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CISG CASE PRESENTATION

China 7 March 2002 CIETAC Arbitration proceeding (Lube oil case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020307c1.html]

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

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Case identification

DATE OF DECISION: 20020307 (7 March 2002)

JURISDICTION: Arbitration ; P.R. China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2002/01

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (Claimant)

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

GOODS INVOLVED: Lube oil


Classification of issues present

APPLICATION OF CISG: No

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 4

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): agency]

Descriptors: Scope of Convention ; Agency issues

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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): Zhongguo Guoji Jingji Maoyi Zhongcai Caijueshu Xuanbian [Selected Compilation of Awards of CIETAC] (1995-2002), Law Press, pages 572-585

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.42, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation)

Queen Mary Case Translation Programme

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

Lube oil case (March 7, 2002)

Translation [*] by GU Jia [**]

Reviewed by LIU Ping [***]

[Abstract]
Part One: The details of this case
A.   Claimant's position
B.   Respondent's position
Part Two: Opinion of the Arbitration Tribunal
A.   Choice of law
B.   The legal relationship among Claimant, Respondent and E Company
C.   The governing law and the focus of this case
Part Three: The award

[ABSTRACT]

The foreign trade agency system in China has long been criticized by businessmen and lawyers. Chinese foreign trade companies are often directly exposed to attack from international clients who claim losses due to breach of contract in the course of performing their contracts. However, many times, such breaches are not caused by Chinese foreign trade companies which function as agents, but by their principals, i.e., Chinese end-users of imported goods or original manufacturers of exported goods. According to the <Temporary Regulations of Foreign Trade Agent System> released by the Ministry of Foreign Trade and Economic Cooperation (MOFTEC)[1] in 1991, when controversies arise out of foreign trade contracts, Chinese foreign trade companies should be directly responsible for foreign clients, regardless of whether these agent companies are at fault. Under this regulation, foreign trade companies, receiving only small agent fees, bear too heavy responsibility.

To solve these problems in the foreign trade agency system, Chinese legislators provide two ways: Article 402 and Article 403 in <The Contract Law of People's Republic of China> (hereinafter: the Contract Law), amended in 1999 and effective on 1 October 1999. Article 402 provides that:

"Where the agent, acting within the scope of authority granted by the principal, entered into a contract in its own name with a third person who was aware of the agency relationship between the principal and agent, the contract is directly binding upon the principal and such third person, except where there is conclusive evidence establishing that the contract is only binding upon the agent and such third person".

The parties in this case signed their contract on 18 October 1999, after the Contract Law was amended and put into practice. After disputes arose, the seller of the United States (hereinafter: the "Seller-Claimant") filed a request to arbitrate against the Chinese foreign trade company, which is the buyer [expressly] provided in the contract (hereinafter: the "Buyer-Respondent"). The main issue is whether at the conclusion of the contract the Seller-Claimant was aware that the Buyer-Respondent was the agent of another Chinese company. The facts in this case are complicated. The Arbitration Tribunal eventually found that the Seller was "aware" of the agency relationship and thus dismissed all claims of the Seller.

In accordance with the Seller-Claimant's written request to arbitration and the arbitration clauses in the contract (hereinafter: the "Contract") signed by A company located in the United States of America (i.e., the Seller-Claimant) and B international trade company in China (i.e., the Buyer-Respondent) on 18 October 1999, the China International Economic & Trade Arbitration Committee (hereinafter: the "CIETAC") accepted this case. The arbitration rules of the CIETAC, effective from 1 October 2000, apply in this case.

Each party appointed its preferred arbitrator. The parties could not reach an agreement within a reasonable time fixed by the rules to appoint the third arbitrator as the presiding arbitrator or authorize the Chairman of the CIETAC to appoint the presiding arbitrator. In accordance with Article 24 of the CIETAC Arbitration Rules, the Chairman of the CIETAC automatically appointed ** as the presiding arbitrator. The presiding arbitrator and the two appointed arbitrators formed the Arbitration Tribunal on February 7, 2001 to jointly hear the case (hereinafter: the "Tribunal").

In Beijing, the Tribunal held two hearings, on 18 April 2001 and 8 November 2001, respectively. The attorneys on behalf of each party were present during the hearings, and they made oral statements, answered the questions raised by the Tribunal and debated the relevant issues. After the hearings, both parties presented their supplementary statements.

At present, the case is closed. Based on facts found by the Tribunal and written materials provided by the parties, the Tribunal renders this award. The facts, opinion of the Tribunal and the award are as follows:

PART ONE: THE DETAILS OF THIS CASE

On 18 October 1999, Seller-Claimant, with the aid of C Company in China, signed Contract No. 99CQAI-6055 with Buyer-Respondent, for Seller-Claimant to sell lube oil to Buyer-Respondent, with product specifications, quantity, unit price provided for in a list attached as an appendix. The total price was US $327,434.46 (CIF Shanghai, including packing fees), "30% [of the price] [payable] by L/C (letter of credit) at sight, and 70% [of the price] by T/T 120". The shipping was to be by 20 November 1999. The persons signing the Contract were: Mr. Wang, legal representative of C Company (and General Manager of D Trade Company in Nanjing, China), on behalf of Seller-Claimant, and Mrs. Lv from the Department of Business [of Buyer-Respondent], on behalf of Buyer-Respondent.

On the same day, Mrs. Lv, on behalf of Buyer-Respondent, also signed <the Agreement to Purchase Imported Goods through Agency> with a domestic user, E Company (hereinafter: the Agency Agreement). This number of this agreement was similar to that of the Contract, i.e., 99FT-6055.

After the Contract was signed, on 5 November 1999, Buyer-Respondent opened a documentary Letter of Credit at sight, in the amount of US $98,230.34 (30% of the contract price), with Seller-Claimant as the beneficiary. In accordance with the Contract, Seller-Claimant shipped goods on 10 November 1999, and Buyer-Respondent went through custom formalities and then received the goods. However, besides the L/C, Buyer-Respondent only paid US $2,400 on 22 September 2000, and failed to pay the remaining amount. In the course of negotiation, Buyer-Respondent claimed that the reason of its default lied in E Company's failure to pay Buyer-Respondent. Since the dispute could not be resolved by mutual consultation, Seller-Claimant filed a request to arbitrate with the CIETAC.

A. Claimant's position

  1. Respondent should pay the 70% contract price, in the amount of US $221,260.12.
  2. Respondent should pay the interests of US $11,183.00.
  3. Respondent should bear all of the arbitration fees.

Seller-Claimant submitted that it was not aware of the agency relationship between Buyer-Respondent and E Company at the time of the conclusion of the Contract. The specific reasons are:

     (1) Seller-Claimant once [successively] signed nine lube oil sales contracts with Buyer-Respondent, and the Contract in dispute was the eighth contract. Seller-Claimant decided to sign these contracts with Buyer-Respondent entirely because of Buyer-Respondent's business strength and capacity. However, Seller-Claimant was not obligated to investigate with which company Buyer-Respondent established a [business] relationship after these nine contracts were signed and what kind of relationship it was. Thus, even though Seller-Claimant did know that Buyer-Respondent was cooperating with E Company at that time, Seller-Claimant was not interested in the details of their cooperation, including whether they were in an agency, sales or profit sharing relationship.

     (2) The Agency Agreement was an agreement between Buyer-Respondent and E Company, irrelevant to Seller-Claimant. Seller-Claimant was not aware of the existence of this Agency Agreement or the agency relationship between Buyer-Respondent and E Company. In the Contract, there were no words to indicate that Buyer-Respondent's obligation to make payment was conditional upon E Company's payment to Buyer-Respondent. In a fax to Seller-Claimant on 8 June 2000, Buyer-Respondent clearly stated that it had gone to its bank to arrange for the payment, but did not succeed due to certain other reasons, and that it would pay through another bank in several days.

As a matter of fact, the Agency Agreement between Buyer-Respondent and E Company was aimed at an independent business. In addition, article 4 of the Agency Agreement provides that [Buyer-Respondent] should issue value-added tax invoices to [E Company] within ten days after it received the total price. In fact, however, Buyer-Respondent only issued part of the value-added tax invoices [to E Company]. This showed that the title of the part of goods for which value-added tax invoices were not yet issued still rested on Buyer-Respondent, and this further clarified the reasonableness for Buyer-Respondent to directly sell the goods under the Contract in dispute, to issue value-added tax to its clients and then to pay Seller-Claimant with the money that it received from its clients.

     (3) In terms of the Contract, the deadline for payment of the 70% contract price was 9 March 2000. Thereafter, many times Seller-Claimant asked Mr. Wang to explain [Buyer-Respondent's] default to make payment, and Mr. Wang also questioned Buyer-Respondent by phone several times. On 9 May 2000, when Seller-Claimant inquired of Mr. Wang again about the same issue, Mr. Wang replied with Buyer-Respondent's explanation. Seller-Claimant, however, could not understand this explanation and sent two faxes to Buyer-Respondent and E Company at the same time. On 11 May 2000, Ms. Lv responded to Seller-Claimant by a fax. Later on, under pressure from Seller-Claimant, Mr. Wang again asked Ms. Lv for a written explanation on the situation of payment. On 8 June, 2000, Ms. Lv faxed to Seller-Claimant a written report on the progress of payment.

The fax sent on 8 June 2000 consisted of two pages. Judging from the automatically printed date, time, receiver, page number, the two faxes sent by Buyer-Respondent on 8 June 2000 were consistent with each other. Buyer-Respondent thought the mark "Nanjing D Company" on the fax meant that the fax was sent from Nanjing D Company, and this was not true. In addition, judging from the handwriting and the English writing style, the faxes dated "9 and 10 May" sent by Buyer-Respondent on 11 May and the second fax on 8 June should be written by the same person.

     (4) There is no foundation in this case that Mr. Wang negotiated with E Company about the contents of the Contract.

First of all, Buyer-Respondent provided for the Contract and created the contract number according to its internal information. Therefore, it was determined by Buyer-Respondent that the Contract and the Agency Agreement had the same number [6055]. This cannot be used to conclude that Seller-Claimant knew of the agency relationship [between Buyer-Respondent and E Company].

As mentioned above, as shown by the Agency Agreement, Buyer-Respondent actually operated its own business independently. Many items of evidence provided by Buyer-Respondent are irrelevant to this case.

     (5) The purchase order attached to the Contract was faxed by Buyer-Respondent to Mr. Wang during the period from late August to early September 1999. After receiving this order, Mr. Wang translated it into English, printed it out and faxed it to Seller-Claimant, and Seller-Claimant then provided the price quotation (prima facia invoice) on the basis of the order. At that time, Mr. Wang received the order by his laptop. He updated his computer on 1 May 2000, and failed to save the purchase order sent by Buyer-Respondent.

After receiving the purchase order, Seller-Claimant, through Mr. Wang, negotiated many times with Ms. Lv about product specification, quantity and payment condition.

     (6) Even though it was E Company, rather than Buyer-Respondent, who directly faxed the purchase order to Mr. Wang, it still cannot prove that Seller-Claimant was aware of the agency relationship between Buyer-Respondent and E Company at the time of the conclusion of the Contract. It can only show that Seller-Claimant knew that the Contract was related to E Company at the time of the conclusion of the Contract, but Seller-Claimant had no way to ascertain the relationship between Buyer-Respondent and E Company - sales, agency or joint operation (cooperation). Unless there exists evidence sufficient enough to prove that Buyer-Respondent clearly disclosed its agency relationship with E company to Seller-Claimant at the time of the conclusion of the Contract, or that Seller-Claimant completely knew the agency status of Buyer-Respondent, Buyer-Respondent has no ground to claim for exempting of its liabilities under Article 402 of the Contract Law.

     (7) As for the issue of modification to the amount under the invoice, after the transportation documents were printed out, Seller-Claimant found that the unit price of the 48th item under the purchase order should be US $61.60. Therefore, Seller-Claimant sent Buyer-Respondent a fax to correct the invoice. Thereafter, Seller-Claimant contacted Ms. Lv by phone. Ms. Lv informed Seller-Claimant that any correction on the documents and the letter of credit would postpone the delivery of the goods. Ms. Lv suggested that Seller-Claimant maintain the then-current status and make reimbursement after Buyer-Respondent pays off the contract price.

     (8) On the one hand, Mr. Wang contacted importers of foreign goods in China on behalf of Seller-Claimant, as Seller-Claimant's agent in China. On the other hand, he also looked for clients in China for [Chinese] sellers of Seller-Claimant's products and introduced domestic sellers to these clients. Mr. Wang's actions were not necessarily relevant to his status as an agent of Seller-Claimant's products.

B. Respondent's position

1. Capacity of Mr. Wang

Seller-Claimant and Mr. Wang both knew that Buyer-Respondent was the import agent of the goods under the Contract, and that it was authorized by E Company to import the goods through agency. Seller-Claimant should claim directly against E Company for the remaining payment.

In order to prove this, Buyer-Respondent raises the following specific reasons:

     (1) The Contract in this case and the Agency Agreement were signed on the same day with the same contract number. Seller-Claimant and its authorized signatory of the Contract, Mr. Wang, both knew that Buyer-Respondent had concluded the Agency Agreement with E Company.

     (2) The goods under the Contract were determined, and a list of lube oil was attached to the Contract as appendix, which included sixty-eight products in total. The list of lube oil attached to the Contract was the same as the list attached to the Agency Agreement. The list was determined by E Company and Seller-Claimant's authorized signatory Mr. Wang (who was working for D Company) through negotiations.

Seller-Claimant claimed that on 18 October 1999 Mr. Wang listed the quantity of each item on Seller-Claimant's price quotation and added them together by a ballpoint pen (total quantity: 240,367 pounds), and then faxed the price quotation to Ms. Lv. Based on the total quantity provided by Mr. Wang, Ms. Lv applied to a bank to open a Letter of Credit. As mentioned above, Buyer-Respondent has never received any price quotation. The total quantity used by Buyer-Respondent to open the Letter of Credit was based on the fax sent by Mr. Wang to Ms. Lv and copied with E Company on 20 October 1999. Later, because Seller-Claimant temporarily changed the quantity at the time of shipping, Mr. Wang sent a fax to inform E Company [of this change] on 17 November 1999. The fact that Seller-Claimant directly informed E Company of the change of the purchased goods proves that the purchase order was determined through Seller-Claimant and E Company's mutual negotiation.

     (3) The Contract was the sixth contract concluded between Buyer-Respondent and Seller-Claimant. The direct buyer in these six contracts was in all cases E Company. In fact, Mr. Wang not only signed the Contract with Buyer-Respondent with authorization from Seller-Claimant, but also participated in E Company's purchase of the goods imported from Seller-Claimant. Mr. Wang at D Company made payment [to Buyer-Respondent] for the goods under the Contract [for E Company] twice [with his D Company's money] [, and was reimbursed by E Company later]. These facts sufficiently proved that Seller-Claimant and its authorized signatory Mr. Wang at D Company both knew the agency relationship between Buyer-Respondent and E Company.

For many years, Seller-Claimant and Mr. Wang who was authorized by Seller-Claimant always directly negotiated with E Company about product, quantity, price, delivery date and other issues; and they [only] asked Buyer-Respondent to participate in several formalities such as issuance of relevant certificate(s), custom clearance, payment in foreign currency. Even at the time of the settlement of the payment, Seller-Claimant still contacted directly with E Company. Seller-Claimant stated in its request to arbitration that it reduced the payment due from its buyer by US $5,544.00. However, Buyer-Respondent was unaware of this. Obviously, the "buyer" referred to by Seller-Claimant was not Buyer-Respondent, but E Company.

     (4) As for the fax sent from Mr. Robert W. Coshland from Seller-Claimant's side to E Company (on 9 May 2000), it demonstrated that Buyer-Respondent's failure to make payment was caused by E Company's failure to pay Buyer-Respondent. This further indicated that Buyer-Respondent was [only] an agent throughout the course of this sale of the imported lube oil.

     (5) The fax from Buyer-Respondent on 8 June 2001 was falsified by Mr. Wang. Furthermore, Mr. Wang forgot to forge Ms. Lv's signature on the fax. Therefore, even though this fax was sent to Seller-Claimant, it should not be believed as true.

     (6) "The Military Exclusivity Agency Agreement" and "the Cooperation Agreement" are both irrelevant in this case.[2] Mr. Wang intended to connect these two agreements with the present case, in order to describe Buyer-Respondent as an independent seller of Seller-Claimant's products. However, the fact was that Buyer-Respondent, as an agent for import, had delivered the goods to its principal E Company as early as 6 December 1999 and therefore accomplished its obligation to deliver the goods.

     (7) As for the issue of the value-added invoices, Buyer-Respondent firstly paid tariffs and value-added taxes for E Company in accordance with relevant Chinese laws and regulations, and then issued the invoices to E Company. The fact that Buyer-Respondent did not issue value-added invoices for the rest of the goods to E Company just demonstrated that E Company did not pay Buyer-Respondent for the rest of the goods in Renminbi [RMB].

     (8) The fax on 11 May 2000 from E Company to Seller-Claimant was [another] evidence falsified by Seller-Claimant. E Company and Buyer-Respondent only signed the Agency Agreement, but not any cooperation agreement. On 31 January 2000, when Buyer-Respondent signed a cooperation agreement with a Hong Kong company, F Company, the goods under the Contract had been delivered to E Company on 6 December 1999. And the agreement between Buyer-Respondent and F Company did not refer to any specific contract signed by Buyer-Respondent with E Company before, and had nothing to do with the remaining [unpaid] payment of the Contract. If E Company had informed Seller-Claimant by fax that Buyer-Respondent would pay [for the remaining sum], why in September 2000 E Company and Mr. Wang still promised to Seller-Claimant that they would pay? Now that Seller-Claimant had been informed by E Company that Buyer-Respondent would pay for the remaining sum, why Seller-Claimant still urged Mr. Wang and E Company by email to issue the letter of credit for the remaining sum? Seller-Claimant's statements here are definitely contradictive and illogical.

     (9) The invoice with the reduction of US $5,544 was falsified by Mr. Wang. Buyer-Respondent neither knew such price reduction nor received the so-called reduced "invoice". The date on the original invoice which was submitted to the bank was 9 November 1999, and there was no correction thereon. However, the date on the invoice forged by Mr. Wang was 30 October 1999. At the second hearing before the Tribunal, Mr. Wang stated that he provided the invoice and the correction of the invoice on 30 October. However, all invoices provided by the bank show that the date on the invoice provided by Seller-Claimant was 9 November. It is impossible that the corrected invoice appeared prior to the date of the original invoice.

2. The agency issue and applicability of Article 402 of the Contract Law

     (1) The Contract in dispute is a contract for importation of goods through agency. The <United Nations Convention on Contracts for the International Sales of Goods> (hereinafter: the CISG) does not cover the issue of agency. According to the principle of "closest connection", Chinese law should apply in this case. At the time of the conclusion of the Contract, the Contract Law of People's Republic of China had come into effect. Therefore, the Contract Law should apply.

     (2) The Contract in this case is completely in line with Article 402 of the Contract Law. Buyer-Respondent, in its own name and within the scope of authority granted by its principal E Company (the lube oil list attached to the Contract is exactly the same as that attached to the Agency Agreement concluded between Buyer-Respondent and E Company), entered into the Contract with the third party Seller-Claimant. As mentioned above, at the time of the conclusion of the Contract, the third party Seller-Claimant was aware of the agency relationship between Buyer-Respondent (agent) and E Company (principal), and knew that E Company was the ultimate buyer of its lube oil products for a long time. Moreover, Seller-Claimant knew that Buyer-Respondent was authorized by E Company to import such products as E Company's agent. Seller-Claimant admitted such agency relationship [between Buyer-Respondent and E Company] both in its request to arbitration and at the first hearing. Thus, according to Article 402 of the Contract Law, the Contract in this case should be directly binding on Seller-Claimant and E Company. E Company only pays 2% [of the contract price as] agent fees to Buyer-Respondent, and Buyer-Respondent's obligations include [only] issuing certain certificates, reporting to the customs, accepting the goods and arranging foreign currency payment formalities after receiving the payment from the buyer-principal. Buyer-Respondent is not obliged to firstly make the payment [to Seller-Claimant] [and then to claim reimbursement from E Company].

In conclusion, Seller-Claimant's requests should not be supported by the Tribunal. Buyer-Respondent requests the Tribunal to dismiss all of Seller-Claimant's requests.

PART TWO: OPINION OF THE ARBITRAL TRIBUNAL

A. Choice of law

Seller-Claimant is a U.S. company and Buyer-Respondent is a Chinese company. [Both nations are signatories of the CISG.] And the CISG should apply. Given that the place of contracting is in China and that both parties agreed to arbitrate in China, Chinese law should apply to issues not covered by the CISG.

The Contract was signed after the Contract Law came into effect, and therefore the Contract Law should apply.

B. The legal relationship among Seller-Claimant, Respondent and E Company

According to the Agency Agreement concluded between E Company and Buyer-Respondent on 18 October 1999, Buyer-Respondent was authorized by E Company to sign the Contract with Seller-Claimant. In terms of the agency relationship, E Company is the principal, Buyer-Respondent is the agent, and Seller-Claimant is the third person.

C. The governing law and the issues of this case

Article 402 of the Contract Law provides:

"Where the agent, acting within the scope of authority granted by the principal, entered into a contract in its own name with a third person who was aware of the agency relationship between the principal and the agent, the contract is directly binding upon the principal and such third person, except where there is conclusive evidence establishing that the contract is only binding upon the agent and such third person."

Article 403 of the Contract Law provides:

"Where the agent entered into a contract in its own name with a third person who was not aware of the agency relationship between the agent and the principal, ... where the agent failed to perform its obligation toward the third person due to any reason attributable to the principal, the agent shall disclose the principal to the third person, allowing the third person to select in alternative either the principal or the agent as the other contract party against whom to make a claim, provided that the third person may not subsequently change its selection of the contract party. ..."

In its own name and with authority of E Company, Buyer-Respondent signed the Contract with Seller-Claimant. In compliance with article 402 and 403 of the Contract Law, whether at the time of the conclusion of the Contract Seller-Claimant was aware that Buyer-Respondent signed the Contract with E Company's authorization is the key factual basis to determine whether Buyer-Respondent is obliged to pay the remaining sum to Seller-Claimant. And this is also the issue disputed by both parties.

D. Before the Contract was signed, Seller-Claimant and Buyer-Respondent had maintained business cooperation for quite some time, and so had either of them and E Company. From October 1997 to 30 September 1999 (prior to the date when the Contract Law was effective), Seller-Claimant and Buyer-Respondent signed seven contracts, and the Contract in this case was the first one signed by them after the Contract Law was effective. Judging from Seller-Claimant's request for arbitration and Buyer-Respondent's first answer, it seemed that both parties did not realize the significance of the Contract Law, which became effective (1 October 1999) shortly before the conclusion of the Contract (18 October 1999). But this did not influence the application of the Contract Law.

E. As to the issue whether Seller-Claimant's awareness of the agency relationship is conditional upon Buyer-Respondent's "disclosure" of its agency relationship with E Company, because article 403 of the Contract Law clearly provides for the agent's obligation of disclosure, and because article 402 only requires the third person's "awareness" [of the agency relationship] and does not mention the agent's obligation of "disclosure", de facto "awareness" by the third person (Seller-Claimant) alone is enough for article 402 to apply, and it does not depend on "disclosure" by the agent (Buyer-Respondent).

F. Based on evidence provided by both parties, the Tribunal excludes any arguable materials, and focuses on whether Seller-Claimant was aware of the agency relationship at the time of signing the Contract. The Tribunal's conclusion was that Seller-Claimant knew that Buyer-Respondent was authorized by E Company to sign the Contract at that time (as representative of Seller-Claimant to sign the Contract, Mr. Wang's awareness should be regarded as Seller-Claimant's awareness); until this case was arbitrated before this Tribunal, Seller-Claimant still urged E Company to fulfill its obligation to pay, and it did not demand that Buyer-Respondent pay, except for the fax sent on 9 May 2000. The specific situation goes as follows:

     (1) Buyer-Respondent stated that the list of lube oil attached to the Contract was exactly the same as that of the Agency Agreement, and both agreements were negotiated by Seller-Claimant and E Company and then faxed to Buyer-Respondent by Mr. Wang after he typed them out (as evidenced by typos by Mr. Wang). The two lists, prepared by Mr. Wang and exactly the same, amply prove that the list of the Contract was mutually negotiated between the representative of Seller-Claimant Mr. Wang and E Company. Buyer-Respondent provided Contract 98CQAI-6001 signed in 1998 as evidence to further prove this point.

Seller-Claimant denied the aforesaid statement of Buyer-Respondent, and claimed that the list of the Contract was provided by Buyer-Respondent to Seller-Claimant and was not mutually negotiated by Seller-Claimant and E Company. However, at the second hearing, Mr. Wang made two different statements respectively: (a) he negotiated the list with Buyer-Respondent by phone; and (b) Respondent provided the draft list and faxed to Mr. Wang (this fax was not saved). In its written statement on 14 November 2001, Seller-Claimant stated again that it received the fax by computer and did not save this fax because the Contract had been signed and performed when the computer cleaning document was changed.

Since Mr. Wang's statements about the list of lube oil were inconsistent, this Tribunal does not admit his statements as evidence. Buyer-Respondent's statement was in line with post-contracting activities of both parties, and thus this Tribunal concludes that Seller-Claimant knew that Buyer-Respondent was authorized by E Company to sign the Contract at the time of the conclusion of the Contract.

     (2) After the Contract was signed, Seller-Claimant found there was a mistake about the price of one item of the goods, and the price should be reduced by US $5,544. The exhibits of Seller-Claimant demonstrate that Seller-Claimant once sent a notification of correction to "the buyer". Buyer-Respondent stated that it did notice this fax, and apparently, the "buyer" referred to by Seller-Claimant was not Buyer-Respondent, but E Company. In its supplementary materials, Seller-Claimant alleged that it once sent a fax to correct the invoice. And Seller-Claimant provided a copy of the fax to the Tribunal. But Buyer-Respondent denied authenticity of this fax. The Tribunal notes that the fax to correct the invoice was dated " 31 October 1999" and was not signed; that the corrected invoice, as the formal invoice by which 30% of the contract price was received in accordance with the letter of credit through the bank, was dated 9 November 1999. It is unreasonable for the corrected invoice to be dated before the formal invoice, and accordingly this Tribunal cannot find that Buyer-Respondent really received the notification of price correction.

     (3) On 30 November 1999, E Company sent a telegraph to Buyer-Respondent, stating that "[T]omorrow [E Company] will go to [Buyer-Respondent] to pay taxes RMB 780,000 under Contract 99CQAI-6055. According to the Contract, there are still taxes in the amount of RMB 38,586.16 due from [E Company]. Mr. Wang in Nanjing stated that he would pay [Buyer-Respondent] by T/T tomorrow or the day after tomorrow." Later on, Buyer-Respondent did receive RMB 38,586.16 remitted by G Company in Nanjing, and Mr. Wang signed his name within the column of responsible person of the remitter at the remittance receipt.

     (4) Seller-Claimant claimed that it did not know the agency relationship between E Company and Buyer-Respondent when it signed the Contract. It also stated that after March 2000, when the remaining sum became due, and before 9 May 2000, it urged Buyer-Respondent to pay for many times, but in vain. Being asked for an explanation, Buyer-Respondent replied to Seller-Claimant that E Company did not pay for the remaining amount to Buyer-Respondent; and thus on 9 May 2000, Seller-Claimant sent a fax to urge E Company to pay. Nevertheless, Seller-Claimant did not prove at what time before 9 May 2000 and by which means it urged payment by Buyer-Respondent and was informed of the agency relationship between E Company and Buyer-Respondent.

     (5) On 21 March 2000 (after 70% remaining sum was due), Buyer-Respondent informed C Company that: "E Company phoned us that [Seller-Claimant] had agreed for E Company to postpone its payment of the 70% remaining sum under Contract 99CQAI-6055. Please further confirm the time at which E Company will pay our company, so that our company can arrange for payment in foreign currency to [Seller-Claimant] and go through relevant procedure before the foreign currency administration." The parties did not provide any reply by Seller-Claimant regarding this document, but this document can indicate that Seller-Claimant had directly contacted with E Company about payment of the remaining sum.

     (6) On 9 May 2000, Seller-Claimant sent two faxes at the same time, demanding the remaining sum by Buyer-Respondent and E Company respectively The fax to Buyer-Respondent only referred to immediate payment in accordance with the Contract; however, the fax to E Company emphasized that: "our company always made efforts to help and support your company, but you disappointed us so much." This shows that Seller-Claimant was aware of the obligation of payment of E Company.

In its written statement on 30 November 2001, Seller-Claimant stated that the "fake" evidences submitted by Buyer-Respondent included the fax from Seller-Claimant to E Company on 9 May 2000. Seller-Claimant's authorized representative Mr. Wang "explained" this fax on 29 April 2001 that "... Buyer-Respondent informed [Seller-Claimant] that E Company failed to pay it. Therefore, on 9 May 2000 Seller-Claimant faxed to E Company to demand for the payment. ..." The written materials of Seller-Claimant on 15 May 2000 also stated that: "... as a result, [Seller-Claimant] simultaneously sent two faxes to Buyer-Respondent and E Company on the same day ..." Therefore, Seller-Claimant's allegation that the fax to E Company on 9 May 2000, demanding payment by E Company, was forged is not admitted by this Tribunal.

     (7) In September 2000, Seller-Claimant, Mr. Wang and E Company negotiated about the possibility of having another foreign trade company in China open a letter of credit of US $100,000 for Seller-Claimant. On 6 September 2000, in a written statement E Company informed Mr. Wang of the progress of this solution, and on 7 September 2000, in an e-mail, Seller-Claimant asked Mr. Wang to inform E Company that E Company must open the letter of credit in the amount of US $100,000 within that week. "... We [Seller-Claimant] hope that within this week our company can receive the payment of US $100,000, as being promised."

     (8) Seller-Claimant, in its written statement on 15 May 2001, pointed out that "[A]fter Seller-Claimant got to know, from Buyer-Respondent, that Buyer-Respondent's failure to pay was caused by E Company's default [to pay Buyer-Respondent], Seller-Claimant made an inquiry with E Company. E Company replied that according to the Agency Agreement the 70% remaining payment should be paid by Buyer-Respondent." Seller-Claimant further provided the fax sent by E Company to Seller-Claimant on 11 May 2000 as evidence. Buyer-Respondent denied the truthfulness of this fax. It was investigated that the cooperation agreement signed on 31 January 2000 between the Hong Kong company, F Company, and Buyer-Respondent was effective from January 2000 till January 2001. The Contract was signed on 18 October 1999 and the goods had been shipped to Shanghai and delivered to E Company at the beginning of December 1999. Seller-Claimant and Buyer-Respondent have no agreement to apply the cooperation agreement to the Contract in this case. Even though E Company sent such a fax [of 11 May 2000] to Seller-Claimant, the fax was still unbinding to Buyer-Respondent since it was not confirmed by Buyer-Respondent. Furthermore, Seller-Claimant failed to provide any evidence about its further contact with Buyer-Respondent after it received the fax. Therefore, even though such a fax did exist, it still could not be a basis for Buyer-Respondent's assumption of the obligation to pay.

     (9) On the side of Buyer-Respondent, the fax dated 10 May 2000 and signed by Ms. Lv stated that financial difficulty of the end-user [E Company] delayed [Buyer-Respondent]'s payment of the remaining sum, that Buyer-Respondent had always been helping the end-user out of its trouble, and that it was supposed that the payment would be made by the end of that month and [Buyer-Respondent] would try its best to facilitate the payment. Seller-Claimant claimed that "in the situation where E Company was unable to pay, Buyer-Respondent clearly promised to pay, and a guaranty [by Buyer-Respondent as the guarantor] for [E Company as the debtor] to pay [the remaining sum under the Contract] [to Seller-Claimant as the creditor] was constituted". Therefore, Buyer-Respondent should be bound by its promise [to pay as a guarantor].

After examining the fax sent by Buyer-Respondent on 10 May 2000, the Tribunal holds that the fax did not constitute a "guaranty" in terms of article 6 of <the Guarantee Law of the People's Republic of China>.[3] Thus, the guaranty relationship does not exist.

     (10) Seller-Claimant provided the fax dated 8 June 2000) and in Buyer-Respondent's standard fax format, which stated that T/T would be made within a few days. Seller-Claimant claimed that Buyer-Respondent should be bound by this fax. Buyer-Respondent denied the truthfulness of this fax. The Tribunal holds this fax ineffective because no one signed it on behalf of Buyer-Respondent.

G. Conclusion

As mentioned above, at the time of the conclusion of the Contract, Seller-Claimant was aware that Buyer-Respondent signed the Contract with Seller-Claimant, with authorization by E Company and in its own name. According to Article 402 of the Contract Law, the Contract should be directly binding on E Company and Seller-Claimant. Buyer-Respondent has no obligation to pay the remaining sum and the accrued interests. The Tribunal does not uphold any request of Seller-Claimant.

PART THREE: THE AWARD

The Tribunal hereby holds:

  1. All requests of Seller-Claimant shall be dismissed.
  2. Seller-Claimant shall bear all arbitration fees in this case.

This award is final.


FOOTNOTES

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

** GU Jia: LL.M, Washington University in St. Louis Law School & LL.B, Law School of Nanjing University in China.

*** LIU Ping: Lawyer, Baker & McKenzie, Beijing, People’s Republic of China; LL.M., Harvard Law School, 2003-2004; Master of Civil and Commercial Law, Tsinghua University Law School, 2000-2003.

1. Note by Translator: MOFTEC has been renamed to the Ministry of Commerce in 2002.

2. Note by Reviewer: Neither party provided details about these two agreements. As shown by the context, these should be agreements signed by Buyer-Respondent with certain third party or E Company, for Buyer-Respondent to sell lube oil produced by Seller-Claimant.

3. Note by Reviewer: Article 6 of the Guarantee Law of the People's Republic of China (effective on of 1 October 1995) provides that: "In this Law, guaranty means that the guarantor and the creditor agree that, when the debtor fails to perform his debt, the guarantor will perform the debt or bear the liability in accordance with the agreement."

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Pace Law School Institute of International Commercial Law - Last updated January 6, 2006
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