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CISG CASE PRESENTATION

China 12 July 2002 CIETAC Arbitration proceeding (Printing equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020712c1.html]

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Case identification

DATE OF DECISION: 20020712 (12 July 2002)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2002/18

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Denmark (respondent)

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

GOODS INVOLVED: Printing equipment


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 38 ; 49 ; 82

Classification of issues using UNCITRAL classification code numbers:

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

49A1 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract];

82A [Buyer would have right to avoid contract except inability to return goods in same condition]

Descriptors: Examination of goods ; Avoidance ; Fundamental breach

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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

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Joint translation project:
New York University School of Law
and Pace University School of Law


 

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

Printing equipment case (12 July 2002)

Translation [*] by Yan Feng [**]

Edited by Zheng Xie [***]

-   Particulars of the proceeding
-   Facts
-   Position of the parties
-   Opinion of the Arbitration Tribunal
-   Award

[PARTICULARS OF THE PROCEEDING]

The China International Economic and Trade Arbitration Commission, originally named the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade (hereafter, the "Arbitration Commission") accepted this case (Case number M __) based on the arbitration clauses in Contract No. 7B2-11595 of 21 September 1994 and Contract No. 7B2-11615 of 18 January 1995 signed by the Claimant ___ Data System (China) Limited Company (hereafter, the "[Buyer]") and the Respondent ___ Firm of Denmark (hereafter, the "[Seller]")

The Arbitration Rules of the Arbitration Commission, which became effective on 1 October 2000, apply to this case.

The [Seller] had filed an arbitration application to the Arbitration Commission on a dispute under the aforementioned contracts on 1 August 1995. The Arbitration Commission accepted that application (that case number was M __), and handed down an arbitration award on 2 August 1996 (the arbitration award number was (96) Trade Arbitration No. ___). After that, the [Buyer] filed an arbitration application to the Arbitration Commission on a dispute under the aforementioned contracts on 12 February 1997. The Arbitration Commission accepted that application (that case number was M ....), and handed down an arbitration award on 2 November 1999 (that arbitration award number was (99) Trade Arbitration No. ....).

After this case was accepted, the Secretariat of the Arbitration Commission served the Notice of Arbitration to both parties on the same day. After receiving the notice, the [Seller] submitted to the Arbitration Commission an Objection to the Acceptance of Arbitration Application, alleging that the arbitration claims of the [Buyer] had already been covered by the application by the [Seller] in Case No. M ___, so the Arbitration Commission should not accept the [Buyer]'s application. The [Buyer] objected to the [Seller]'s allegation. Both parties submitted opinions in writing on the jurisdiction of the Arbitration Commission in this case.

The Arbitration Commission concluded that the fact that the parties and the contracts in dispute in the different cases are the same does not necessarily mean that the issues are the same. Both parties to a contract have the right to bring claims upon different disputes under the contract according to the same arbitration clause in the contract. The arbitration claims of the [Buyer], which include the request of the return of the equipment and a double refund of the down payment, are prima facie different from those in Case M ___ and Case M .... Whether they are the "same issue" under Article 9 of the PRC Arbitration Law should be decided by the Tribunal hearing this case after trial of the substantive issues. The facts based on which the parties had previously filed arbitration applications for these two contracts and the Arbitration Tribunals had handed down awards, should not preclude either the [Buyer]'s right to file a claim upon a potentially different issue under the contracts or the Arbitration Commission's acceptance of the arbitration application. Accordingly, on 7 September 2002 the Arbitration Commission ruled that it has arbitration jurisdiction over this case and that the arbitration procedure in this case should resume.

The [Buyer] appointed Mr. Cao as arbitrator. The [Seller] appointed Mr. Xu as arbitrator. Because the two parties failed to jointly appoint or jointly authorize the Chairman of the Arbitration Commission to appoint the Presiding Arbitrator of the case, the Chairman of the Arbitration Commission appointed Mr. Cheng as the Presiding Arbitrator. On 19 October 2001, these three arbitrators formed the Arbitration Tribunal to hear this case.

A court session was held by the Arbitration Tribunal on 25 February 2002 in Beijing. The legal representative and the arbitration agent of the [Buyer] as well as the arbitration agent of the [Seller] were present at the court session. During the session, both parties presented oral statements, answered questions of the Arbitration Tribunal, verified and confirmed the evidence and presented arguments on the relevant laws. After the court session, both parties submitted supplement material.

This case has been closed. Based on the existing material and the facts ascertained at the court session, the Arbitration Tribunal handed down this final award by consent. The following are the facts, the Tribunal's opinion and award.

FACTS

The [Buyer] and the [Seller] signed Contract No. 7B2-11595 on 21 September 1994 and Contract No. 7B2-11615 on 18 January 1995.

   -    According to Contract No. 7B2-11595, the [Seller] sold to the [Buyer] one set of Leno Haire Phototypesetter (hereafter, the "LTC630 Phototypesetter") and one set of Gulongyan ML550 Developing Machine (hereafter, the "ML550 Developing Machine"), the total prices of which are 318,200 renminbi [RMB] and 35,000 RMB, respectively.
 
   -    Under Contract No. 7B2-11615, the [Seller] sold to the [Buyer] one set of S2000 Scanner, the total price of which is 357,000 RMB.

The parties then signed an agreement on the performance of the two contracts. Thereafter, the [Buyer] paid part of the contract price to the [Seller] and, the [Seller] delivered the goods to the [Buyer], but the [Buyer] did not pay the remaining of the contract price as prescribed by the contracts and the agreement.

The [Buyer] filed an arbitration application on 20 March 2001.

POSITION OF THE PARTIES

[Buyer]'s position

The [Buyer]'s claims are:

   (1)   The [Seller] should return the LTC630 Phototypesetter and the ML550 Developing Machine. If the return becomes impossible because the two machines are damaged or gone due to the [Seller]'s inappropriate storage, the [Seller] should indemnify the [Buyer]'s loss of RMB 601,724.27
 
   (2)   The [Seller] should refund the down payment for the S2000 Scanner and interest on this payment in double, which totals RMB 138,449.40.
 
   (3) The [Seller] should bear the arbitration fee and the attorneys' fee in this case.

The [Buyer]'s allegations are:

1. Basic facts

After Contract No. 7B2-11595 was signed, the [Buyer] made cumulative payments to the [Seller] for the total amount of 169,713.31 RMB and US $35,000. After Contract No. 7B2-11615 was signed, the [Buyer] made a down payment of 60,000 RMB to the [Seller], as prescribed in the agreement. However, the three sets of equipment sold by the [Seller] had serious quality defects. Problems arose shortly after the installation, adjustment and acceptance, and even though the [Seller] repaired them several times, they could not run normally. They did not meet the technical specification of the product manuals, and could not meet the quality standard of the contracts. The [Seller] could not, as requested by the [Buyer], provide the qualification certificate of product quality or the certificate of inspection for import commodities. The [Buyer] considered that the equipment did not conform to the Contract, and thus requested the National Printing Machine Quality Supervision & Inspection Center to perform quality inspection. [Buyer] also suspended payment of the balance.

The National Printing Machine Quality Supervision & Inspection Center performed on-site inspections of the three sets of equipment four times from July to September 1996. The inspection results were:

"(1) The S2000 Scanner, the M550 Developing Machine, and the LTC630 Phototypesetter have serious quality problems and are unqualified products;

"(2) The above equipment did not have a certificate of qualified product and inspection certificate of imported commodities required by the Product Quality Law of the PRC."

2. The [Buyer] has the right to require the [Seller] to return the phototypesetter and developing machine and, the [Seller] should refund the down payment on the scanner

The [Buyer] had applied for arbitration based upon the serious quality problems of the three items of equipment.

   -    The Arbitration Tribunal handed down an arbitration award on 2 November 1999, which confirmed that the ML550 Developing Machine and the LTC630 Phototypesetter had technical defects, that the price could be reduced, that the [Buyer] did not have to pay the balance, that the [Buyer] had the right to return the LTC630 Phototypesetter and the ML550 Developing Machine, that the S2000 Scanner did not conform with the requirements in the Contract, and that the [Buyer]'s request to return the equipment was reasonable.
 
   -    On 8 December 1999, the [Buyer] urged the [Seller] to implement the award, but the [Seller] refused. On 22 February 2000, the [Buyer] filed a motion to implement the arbitration award with the No. 2 Intermediate People's Court of Beijing. The implementation department of the No. 2 Intermediate People's Court of Beijing concluded that the award did not address either whether the [Buyer] has the right to require the [Seller] to return the phototypesetter and developing machine or whether the [Seller] should refund the down payment of the scanner so the award could be enforced.

The [Seller]'s defense that the [Buyer] does not have the right to require the [Seller] to return the LTC630 Phototypesetter and the ML550 Developing Machine cannot be established. The Arbitration Tribunal expressed clearly in its No. ___ (99) Trade Arbitration Award that "the [Buyer] has the right to require the [Seller] to return the LTC630 Phototypesetter and the ML550 Developing Machine." Based on this award that the [Buyer] filed this claim now claims this right. The [Seller] only mentioned No. ___ (96) Trade Arbitration Award in its defense, but ignored No. .... (99) Trade Arbitration Award, because the latter had changed the former, and was against the [Seller].

The [Seller] received the RMB 169,713.31 paid by the [Buyer]. On the other hand, it took back and maintained possession of these two items of equipment. The [Buyer] paid the price but did not obtain the ownership of this equipment, which is obviously unfair to the [Buyer].

The [Seller] alleged in its defense that the [Buyer] is not entitled to a double refund of the down payment of the S2000 Scanner, because "the [Buyer] has never made any payment." The truth is that the two parties entered an agreement about the down payment before the sale of the S2000 Scanner, which stipulated that the [Buyer] should make a full down payment of RMB 100,000 before the equipment was shipped. The [Buyer] asked for and obtained the consent from the [Seller] to pay a down payment of 60,000 first before the [Seller] shipped the equipment. At that time, the [Buyer] had asked for an invoice of the 60,000 down payment from the [Seller], but the treasurer of the [Seller], Mr. Li, insisted that the official invoice should be issued after all of the payments were received. He provided a receipt of the 60,000 down payment in an envelope. Later, the [Buyer] asked for an invoice several times but these requests were rejected by the [Seller].

3. About the quality of the equipment

The [Seller] objected to the quality warranty provision and the effect of the inspection by the National Printing Machine Quality Supervision & Inspection Center. The [Buyer] alleges that the [Seller] mentioned these issues in Case No. M .... and the Arbitration Tribunal concluded after the court session that " because the S2000 Scanner does not conform to the Contract, it is reasonable that the [Buyer] requests the return of the equipment," and "though the LTC630 Phototypesetter and the ML550 Developing Machine have technical defects, these defects do not constitute a fundamental breach of contract. The [Buyer] has the right to require the [Seller] to return the LTC630 Phototypesetter and the ML550 Developing Machine." According to the Arbitration Law, the above issues have been tried and resolved by the Arbitration Tribunal. The Arbitration Tribunal should not support the [Seller]'s defense.

4. About the value and the depreciation of the equipment

The [Seller] unilaterally alleges that the LTC630 Phototypesetter and the ML550 Developing Machine do not have value of use any more. The [Buyer] does not know whether these items of equipment exist or not. If they still exist, their current status and value of use should be appraised by an agency appointed by the Arbitration Tribunal.

From the day when the [Seller] took back the equipment, the responsibility of maintenance and the risk of damage should be borne by the [Seller]. According to the statements of Mr. Zhu and Mr. Wei of ___ Limited Company of China, which was provided by the [Seller], the aforementioned equipment was in its normal working condition when taken away. However, in just three years, the equipment became unusable when it was "inappropriately stored and maintained in the warehouse" and was not in use. These were not agricultural products that were perishable and could be damaged easily. If the [Seller] had fulfilled its obligation of due maintenance; even if the equipment wore out a little bit naturally, it would not have become completely unusable. The [Seller] alleged that the equipment became unusable because of the development of technology, which is unbelievable. If the equipment had been appropriately maintained and no damages had occurred, and even if the speed was relatively slow compared to new products, they would by no means have been unusable. But due to the [Seller]'s negligence in maintenance, the equipment would not have been destroyed and became unusable. This liability certainly should be borne by the [Seller].

Pursuant to the law, the two items of equipment should not be depreciated since 8 November 1996. Section 2 of Article 30 of the Industrial Enterprises Financial Regulations stipulates that the value of unused and unnecessary fixed assets except for estates and buildings should not be depreciated. The equipment was unused since the day it was taken back, so there should be no depreciation. The depreciation rate of over 12.5% alleged by the [Seller] had no legal basis.

The [Seller] had fault for the status of the two items of equipment, so it should bear the liability of damages.

In the correspondence dated 20 March 2002, the [Buyer] amended its first arbitration claim for damages to:

   -    The price of the two items of equipment (after 460,213.31 RMB has been paid) should be 368,170.65 RMB after depreciation at an annual rate of 10% for two years.
 
   -    The interest should be 140,285.54 RMB, using RMB 368,170.65 as principal for calculation. The total amount of the above two item is 508,456.19 RMB.

[Seller]'s position

The [Seller] alleges that:

1. The [Buyer] neither has the right to require the [Seller] to return the LTC630 Phototypesetter and the ML550 Developing Machine, nor does it have the right to require a double refund of the down payment and interest for the S2000 Scanner.

As of 17 January 1995, the [Buyer] had only paid RMB169,713.31 and US $35,000 under Contract No. 7B2-11595, and did not pay RMB 148,486.69. The two parties entered into an agreement about the aforementioned balance due providing that the [Buyer] should pay the [Seller] the balance due plus interest, which totals 152,158.69 RMB, in two payments by 25 February 1995. If after a period of three months expires and the [Buyer] has not made the full payment, the [Seller] has the right to take all the equipment back and the ownership belongs to the [Seller]. Only after the [Buyer] pays off the price and interest on price can it take the equipment away, but it still should pay the additional installation and training costs. Later, the [Seller] delivered the equipment under the Contracts to the [Buyer].

After the period prescribed by the aforementioned agreement expired, though the [Seller] urged several times, the [Buyer] still failed to pay the down payment, the price, and the interest. The [Seller] filed an arbitration application which was accepted by the Arbitration Commission, with the case number of M.... After hearing this case , the Arbitration Tribunal at that time handed down the (96) Trade Arbitration .... Arbitration Award, which concluded that "under Contract No. 7B2-11595, the [Buyer] should pay the [Seller] the price and interest of RMB 159,415.31 within 45 days after the award is handed down; otherwise, the [Seller] has the right to take back the equipment under the Contract; only after full payment can the [Buyer] take the equipment." Since the [Buyer] did not pay the price and interest within 45 days after the award became effective, in order to preserve its legal right, the [Seller] took back the LTC630 Phototypesetter and the ML550 Developing Machine according to the award on 8 November 1996.

The [Buyer] has requested to get the equipment back in order to continue the performance of the Contract; however, since the [Seller] was acting in accordance with the (96) Trade Arbitration No. .... Award, the [Buyer] has no basis to request this. Under the United Nations Convention on Contracts for International Sale of Good (CISG), the [Buyer] only has the right to avoid the Contract. However, the [Seller] did not fundamentally breach the Contract. In addition, the equipment had already been seriously damaged when it was taken back due to lack of maintenance. According to Article 82 of CISG, since it is impossible for the [Buyer] to return the equipment in the status as originally received, the [Buyer] has lost its right to avoid the Contract. Therefore, the [Buyer] has no right to require the [Seller] return the equipment.

2. The items of equipment under the Contract were demonstration samples from the [Seller]'s showroom. They are special compared with goods under ordinary sales contracts. If they have defects, the remedies available to the [Buyer] are limited to repair, price reduction, or a claim for damages, which should be filed within the period of claim. There is no basis for requesting return of the goods. The [Buyer] has never asked for a price reduction or filed a claim within the one-year warranty period.

In the [Seller]'s opinion, though it has taken back the equipment in accordance with the arbitration award, due to the special nature of the equipment, no remedy, such as resale to other customers, is available. Moreover, because of the [Buyer]'s misuse, the equipment, had been seriously damaged when taken back. In this situation, it is unfair to require the [Seller] to return the equipment. In addition, the [Buyer]'s refusal to comply with (96) Trade Arbitration Award No. .... and pay the balance due plus interest has deprived the [Seller]'s expected interest under the Contract.

The [Buyer] had never paid any part of the price under Contract No. 7B2-11615. The receipt submitted by the [Buyer] was extremely simple: there was no information about the names of payee or payer; there is no indication as to which payment under the Contract this 60,000 RMB should be allocated to. There is no evidence to show that this 60,000 RMB is the down payment for the S2000 Scanner under Contract No. 7B2-11615.

3. Quality of the goods

      (1) The quality warranty provision of the Contract

      The items of equipment that the [Buyer] bought were all goods in stock. In its Defense in Arbitration Case No. M95445, the [Buyer] alleged that it wanted to purchase the goods in the [Seller]'s showroom in Beijing, that it had tried the equipment many times in the showroom, and that it took this equipment. This shows that the items of equipment had no quality defect before the [Buyer] took them away. In addition, the [Seller] modified some descriptions in its standard contract, by deleting "brand new and unused" and adding "produced with first class raw material" in Contract No. 7B2-11595. Contract No. 7B2-11615 was not so modified due to negligence. The [Buyer] knew clearly that the goods were not "brand new and unused," because it had used them many times. Therefore, when entering into the Contract, the two parties' understanding and expectation about the quality of the goods was the same. There was no concealment or fraud as to the quality of the goods.

On 31 August 1995, after the [Seller] filed the arbitration application, Mr. Wang Fei, General Manager of the [Buyer], in his fax to the [Seller], to Mr. Bai Weimin of the [Seller]', apologized for the delay in paying the price of the goods, and informed of the plan of payment, without mentioning any quality problem at all.

      (2) The inspection performed by the National Printing Machine Quality Supervision and Inspection Center

      The Contract at issue did not stipulate for the inspection agency. Without the consent of the [Seller], the [Buyer] chose an inspection agency and requested inspection. This inspection was unilateral, and therefore, the [Seller] does not accept the inspection result.

The [Buyer] applied for the inspection on 26 August 1996. Since the two Contracts at issue did not stipulate an inspection date, according to Article 38(1) of CISG, "The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances." The [Buyer] should inspect, discover problems, and file a claim for damages during the installation, adjustment, or warranty period. But after installation and adjustment, the [Buyer] expressed its satisfaction and signed the Installation and Maintenance Report. The warranty periods started on 17 November 1994 and 18 February 1995, respectively. During the one-year warranty period, the [Buyer] had never brought any claim of damages for quality problems, even during the trial of Case No. M..... The [Buyer] neither applied for inspection with an inspection agency nor filed a claim for damages based on quality problems until twenty days after the arbitration award was handed down in Case No. M .... Obviously, the statute of limitation had run.

The Equipment Inspection Report of the National Printing Machine Quality Supervision and Inspection Center provided by the [Buyer] was based on inspections conducted from July to September 1996. However, this report was issued three years after, and there was no official seal on the report. This departure from usual practice adversely affected the credibility of the Inspection Report.

The Inspection Center sent a letter to the Arbitration Commission on 4 October 1996 to explain its on-site inspections of the equipment. This letter shows that :

            a. The inspections performed by the Inspection Center were just preliminary;

            b. The Report only mentioned the "current" status of the S2000 Scanner, but did not specify when and why the damages occurred;

            c. The [Buyer]'s default in paying the price of goods constituted a fundamental breach of the Contract. In this situation, the [Seller] had no choice but to stop maintenance service and file for the arbitration application. The equipment problems were the result of the [Buyer]'s long time misuse of the equipment after the [Seller] stopped maintenance.

            d. The Inspection Center did not issue an inspection report of any kind.

            e. The Inspection Center never performed a complete inspection of the equipment and did not issue any inspection report.

Therefore, the [Seller] totally disagrees with the [Buyer]'s first and the second arbitration claims, and further opposes the [Buyer]'s third claim for the arbitration fee and attorneys' fee based on the first and the second arbitration claims.

4. The current status of the LTC630 Phototypesetter and the ML550 Developing Machine

With verification by certain employees, the [Seller] confirms here that the LTC630 Phototypesetter and the ML550 Developing Machine no longer have any value of use.

From 17 October 1994 when the [Seller] delivered the equipment to 8 November 1996 when it took the equipment back in accordance with the arbitration award of Case No. M ...., the equipment had been used by the [Buyer]. The [Buyer] admitted this in the court session.

After the [Seller] took the LTC630 Phototypesetter and the ML550 Developing Machine back in November 1996, it stored them in a warehouse and conducted maintenance appropriately. However, natural wear and tear was inevitable. Moreover, since phototypesetters and developing machines upgrade rapidly, development of technology caused the LTC630 Phototypesetter and the ML550 Developing Machine depreciated a lot. Before the arbitration award was handed down in Case No. M .... on November 1996, the equipment had been out of usable status due to both natural wear and tear and technological development.

5. The [Buyer] has no legal or factual basis to claim damages in the correspondence dated 20 March 2002

In its correspondence dated 20 March 2002, the [Buyer] requested that the price of the LTC630 Phototypesetter and the ML550 Developing Machine, totaling RMB 460,213.31, should be calculated at a depreciation rate of 10% for two years, and that the [Seller] should indemnify the balance of the price, 368,170.65 RMB.

The [Seller] alleges that the depreciation period of the two items of equipment should not be two years. Instead, it should be from 17 October 1994, when the [Seller] delivered the LTC630 Phototypesetter and the ML550 Developing Machine to the [Buyer], to 2 November 1999, when the arbitration award was handed down in Case No. M ....

During this period, the LTC630 Phototypesetter and the ML550 Developing Machine were in use by the [Buyer]. From 8 November 1996 to 2 November 1999, the [Seller] exercised its right under the arbitration award in Case No. M .... by taking the items of equipment back and storing them in the warehouse. Therefore, the depreciation from 17 October 1994 to 2 November 1999 should be deducted from the price paid by the [Buyer].

According to the Industrial Enterprises Financial Regulations, the 10% depreciation rate proposed by the [Buyer] cannot be established. The LTC630 Phototypesetter and the ML550 Developing Machine were special items of equipment of light industry. The Industrial Enterprises Financial Regulations provide that the depreciation period of new special equipment of light industries should be four to eight years, and enterprises with rapid technical development should use an accelerated depreciation method. The LTC630 Phototypesetter and the ML550 Developing Machine bought by the [Buyer] were not new equipment. Their depreciation period should be shorter than new equipment. And since the technical development of the equipment was rapid, their depreciation period should be shorter than eight years, and the depreciation rate should be over 12.5%.

In addition, to determine the depreciated value of the two items of equipment from 17 October 1994 to 2 November 1999, depreciation caused by technological development should also be considered.

As stated above, before the Arbitration Tribunal handed down the award in Case No. M .... on 2 November 1999, the LTC630 Phototypesetter and the ML550 Developing Machine had been out of use because of both natural wear and tear and technological development. The [Seller] had no fault, so it should not be held liable.

Also, the starting time to calculate interest proposed by the [Buyer] was 8 November 1996, when the [Seller] took the LTC630 Phototypesetter and the ML550 Developing Machine back. The [Seller] did so in accordance with the arbitration award in Case No. M ...., so it should not be held liable for interest. Therefore, the [Buyer]'s claims lack legal basis.

OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The parties to the Contracts at issue did not specify the governing law in the Contracts. Since the location of performance of the Contracts was in China, according to the most proximate connection doctrine, the Arbitration Tribunal concludes that the applicable law in the present case should be the law of the People's Republic of China.

The places of business of the two parties are China and Denmark, respectively. These two countries are both Contracting States of the CISG. According to the PRC law, in contractual disputes, when there are no available rules under the PRC law or the PRC law is inconsistent with an international convention, the international convention prevails.

2. The relationship between the present case and the M ___ Case and the M .... Case accepted by the Arbitration Commission

The Arbitration Tribunal notes that:

   -    The [Seller], as a Claimant, had filed an arbitration application against the [Buyer] based on the arbitration clauses in Contract No. 7B2-11595 and Contract No. 7B2-11615 on 9 August 1995, the case number of which was M ___. The Arbitration Tribunal in that case handed down an arbitration award numbered (96) Trade Arbitration ___ on 2 August 1996.
 
   -    Later, the [Buyer], as a Claimant, filed an arbitration application against the [Seller] based on the arbitration provisions in Contract No. 7B2-11573 and Contract No. 7B2-11595 and Contract No. 7B2-11615 (Contract No. 7B2-11573 was in fact substituted by Contract No. 7B2-11595), the case number of which was M ..... On 2 November 1999, and the Arbitration Tribunal of that case handed down an arbitration award numbered (99) Trade Arbitration .....

The contracts and subject matter under the contracts in the present case are the same as those in the aforementioned two cases. However, the M ___ Case was about the buyer's default in paying the price of goods, and the M .... Case was about the buyer's request to return the goods and get a refund and indemnification from the seller, while the present case is about the buyer's request to get the goods back and get a refund of the down payment. After hearing the substantive issues, the Arbitration Tribunal concludes that the issue in the present case is not "identical" to the issues in the two aforementioned cases according to Article 9 of the PRC Arbitration Law.

The Arbitration Tribunal will not re-hear the issues already tried by the Arbitration Tribunals in the two cases above.

3. The [Buyer]'s first arbitration claim concerning the quality problem of the LTC630 Phototypesetter and the ML550 Developing Machine

The first arbitration claim of the [Buyer] is that the [Seller] should return the LTC630 Phototypesetter and the ML550 Developing Machine and that, if the two items of equipment were damaged or destroyed because of the [Seller]'s inadequate maintenance, the [Seller] should indemnify the [Buyer]'s damages of 601,724.27 RMB (later modified to 508,456.19 RMB).

In the award in Case No. M .... , the [Buyer] should pay the balance due to the [Seller], and if in default, the [Seller] had the right to take the equipment back. The Arbitration Tribunal notes that the award in Case No. M ... reads as follows:

"The Arbitration Tribunal notes that in its defense the [Buyer] mentioned the quality, function, and running defects of the equipment under the contracts, but it did not submit any evidence. The Arbitration Tribunal analyzed Article 6 of the contracts about quality warranty, and also analyzed the 15 'maintenance service reports' submitted by the [Seller]. These 'maintenance service reports' show that the equipment delivered by the [Seller] does have quality problems to a certain extent, which affected the [Buyer]'s production and business. The [Seller] alleged that it has performed the obligation of quality warranty basically in conformity with the contracts. However, the Arbitration Tribunal concludes that the [Seller] has the obligation to solve problems in the equipment for the [Buyer]. The [Buyer]'s other claims are beyond the scope of the present case, so the Arbitration Tribunal will not make any decision on them."

In Case No. M ...., the [Buyer] submitted the Equipment Inspection Report by the National Printing Machine Quality Supervision and Inspection Center dated 16 July 1999. The Arbitration Tribunal concluded that the report should be considered as new evidence after Case No. M ...., and accordingly, though the LTC630 Phototypesetter and the ML550 Developing Machine under Contract No. 7B2-11595 had technical defects, they were not completely inconsistent with the contract. Moreover, the [Buyer] had accepted the equipment, and the [Seller] provided maintenance service in accordance with the contract, so returning the equipment to the [Seller] was not a choice of remedy, but reducing the price was. The price paid by the [Buyer] under Contract No. 7B2-11595 was about 75% of the contract price. The Arbitration Tribunal held it was appropriate to reduce the price. Therefore, in the first claim, only after the [Buyer] made the full payment of the price, could it take the equipment back. The condition of full payment should be waived. That is to say, the [Buyer] had the right to ask the [Seller] to return the LTC630 Phototypesetter and the ML550 Developing Machine. Though the Arbitration Tribunal in Case No. M .... made the above conclusion, since the [Buyer] did not request the [Seller] to return the LTC630 Phototypesetter and the ML550 Developing Machine in that case, the Arbitration Tribunal did not make a decision on this issue.

Taking into account this situation, the Arbitration Tribunal supports the [Buyer]'s claim in the present case that the [Seller] should return the LTC630 Phototypesetter and the ML550 Developing Machine under Contract No. 7B2-11595. If the [Seller] cannot return these items of equipment because they have been damaged or destroyed due to inadequate maintenance, the [Seller] should indemnify the [Buyer]'s loss.

According to the arbitration awards in Cases No. M ___ and M ...., the [Buyer] has paid 169.713.31 RMB and $35,000 under Contract No. 7B2-11595. Since Case No. M .... concluded that the price of the contract should be reduced because of the quality problem of the equipment, and the price should be equal to the paid price, the Arbitration Tribunal concludes that, if the [Seller] cannot return the two items of equipment, the [Seller] should pay to the [Buyer] the amount the [Buyer] paid, that is, RMB 169,713.31 and $35,000 (totaling 460,213.31 RMB based on an exchange rate of 8.30), minus the depreciation for two years (from 17 October 1994 to 8 November 1996) as damages.

The Arbitration Tribunal notes that the parties have different opinions about the depreciation rate. The Arbitration Tribunal concludes that, the equipment the [Buyer] bought is not within the meaning of "machines and equipment for electronic production enterprises which have an important place in the national economy or have rapid technological developments" under Article 31 of the Industrial Enterprises Finance Regulations. Thus the "average annual rate" method should be used instead of the "double balance decreasing or total number of years" method. According to the provision imposing a 8-14 year limit for light industry special equipment under the Industrial Enterprises Finance Regulations, since the equipment in the present case was not brand new, the annual depreciation rate should be 12.5%. Therefore, the Arbitration Tribunal concludes that, if the [Seller] is not able to return the two items of equipment, it should pay to the [Buyer] 345,159.98 RMB as damages [460.213.31*(1-2*12.5%)]. As for the [Buyer]'s claim for interest, since the present case is about compensation of damages, rather than a refund, the Arbitration Tribunal will not support the claim for interest.

4. The [Buyer]'s claim for double refund of the down payment and interest on the S2000 Scanner.

The second arbitration request of the [Buyer] is that the [Seller] should double refund the down payment and interest on the S2000 Scanner, which totals 138,449.40 RMB.

The Arbitration Tribunal notes that the payment made by the [Buyer] under the Contract has been heard in Case No. M .... The Arbitration Tribunal in that case concluded that the [Buyer] did not make any payment under Contract No. 7B2-11615. "The [Buyer] did not pay the price of the contract, and the S2000 Scanner has been taken back by the [Seller], so it should be regarded as a return of the goods." Therefore, the Arbitration Tribunal holds that in the two arbitration cases it has been concluded that the [Buyer] did not pay any price for the former S2000 Scanner under Contract 7B2-11615. The receipt of down payment submitted by the [Buyer] is insufficient to prove that the [Buyer] has paid the down payment. Thus, the Arbitration Tribunal will not support the [Buyer]'s request for a refund of the 60,000 RMB down payment, The [Buyer]'s second claim is therefore rejected.

5. The arbitration fee and attorneys' fee

The Arbitration Tribunal concludes that the [Buyer] should bear 30% of the arbitration fee for the present case, and the [Seller] should bear the other 70%.

The [Buyer] requested that the [Seller] should bear the [Buyer]'s attorneys' fee, but it did not propose any specific number or submit any evidence. The Arbitration Tribunal will not support this claim.

AWARD

1. The [Seller] shall return the LTC630 Phototypesetter and the ML550 Developing Machine under Contract No. 7B2-11595. If these two items of equipment have been damaged or destroyed and are not able to be returned, the [Seller] should pay the [Buyer] 345,159.98 RMB as damages.

2. The [Buyer]'s other arbitration claims are rejected.

3. The [Buyer] should bear 30% of the 17,953 RMB arbitration fee for the present case, i.e., 5,385.90 RMB. The [Seller] should bear the other 70%, i.e, 12,567.10 RMB. The arbitration fee should be offset by the amount paid by the [Buyer] in advance, so the [Seller] should pay to the [Buyer] 12,567.10 RMB.

4. The [Seller] should perform its obligation to return the equipment within 30 days of this award. The [Seller] should perform its obligation to make the payment within 45 days of this award; if in default, interest should be added and calculated at a daily rate of 0.021%.

The arbitration award is final.


FOOTNOTES

* For purposes of this translation, Claimant of the People's Republic of China is referred to as [Buyer] and Respondent of Denmark is referred to as [Seller]. 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].

** Yan Feng, LL.M. Candidate in Corporate Law, New York University School of Law.

*** 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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Pace Law School Institute of International Commercial Law - Last updated January 2, 2008
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