai Yuan station, they were also sophisticated enough to complete the installation process for the SCADA, hydrological, and fiber optic cable systems on the existing equipment.

The facts tend to show that Buyer stopped work on this project (and conveniently blamed the Seller for a breach of contract) after they realized that all this equipment was redundant.

X. MITIGATION OF THE ALLEGED DAMAGES

1. Seller's contentions

Under both the CISG and the Contract Law, the Buyer has an obligation to take appropriate measures, or to mitigate, its potential losses. Despite the fact that the Buyer claims that its work crews are experienced and skilled enough to install the supervisory control system at the Tai Yuan Pumping Station, Buyer has failed to take any steps to complete the installation process. Instead, the Buyer has gone through the expense of moving the equipment to a storage facility that was specially built to house the equipment and materials supplied by the Seller. Such a move makes no sense unless the Buyer has no need for the equipment or plans to use the equipment for another purpose. Here, it is clear from the evidence that the loan from the HKSAR obviates the need to complete the Phase III Supervisory Control System when the entire existing open channel system will be replaced by the Closed Aqueduct/Pipeline System in the near future.

Equally important, there is no justification as to why power generation cannot be achieved at anytime. Indeed, the Buyer has taken no steps to restart its power stations, and therefore cannot hold the Seller accountable for its alleged loss of revenue concerning equipment that is within their control of operation.

XI. THE PROCEDURE TO TERMINATE THE CONTRACT

1. Buyer's contentions

The Buyer argues that the termination of the Contract is in conformity with the law and Clause 29.1 of the Contract.

There is no clear definition in the Contract on the default notice. "Default Notice" is just a notice of warning from the abiding party to the breaching party if there is no special form of notification agreed upon by both parties. A notice of warning cannot be simply considered as a routine matter in the international trade. As early as on March 25, 1997, a default notice was sent by the Buyer, informing the Seller of its breach of contract and asking it to take remedies. Though the Buyer did not take any action immediately in the subsequent period, that does not mean that the Buyer abandoned its right to terminate the Contract or excused the Seller. On Dec. 26, 1997, the Buyer sent another default notice, stating that the Seller shall abide by the Contract strictly, otherwise the Buyer would suffer great losses. At that time there were only 4 days to go for the completion of the project. After the Seller failed to complete the project in time, the Buyer sent default notices to the Seller on March 27, April 22, April 27 and May 12 of 1998. During that long period, the Seller did not have any sincerity to remedy its default. In fact, a grace of more than 30 days was given by the Buyer, that is, while the Seller couldn't complete the project by the end of 1997, it came out with another work schedule with the completion date at the end of April 1998. Again the new work schedule was not realized by the Seller.

If the formal default notice was sent out on May 12, 1998, still a grace of 30 days was given to the Seller because the Buyer submitted the application for arbitration on June 12, 1998.

The legal bases for terminating the Contract are as follows:

A. According to Clause 29 of the Law of P. R. on Economic Contracts involving Foreign Elements (as per Attachment 58) when the Seller failed to perform the Contract within the time limit agreed upon in the Contract and again failed to perform it within 5 months allowed for delayed performance and breached the Contract fundamentally, the Buyer has the right to terminate the Contract:

B. According to Articles 71 and 72 of United Nations Convention on Contracts of International Sale of Goods (as per Attachment 59), the Seller's failure to perform the Contract within the grace period is a fundamental breach of contract and the Buyer has the right to terminate the Contract.

2. Seller's contentions

The Seller insists that the Buyer failed to provide the required thirty days notice to cure and notice of termination in the manner required by the Contract. Clause 29.1.1 of the Contract provides that the Buyer has the right to terminate the Contract as a result of certain defaults by the Seller, but the Buyer is expressly required to provide "written notice of default" and a full thirty days to cure the alleged failure. This provision is consistent with the requirement under the article 26 of CISG which provides that a "declaration of avoidance of the contract is effective only if made by notice to the other party." First, the Buyer failed to comply with the terms of the Contract and failed to provide the Seller with a written notice of default. In Buyer' letter dated April 27, 1998, Buyer demand that the Seller provide "four solutions ... within 10 days" or cooperation would end and that Buyer would "take actions as per clause 29.1 'termination for Default'." The Seller responded to these demands. In its letter dated May 12, 1998, Buyer advised the Seller that it was not happy with the Seller's response and stated that "we have to terminate the whole Contract according to Clause 29.1 of the Contract." At no time did the Seller receive a "written notice of default" as required under the Contract. In effect, the April 27th letter is a warning that Buyer intended to exercise its rights under Clause 29.1 and the May 12th letter is an announcement that the Contract had been terminated. Hence, there was no default notice and right to cure granted to the Seller. Nor did the Buyer provide the Seller with a thirty (30) days time period in which to cure the alleged defects.

PART TWO: THE TRIBUNAL'S FINDINGS

I. SOME STIPULATIONS OF THE CONTRACT

The Tribunal has considered carefully the voluminous evidence presented by the parties and has reached the conclusions and findings set out below. Before going to the details, the Tribunal thinks it necessary to put in this section some important provisions of the Contract concluded on January 18, 1996 and the Contract Amendment concluded on March 22, 1996 as follows for easy reference when the Number of the clause is mentioned in this Award:

"2.3 The Seller shall supply, supplement, install or modify all parts or components which have been identified by the Buyer as missing, short listed or omitted in the Contract by the Buyer at no cost to the Buyer regardless of whether or not they are included or specified in the Contract, except those clearly excluded by the Contract.

3.1 All the Works and Services supplied under the Contract shall have their origin in the countries of the Contractors.

4.1 All manufacturers, suppliers, service providers engaged by the Seller or local manufacturers in China by joint venture with the Seller for execution of the Works and Services as approved by the Buyer according to Claus 4.3 shall be accepted as Sub-Contractors to the Seller.

4.2 The Seller shall, at his own cost, coordinate the Works of all his Sub-Contractors and ensure the matching and interfacing of the Equipment supplied by different Sub-Contractors to be smooth, effective and reliable. The Seller shall be responsible to ensure the completeness and integration of the Works and Services and in no circumstances shall the involvement of Sub-Contractors release the Seller from such responsibility.

4.3 The Seller shall not sub-contract to any part of the Works without written consent of the Buyer. In the event such sub-contracting is deemed necessary by the Seller, the Seller shall have to submit in advance all the relevant information including justification for sub-contracting, Sub-Contractors' introduction, sub-contract document (unpriced), etc. to the Buyer so as to enable the Buyer to evaluate the sub-contracting proposal.

4.6 The Seller shall be fully responsible for the acts, defaults and neglects of any his sub-contractors, agents, servants or his own staff.

4.7 Any consent given by the Buyer in accordance with Clause 4.3 shall not release the Seller from any of his liability or obligation whatsoever under the Contract.

5.1 Total Contract Price

  Total price of this Contract is US $5,835,904.00.

The Contract Amendment provides that "the total Contract Value for the Works after this Contract Amendment will be US $7,120,000.00".

5.1.1 Terms of the Price:

Price indicated in the Contract shall be on the basis of CIF Liner terms Huangpu Port, including all the costs and freight for the equipment and materials to be shipped to and unloaded at Huangpu Port and the transit insurance to be covered up to the warehouse on the Site.

5.2 Price List Breakdown:

5.2.1 General Breakdown:

(A) Equipment and Materials Value (CIF)  US $5,419,716.00

Computer Supervisory Control System US $3,214,962.00

Hydrological Telemetering System US $481,823.00

Microwave Communication System US $1,722,931.00

(B) Technical Services US $416,188.00

   Total Contract Price US $5,835,904.00

In the Contract Amendment, both parties agree to replace the Microwave Communication System required in the Contract with a Fiber Optic Communication System; and provide the fiber optic communications features in lieu of the Microwave Communications features. The added expenses for the replacement will be US $1,284,096.00.

6.1 The Buyer shall, within 45 (forty-five) days after Validation Date of the Contract, open an irrevocable Letter of Credit (Specimen as per Annex 12) through Guangdong Water Conservancy & Hydropower Engineering Development Co., Ltd., Tel: (852)23761137, Fax: (852)23765275, Address: 10/F., Astoria Bldy., 34 Ashley Rd., Tsimshatsui, Kowloon, H.K., in favour of the Seller for an amount equivalent to the total Contract Price under Clause 5.1. The Letter of Credit shall be valid until the last payment is made according to the Contract. The letter of credit shall permit payments in the following manners:

6.2 Advance Payment:

Ten percent (10%) of the total Contract Price as stated in Clause 5.2.1, i.e. US $583,590.40 shall be effected to the Seller within 45(forty -five) days after Validation of the Contract against the Seller's sight draft accompanied by the following documents provided they are in conformity with the Contract:

A. A photostat copy of effective export license for the Equipment and Materials, or a statement certifying that no export license is required, issued by authority concerned (the Seller's country).

B. An irrevocable letter of guarantee for the 10% advance payment in one (1) original, issued by a first class bank in the Seller's country, in favour of the L/C applicant with a clause of assignment for the amount of advance payment in case of a claim raised by the Buyer under the letter of guarantee. The letter of guarantee shall be in a form as given in Annex 13.

C. Pro forma invoice covering 100% of the Contract Price in one (1) original and five (5) copies.

D. Commercial invoice covering 10% of the Contract Price in one (1) original and five (5) copies.

6.3 Payment against Shipment

Seventy-five (75%) of the value of the Equipment and Materials in Clause 5.2.1 (A), i.e. US $4,064,787.00, shall be effected by the Buyer to the Seller prorata of each shipment against presentation of the Seller's sight draft accompanied by the documents stated in Clause 9.2. provided they are in conformity with the Contract.

6.4 Payment for Provisional Acceptance of Equipment

Five percent (5%) of the value of the Contract Equipment and Materials as stated in Clause 5.2.1 (A), divided into the following

Computer Supervisory System  i.e.    US $160,748.10

Hydrological Telemetering System i.e.   US $24,091.15

Microwave Communication System i.e. US $86,146.55

Shall be effected by the Buyer to the Seller within 30 days upon provisional acceptance of each System against presentation of the Seller's sight draft accompanied by the following documents provided they are in conformity with the Contract:

A. Provisional Acceptance Certificate issued by the Buyer in two (2) copies,

B. Commercial invoices of the said amount in one (1) original and four (4) copies.

6.5 Payment for Final Acceptance

Ten percent (10%) of the value of Contract Equipment and Materials as stated in Clause 5.2.1 (A), i.e. US $541,971.60 shall be effected by the Buyer to the Seller after issuance of the last Final Acceptance Certificate pursuant to Clause 19.2 against presentation of the Seller's sight draft accompanied by the following documents provided they are in conformity with the Contract:

A. Final Acceptance Certificate for the Works signed by the Buyer in one (1) original and one (1) copy.

B. Commercial invoice of the said amount in one (1) original and four (4) copies.

6.6 Payment for the Services

Ninety percent (90%) of the value of the services as stated in Clause 5.2.1, i.e. US $374,569.20 shall be effected by the Buyer to the Seller against the Seller's sight draft accompanied by the Seller's invoice in one (1) original and five (5) copies and the original documents required in the following payment scheme:

30% - US $124,856.40 against the Buyer's declaration to be issued on the commencement date of installation

20% - US $83,237.60 against commissioning certificate

40% - US $166,475.20 against PAC

6.8 The Buyer shall have the right to deduct, from the payment under negotiation or from the Performance Security, the penalties or compensations which the Seller are liable to pay in accordance with stipulations of the Contract.

7.17.1 Time Schedule

Time Schedules are required for the following activities:

(1) Technical Design and Design Liaison;

(2) The Equipment and Materials Manufacturing;

(3) Shipment;

(4) Installation;

(5) Tests and Acceptance;

(6) Training;

(7) Delivery of Technical Documentation.

7.2 In the event of delays in the Contract implementation time schedule, the Seller shall be fully responsible as specified in the Contract, provided that the Buyer meets the following Conditions:

Provides all technical data and approvals in compliance with the requirements of the Contract;

Provides the Site ready for installation in compliance with the requirements of the Contact.

7.3 The Seller shall, after Validation Date of the Contact, work out monthly progress schedule in compliance with the Contract Implementation Time Schedule and report the monthly progress of the Buyer every two months.

7.4 Items in Clause 7.1 shall within 180 days after the validation of the Contract be prepared by the Seller and be submitted to the Buyer for approval.

8.1 Shipment Arrangement

8.1.1 The Equipment and Materials under the Contract except that stipulated in Clause 8.1.4 and /or otherwise agreed by the Parties shall be shipped form the Seller's port to Huangpu Port.

8.1.2 The arrangement of batches, time of despatch, means of transportation of shipments shall be in accordance with Clause 7.1(3). However, total batches of shipment, including normal deliveries, supplements and replacements, shall not in any case exceed following requirements; Computer Supervisory Control System one (1) lot, Hydrological Telemetering System two (2) lots, Microwave communication System one (1) lot.

8.1.3 The total weight and volume of the Equipment and Materials is to be included in Annex 2.

8.1.4 All and every technical documents shall be sent by air freight to the Baiyun Airport, Guangzhou, China or airmail or hand-carry to the Buyer against the Buyer's receipt.

8.2 The Seller's Responsibility

The Seller shall be responsible to undertake the following :

(1) completing the necessary facilities of export;

(2) Effecting shipment according to the time schedule as stated in Clause 7.1 and,

(A) In case of sea freight

(a) booking shipping space

(b) arranging shipment from port of shipment to port of destination Huangpu, China;

(c) covering insurance as per clause 11.

8.3 The Buyer's Responsibility

The Buyer shall be responsible to undertake the following:

8.3.1 The Buyer shall be responsible for the Customs clearance in due time and provide the storage at the site for all the shipments.

8.3.2 The local transportation from Huangpu Port to the Site including intermediate storage and unloading at the Site shall be executed by local transportation company(s) under separate contact with the Buyer. Without prejudice to the Seller's other contractual obligations and responsibilities, the Seller shall be free from responsibilities for local transportation as well as delay and extra cost in connection with the local transportation.

8.11.4 In the event that the Seller fails to submit shipping documents specified in Cause 9.1.2 and 9.1.3 in time which may lead to delayed customs clearance of the Buyer within regulated time frame, extra costs thereby may occur including demurrage fees, storage fees and port fees shall be born by the Seller.

9.1.2 The Seller shall send by express mail to the Buyer three (3) copies of each set of documents mentioned in Clause 9.1.1, without six (6) working days for sea freight after the date of each shipment from the loading port.

9.1.3 Without 72 (seventy-two) hours after each shipment of the technical documents, the Seller shall send by express mail to the Buyer the following documents:

(a) One (1) copy of Airway Bill;

(b) Four (4) copies of technical document lists.

10.1 The Equipment and Materials delivered on the basis of CIF Huangpu Port pursuant to the Contract shall become the Property of the Buyer when they are delivered to the Buyer and unloaded on the Site.

10.2 The Equipment and Materials, the property in which has passed to the Buyer pursuant to Clause 10.1 shall remain under the Seller's care and at the Seller's risk of loss except case of Force Majeure up to the Provisional Acceptance Certificate is issued. The Seller must also cover the loss of damage due to defect in the Equipment and Materials or the Seller's poor workmanship during the Warranty Period without prejudice to the Seller's responsibility to carry out installation, testing, trial operation and to complete the Works and Services according to the Contract until the Seller's responsibilities toward the Equipment and Materials are fulfilled. The Seller's responsibility under this Clause is conditional upon respect of time limits for land transportation set out in Clause 11.2.1 and prompt notification to the Seller of all incidents during land transportation.

11.2 Coverage of Insurance

11.2.1 For Transportation

11.2.1.1 Transit insurance shall be taken out for each and every shipment under the Contract and shall cover All Risks and War Risks plus Strikes, Riots and Civil Commotions & Theft, Pilferage and Non-Delivery for 110% (one hundred and ten percent) of the invoice value from the Seller's factory and/or warehouse whichever is applicable or from the factory and/or warehouse of Sub-Contractors (if shipment directly for the Sub-Contractors is to be effected) up to the time the goods are delivered to the Site and unloaded in the storage until when and where the CEAR as described in Clause 11.2.2 (1) coverage begins under the condition that the local transportation from Huangpu port unloaded to the Site is limited to 60 (sixty) days or to the extension period available under the Seller's police, provided that the Buyer requests extension in advance. Additional premiums due fro an extension up to 120 (one hundred and twenty) days of local transportation shall be to the account of the Seller.

11.2.2 For Installation

Without limiting the obligations and responsibilities of the Seller under Clauses 18, 19 and 21, the Seller in the joint names of the Buyer, the Seller and his Sub-Contractors take out insurances in accordance with Clause 11.1 at the expense of the Seller, effective for the following coverage:

1) For an amount sufficient to provide for claims on a replacement value basis subject to reasonable excesses against loss of or damage to the Equipment and Materials delivered on the Site and property belonging to the Buyer at the Site under a Construction and Erection All Risks (CEAR) policy and shall keep such Equipment and Materials and property insured until Provisional Acceptance Certificate is issued for each Equipment and against loss and damage during the warranty period due to the defects in the Equipment or the Seller's poor workmanship.

2) The Seller insured by the CEAR policy shall observe and fulfill the terms, provisions and conditions contained in such policy subject to the Seller's responsibilities and liabilities under the Contract. The Seller shall bear the amount of the excess stated in the policy in cases where the Seller has a liability of loss, damage or injury.

12.4 Documentation Attached with the Packing:

13.1 Technical Design and Procedure

13.1.1 The technical design for the Equipment and Materials stated in Annex 2 shall be carried out by the Buyer and the Seller separately with the cooperation from each other. The approval shall be subject to the mutual written confirmation of both the Buyer and the Seller. However, the Seller shall make the final decisions and take the full responsibilities.

13.1.2 For all items stipulated in Clause 13.1.1, the design shall be carried out according to the procedures as follows:

(1) Data collect and exchange between the Buyer and the Seller;

(2) The Seller's submission of the preliminary design and whatsoever specified in Annex 2 within four (4) months after the Signature date of the Contract;

(3) The design liaison meeting for discussion and finalizing of the design.

13.2   The Seller's Scope of Design

The Seller's scope of design shall include but not be limited to the design of the Equipment and Materials supplied by the Seller, guide drawings for Computer Supervisory Control System, Hydrological Telemetering System and Microwave Communication System, and the Seller shall undertake all the technical responsibility. Details are defined Technical Specifications of the Contract (Annex 2). The Seller shall coordinate the interfacing design between the Equipment under the Contract and other equipment to be purchased for the Works.

13.3 The Buyer's Scope of Design

The Buyer's scope of design shall include the detailed design of civil works for the Works and design of electric main scheme. The Buyer shall assist the coordination between the Seller and other suppliers.

13.4 Design Approval

Designs approved by both the Buyer and the Seller shall be presented in official documents, drawings and diagrams duly signed by the authorized representatives of both the Buyer and the Seller.

15.5 Transportation and Storage Instructions

Detailed instructions, with illustrations, diagrams and weights, for transportation, handling, storage and care of equipment both for inland transportation and at the Site shall be submitted. The instructions shall include:

(1) identification of parts requiring special outdoor, indoor or temperature or humidity-controlled storage for both long- and short-term storage;

(2) space requirements or outdoor, indoor and temperature- or humidity-controlled storage for both long-and short-term storage;

(3) the procedures to be observed in unloading, placing, stacking and blocking of equipment;

(4) rigging and lifting procedures;

(5) maintenance procedures for both long- and short-term storage including maximum recommended storage period for items stored outdoors;

(6) period rotation of components, where required;

(7) application of protective coatings; and

(8) cleaning of protective coatings and/or corrosion prior to installation.

13.5.1 To coordinate the design of the Equipment under the Contract and implementation of the Contract according to the Time Schedule concerned, three design liaison meetings are scheduled.

13.5.7 Both the Buyer and the Seller shall take notes during the liaison meetings and work out the minutes which shall be valid upon the signature by the authorized representatives of both the Buyer and the Seller and shall form an integral part of the Contract.

13.7 Design Liaison outside of Liaison Meeting

13.7.1 Except the design liaison meeting, any amendment or modification concerning design of eh Equipment proposed by either Party are subject to mutual discussion and agreement. Either Party shall give the written reply or letter of comments to the Party asking the question within 30 (thirty) days upon receipt of any documents or drawings submitted for approval.

13.7.2 The Seller shall promptly at any time during the term of the Contract reply to the Buyer's questions concerning the designs, and provide technical materials required by the Buyer except the Seller's know-how and confidential information within the scope of the Seller's contractual obligation.

15.1 Technical document supplied by the Seller shall contain manufacturing and engineering drawings, diagrams, schematics system descriptions, installation drawings, operation and maintenance instructions and manufacturing record photographs.

15.3.4 After having examined the technical documents and drawings with "*", the Buyer shall, within 30 (thirty) days after receipt of the documents, return to the Seller one

Approved without revision;

Approved with revision; (the Buyer's revisions to be used)

Revise and resubmit; (Return to Seller for revision, then submit to the Buyer again)

Rejected.

15.3.6 The Buyer shall carry out the examination after receiving the technical documents and drawings submitted by the Seller. Unless a notice is made by the Buyer within 30 Days after receiving the technical documents and drawings submitted for approval, they shall be deemed as examined and approved by the Buyer. The Seller therefore shall proceed to produce the said technical documents and drawings.

15.4.1 The Seller prepare and submit a complete listing of all drawings to be issued to the Buyer. The listing shall include the following details: drawing number, revision number, main plant category, drawing title, manufacturer's number (if applicable).

15.4.3 Errors found in drawings shall be subject to the ruling of Clause 24.

15.6 Installation Description

The Seller shall three (3) months prior to the installation of the Equipment and Materials provide the Buyer with drawings to illustrate the method of installation, installation instructions and all information related to the Works so as to enable the Buyer to prepare the installation Site, provide access tunnel and complete all other preparations.

15.8 Progress Report and Photograph

15.8.1 The Seller shall, beginning from the Validation Data of the Contract and ending by the date the last Final Acceptance Certificate is issued, within three (3) days after every two (2) months submit to the Buyer a detailed progress report. The report shall indicate the factual achievement and progress of the Works including designs accomplished, manufacturing, delivery and installation, etc. in itemized detail and percentage manner. When progress is deferred from the planned time schedule, the report shall include explanation of the delay and description of mending method taken against the defer in the event that the defer may affect the Contract Implementation Schedule.

15.11 In the event that the technical documents and drawings received by the Buyer are found missing or damaged pursuant to the above stipulation, the Seller shall, upon receipt of the Buyer's notice, replenish the said documents and drawings in accordance with the requirement of the Buyer.

16.1  Responsibilities on Installation

16.1.1.1 Seller's Responsibilities:

The Seller shall be responsible for the supervision of the installation as well as its quality and process of all and every Equipment and Materials within the scope of works of this Contract.

16.1.1.2 The Seller shall be responsible to organize the installation to be carried out orderly and smoothly and be in accordance with the time schedule under the condition that the Buyer's responsibilities stipulated in Clause 16.1.2 be performed and in due time.

16.1.1.3 The Seller shall provide sufficient qualified, skilled engineer team to supervise the installation works. The arrangement and program of the supervisors shall be defined in design liaison meeting.

16.1.1.4 The Seller shall be responsible to train, instruct and supervise the Buyer's installation team(s) to perform the installation and arrange the daily works for the Buyer's installation team(s).

16.1.1.5 The Seller shall submit report to the Buyer on monthly basis during the course of installation. The report shall content information as progress of the works, defects happen, negative factors existed, potential delay and mending methods recommended etc.

16.1.2 Buyer's Responsibilities

16.1.2.1 The Buyer shall be responsible to provide installation team of sufficient size and quality in accordance with the stipulation of Clause 7.1(4).

16.1.2.2 The Buyer shall be responsible to provide the Site for installation in accordance with the stipulation of Clause7.1.

16.1.2.3 The Buyer shall be responsible to coordinate and control the installation in the respect of cooperating civil works with installation, safety regulation and site security.

16.1.2.4 The Buyer shall have the right to interfere or to order suspension of installation with justified reason in the event that the implementation schedules as in Clause 7.1 being negatively affected or the quality control scheme or safety regulation or security of the Sites being affected due to the faulty instruction given by the Seller's personnel and /or the poor efficiency of the Seller's personnel or /and poor management of the Seller's.

16.2 Installation Site

16.2.1 Names, locations and other necessary data of the Site where the Equipment and Materials shall be installed are given in Annex 2.

16.2.2. Installation Site shall be provided by the Buyer and be ready for installation works to performed at the Site hand-over dates which are given in of Clause 7.1.(4).

16.2.3 The Seller shall forty-five (45) days prior to the beginning of installation, dispatch their representatives to the Site for the acceptance of installation site. The Seller shall confirm to the Buyer in writing if the Sites are accepted.

16.3 Installation commencement Notice

16.3.1 The Buyer shall, at a time deemed by themselves appropriate and all conditions such as the Site and the installation team(s) are ready, issued and Installation Commencement Notice to the Seller to confirm that the installation work are permitted to proceed.

16.3.2 The Installation Commencement Notice shall be given with reasonable consideration of the time frame provided in time schedule of Clause 7.1.

16.3.3 In the event that the date of the Installation commencement Notice differs from the programme date specified in the Time Schedule (4) of Clause7.1, the Seller shall within 14 days of receipt of the Buyer's Notice confirm to the Buyer whether or not an extension of time to the Contract is required and/or any resulting increase in cost. The buyer's confirmation shall be given to the Seller within 14 days. The Seller shall consult with the Buyer and endeavour to mitigate the cost impact of any revised time schedule.

16.4   Installation and Supervision Cost and Expenses:

16.4.1  The cost for the Seller's installation supervision service provided in the context of Clause 16 is included in the contract.

16.4.2  The air ticket, living expenses and communication cost of the Seller's supervisors shall be on the Seller's own account.

16.4.3 Without exception the Buyer shall as far as installation supervision is concerned be free from cost and expenses of any addition to the installation supervision price until all the Seller's contractual obligations are accomplished.

16.5 Works supervision

The Buyer's engineers from the administration organization authorized by the end user will be responsible for the supervision of the works and inspection of the Seller's installation supervision. If the Buyer's engineers consider that the quality and progress of the Works will be affected, they are entitled to submit a written caution to the Seller, and require the Seller to take necessary measures to ensure that the works will be carried out smoothly and orderly and completed in time. The costs thus incurred shall be borne by the Seller.

The Buyer's engineers are entitled to enter the Site at any time to conduct inspection and management for the installation of the works and even give instructions and directions, which shall be given in written form and put down in the Site record, so as to ensure that the installation will be carried out smoothly and orderly. The Seller shall implement such instructions and directions, and shall not use the Materials and Equipment which are proven by the Buyer's engineers to be unconformity with the provisions in the Contract. In order to ensure that the installation will be carried out in accordance with the specifications and provisions in the Contract, the Buyer's engineers are entitled to suspend the installation in writing when they think it necessary or refuse to accept the Materials, Equipment and Works which are not in accordance with what have been agreed upon. Meanwhile, the Buyer's engineers are allowed to make minor modifications and adjustments based on the technical specifications, provided that they will not affect the costs of the works and are not against the Contract.

The Seller shall assign Site representatives who will be responsible to receive and implement the Buyer's engineers' instructions and directions as stated above.

17.1 Scope of training

The Seller shall be responsible for dispatching skilful and competent technical experts to train the buyer's technicians and explain all the technical aspects within the scope of the contract, so that the Buyer's personnel of operation, installation and maintenance can understand the configuration, performance, installation procedures and maintenance standards of the Equipment supplied as well as master the methods for proper operation, adjustment and emergency procedures.

17.2 Training Places

The training places shall be pursuant to Section 6 of the bidding Documents. The language to be used for training shall be English.

17.3 Training in the Seller's Country

17.3.1 The Seller agrees to accept Buyer's technicians for the technical training at the Seller's manufacture or on the installation site in a System similar to the contractual System. The training time totals 8.75 man-months (including the traveling time of round trips).

17.3.2 The Seller shall submit the preliminary training programme to the Buyer three (3) months prior to the start of the training. One (1) month prior to the start of the training at the Seller's manufacturing plant, the Buyer shall notify the Seller the name, sex, birthday, nationality, occupation and speciality of the trainees as well as the Buyer's comments on the Seller's preliminary training programme. The Buyer and Seller shall jointly define a specific training programme through negotiations according to the specifications of contract and the design liaison meetings as well as the actual needs of the buyer's technicians after they arrive in the Seller's country.

17.3.3 The Seller shall be responsible as specified under the Clause 17.1 to ensure that the Buyer's trainees shall work on different job positions at the Seller's manufacturer or the above-mentioned installation site, so that the trainees can understand and master the manufacturing techniques and procedures of installation, operation, inspection, repair, maintenance and adjustment excluding know-how, as well as to ensure that the trainees shall be allowed to bring all the relevant training documents and notes back to China after their training is completed.

17.3.4 During the training period at the Seller's manufacturers' or on the installation site, the Seller shall put free of charge at disposal for the trainees the relevant test instruments, apparatus, technical documents, drawings, reference materials, overalls and safety devices.

17.3.5 The treatment conditions of the Buyer's trainees are defined in Annex 4 of the Contract.

17.l3.6 Prior to the training, the Seller shall explain in detail to the trainees the relevant regulations and other matters worthy of notes. The trainees shall respect the Seller explanation and abide by the relevant regulations. After the training is completed, the Seller shall issue training completion certificates to trainees.

17.4 Training at the Site

The training of the Buyer's technicians at the Site in China shall take place during the plant installation and trial operation period.

17.5 The expert and technicians assigned by the Seller shall meet the speciality requirements. They shall be in good health, competent for their job with technical theory and practical operation experiences.

17.6 Content of Training

17.6.1 The Seller shall, during the installation period of the Equipment, explain in details to the Buyer's technicians the configuration, performance and installation procedures of the Equipment.

17.6.2 The Seller shall, during the commissioning period of the Equipment, present training program to the Buyer's technical personnel of the methods, procedures and operations of the commissioning so as to enable Buyer's personnel to master practical operation techniques.

17.6.3 The Seller shall, during the trial operation period, present training program to the Buyer's technical personnel of the operations of the Equipment and methods of dealing with emergencies.

21.1 Claim against Short Delivery

21.1.1 In the event that shortage, mistake or damage are found in the Equipment and Materials on the delivery to the part of destination by the Seller, the Buyer shall lodge his claim against the Seller by letter or facsimile attached with evidence of either of the following:

--Inspection Certificate issued by the Inspection Bureau;

--A document that confirms the shortage, mistake of damage signed by the Buyer's and the Seller's representatives;

21.1.2 Upon receipt of the Buyer's claim attached with one of the above evidences, the Seller shall supplement or replace the short-shipped, mistaken or damaged items at no cost to the buyer. Unless otherwise agreed upon between the Parties the supplement or replacement shall be accomplished within 30 (thirty) days or reasonable time agreed by the Parties counting from the date the claim document is dispatched by letter or facsimile.

21.1.3 Should the claim case be subject to the coverage of insurance, the Seller shall handle the claim against the insurance himself, but the Buyer shall not be affected in any form in receiving the replacement or supplement as stipulated in Clause 21.1.2.

21.2 Claims against Quality Inferiority

21.2.1 In the event that quality of the Equipment and Materials in found inferior to the specification during the course of test and acceptance as per Clause 18.1.2 and during the period of warranty, the Buyer shall lodge his claim against the Seller with either of the following :

Inspection Certificate issued by the Inspection Bureau;

Record of the test result signed by the Buyer's and the Seller's representatives.

21.2.2 The Seller shall within two (2) weeks upon receiving the claim document respond to the Buyer to confirm his acceptance or rejection of the claim. If the Seller fails to deliver his response to the Buyer within two (2) weeks upon receipt of the claim, the claim is deemed as being accepted.

21.2.3  The Equipment and Materials under the Buyer's claim against quality inferiority shall be disposed of, subject to the Buyer's option with justifiable grounds, by one of the following methods:

A. Repair of Modification

The Seller shall, repair or modify the Equipment and Materials found inferior at his own cost to the condition that the contracted specifications are met. The repair or modification

Shall be completed within 30 (thirty) days unless otherwise agreed upon by the Buyer. The repaired or modified Equipment and Materials shall be accepted after relevant contractual tests are completed. However, the Seller shall still pay to the buyer direct costs thereby occurred by repairing the default equipment.

B. Replacement

The Seller shall at this own cost replace the Equipment and Materials found inferior with new qualified products. The replacement shall be completed within 30 (thirty) days unless otherwise agreed upon by the Buyer. The new Equipment and Materials shall be accepted after relevant contractual tests are passed.

C. Rejection of the Goods

The Equipment and Materials under the claims shall be rejected and returned to the Seller. The Seller shall give reimbursement to the Buyer for all costs of Equipment and Materials under the claims, plus the extra cost involved to install replacement of the Equipment and Materials obtained from other sources.

The transportation and insurance cost for the rejection shall be borne by the Seller. Rejection of the Equipment and Materials shall be resorted to only for extreme cases in accordance with Clause 21.3.

D. Devaluation of the Equipment and Materials

The Equipment and Materials under the claims shall be devaluated, but only if the Seller and the Buyer agree, to an extent that the Buyer may accept the Equipment and Materials with a new specification resulted by a compromise between the contracted price and the devaluated price shall be refunded to Buyer. The new specification shall be confirmed by the Buyer and the acceptance test of the Equipment and Materials shall be carried out in accordance with the new specification.

E. Liquidated Damages

1) In case the performance of the Equipment cannot reach the specifications during test and acceptance procedures, the Seller shall pay liquidated damages to the Buyer according to Clause 21.2.

2) Liquidated damages for quality failure payable on any Equipment shall not in any event exceed 20% (twenty percent) of the total Contract price stipulated in Clause 5.1. payment of liquidated damages as stated above shall replace the Buyer's right to repair or replacement as Clause 21.2.3 and shall replace the Seller's obligations to achieve the guaranteed values. However, if the minimum performance values indicated in Technical Specifications for a particular Equipment is not achieved, the test shall be considered as having failed. In such a case, the Buyer may choose (i) to reject the Equipment; (ii) to accept the equipment and demand payment of the maximum liquidated damages. The Buyer and the Seller may in the alternative agree to a devaluation compromise as stated in paragraph D. 

21.3 Liquidated Damages for Delayed Delivery

In the event that the Seller fails to make the delivery and shipment in accordance with the time schedule given in the Contract according to Clause 7.1, the Seller shall be liable to pay liquidated damages. However, the liquidated damages for late delivery shall not exceed 5% (five percent) of the total value of the Contract equipment involved in the late delivery. The rate of these liquidated damages shall be charged at the following:

(a) 0.3% each week or part thereof for the first four weeks;

(b) 0.8% each week or part thereof for the following weeks.

In case the Seller fail to make delivery twelve (12) weeks later than the time of shipment stipulated in the Contract, the Buyer shall have the right to cancel the Contract in whole or in part. The liquidated damages paid by the Seller to the Buyer shall not release the Seller from his obligation of continuous delivery of the delayed Contract equipment.

21.4 Maximum Liquidated Damages and Maximum Liability

21.4.1 The calculated aggregate liability of the above liquidated damages as defined in Clause 21.2.3and 21.3 shall not in any case exceed 20% (twenty percent) of the total Contract Price. Subsequent liquidated damages following that imposed pursuant to Clause 21.6 shall be by no means applicable.

21.5 Maximum Responsibility

Except in the case of personal injury (including heath) the aggregate liability of the Seller in the event of damage to the Works or any third party, shall be fully satisfied by making good of such damage up to the end of warranty period, provided always that the total liability for such damage shall under no circumstances exceed the contract value.

21.6 Claim Refund

It is understood that the damages herein provided are fixed and agreed liquidated damages and that to be entitled to such damages the Buyer shall not be required to prove that is has incurred actual damages. In case the Buyer becomes entitled to the liquidated damages provided herein, the Buyer is hereby authorised to deduct the amount of such liquidated damages from any money due or which may become due the Seller under this Contract of the Seller with the Buyer and /or collect such liquidated damages from the Performance Security of the Contract, whichever is more convenient to the Buyer.

24.1 The Seller shall be entirely responsible for any design or detailed engineering in respect of the Works and its components and for any discrepancies, errors or omissions in the drawings and information supplied by the Seller under the Contract, whether they have been approved by the Buyer or not, provided that such discrepancies, errors or omissions are not due to inaccurate drawings or information furnished to the Seller by the Buyer.

24.3 The Buyer shall only be responsible for drawings and information supplied to the Seller in writing by the Buyer. The Buyer shall issue a Variation Order in accordance with Clause 30 for alterations necessitated by reason of inaccurate drawings or information so supplied to the Seller.

24.4 The Seller shall bring to the attention of the Buyer any matters which appear to deficiencies, omissions, contradictions or ambiguities, or any doubt about the meaning or correctness of any information supplied to the Seller by the Buyer. The Buyer shall then promptly instruct the Seller to proceed.

26.1 All taxes, customs duties and other duties levied by the Chinese Government on the Buyer in connection with and in the performance of this Contract according to the Chinese effective Tax Law shall be paid by the Buyer. The Buyer shall pay all customs and import duties, if any, on the Equipment and Materials imported into China under the Contract.

28.1 Validation Conditions

The Contract shall be validated subject to the following conditions being met:

(1) Signatures of the Contract by the representatives authorized by the Buyer and the Seller;

(2) The Buyer has received from the Seller the Performance Security pursuant to Clause 32 and specimen of annex 5.

28.2 Validation Date

The Seller will be informed of the effective date of the Contract by the Buyer by telex/fax followed by written confirmation by registered mail.29,1

29.1 Termination for default

29.1.1 The Buyer may, without prejudice to any other remedy for breach of Contract, by written notice of default sent to the Seller, terminate this Contact in whole or in part:

(1) if the Seller fails to deliver any or all of the Equipment and Materials or perform any of the Services within the time period(s) specified in the Contract or any extension thereof granted by the Buyer; or

(2) if the Buyer proves that the Seller does not comply with the requirements of the scope stipulated in the major technical requirements, including major hardware equipment, software engineering support and services;

(3) if the Seller fails to perform any other obligations under the Contract; and

in either of the above circumstances, the Seller does not cure his failure within a period of thirty (30) days (or such longer period as the Buyer may authorize in writing) after receipt of the default notice from the Buyer.

29.1.2 In the event the Buyer terminates the Contract in whole or in part pursuant to Clause 29.1.1, the Buyer may procure, upon each term and I such manner as he deems appropriate, Equipment and Materials similar to those undelivered, and the Seller shall be liable to the Buyer for any excess cost above the Contract Price for such similar Equipment and Materials. However, the Seller shall continue performance of the Contract to the extent not terminated.

30.1 The Seller shall not alter any of the Works and Services except as directed in writing by the Buyer, but the Buyer, but the Buyer shall have the full power, subject to the provisions hereinafter contained, at any time during the implementation of the Contract to alter, amend, omit, add to or otherwise vary any of the Works and Services. The Seller shall carry out such variations and be bound by the same conditions, as though the said variations were an integral part of the Contract provided that: no such variation shall alter the general terms and conditions of this contract. And if the Seller's costs for carrying out the Contract or the time schedule for the Contract Implementation or the time for performance of the Works and Services are affected, the Buyer shall issue a Variation Order to the extent allowed in the Contract.

30.2 The Buyer may from time to time in writing instruct the Seller to submit, in such details as the Buyer may require (including but not limited to a detailed price breakdown) and within a reasonable period of time, the prosed revision to the that would result from any proposed variation to the Works and Services that the Buyer may require, Such revision to the Contract Price shall be ascertained and determined in the following manners:

Where options and alternative are defined and priced in the Contract, the amounts stated thereof,

Where they are not so defined and priced, the amounts shall be agreed between the Buyer and the Seller in accordance with one or more of the methods stated below:

On a lump-sum basis, determined from an estimate produced by the Seller on a basis consistent with the Contract,

On a lump-sum basis, based on unit prices and/or unit rates where stated in the Contract,

On a lump-sum basis, determined by analogy with and/or pro-rata to the Contract Price.

On the basis of costs where the Contract so provides.

Due account shall be taken of any partial execution of the Works and Services which may be rendered useless by any such variation or omission, and of any sums which may be recoverable by the Seller from third parties.

30.3 If in the opinion of the Seller any proposed variation is likely to prevent or prejudice him for fulfilling any obligation under the Contract, he shall notify the Buyer thereof in writing concurrent with his submission in accordance with Clause 30.2 hereof.

30.4 If the Seller believes that any direction, instruction, decision or any other act or omission of the Buyer affects the Seller's costs for carrying out the Contract or the Contract Implementation Time Schedule or the Commercial Operation commencement date, the Seller shall promptly notify the Buyer in writing. The Buyer, if agree, shall issue a Variation Order revising the Contract Price and/or the Contract Implementation Time Schedule and/or the programmed Commercial Operation Date, as required, provided however that no Variation Order shall be allowed if:

- the act of the Buyer has affected or will affect the Seller's performance in a manner consistent with the Contract or has been necessitated by the Seller's failure to comply with the requirement of the Contract, or

- the Buyer's performance has been adversely affected by the Seller's fault, negligence or failure to comply with a requirement of the Contract.

30.5 A Variation Order shall be issued after the Buyer has agreed to the Seller's submission (as may be subsequently amended following discussions between the Buyer and the Seller on the content of the Seller's revision) and shall be on a standard form entitled "Variation Order" which shall be the sole method for revision of the Contract Price, and/or the Contract Implementation Time Schedule and/or the programmed Commercial Operation Commencement Date.

Until a Variation Order is issued and accepted by the Buyer and the Seller respectively, the Seller shall perform the Works and Services in accordance with the original provisional of the Contract insofar as the circumstances reasonably permit.

32.1 The Seller shall within 30 (thirty) days after Notification of Award, furnish the L/C applicant a performance security issued by a first class bank in the Seller's country, in the amount of ten (10) percent of the total Contract Price. The performance security shall remain valid until expiration of the Warranty Period of the Contract as per Clause 19.

32.2 The performance security shall be denominated in the currency of the Contract or in a freely convertible currency acceptable to the Buyer, and be furnished by the Seller by a Bank Guarantee in the form as stipulated in Attachment 10. The cost thereof shall be borne by the Seller.

32.3 In case the Seller fails to perform any of his obligations under the Contract, the Buyer shall have the right to have a recourse from performance security.

32.4 The performance security will be discharged by the Buyer and returned to the Seller not later than thirty(30) days following the date of completion of the Seller's performance obligation, including any warranty obligation, under the Contract.

As to the Performance Security, the Contract Amendment provides that "the Seller is required to provide the Performance Bond for the amended contract within 45 days after signing this Contract".

33.1 Applicable laws and Regulations

The Contract shall be interpreted in accordance with the current laws of the People's Republic of China and the regulations, rules and ordinances concerned legally established by the Government of P.R. China which may be issued and in force from time to time."

II. THE APPLICABLE LAW

The disputed Contract involves Chinese and American parties. The parties thereto may choose the applicable law without prejudice to the mandatory provisions of China law. The Contract contains an explicit applicable law clause. The text of Clause 33.1 clearly stipulates that the applicable laws and Regulations shall be Chinese law and regulations, rules and ordinance. It is standing practice in arbitration to recognize the choice of law made by the parties of their own free will. In the case, the parties' agreement as to the applicable law is respected by the Tribunal. Hence, Chinese law is the applicable law of this Contract.

III. ISSUANCE OF PERFORMANCE SECURITY

In the course of Contract implementation, the parties had some differences as to the issuing time and institution of Performance Security. The Seller did not strictly comply with the contractual requirement. Pursuant to clause 32.1, the Seller is required to furnish the Performance Security issued by a first class bond in the Seller's country within 30 days after Notification of the Award. The Tribunal finds that the day of Notification of Award was before January 3, 1996, and the Seller provided a performance security issued by the Hong Kong office of Allianz Cornhill Insurance (Far East) Ltd on February 12, 1996. The Tribunal concludes that the Performance issued by an insurance company beyond 30 days after Notification of Award was not in compliance of the Seller's obligation under Clause 32.1. However, the Tribunal views it to be a minor breach without any actual damage caused. Furthermore, a series of facts thereafter shows that the Buyer had accepted the performance security and that both parties had reached new agreement with respect to Performance Security.

a. On March 21, the Seller provided a performance security issued by Banque Nationale de Paris, Hong Kong Branch in the amount of US $583,590.40;

b. On March 22, the parties amended the Contract and increased the Contract price to US $7.12 million. The Contract Amendment also provides as follows:

"The effective date of this Contract Amendment shall be the date of contract signing. Both parties hereto have caused this Contract Amendment to be executed in accordance with the Contract";

c. On March 25, 1996, the Buyer issued a notice of Contract Validation.

d. On May 17, 1996, since the Contract had been amended, the Seller amended the original Performance Security and increased the amount from US $583,590.40 to US $712,000.00;

e. There were no more complaints about Performance Security thereafter.

In the Tribunal's view, this issue has been settled in the course of performing the Contract.

IV. THE NATURE OF THE CONTRACT, THE CONTRACT VALIDATION DATE, ETC.

On January 18, 1996, Contract for Supply and Delivery of Goods for the Third Phase Expansion of Dongjiang-Shenzhen Water Supply Project, Contract no. 96ML44-9328US was made by and between the Buyer and the Seller. The total price of this Contract is US $5,835,904.00. Clause 28 provides for the Validation Conditions and Validation Date, which will be informed to the Seller by the Buyer. On March 22, the parties amended the Contract and increased the Contract Price to US $7.12 million. This Contract Amendment provides clearly that "The effective date of this Contract Amendment shall be the date of contract signing", according to which, the effective date is March 22, 1996. The Tribunal finds that on March 25, 1996, the Buyer informed the Seller that "with respect to the captioned project, we have received from you the performance security according to Clause 28 of our contract No. 86ML44-9328US. Enclosed is the notification of validation in accordance with Clause 28.2". In the attached Notification of Validation, it is stated as follows

"This is to inform you, the Seller, A Corporation, that the Contract (Contract No. 96ML44-9328US) made on the 18th day of January, 1996 and amended on the 22nd day of March, 1996 between both parties come into force on March 25, 1996, according to Clause 28 of the above mentioned Contract."

The issuance of the Notification of Validation indicated that the Buyer had accepted the Performance Security by the Seller and admitted that the Contract made on the 18th day of January, 1996 and amended on the 22nd day of March, 1996 come into force. The Tribunal believes that validation of contract through both parties' acts is in compliance with the relevant stipulations of the Contract. Both parties had realized that March 25, 1996 was the Validation Date.

The Tribunal goes further to hold that the signing of this Contract embodies the principle of autonomy of will, without any circumstance making the Contract null and void. Therefore, the Contract as amended is effective, and shall be legally binding on the parties. The parties shall determine respective rights and obligations in accordance with the terms of the Contract.

The Tribunal thinks that it is unnecessary to get entangled in the terminology"turnkey". With respect to disputes between the parties to a contract arising from the understanding of any clause of the contract, the true intention of such clause shall be determined mainly and firstly according to the contents of the relevant clauses of the contract. In the Tribunal's view, the respective rights and obligations of the parties are well defined in the Contract. The exercising of rights and the performing of obligations shall refer to the specific stipulation of the contract and could not be based on only a word or some words. Hence, the Tribunal will decide the disputes pursuant to the relevant stipulation of the Contract.

V. THE ISSUANCE OF THE L/C

The parties have presented the Tribunal with two different statements concerning the same event. The Seller held that a failure to open the required letter of credit breached the contract, while the Buyer insisted that the Seller's failure to provide the performance security and export license in time led to the late opening of L/C. In this respect, according to the Clause 6 terms of payment of the Contract as amended, the Buyer shall open an irrevocable Letter of Credit in favor of the Seller for an amount equivalent to the total Contract Price before May 9, 1996. The Tribunal considers that the provisions cannot be construed in any other way than to mean that the responsibility for the opening of L/C was placed on the Buyer and no preconditions should be imposed. There is no direct relationship between the issuance of L/C and the providing of Performance Security or export license pursuant to the Contract. Therefore the Buyer's allegation that providing Performance Security and export license was the precondition for the issuance of L/C is not accepted.

The Tribunal finds that, on April 30, 1996, just before the expiry of the period of time of 45 days, the Buyer requested to amend the relevant stipulation with respect to L/C. The Seller had the right to raise his claims against the Buyer' s act when the Buyer could not open the required L/C in the full amount and at the stipulated time. However, the Seller did not do so. Instead, he, after negotiation, accepted such amendment. On July 5, 1996, the Buyer opened 75% L/C, and on August 27, 1996, 15%. The fact that the Seller accepted the L/Cs indicates that he waived the right for the breach of the Buyer. The Tribunal deems it to be one of mutual understandings when performing the Contract.

VI. LATE DELIVERY

The relevant provisions in this respect can refer to Clause 7 and Clause 8. Clause 7 provides for the time schedule for Contract implementation and Clause 8 for those details concerning the shipment and both parties' responsibility thereof.

The Tribunal finds that the documents under Annex 3 (Schedule of Contract Implementation) to the Contract are entitled Preliminary Work Schedule. The Tribunal has to state here for this terminology. The Tribunal has to emphasize here again that rights and obligations cannot be determined simply by a word or some words. The Tribunal considers the provisions of Article 1 of the Contract Form, which says:

"The Contract shall consist of this Contract Form and the following documents, and the exhibits, drawings, specifications and other documents referred to therein (hereinafter called the "Contract Documents"), all of which by this reference are incorporated herein and made part hereof:

(a) Notification of Award;
(b) Terms and Conditions of Contract;
(c) Modifications;
(d) Bid Form;
(e) Scope of Supply and Itemized Price;
(f) Technical Specifications;
(g) Specimen for Letter of Guarantee and Performance Security Issued by the Seller's bank".

The Tribunal also notes that the Annex 3 to the Contract is entitled as Schedule of Contract Implementation, and only contains 3 schedules which are all entitled as Preliminary Work Schedule. The Tribunal therefore draws the conclusions that the Preliminary schedule incorporated into the Contract is also integral part of the Contract, which is agreed upon by the parties and binding upon all the parties. The amendment thereto is not unilateral and indefinite, without all parties' consent. Therefore, all parties must observe the Schedule if no amendment is made. Preliminary Work Schedule provides for the delivery time. There is no relevant amending provisions in the Contract Amendment in respect of the delivery time. Both parties have communications in this regard. In the letter dated June 12, 1996 by the Seller to the Buyer, the Seller stated that "we accept the November 30, 1996, date as the latest shipping date". In the same letter, the Seller asked the Buyer to "proceed to issue the 75% L/C based on this understanding". In the L/C of US $5340,000 75 L/C opened on July 5, 1996 latest shipment date is November 30, 1996. The Tribunal drew the conclusion that both parties were aware of such circumstances and had agreed to the amendment of L/C and the latest shipment date. The Seller's allegation that the Buyer' failure to open the required letter of credit as required under the contract significantly affected his performance is unacceptable. Based on the above, the Tribunal is satisfied with the finding that the final shipment date was fixed to November 30, 1996 by both parties in the course of the contract implementation. The Seller should conform to this date without any precondition or reasons.

It is found that the actual shipment date, goods shipped and amount of value are as follows:

Item Actual shipment date Goods shipped Amount of value Amount due for the shipment(s)
1st Shipment 10/16/96 Fiber Optic Cable Plant Package US $1,110,810.00 US $833,107.50
2nd shipment 12/03/96 T.V. Supervision System

Hydrological System

Excluding Seven Remote Metering Stations

US $1,601,907.00 US $1,201,430.25
3rd Shipment 01/10/97 Computer Supervisory Control System

Seven Remote Metering Stations

US $3,176,119.00 US $2,382,089.25
4th Shipment 08/26/97 Central Supervisory Control System Alcatel

Mimic Pane

US $1,231,164.00 US $923,373.00
5th Shipment 11/17/97 Supervisory Control System US $100,000.00 US $100,000.00
6th Shipment 12/19/97 Supervisory Control System US $100,000.00 US $100,000.00
Total     US $7,320,000 US $5,540,000

It can be seen from the above that the Seller did not make all shipments, except the first shipment, before the fixed latest delivery date, i.e., November 30, 1996.

The Tribunal accepts that the Seller is to be liable for the late delivery according to the Contract.  According to Clause 21.3, in the event that the Seller fails to made the delivery and shipment in accordance with the time schedule given in the Contract, the Seller shall be liable to pay liquidated damages, which shall not exceed 5% of the total value of the Contract equipment involved in the late delivery. provides for the liquidated damages for delayed delivery. The rate of these liquidated damages shall be charged at (a) 0.3% each week or part thereof the first four weeks; and (b) 0.8% each week or part thereof for the following weeks. It can easily be seen from the above, that the amount of the damages calculated based on 0.3% and 0.8% is higher than that the maximum 5% in this respect. The Tribunal's conclusion is therefore the Seller shall bear the 5% of the total value of the Contract equipment involved in the late delivery, that is, US $235,345.00.

Also from the above, it can be seen that the amount stated exceeds the contracted amount by US $200,000.00. As to the exceeding part, the Buyer shall be liable for the payment. However, in the Tribunal's view, the contracted amount includes the price for the associated service, and not purely for that of the equipment and material. Therefore, the terms of payment agreed in the Contract and in the course of the performance thereof shall be followed. Both parties admitted that the Buyer has paid 85% of the Contract price, which amounts to US $6,052,000.00. The unpaid balance of US $1,068,000.00 should be paid according to the Contract stipulations.

With respect to the loss of duty-free treatment, the Tribunal finds that there is clear definition in the Contract as amended, which provides that the Buyer is required to pay all tax, customs duties and other duties levied by the Chinese Government on the Buyer, and shall pay all customs and import duties, if any, on the equipment and materials imported into China under the Contract. Further, no evidence was presented to show that the Seller was aware of the circumstances regarding loss of duty-free treatment and that the Buyer had notified him clearly and definitely of such circumstances at the moment of signing the Contract, or the Seller thereafter has agreed to be liable for duty. In view of the Tribunal, the amount of compensation for losses shall not exceed the probable losses caused by the breach of contract which has been foreseen or ought to be foreseen by the party concludes the contract when the parties concludes the contract. In this case, the Seller did not foresee such loss of duty-free treatment when the Contract was concluded. Therefore, it's unjustified to lodge such claim.

VII. SHORT DELIVERY AND QUALITY INFERIORITY

The relevant stipulations refer to Clause 21 (claims and liquidated damages). Clause 21.1 provides for the details concerning claims against short delivery, and Clause 21.2 claims against quality inferiority.

As to the short delivery, it is clearly stipulated that in the event that shortage, mistake or damage are found in the equipment and materials on the delivery to the part of destination by the Seller, the Buyer shall lodge his claim against the Seller by letter or facsimile attached with evidence of either an Inspection Certificate issued by the Inspection Bureau or a document that confirms the shortage, mistake of damage signed by the Buyer's and the Seller's representatives. Neither could be produced by the Buyer with respect to his claims in this regard. However, on April 21, 1998, the Seller responded to the claims, and acknowledged the following were not shipped yet: one Miser source program, one DEVEIOPE 2000, 19 LQ1900K. Except these 3 items, which the Tribunal thinks that the Seller shall take the responsibility, the Buyer did not present any credible evidence.

As to the Source Code Documentation and network management software claimed by the Buyer to be improperly removed, the Tribunal notes that Clause 10.2 of the Contract provides that the equipment and materials, the property in which has passed to the Buyer pursuant to Clause 10.1 shall remain under the Seller's care and at the Seller's risk of loss except case of Force Majeure up to the time the Provisional Acceptance Certificate is issued. However, the Tribunal considers that "care" does not mean the Seller can take it away or otherwise anytime since the trade terms is CIF, as stipulated in Clause 10.1, and the equipment and materials delivered on the basis of CIF Huangpu Port shall become the property of the Buyer when they are delivered to the Buyer and unloaded on the site. In the Tribunal's view, the Seller breached the Contract in this regard.

As to the Gate Sensors, the Seller deems that the Buyer's insistence upon 0-10 meter gate sensors interfered with the the Seller's Contractual final decision authority. The Seller insists that 6 meter range should be sufficient. The Tribunal refers to the Clause 13.1.1 and considers that the Seller shall make the final decision in this respect and take the full responsibility. No loss of evidence was substantiated so far caused by the 6 meter sensors.

As to the claims against Quality Inferiority, the Contract clearly stipulates that in the event that quality of the equipment and materials is found inferior to the specification during the course of test and acceptance and during the period of warranty, the Buyer shall lodge his claim against the Seller with either the Inspection Certificate issued by the Inspection Bureau or the Record of the test result signed by the Buyer's and the Seller's representatives. Also, the Buyer did not produce credible evidence according to the Contract. Hence, the Buyer allegation in this respect is not accepted.

VIII. DESIGN AND TECHNICAL DOCUMENTS

Both parties have presented the Tribunal with two different and conflicting versions of the event. In the Tribunal's view, the respective rights and obligations of the parties are well defined in the Contract. There are lots of stipulations concerning the Design and Technical Documents, inter alia, Clause 15 in the Contract.

The Buyer is unhappy with the Seller's performance as to the scope and delivery time of design drawing and technical documents, while the Seller holds that he supplied to the Buyer documents at a time and in a form consistent with the Contract Documents, and is unhappy with the time and the form of the Buyer providing technical information.   The Tribunal notices the stipulation in Clause 7.2, according to which, the Seller shall be fully responsible as specified in the Contract, provided that the Buyer provides all technical data and approvals in compliance with the requirements of the Contract and provides the Site ready for installation in compliance with the requirements of the Contact. Therefore, the responsibility as the result of the Buyer's failure to provide relevant data and approvals shall be borne by the Buyer. From both parties' various communications, the Tribunal finds that, when the Seller request for technical data or drawings, the Buyer did not reply or refused to provide on the grounds that "the project is a turnkey contract and the Seller is the general contractor and should undertake the whole responsibility, and the Buyer has no responsibility". The Tribunal thinks it is against the Contract's stipulation, and also business usage in such a complicated transaction. Further, the Tribunal refers to Clause 15.3.6 and finds that the Buyer shall carry out the examination after receiving the technical documents and drawings submitted by the Seller. Unless a notice is made by the Buyer within 30 days after receiving the technical documents and drawings submitted for approval, they shall be deemed as examined and approved by the Buyer. No credible evidence was produced by the Buyer to show that the Buyer has provided all the technical data and raised objection after receiving the technical documents and drawings in compliance with the requirements of the Contract. The Buyer breached the Contract as far as this regard is concerned.

On the other hand, the Tribunal finds that in a letter dated March 18, 1998, the Seller stated that "the Seller has supplied all of the materials for which the specification required. In fact, we have supplied many material items not specified. We have also provided installation supervision. The problem is that the Buyer has not provided the installation drawings and personnel required and therefore has delayed the project extensively. The Seller cannot be responsible for costs due to this delay." According to the Contract, the Seller shall undertake all the technical responsibilities and technical document supplied by the Seller shall contain manufacturing and engineering drawings, diagrams, schematics system descriptions, installation drawings, operation and maintenance instructions and manufacturing record photographs. The Tribunal concludes from the above that it is the Seller's responsibility to provide installation drawings, therefore the Seller also breached the Contract in this regard.

As to Anhui Design Institute, the Tribunal deems it to be a sub-contractor engaged by the Seller to complete the design for the optic cable. The Seller shall be responsible for the acts of his sub-contractor according to the stipulations of Clauses 4.6 and 4.7. The legal relationship between the Seller and Anhui Design Institute is different from what is accepted in this case between the Buyer and Seller, and therefore the Tribunal will not consider it.

IX. INSTALLATION AND TRAINING

Clause 16 refers to the stipulations concerning installation, including stipulations of both parties' responsibilities on installation, installation commencement notice, installation and supervision cost and expenses and work supervision; Clause 17 refers to stipulations concerning training, including stipulations of scope of training, training places, training in the Seller's country, training at the site, content of training.

The Buyer contends that the Seller failed to fulfill its responsibilities concerning installation. The responsibility holds that the Buyer's failure to fulfill its obligation resulted in the delayed installation.

Who is to undertake the responsibility of installation and training and to what extent is one of the key points at issue to be resolved by the Tribunal. We can refer to Clauses 16 and 17 for detail provisions. According to Clause 16, the Seller shall be responsible for the supervision of the installation, and shall be responsible to organize the installation to be carried out orderly and smoothly. The Seller shall be responsible to train, instruct and supervise the Buyer's installation team(s) to perform the installation and arrange the daily works for the Buyer's installation team(s). The Seller shall submit reports to the Buyer on monthly basis during the course of installation, while the Buyer shall be responsible to provide installation team of sufficient size and quality, and provide the Site for installation. Under the Contract, the Buyer shall, at a time deemed by itself appropriate, when all conditions such as the Site and the installation team(s) are ready, issue an Installation Commencement Notice to the Seller to confirm that the installation work is permitted to proceed.

In the Tribunal's view, it is clearly stipulated in the Contract with respect to the parties' obligations and rights. Although there are some differences in respect to the installation supervision based on such grounds as accommodation standard, the Buyer finally agreed to and conducted part of installation after the Seller notified the Buyer that it would send Mr. Liu Zheng for installation supervision on August 18 and 19, 1997. The Tribunal holds that the Seller should supervise and organize the installation to be carried out orderly and smoothly. As to the untimely performance, the Tribunal attributes it to the Buyer directly because that until August 18, 1997, a notice was sent by the Buyer to such effect as an Installation Commencement Notice required by the Contract. No evidence justified a late notice by the Buyer. Also, no credible evidence can be found that the Seller did not provide a sufficiently qualified, skilled engineer team to supervise the installation works.

On the part of the Seller, no sufficient evidence was introduced that, during the course of the installation supervision, the Seller ever directly and clearly raised objection to the qualification of the installation team or conducted training at the Site or submitted reports to the Buyer on a monthly basis. In this point, the Tribunal attributes part of the delay to not fully performing the obligations of organization and supervision by the Seller.

Considering the above, the Tribunal concludes that both parties are liable in this respect.

X. INSURANCE

The Buyer alleged that the Seller did not provide the safety insurance of equipment installation execution required, which was one of the existing problems mentioned in the letter dated March 5, 1998 to the Seller. While the Seller insisted that it had provided the insurance required. In the Tribunal's view, this is not a crucial point at issue, without the occurrence of the losses of coverage. There is no such circumstance according to the evidence before the Tribunal. More importantly, the Buyer had not ever based on such claims to invoke the termination procedure.

XI. FOURTH PHASE PROJECT

Each of the parties has submissions as to the Fourth Phase or Phase 4 Project. In reaching its conclusions in that respect, the Tribunal does not find it necessary to comment on all details to which the parties have referred and which have been considered. The Tribunal finds there being no direct link between the Fourth Phase Project and this case. No direct evidence could lead to the conclusion that it was the Fourth Phase Project which caused the initiation of this case. Therefore, the Tribunal is not going to consider this point further.

XII. PROCEDURE TO TERMINATE THE CONTRACT

The questions of whether the Buyer's termination of the Contract was well-founded or not has been addressed by the parties. In reaching its conclusions in that respect, the Tribunal was not convinced by the Seller's understanding of "written notice of default".

As far as the substance of the dispute, according to the statement given above the Seller has some acts or omissions in performing some obligations under the Contract.

Under the Contract, if the Seller does not cure his failure within 30 days after receipt of the default notice from the Buyer, the Contract can be terminated.  It is found that on April 27 and May 12, 1998, the Buyer sent the Seller faxes, which although not explicitly entitled as Default Notices, it is directly related, in nature, to the default of the Seller. The Tribunal accepts that these two notices constitute the default notice required. 30 days later, the Buyer applied to CIETAC Shenzhen for arbitration, requesting to terminate the Contract, which in the Tribunal's view, it is in conformity with the Contract as to the procedure of termination.

XIII. THE BUYER'S CLAIMS

As to the claims raised by the Buyer, the Tribunal reached, based on the above, the conclusions and finding set out below:

A. Pursuant to Clause 29.1.1 of the Contract, if the Seller fails to perform certain obligations and does not cure his failure with a period, the Buyer may terminate the Contract. Considering the above findings, Contract No. 96Ml44-9328US shall be terminated.

B. (1) Since the Contract shall be terminated, the performance shall also be terminated after the termination of the contract. The cost of US $2,220,455 claimed by the Buyer for continuing to accomplish the project is, in nature, a kind of loss. However, there is no credible evidence to support such kind of loss. The Tribunal does not support this claim.

      (2) As to the fees for shortage of goods, the Tribunal only supports the Buyer's claim for the 18 printers, the price of which is US $64,233 and for one Miser source program, the price of which is US $84,838.00 and for the Developer 2000, the price of which is US $18,300.00. The prices of the three items are based on a price list signed by the parties and the amount is a discounted one, 91.5% of the price, claimed by the Buyer. The total amount of these 3 items is US $167,371.00.

      (3) The Contract provides for liquidated damages in two instances: inferior quality goods and delay in delivery in Clause 21. Under the Contract, the Buyer may invoke its claim for liquidated damages by deducting such damages from any money due to the Seller or may collect such liquidated damages from the Performance Security of the Contract. However, based on the Tribunal's findings above, there is no credible evidence in this regard of the Buyer's claim, the compensation for the equipment disqualified with contracts is not supported.

      (4) Also, there is clear specification as to the Liquidated Damages for Delayed Delivery in article 21.3, according to which, the Tribunal finds that the total valid liquidated damages is US $235,345.00. The final shipment as mentioned before is November 30, 1996. Therefore, the delayed shipment, as a matter of fact, includes all the shipments except the first shipment. However, the Buyer's claim excludes the liquidated damages for the second shipment without reason. The Buyer only claims for US $175,273.00, which is supported by the Tribunal. The Buyer may also choose to collect such liquidated damages from the Performance Security of the Contract according to Clause 21.6.

      (5) Considering the reasons mentioned above, the tariff levied by the Customs due to the Seller's delay delivery totaling US $688,766.00 as a kind of loss goes beyond what was a foreseeable loss at the time of the conclusion of the Contract, therefore the liability is to be borne by the Buyer. This claim is unsupported.

      (6) The Buyer's claim consists of the profit after efficiency increase US $1,072,433.00 and the amount of running fees being lowered by US $4,780,000.00 when employees were being laid off. The Tribunal could not be convinced by the evidence presented by the Buyer and therefore rejected the claim regarding the expected profit loss of US $4,342,433.

      (7) In the Tribunal's view, the liability for damages in a breach of contract situation is based on the principle that the party breaking a contract is liable to pay compensation to the other party in an amount equal to the actual loss suffered by the latter. The Tribunal also understands that the claiming party under Chinese law has a duty to mitigate its actual losses as far as possible. Since the Buyer has also breached the contract, and there is no credible evidence to show that it has take positive measures to mitigate the loss and to show the actual loss, the Tribunal does not support that the claim for the losses suffered from the stop of power generation and the supporting engineering expenses is unsupported based on the same reasons.

3. Considering the above, as to the arbitration fee for the Buyer's claims, the Buyer shall be responsible for 80% and the Seller 20%. As to the Buyer's attorneys' fee, the Buyer shall bear the amount itself.

XIV. THE SELLER'S COUNTERCLAIMS

A. (1) The amount of contract price is based on the fulfillment of the Contract, including the providing of goods and services by the Seller and the payment of the Contract amount by the Buyer. The Tribunal finds that, in accordance with the Contract, 15% of the Contract price, US $1,068,000.00 is to be paid upon and after provisional or final acceptance. Therefore, since the Contract shall be terminated, the performance thereof, including, without limitation, the acceptance and the payment thereafter shall also be terminated after the termination of the contract. The unpaid balance of the Contract US $1,068,000.00 claimed by the Seller is unsupported.

      (2) As the Tribunal finds above, there are some breaches of contract on the part of the Seller. Pursuant to Clause 32.3, in case the Seller fails to perform any of his obligations under the Contract, the Buyer shall have the right to have a recourse from performance security. In this case, the Buyer regarded the performance security as a guarantee to protect the Buyer interests and withdrew the performance security from the bank. In the Tribunal's view, therefore, the amount of Performance Security is not to be returned.

Under the Contract, the Buyer may invoke the remedy of liquidated damages with respect to inferior quality goods and delay in delivery, and the Buyer may choose to collect the liquidated damages from the performance security. Therefore, as far as the liquidated damages for delayed delivery is concerned, the Buyer is not supported to have the amount both ways, that is, the collection of the Performance Security by the Buyer releases the Seller from the obligation under the above Item 13B (4) in regard to delayed delivery.

      (3) Interest at 12% from May 12, 1998 is unsupported therefore.

B. As to the value of extra equipment or material outside the scope of the Contract, the Tribunal finds that the Seller either did not raise any specific claim explicitly against the Buyer in a reasonable time or has agreed to bear the expenses. There was another legal relationship between the Seller and Anhui Design Institute, different from that of this case, hence it is not to be considered by this Tribunal. No evidence substantiates the delay costs of personnel and expenses. 

However, considering that the amount of value of the goods shipped exceeded the contracted price by US $200,000.00, the Tribunal deems this amount is the justified price for the extras outside the scope of work, and hence decides that the exceeding part of the Contract price of US $200,000.00 is to be paid by the Buyer.

C. (1) As to the Arbitration fee concerning the counterclaims, 20% percent thereof shall be borne by the Buyer and 80% by the Seller.

      (2) The attorney fees/cost of the Seller shall be borne by the Seller itself.                       

PART III: AWARD

For the foregoing reasons, the Tribunal hereby awards and directs as follows:

1. The Contract is terminated;

2. The Seller shall pay US $167,371.00 for the shortage of goods within 30 days of the rendering of this award;

3. All the other claims by the Buyer are dismissed;

4. The Buyer shall pay US $200,000 as to the value of extra equipment and materials within 30 days of the rendering of this award;

5. All the other counterclaims are dismissed;

6. The arbitration fees concerning the claims by the Buyer are RMB _____, which have been fully paid by the Buyer in advance. 80% thereof shall be borne by the Buyer and 20% thereof shall be borne the Seller, i.e., the Buyer RMB _____, the Seller RMB _____. The Seller shall pay the Buyer RMB _____ within 30 days of the rendering of this award.

The Arbitration fee concerning the counterclaims is US $_____, which the Seller has paid US $_____. 20% percent thereof, i.e., US $_____ shall be borne by the Buyer and 80% thereof, i.e., US $_____ by the Seller. The Buyer shall paid the Seller US $_____ and the Seller shall pay CIETAC Shenzhen Commission US $_____ within 30 days of the rendering of this award.

This AWARD is final.

Rendered in Shenzhen, China
this __th day of February, 2001


FOOTNOTE

* To preserve the confidentiality of the parties, their names have been deleted. Throughout, the Claimant of the People's Republic of China is instead referred to as "Buyer" and the Respondent of the United States is referred to as "Seller". This redaction has made no substantive changes to the translation of the award by Gua Xiaowen. A table of contents has, however, been added and there have been turnings of phrases and adjustments as to format.

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Pace Law School Institute of International Commercial Law - Last updated December 16, 2005
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