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CISG CASE PRESENTATION

China 22 March 2001 CIETAC Arbitration proceeding (Mung bean case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/010322c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20010322 (22 March 2001)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2001/02

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Switzerland (respondent)

GOODS INVOLVED: Mung beans


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission (CIETAC) 22 March 2001 (Mung bean case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/99],
CLOUT abstract no. 987

Reproduced with permission of UNCITRAL

Abstract prepared by Lachmi Singh

This case deals primarily with the buyer's obligations under an FOB contract (free on board) and the buyer's right to reject non-conforming goods.

The parties entered into a contract for the sale of mung beans subject to an FOB term. Under the contract, payment was to be made by irrevocable letter of credit (L/C) and the goods were to be inspected by an inspection bureau in the seller's country.

Subsequently, the parties mutually agreed to modify the contract price and they specified the loading date. The seller delivered the goods to the port of loading and faxed the buyer that the goods were ready for loading. At the port, the goods were inspected and certified by the inspection bureau. The date of loading expired without the buyer nominating a ship or responding to the seller's request for the goods to be loaded.

A week later, the buyer sent a letter to the seller informing them that the buyer was going to ask SGS to inspect the goods as they noticed some of the goods were "discoloured". The seller responded that this was unacceptable as it was not stipulated in the contract, and continued to request that the buyer select a ship to transport the goods. The buyer responded that SGS had found that the goods were not in conformity with the contract, therefore, the buyer would not send a ship. The goods were being held at the port for storage and to mitigate its losses, the seller resold them to a new buyer after the L/C issued by the buyer had expired. The seller claimed damages for the price difference and loss on the goods, re-fumigating charges, plant inspection fees, storage charges and loss of bank loan interest.

The arbitral tribunal found that even though the parties failed to stipulate the applicable law, the CISG applies because both parties had their place of business in Contracting States.

The tribunal found that inspection of the goods by SGS was not a contractual stipulation and the seller had fulfilled its obligations by providing the inspection certificate issued by an inspection bureau in the seller's country, which certified that the goods were in conformity with the contract. Furthermore, under the contract containing an FOB shipping term, it was the buyer's obligation to hire a ship so that the goods could be loaded at the stipulated port on the date specified. The tribunal held that the buyer failed to honour its obligation under article 60 CISG to enable the seller to make delivery even after additional time was granted by the seller.

Therefore, the tribunal found that the buyer's refusal to send a ship made the seller's performance impossible, and this constituted fundamental breach of the contract under article 25 CISG. The tribunal ordered the buyer to pay the difference between the contract price and the resale price, the re-fumigation fee, storage fees, and attorneys' fees.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 38(1) ; 60 ; 63 ; 64 ; 72(1) ; 74 ; 75 ; 77 ; 78

Classification of issues using UNCITRAL classification code numbers:

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

38A [Buyer's obligation to examine goods];

60A1 ; 60B [Buyer's obligation to take delivery ; Includes acts reasonably expected to aid seller: cooperation with seller, etc.];

63A [Notice fixing additional final period for buyer's performance];

64A [Seller's right to avoid contract: grounds for avoidance];

72A [Avoidance prior to date for performance: when clear that party will commit fundamental breach];

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

75A1 [Damages established by substitute transaction after avoidance: resale by aggrieved seller];

77A [Obligation to take reasonable measures to mitigate loss];

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

Descriptors: Cooperation ; Examination of goods ; Burden of proof ; Anticipatory breach ; Fundamental breach ; Nachfrist ; Avoidance ; Damages ; Cover transactions ; Mitigation of loss ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC (PRC) Arbitration Award

Mung bean case (22 March 2001)

Translation [*] by Meihua Xu [**]

Translation edited by Zheng Xie [***]

The China International Economic and Trade Arbitration Commission Shenzhen Sub-Commission (hereafter, the "Shenzhen Commission") accepted the case on 18 August 2000 (Case number: SHEN G2000051) according to:

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

The Secretariat of the Shenzhen Commission sent the arbitration notice, the [Seller]'s arbitration application and attachment, the Arbitrators List, and the Arbitration Rules of China's International Economic and Trade Arbitration Commission (hereafter, the "Arbitration Rules") to the two parties by express mail.

On 26 September 2000, the [Buyer] raised an objection to the jurisdiction of the Shenzhen Commission, and on 8 October 2000, the Arbitration Commission made a (___) CIETEC No. ___ Decision, confirming that the Shenzhen Commission had jurisdiction on this case, and that the case should be heard in Shenzhen.

On 27 November 2000, the [Buyer] submitted its written response.

On 10 November 2000, the [Seller] appointed Mr. A as its arbitrator; the [Buyer] appointed Mr. B as its arbitrator; and the Chairman of the Arbitration Commission appointed Mr. C as the presiding arbitrator, because the parties did not jointly appoint or authorized the Chairman of the Arbitration Commission to appoint the presiding arbitrator. The above three arbitrators formed the Arbitration Tribunal to hear this case

On 27 December 2000, a court session was held in Shenzhen. The representatives of both parties attended the court session. The Arbitration Tribunal heard the parties' statements and arguments, and made investigations and examination on the relevant facts and evidence. After the court session, both parties submitted supplementary materials.

On 22 March 2001, the Arbitration Tribunal handed down its award.

The following are the facts, the Tribunal's opinion and award.

I. FACTS

On 15 April 1999, the [Buyer] and the [Seller] signed a sales contract with the following terms:

Goods: The [Buyer] purchases 2,000 tons of Mung beans from the [Seller]; moisture content should be lower than 13%; admixture should be less than 1.5%;

Price: The price is US $324/ton FOB Tianjin, China, totaling US $648,000;

Shipment: The goods shall be shipped in May 1999; the loading port is Tianjin port and the destination port is a major port in India;

Payment: The [Buyer] shall make payment by an irrevocable L/C;

Inspection: The two parties agreed that the weight and quality of the goods should be based on the inspection certificate issued by China Import and Export Commodities Inspection Bureau;

Arbitration: Any dispute arising out of or in connection with the performance of the contract should be settled by friendly negotiation. If no agreement can be reached, the dispute should be submitted to the Arbitration Commission to be settled according to the Arbitration Rules. The award of the Arbitration Commission is final and binding on the two parties. The losing party shall bear the arbitration fee.

During the performance of the contract, a dispute arose between the parties. The [Seller] filed an arbitration application, requesting the Arbitration Commission rule that:

1. [Buyer] shall pay the [Seller] for the loss because of reselling the goods at a discounted price and the loss of the goods, totaling US $62,750 (price difference: US $31/ton 1,898 = US $58,838, loss of the goods: US $326/ton 12 tons = US $3,912);

2. [Buyer] shall pay the [Seller] for the loss of interest, i.e., renminbi [RMB] 54,902.60;

3. [Buyer] shall pay the [Seller] for the re-fumigating expenses of RMB 13,412; and plant inspection fee of RMB 11,070;

4. [Buyer] shall pay the [Seller] for the warehouse demurrage charge of RMB 11,424;

5. [Buyer] shall bear the [Seller]'s attorneys' fee of RMB 40,000;

6. [Buyer] shall bear the arbitration fee.

[POSITION OF THE PARTIES]

[Seller]'s position

The [Seller] alleges that:

After the conclusion of the contract, the two parties agreed to modify the contract price to US $326/ton, FOB Tianjin port. On 3 May 1999, the [Buyer] issued two L/Cs with 1,000 tons in each L/C. On 10 May, the parties agreed to modify the loading date to 25 May. The [Seller] delivered the entire goods to the departure port on 24 May and sent a fax to the [Buyer]. Not receiving the [Buyer]'s reply, on 25 May the [Seller] notified the [Buyer] again that the goods were ready to be delivered.

The goods were inspected and confirmed by Tianjin Import and Export Commodities Inspection Bureau. By the loading deadline, i.e., 31 May, the [Buyer] neither sent a ship, nor provided any response. On 3 June 1999, the [Buyer] sent a letter to the [Seller], alleging that it was going to apply to SGS to inspect the goods. The [Buyer] also included the word "discolored" in this letter. On the same day, the [Seller] replied that it did not agree to have SGS inspect the goods, and required the [Buyer] to perform in accordance with the contract in this case.

On 8 June, the [Seller] again urged the [Buyer] to send a ship. Later, on 11 and 24 June, the [Seller] received the inspection results issued by SGS and sent by the [Buyer], and on 16 and 21 June, the [Seller] replied that an SGS inspection result was not acceptable because the contract stipulated that China Import and Export Commodities Inspection Bureau was the legal inspection agency, and required the [Buyer] to extend the L/C and send the ship. On 24 June, the [Buyer] faxed to the [Seller], stating that it could not send the ship.

It was getting into summer by that time. There was frequent rain and the temperature was high. Because the goods were food and were stored at the port for a prolonged period of time, if not disposed in time, the goods would deteriorate, and additional costs would be incurred at the port. Therefore, in order to mitigate the loss, the [Seller] had to look for a new buyer after the L/C issued by the [Buyer] had expired. On 30 June 1999, the [Seller] signed an export contract with the new buyer for the price of US $295/ton. After the re-inspection conducted on 22 July 1999, the goods were confirmed and shipped on 26 July 1999.

By that time, the [Seller] had suffered severe economic loss, including loss of the price difference and loss of the goods, totaling US $62,750, re-fumigating charge and plant inspection fee, totaling RMB 24,482, extra storage charge of RMB 11,424; and loss of bank loan interest of RMB 54,902.60.

The aforesaid losses were caused by the [Buyer]'s serious contract breach, and the [Buyer] should be held liable.

[Buyer]'s position

The [Buyer] counter argues that:

According to Article 46A of the L/C issued by the [Buyer], when the payment is negotiated, documents including a plant inspection certificate indicating that "the goods are edible" must be presented.

On 3 June 1999, the [Buyer] received sample goods in Lausanne, Switzerland, which were stored in the warehouse in Tianjin. After inspection, the goods were found non-conforming; therefore, the [Buyer] asked to send its representative and SGS to inspect the goods stored in the warehouse, but the [Seller] did not agree.

An inspection conducted by SGS revealed that the admixture of the goods was 3.54% (among which foreign material was 0.83%, discolored was 1.85%, and damaged was 0.86%). The SGS inspection report concluded that the goods did not conform to the contract.

Even though the contract stipulated that the inspection result issued by the China Import and Export Commodities Inspection Bureau should be the basis, the [Seller] failed to provide such certificate.

The [Buyer] alleges that the contract stipulated that the admixture of the goods should not exceed 1.5%; meanwhile, the parties agreed in the L/C that the goods should be edible. The aforesaid two requirements constituted the quality standard of the goods. The [Seller] should have provided conforming goods. Even though the contract stipulated that the inspection result issued by China Import and Export Commodities Inspection Bureau should be the final basis for the quality of the goods, the [Seller] failed to provide any inspection certificate which could prove that the goods under the contract were conforming.

The inspection certificate provided by the [Seller] was issued for another contract, Contract No. 99SG41COFKF004, and not for the contract in this case; therefore, the inspection certificate issued by SGS is the only evidence to prove the quality of the goods in this case.

The [Buyer] asserts that the goods provided by the [Seller] were not conforming, and the [Buyer] had sufficient reasons to reject the goods.

[Seller['s response

The [Seller] stated in the supplementary material submitted:

1. Because the price term in the contract is FOB Xingang, Tianjin, according to the stipulations in 1990 Incoterms, as a purchaser under FOB, the [Buyer] was obligated to conclude a shipment contract, rent ship, make reservations for shipping space, and inform the [Seller] of the ship's name and loading location. Whether the goods are conforming is not a precondition for the [Buyer] to perform the aforesaid obligations, and has no causal relationship with renting ship and making reservations for shipping space. In the instant case, because the [Buyer] failed to rent and send ship within the stipulated time, the goods prepared by the [Seller] could not be loaded, the goods could not be delivered, and the contract could not be performed. The [Buyer] should be held liable for its breach and should compensate the [Seller] for the economic loss incurred due to the [Buyer]'s breach.

2. After the conclusion of the contract, the [Seller] started to prepare the goods, delivered the goods to the departure port on time, fumigated the goods and conducted technical processing, filed application with the Administration of Animal and Plant Quarantine of China and China Import and Export Commodities Inspection Bureau as required by the contract, received releasing permit for conforming goods, and fulfilled its obligation to inform the [Buyer] that the goods had been prepared.

After the shipment deadline stipulated in the L/C and the contract, i.e., 31 May 1999, had expired and the [Buyer] failed to send the ship, the [Seller], in accordance with the principle of friendly and mutually beneficial relations, asked the [Buyer] to extend the L/C and send the ship. These facts indicated that the [Seller] had taken measures to mitigate the loss caused by the [Buyer]'s breach of the contract and expressed its willingness to perform the contract in good faith.

3. The parties agreed in the contract to have China Import and Export Commodities Inspection Bureau to be the inspection agency. After preparing the goods, the [Seller] filed an inspection application with the Tianjin Import and Export Commodities Inspection Bureau on 25 May 1999. The goods were confirmed after inspection and a release permit was issued by the Tianjin Import and Export Commodities Inspection Bureau on 22 July 1999, and were re-inspected by the Tianjin Import and Export Commodities Inspection Bureau, with the result that the goods were still conforming and the Tianjin Import and Export Commodities Inspection Bureau issued a releasing permit again.

Pursuant to the Law of the People's Republic of China on the Inspection of Import and Export Commodities, a releasing permit has the same effect as the inspection certificate. The two inspection results show that the goods prepared by the [Seller] were in accordance with the contract; the moisture content was lower than 13% and the admixture was less than 1.5%.

4. The [Buyer] alleged that the goods delivered by the [Seller] were non-conforming because the [Buyer] failed to inspect the goods by the stipulated inspection agency using the stipulated inspection standard. The [Buyer] inspected the goods after the loading deadline and expiration date stipulated in the contract and L/C had expired, and the [Buyer] had the goods inspected by an inspection agency under an inspection standard different from the one stipulated in the contract. Therefore, the [Buyer]'s conduct did not comply with the stipulations on inspection time and agency specified in the contract.

The parties clearly stipulated in the contract that the inspection agency should be the China Import and Export Commodities Inspection Bureau, and the inspection standard agreed by the parties was the standard adopted by the China Import and Export Commodities Inspection Bureau.

According to the inspection standard of the China Import and Export Commodities Inspection Bureau, the admixture should be an independent item, and should not include discolored or damaged goods. Admixture, discoloration, and damaged are independent of one another. However, the admixture described in the inspection certificate issued by SGS indicated that the total amount of foreign material, discolored, and damaged goods are 0.8%, 1.85%, and 0.86% respectively. Therefore, pursuant to the inspection standard agreed by the two parties, the admixture should be the foreign material indicated in SGS's inspection certificate. Based on the data in SGS inspection certificate, the foreign material was 0.8%, which was within the scope stipulated in the contract. This inspection certificate shows that the goods delivered by the [Seller] had no quality defects.

The [Buyer] alleged that the goods had defects because the [Buyer] adopted the wrong inspection standard. It is obvious that the [Buyer]'s purpose was to find an excuse for its breach of the contract to avoid liability.

[Buyer]'s counter argument

The [Buyer] counter argues that:

1. As to the applicable law in this case, the [Buyer] alleges that the Contract Law of the PRC and the CISG shall be applied.

2. The [Seller] has not provided the quality certificate issued by China Import and Export Commodities Inspection Bureau or China National Import and Export Commodities Inspection Corporation. At the court session, the [Seller] submitted three documents in order to prove that China Import and Export Commodities Inspection Bureau or China National Import and Export Commodities Inspection Corporation had concluded that the goods were conforming, but these documents could not prove that for the following reasons.

First, the three documents provided by the [Seller] -- including the receipt issued by the Administration of Animal and Plant Quarantine of China and the receipt issued by the China Import and Export Commodities Inspection Bureau, Customs Export Application Form of China Customs of the PRC, and the document issued by Xinhe Storage and Shipping Jinda Company of Tianjin Group of China Transportation -- cannot replace the quality certificate issued by the China Import and Export Commodities Inspection Bureau or China National Import and Export Commodities Inspection Corporation.

Second, the three documents provided by the [Seller] cannot prove that the goods under the contract in this case have been issued a quality certificate.

   -    As to the receipts, the [Seller] failed to provide any evidence to show that it had filed inspection applications. How could the [Seller] prove that the receipts were connected with the inspection in this case? In addition, in practice, the China Import and Export Commodities Inspection Bureau or China National Import and Export Commodities Inspection Corporation charges for inspection no matter whether the goods are conforming or not. Therefore, the receipts issued by China Import and Export Commodities Inspection Bureau or China National Import and Export Commodities Inspection Corporation do not prove that the goods were conforming.
 
   -    As to the releasing seal affixed on the customs application form, it cannot prove that the goods are conforming either. As a business practice, China Import and Export Commodities Inspection Bureau usually affixes a releasing seal on the customs clearance for export commodities form but not on the customs application for export commodities form. Furthermore, if the goods should be inspected by law as the [Seller] asserted, the [Seller] could load the goods only after receiving the quality certificate issued by the China Import and Export Commodities Inspection Bureau, but not the releasing seal. Moreover, the [Seller] alleged at the court session that China Import and Export Commodities Inspection Bureau's releasing seal was affixed on 7 June 1999, so the releasing permit for the goods was not issued within the loading period stipulated in the contract. During the entire period of dispute on quality issues, the [Buyer] failed to receive the inspection certificate issued by China Import and Export Commodities Inspection Bureau.

Attachment No. 14 submitted by the [Seller] indicates that the inspection certificate was issued on 22 July 1999; however, the [Seller] confirmed at the court session that the goods were loaded on 26 July 1999. Thus, whether the goods are loaded is not a pre-condition for China Import and Export Commodities Inspection Bureau or China National Import and Export Commodities Inspection Corporation to issue the inspection certificate, and the inspection certificate does not have to be issued after the goods are loaded.

The [Seller] also alleges that the issuance date of the inspection certificate by China Import and Export Commodities Inspection Bureau or China National Import and Export Commodities Inspection Corporation is the same as the date when the goods were inspected. This allegation of the [Seller] has no basis either. As an authorized inspection agency, China Import and Export Commodities Inspection Bureau or China National Import and Export Commodities Inspection Corporation could not forward date the inspection certificate. In fact, the date when the inspector conducted the inspection does not necessarily have to be the date of the inspection certificate.

The [Seller] filed its arbitration application based on the inspection certificate issued by Tianjin China Import and Export Commodities Inspection Bureau on 22 July 1999, however, it indicated that the inspection was conducted on goods under Contract No. 99SG41COFKF004, which has nothing to do with this case; therefore, it cannot be the evidence by law.

Obviously, the [Seller] did not provide any valid inspection certificate issued by the China Import and Export Commodities Inspection Bureau or China National Import and Export Commodities Inspection Corporation, and there is no such a certificate at all. The [Seller] did not have the goods inspected as stipulated in the contract. Under this circumstance, the [Seller] has no right to adopt the inspection standard of China Import and Export Commodities Inspection Bureau or China National Import and Export Commodities Inspection Corporation, including inspection terminologies. According to Article 38(1) of the CISG,

"The [Buyer] must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstance."

The [Buyer] had the right to inspect the goods, and the inspection certificate could be the final basis to determine the quality of the goods.

In the instant case, the [Buyer] designated SGS to inspect the goods and issue the inspection certificate, which showed that the goods delivered by the [Seller] were not conforming. As to this inspection result, the [Seller] failed to provide any contrary evidence; therefore, the inspection certificate should be the final basis to prove the quality of the goods. In fact, the [Buyer] had inspected the goods before asking the SGS to do so, discovered that the goods did not conform to the contract and informed the [Seller] of this result. Later, the [Buyer] asked SGS to do the inspection and informed the [Seller] immediately after receiving the inspection certificate, and suggested that the [Seller] designate China Import and Export Commodities Inspection Bureau or China National Import and SGS to re-inspect the goods jointly. However, the [Buyer]'s suggestion was not accepted by the [Seller], with the [Seller] insisting on its non-existing result.

3. Article 148 of the Contract Law of the PRC stipulates that:

"Where it is not able to realize the purpose of a contract because the quality of the goods has not satisfied the quality requirements, the buyer may refuse to accept the goods or may rescind the contract. Where the buyer refuses to accept the goods or rescinds the contract, the seller shall bear the risk of damage to or loss of the goods."

Article 72(1) of the CISG stipulates that:

"If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of the contract, the other party may declare the contract avoided."

According to the aforesaid stipulations, the [Buyer] was entitled to reject the goods or avoid the contract once it discovered that the goods were not in accordance with the contract. In the instant case, the [Buyer] discovered that the goods were not conforming; so it refused to send ship to take delivery of the goods, and avoided the contract; this was the [Buyer]'s legal right.

4. As to the price discount stated in the [Seller]'s first arbitration claim, the [Seller] provided one sales contract and some B/Ls; however, the quality specifications were different from those stipulated in the contract in this case, and the [Seller] failed to provide the L/C and business invoices accordingly. Therefore, there is no evidence showing the sales price. In addition, the [Seller] did not provide evidence which could prove that the price at which the [Seller] resold the goods was the reasonable market price at that time, and the [Seller] did not fulfill its obligation to mitigate the loss.

As to the loss of the goods, the [Seller] failed to prove that the loss had any connection with the performance of the contract in this case or the existence of such a loss.

There is no basis for the [Seller]'s second claim for loss of interest.

As to the [Seller]'s third claim for loss of costs on re-fumigation and plant inspection, the receipts provided by the [Seller] do not prove that those costs are related to this case.

For the [Seller]'s fourth claim for warehouse demurrage charge, the [Seller] submitted a storage agreement, but this agreement only stipulated the contracting fees without mentioning the demurrage charge. Therefore, this storage agreement does not support this claim.

Regarding the [Seller]'s fifth claim, the [Seller] has no corresponding evidence to support it.

According to all of the above facts and analysis, the [Buyer] alleges that the [Seller] delivered non-conforming goods, and the [Buyer] refused to take delivery of the goods and avoided the contract based on its legal right. The [Seller]'s claim for compensation from the [Buyer] has no legal or factual basis. In addition, the damages alleged by the [Seller] have no supporting evidence. Therefore, the [Buyer] asks the Arbitration Tribunal to dismiss the [Seller]'s arbitration application and arbitration claims and to rule that the [Seller] shall compensate the [Buyer] for the attorneys' fee of US $10,000.

II. OPINION OF THE ARBITRATION TRIBUNAL

(1) The applicable law

The parties did not stipulate the applicable law in the contract. The countries where both parties' places of business are located are Contracting States of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), and the parties did not exclude the application of the CISG in the contract. Therefore, the CISG shall be applied to this case.

(2) The performance of the contract and the parties' responsibilities

After the conclusion of the contract, the parties negotiated the price of the goods. On 29 April 1999, the [Buyer] sent a letter to the [Seller], agreeing to modify the unit price to US $326/ton, FOB Tianjin China, 10% more/less loading. On 3 May 1999, the [Buyer] asked UBS AG Bank to issue two L/Cs with the [Seller] as the beneficiary, with the expiration date of 15 June 1999, for a total of US $652,000. The description of the quality of the goods in the L/C was in accordance with the contract, and the documents which shall be presented when negotiation is made include a quality and quantity certificate issued by China Import and Export Commodities Inspection Bureau or China National Import and Export Commodities Inspection Corporation.

The L/C stipulated that within 15 days of the B/L issuing date, the [Seller] shall provide the entire documents presented for negotiation to the negotiating bank to receive payment. On 10 May 1999, the [Buyer] accepted the [Seller]'s request to modify the L/C, and informed the [Seller] that it would send a ship to take delivery of the goods around 25 May 1999. On 12 May 1999, UBS AG Bank extended the expiration dates of the aforesaid two L/Cs to 20 June 1999 and the deadline for the [Seller] to submit documents to within 20 days of the date of the B/L.

On 24 May 1999, the [Seller] notified the [Buyer] that the goods had been prepared, and requested the [Buyer] to send ship by 30 May and inform the [Seller] of the name of the ship. On 25 May 1999, the [Seller] sent a letter to the [Buyer] again, urging it to send a ship. However, the [Buyer] did not send a ship within the period stipulated in the contract, i.e., May 1999. On 3 June 1999, the [Buyer] sent a letter to the [Seller], alleging that the proportion of discolored and damaged goods was too big, and requested to have the goods inspected by SGS.

On 4 June 1999, the [Seller] refused SGS's inspection and asked the [Buyer] to send a ship as soon as possible. The [Buyer] unilaterally authorized SGS to inspect the goods. On 11 June 1999, the [Buyer] faxed to the [Seller] the inspection certificate issued by SGS. The inspection certificate issued by SGS shows that the admixture was 3.54%, which did not conform to the contract. Later, the parties negotiated this issue without reaching any agreement. On 24 June 1999, the [Buyer] sent a letter to the [Seller], saying that due to the defects of the goods, the [Buyer] was not going to send the ship.

On 28 June 1999, the [Seller] signed Contract No. 99SG41COFKF004 (hereafter, the "resale contract") with Royal Global Pte Ltd (hereafter, the "Royal Company"), by which the [Seller] resold to Royal Company 1,900 tons of goods under the contract in this case at US $295/ton FOB Xingang, Tianjin. On 7 July 1999, Royal Company asked the bank to issue a L/C with the [Seller] as the beneficiary. The unit price in the L/C was the same as that in the contract of this case. On 22 July 1999, Tianjin Import and Export Commodities Inspection Bureau inspected the 1,898 tons of goods actually delivered by the [Seller], and the result is that the admixture was 0.7% and the moisture was 11.3%.

Based on the above facts, the Arbitration Tribunal holds that the contract in this case was concluded based on mutual agreement and that it was valid and binding on the parties. Therefore, the parties should perform in accordance with the contract.

The parties adopted the FOB term in the contract; under FOB, a buyer is obligated to rent ship, make arrangements for shipping space and inform the seller of the ship's name, loading place and requirement, and delivery time. The shipping date stipulated in the contract was May 1999, so the [Buyer] had the obligation to send ship and take delivery of the goods in May 1999. In fact, in its fax sent on 10 May 1999, the [Buyer] clearly indicated that it was going to send the ship around 25 May. However, the [Buyer] failed to fulfill the aforesaid obligations within the shipping period stipulated in the contract or even within the additional period of time fixed by the [Seller].

For its defense, the [Buyer] alleges that the quality of the goods delivered by the [Seller] did not conform to the contract and the agreement by the two parties. Both parties agreed that the goods should be edible and the admixture should not exceed 1.5%. However, the SGS inspection certificate indicates that the admixture was 3.54%.

The Arbitration Tribunal finds that the disputes of the two parties focus on two issues:

   -    One is whether the [Buyer] had the right to inspect the goods prior to the delivery made by the [Seller];
 
   -    The other is whether the [Buyer] could avoid the contract based on the inspection certificate issued by SGS.

As to the first issue, the Arbitration Tribunal finds that the parties stipulated in the contract that the inspection certificate issued by China Import and Export Commodities Inspection Bureau should be the final basis. No evidence shows that the parties had agreed that the [Buyer] was allowed to inspect the goods prior to delivery; therefore, the [Buyer]'s assertion that it had the right to inspect the goods prior to the delivery lacks contractual basis.

The [Buyer] alleges that the evidence provided by the [Seller] does not prove that the goods have been inspected by China Import and Export Commodities Inspection Bureau. The Arbitration Tribunal holds that the evidence provided by the [Seller] does prove that the goods have been inspected by Tianjin Import and Export Commodities Inspection Bureau. Even though it is the [Buyer]'s position that the releasing seal should not be affixed on the customs application form, but on the customs clearance form, the [Buyer] did not deny the effectiveness of the releasing seal. In addition, the L/C stipulates that the documents which should be presented for negotiation must include the inspection certificate issued by China Import and Export Commodities Inspection Bureau; if the [Seller] failed to do so, then it breached the contract, and could not received the payment due to the inconsistency between the B/L and the L/C. Also, if such a breach of contract by the [Seller] caused economic loss to the [Buyer], then the [Buyer] could claim for compensation.

As to the second issue, pursuant to international trade practices, under FOB terms, the [Buyer] should rent ship, make reservation for shipping space, and inform the [Seller] of the ship's name, loading place, and the required delivery time. Article 60 of the CISG also stipulates that:

"The [Buyer]'s obligation to take delivery consists:

(a) in doing all the acts which could reasonably be expected of him in order to enable the [Seller] to made delivery; and

(b) in taking over the goods."

In the instant case, the goods delivered by the [Seller] were inspected and confirmed by Tianjin Import and Export Commodities Inspection Bureau in accordance with the contract; therefore, the [Buyer] should have sent the ship immediately, and should not have rejected the goods based on the inspection certificate issued by SGS.

Based on above facts and analysis, the [Buyer]'s refusal to send ship to take over the goods caused the contract unable to be performed. This constituted a fundamental breach of the contract, and the [Buyer] shall be liable.

(3) [Seller]'s arbitration claims

According to Article 74 of the CISG, because the [Buyer] breached the contract, it should compensate the [Seller] for the losses incurred].

      1. The [Seller]'s first claim: the [Buyer] shall pay for the price difference of US $58,838 and the loss of the goods of US $3,912.

      On 28 June 1999, the [Seller] resold the goods to Royal Company at a discount price. The [Seller] claims for the price difference between the resale price and the contract price in this case.

The Arbitration Tribunal holds that the contract and the L/C provided by the [Seller] are sufficient to prove the resale price with Royal Company. The [Buyer]'s allegation that the [Seller] failed to mitigate the loss was claimed by the [Buyer], and the [Buyer] would be the beneficiary of this claim; therefore, the [Buyer] should bear the burden of proof. However, the [Buyer] failed to submit any evidence for this, so the [Seller]'s claim for the price difference of US $58,838 is acceptable.

As to the loss of the goods of US $3,912, the [Seller]'s calculation was: the difference between the moistures in the two inspections the quantity of the goods in the contract, i.e., 2,000 tons.

The Arbitration Tribunal holds that even though the contract stipulated the quantity of 2,000 tons, the two parties agreed on a 10% more/less loading. During the preparation of the contract, the [Seller] signed a storage agreement with Xinxing Storage Station Tanggu Tianjin (hereafter, "Xinxing Company") for the 2,000 tons of goods; in addition, the storage agreement also allowed a 5% loading. Because the [Seller] failed to provide other evidence to show that it had prepared 2,000 tons of goods, its calculation based on 2,000 tons of goods lacks of basis, and is not acceptable.

      2. [Seller]'s second claim: the [Buyer] shall pay for the loss of interest of RMB 54,902.60

      The Arbitration Tribunal finds that the [Seller] calculated the price for its purchase of the goods of RMB 5,242,800 based on a quantity of 2,040 tons and a unit price of RMB 2,570/per ton. Loss of interest of RMB 54,902.6 was calculated based on a monthly interest rate of 5.61% from 1 June 1999 to 26 July 1999. However, the [Seller] failed to provide any evidence to prove the unit price of purchase and the bank interest rate from 1 June 1999 to 26 July 1999; therefore, the Arbitration Tribunal does not support this claim of the [Seller].

      3. The [Seller]'s third claim: the [Buyer] shall pay for re-fumigating fee of RMB 13,412 and plant inspection fee of RMB 11,070

      The evidence provided by the [Seller] indicates that in order to perform the resale contract which the [Seller] entered into with Royal Company, the [Seller] paid for a re-fumigating fee of RMB 13,412 and a plant inspection fee of RMB 11,070. Because the re-fumigating fee was an extra cost incurred by reselling the goods, the Arbitration Tribunal holds that the [Buyer] shall be liable for this expense. As to the plant inspection fee of RMB 11,070, the Arbitration Tribunal holds that the L/C under the contract stipulates that the [Seller] shall issue a plant inspection certificate as the document presented for negotiation, so the plant inspection fee was a necessary cost for the [Seller] to receive profit under the contract. The Arbitration Tribunal supported the [Seller]'s claim for loss of price difference, which would compensate the [Seller] for the loss of profits; therefore, the [Buyer] is not liable for the plant inspection fee of RMB 11,070.

      4. The [Seller]'s fourth claim: the [Buyer] shall pay for the storage demurrage charge of RMB 11,424

      The evidence shows that the [Seller] signed a storage agreement with Xinxing Company on 10 May 1999 for the storage of the goods under the contract in this case. The rental fee agreed by the two parties was RMB 0.1/ton/days, and the [Seller] has paid for a total of RMB 17,097.26.

The Arbitration Tribunal holds that the [Seller]'s claim that the [Buyer] shall bear the storage charge from 1 June 1999 (the shipping deadline stipulated in the contract) to 26 July 1999 (the actual loading date for the reselling contract) is reasonable. The [Buyer] shall pay for 1,898 tons RMB 0.1 56 days = RMB 10,629

      5. [Seller]'s fifth claim: the [Buyer] shall pay for attorneys' fee of RMB 40,000

      The [Seller] submitted an agency contract for this claim. According to Article 59 of the Arbitration Rules, the Arbitration Tribunal supports this claim of the [Seller] for RMB 40,000.

      6. The [Seller]'s sixth claim: the [Buyer] shall pay for the arbitration fee

      The Arbitration Tribunal also accepts this claim. And because the [Buyer] is the losing party in this case, the Arbitration Tribunal does not accept the [Buyer]'s claim for US $10,000 of attorneys' fee.

III. THE AWARD

The Arbitration Tribunal rules that:

      (1) The [Buyer] shall pay the [Seller] for the loss caused by resale of the goods of US $58,838, re-fumigation fee of RMB 13,412, storage fee of RMB 10,629, and attorneys' fee of RMB 40,000;

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

      (3) [Buyer] shall bear the entire arbitration fee.

This is the final award.

Presiding Arbitrator:

Arbitrator:

22 March 2001 in Shenzhen


FOOTNOTES

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

** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of a Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.

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

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