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CISG CASE PRESENTATION

China 15 July 2002 CIETAC Arbitration proceeding (Coating equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020715c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20020715 (15 July 2002)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2002/19

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLERS' COUNTRY: United States (respondents)

BUYERS' COUNTRY: People's Republic of China (claimants)

GOODS INVOLVED: Coating equipment


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission (CIETAC) 15 July 2002 (Coating equipment case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/99],
CLOUT abstract no. 985

Reproduced with permission of UNCITRAL

Abstract prepared by Ashley Sproat

This case deals primarily with conformity of goods and notice of defects within the warranty period as stipulated in the sales contract within the context of the CISG. The Second Claimant entered into a joint venture contract with the Third Respondent. On that same day, the Second Claimant entered into an equipment sales contract with the Third Respondent (i.e. the seller) on behalf of the joint venture (i.e. the First Claimant, the buyer) yet to be established. Disputes arose during performance of the contract and the buyer commenced arbitration for alleged non-conformity of the goods, and sought avoidance of the contract, as well as damages based on the investment in accessory facilities and costs of raw materials, training, wages, etc. The buyers further requested payment of a penalty amounting to 20 per cent of the total contract price.

The contract did not specify the governing law. The arbitral tribunal stated that because the places of business of the parties are in Contracting States of the CISG (China and the United States) the CISG shall apply, however, the subject qualification and civil status of the Respondents should be governed by the law of the United States.

After analyzing an inspection report provided by the sellers, the tribunal found that some defects in the equipment did exist; however, they did not constitute a fundamental breach of the contract under article 25 CISG. The tribunal found that the contract entitled the buyers to conduct inspections twice after receipt of the equipment but the buyers had waived this right when they ordered inspection after the warranty period expired. The tribunal noted that the warranty period should begin on the date the adjustment (the time between installation and trial production) finishes and the length is one year, however, the parties did not stipulate in the contract how that date should be determined. The tribunal held that the inspection certificate presented by the buyers to prove that the goods were defective was not a valid basis for the buyers to file a claim for damages or to request return of the goods.

The tribunal rejected the buyers' claim to avoid the contract on two grounds. Although defects were present with the equipment under article 35 CISG, the buyers failed to prove that the defects constituted a fundamental breach of contract under article 25 CISG. Also, the buyers did not complete valid inspection of the goods within the warranty period. Therefore, the buyers were not entitled to avoid the contract.

With regard to the delay in delivery, there were various stipulations in the contract on liability. The sellers did not contest that delivery was late but, in lack of proper evidence, the tribunal rejected the sellers' argument that delivery was late because the buyer had failed to issue the letter of credit on time. Based on the contractual provisions on liability for late delivery, the tribunal concluded that the sellers must pay a fine to the buyers for their breach. The buyers' claim for attorneys' fees was rejected and the arbitration fees were split.

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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 4 ; 25 ; 35 ; 36 ; 38 ; 74

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): capacity of parties];

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

35A [Conformity of goods to contract: quality, quantity and description required by contract];

36B2 [Lack of conformity occurring after passage of risk: guarantee of continued conformity];

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

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

Descriptors: Scope of Convention ; Capacity of parties ; Fundamental breach ; Conformity of goods ; Guarantees ; Examination of goods ; Damages

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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)

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

Coating equipment case (15 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 Trade 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 the case (Case number M___) on 15 February 2001 according to:

   -    The arbitration clause in the Contract between the parties to this dispute [Computer-use 3.5'' 2M High Intensity Floppy Disk Equipment Contract] (hereafter, the "Equipment Sales Contract" or the "Contract") dated 15 January 1994, and MEMORANDUM AND ORDER No. C-99-5420MHP handed down by the United States District Court for the Northern District of California on 19 December 2000; and
 
   -    The arbitration application the Weihai Electronic Magnet Recording Company, Ltd. (hereafter, the "First Claimant"), filed with the Arbitration Commission on 13 February 2001 against the First Respondent, the Second Respondent, the Third Respondent, the Fourth Respondent, the Fifth Respondent and the Sixth Respondent.

The Secretariat of the Arbitration Commission served the Notice of Arbitration to the First Claimant and the Respondents by mail on 15 February 2001.

The Arbitration Rules of the Arbitration Commission (hereafter, the "Arbitration Rules"), which became effective on 1 October 2000, apply to the arbitration in this case.

According to Article 13 of the Arbitration Rules, the arbitration procedure was commenced on 15 February 2001.

The First Claimant appointed Mr. Zheng as arbitrator. The six Respondents jointly appointed Mr. Yao as arbitrator. In accordance with Article 24 of the Arbitration Rules, the Chairman of the Arbitration Commission appointed Mr. Y___ as the Presiding Arbitrator. On 27 March 2006, these three arbitrators formed the Arbitration Tribunal to hear this case.

On 9 March 2001, in their correspondence with the Arbitration Commission, the six Respondents explicitly reserved the right to object to the jurisdiction of the Arbitration Commission. On 27 March 2006, the six Respondents formally submitted to the Arbitration Commission their Objection to the Arbitration Jurisdiction, alleging that the Arbitration Commission had no jurisdiction over this case.

Upon the request of the Arbitration Commission, on 8 September 2001 the United States District Court for the Northern District of California provided to the Arbitration Commission the transcript of its proceeding in Case No. C99-5420 of 6 December 2000. On 2 November 2001, the Secretariat of the Arbitration Commission forwarded this document to the First Claimant and the six respondents for their review. The parties issued opinions in writing.

On 5 December, Shandong Province ___ Aquatic Product Group, Inc., applied to participate in this case as a joint claimant (the "Second Claimant"). In its application, Shandong Province ___ Aquatic Product Group, Inc., expressed that it should participate in this case as a joint claimant of the First Claimant's arbitration claim, rather than under another independent arbitration claim against the Respondents, and that it agreed to accept all the foregone arbitration proceedings and requested to continue this arbitration.

The First Claimant agreed with and supported the application of the Second Claimant, and on 13 December 2001 the six Respondents consented in writing that Shandong Province ___ Aquatic Product Group, Inc., could participate as a claimant in this case. On 27 December 2001, the six Respondents expressly agreed to accept the arbitration jurisdiction of the Arbitration Commission.

On 14 January 2002, the Arbitration Tribunal clarified the participating parties of this case to all parties through the Secretariat of the Arbitration Commission.

On 1 March 2002, a court session was held in Beijing. The legal representatives and the arbitration agents of the two Claimants and the six Respondents were present. The parties made oral statements, presented arguments, answered the Arbitration Tribunal's questions, and verified and confirmed the relevant evidence.

After the court session, the parties submitted supplement statements and evidence. 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 on 15 July 2002 in Beijing.

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

FACTS

On 15 January 1994, the Second Claimant Shandong ___ Aquatic Product Group, Inc. (originally named Weihai ___ Aquatic Product Corporation) and the Third Respondent entered into a Sino-America Joint Venture Contract in Weihai, Shandong Province, to invest in and set up the Weihai __ Electronic Magnet Recording Company, Ltd. (a joint venture, referred to herein as the First Claimant).

On the same day, on behalf of the yet-to-be-established First Claimant, the Second Claimant executed a Contract [Computer-use 3.5'' 2M High Intensity Floppy Disk Equipment Contract] (namely, the Equipment Sales Contract at issue) with the Third Respondent, agreeing that the First Claimant (the Buyer) should purchase from the Third Respondent (the Seller) the 3.5''/5.25'' High Intensity Floppy Disk Coating Production Equipment, and that the total price of the contract should be US $5.5 million CIF Qingdao.

There were two appendixes to the Equipment Sales Contract. Appendix I contained the List of High Intensity Floppy Disk Equipment, and Appendix II recited the Methods of Payment. The Equipment Sales Contract also included provisions on shipment, warranty of quality, claim of damages, force majeure, delay of payment, damages, and arbitration, etc.

After the Equipment Sales Contract became effective, disputes between the parties arose during performance. Upon failure to reach a settlement through negotiation, the two Claimants filed this arbitration to the Arbitration Commission.

[For purposes of this presentation, hereafter where the two Claimants are mentioned together, they are referred to as the [Buyers]; where these Claimants are mentioned individually, they are referred to as First Claimant [Buyer] and Second Claimant [Buyer], respectively; .and where the Third and Fourth Respondents are mentioned, they are referred to as Third Respondent [Seller] and Fourth Respondent [Seller], respectively.]

[POSITION OF THE PARTIES]

[Buyers' pleadings]

The [Buyers] request the Arbitration Tribunal to rule that:

1. The Equipment Sales Contract between the [Buyers] and the Third Respondent [Seller] represented by the First Respondent shall be avoided. All of the equipment under the Contract shall be returned. The Respondents shall bear all the incidental expenses, and repay US $5.3616 million to the [Buyers] (subsequently amended to US $5,288,096.76);

2. The Respondents shall indemnify the [Buyers] for their actual damages caused by the Respondents' breach of the Equipment Sales Contract:

      (1) Investment in accessory facilities of the production line in the amount of 2.079 million renminbi [RMB]; and

      (2) Cost of raw material, training, wages and welfare of employees in the amount of RMB 5.30 million and US $0.1134 million; interest on bank loan as of 31 July 2000 in the amount of RMB 0.4993 million;

3. Regarding the penalty on breach of contract, the Respondents, shall pay the [Buyers] 20% of the total price of the Equipment Sales Contract, i.e., US $5.3 million * 20% = US $106 million;

4. The Respondents shall indemnify the [Buyers] for their attorneys' fee in the amount of RMB 0.6810 million and other incidental expenses of RMB 0.3165 million;

5. The Respondents shall bear the arbitration fee;

6. Each Respondent shall be severally liable for the above claims.

[Respondents' position and verification of issues in dispute]

The Respondents request the Arbitration Tribunal to dismiss all of the [Buyers]' arbitration claims.

The key issues in this case are described as follows:

      (1) The contracting parties to the Equipment Sales Contract and liability for breach of contract

      The Equipment Sales Contract and subsequent contracts signed by the parties were only in Chinese. The Seller and its signature appeared to be the Third Respondent (in Chinese), and the signee was the First Respondent.

The [Buyers] allege that, the First Respondent controlled and manipulated the Second Respondent, the Third Respondent [Seller], and the Fourth Respondent [Seller] to involve them in the negotiation, conclusion, credit collateral and performance of the Equipment Sales Contract at issue. The Second Respondent, the Third Respondent [Seller], and the Fourth Respondent [Seller] were all parties to the Equipment Sales Contract in a position as the Third Respondent [Seller]. The First Respondent, the Fifth Respondent, and the Sixth Respondent were shareholders, directors, and general engineers of the three companies above, and the First Respondent was the legal representative for all three companies. The Second Respondent and the Third Respondent [Seller] had the same business place, names, employees, technologic capacities, and credibility of the three companies were used in the negotiation and conclusion of the Equipment Sales Contract. In the latter half of 1993, the Second Respondent, the Third Respondent [Seller], and the Fourth Respondent [Seller] participated in the negotiation of the Contract under the name of the Third Respondent [Seller] (in Chinese characters). The Fourth Respondent [Seller] was used as the corresponding English name of the Third Respondent [Seller]. On 6 April 1994, the First Respondent proposed in its fax to the [Buyers] that the Third Respondent [Seller]'s name should be used in the joint venture.

After the conclusion of the Equipment Sales Contract, the Second Respondent, the Third Respondent [Seller], and the Fourth Respondent [Seller] provided for the [Buyers] documents including the Bank Credit Report of the Third Respondent [Seller], in order to jointly secure the performance of the Equipment Sales Contract. In the fax to the [Buyers] on 6 April 1994 the First Respondent even alleged "about the Certificate of Bank Report, please remember that we have three companies."

Following the conclusion of the Equipment Sales Contract, the six Respondents on behalf of the Third Respondent [Seller] participated in the performance of the contract. At the court session of 1 March 2002, the [Buyers] argued that, if the Second Respondent, the third Respondent [Seller], and the Fourth Respondent [Seller] were three independent entities, the [Buyers] would not have entered into a contract of US $5 million with them.

In addition, during the conclusion and performance of the Equipment Sales Contract, the Respondents intentionally exaggerated the credibility and technological capability of the Second Respondent, the Third Respondent [Seller], and the Fourth Respondent [Seller].

The [Buyers] alleged that, the Respondents' argument that the name of the Seller in the Equipment Sales Contract was listed only as the Third Respondent [Seller] was inconsistent with the facts. The First Respondent in its fax dated 6 April 1994 did not specify that the Seller in the Equipment Sales Contract was the Third Respondent [Seller], and the Certificate of Commercial Inspection only showed that the Third Respondent [Seller] was the consignor of the equipment, rather than the Seller. It could not be inferred from the translation of [name of the Seller] into the Third Respondent on the Certificate of Commercial Inspection and on a few translated documents in English that the [Buyers] had always regarded the Third Respondent as the Seller.

The [Buyers] alleged that, during the performance of the Equipment Sales Contract, the First Respondent and the Fifth Respondent dissolved the Second Respondent and the Fourth Respondent [Seller] in order to escape from the liability for breach of contract; thus they should be held personally liable. From 1997 to September of 1999, the [Buyers] urged the First Respondent several times to participate in board meetings of the joint venture. They also asked the Third Respondent [Seller] to resolve the problem that the production line facilities could not pass the final adjustment test and could not run normally in compliance with the Contract. However, the First Respondent and the Fifth Respondents dissolved the Second Respondent and the Fourth Respondent [Seller], on 3 April 1995 and 29 March 1999, respectively, and transferred the assets into their personal accounts. Although, as the shareholders of these two companies, the First and the Fifth Respondents knew that they were required by the [Buyers] to actually perform the Contract and bear the liability for breach of the Contract, they misstated and swore that they had actually paid off all debts known to them, in order to maliciously escape from the liability owed to the [Buyers] under the Contract. The Respondents concealed the above facts from the [Buyers] until December of 1999, when the [Buyers] discovered the facts after investigation.

The [Buyers] alleged that, as the Seller of the Equipment Sales Contract, the Second Respondent and the Fourth Respondent were maliciously dissolved by their shareholders.. According to the law of the United States, the place of incorporation, the First and the Fifth Respondents as shareholders of these companies should be held personally liable under the doctrine of "piercing the corporate veil".

In conclusion, the [Buyers] alleged that all six of the Respondents were contracting parties to the Equipment Sales Contract. The court in the United States had in its ruling identified them as alter-egos.

The Respondents argued that only the Third Respondent [Seller] actually participated in the negotiation, conclusion and performance of the Equipment Sales Contract. In the initial period of setting up the joint venture, the Respondents had clearly expressed that they were acting in the name of the Third Respondent [Seller]. The First Respondent in its fax to the General Manager of the First Claimant [Buyer], dated 6 April 1994, explicitly expressed that the name of the Seller referred to the Third Respondent. The [Buyers] knew it very well, and had always treated the Third Respondent as the Seller in the Equipment Sales Contract. In its fax in English to Mr. D___ on 3 September 1996 and its translation, the [Buyers] had translated [the name of the Seller] into the name of the Third Respondent three times. The Third Respondent [Seller], the Second Respondent and the Fourth Respondent [Seller] were economically independent entities from each other. The Second Respondent never had used the Chinese name of the Third Respondent [Seller], nor had a corresponding Chinese name, nor participated in any business activities of the joint venture, and never entered into any contract with the [Buyers], including the Equipment Sales Contract at issue.

The facilities were operated by the Third Respondent [Seller], and jointly by the [Buyers] and the Third Respondent [Seller].

The Respondents argue that the doctrine of "piercing the corporate veil" should not apply to the First, the Second, the Fourth, the Fifth, and the Sixth Respondents.

      First, according to the Most Significant Connection Doctrine, the Equipment Sales Contract should be governed by Chinese law. Article 3 of the Chinese Corporate Law adopts strict limited liability for shareholders, as well as the system of separate legal personality of corporation. It does not provide for the doctrine of piercing the corporate veil.

      Second, even if the doctrine of "piercing the corporate veil" could apply, the facts of this case did not meet the required factors. The shareholders of the Respondents neither abused their control of the companies, nor did they damage the separate legal personality of the corporation, directly or indirectly. The loss alleged by the [Buyers] had nothing to do with the shareholders of the Respondents. Thus, there was no legal basis for the [Buyers]' claim that the shareholders of the Respondents or their employees (the First, the Fifth, and the Sixth Claimant) should be held liable. In addition, the dissolution of the Fourth Respondent occurred on 3 April 1995, when the performance of the Equipment Sales Contract had not yet started, and thus had nothing to do with the disputes in this case. The dissolution of the Second Respondent happened on 29 March 1999 when the delivery obligation under the Contract had already been completed. The equipment had already been adjusted and produced qualified products. There is no escape from the liability for breach of contract; the [Buyers]' claim lacks actual basis.

      Third, the doctrine of "piercing the corporate veil" should not apply to the Second Respondent. The Second Respondent, the Third Respondent [Seller] and the Fourth Respondent [Seller] had different employees and different business scopes. They were registered and paid tax separately, so they were three independent companies.

      (2) About the delay of delivery by the Respondents

      The [Buyers] alleged that, according to Appendix II "Methods of Payment of the Equipment Sales Contract," the Respondents should have delivered within 32 weeks after the [Buyers] made the initial payment of US $110 million. On 22 October 1994 the [Buyers] made the first payment, and the equipment should have been shipped from the United States during the first half of June 1995. The Respondents confirmed the delivery date, but delayed delivery until August of 1995. Three key items of the equipment, i.e., the coating machine, the calendar machine, and the stripping machine, were shipped as late as on 13 October 1995; the third core-making machine was shipped on December 1997, and the Respondents were still shipping to the [Buyers] the missing equipment. In their defense, the Respondents admitted the delay of delivery during the performance of the Contract. On a board meeting of the joint venture in March 1997, the parties confirmed that the delivery of the equipment was delayed by three months; when the time for installation and adjustment was completed, the delivery of the equipment was delayed by almost a year. Apparently, after the [Buyers] made the first payment, the delay of delivery was totally caused by the Respondents, so the Respondents' argument that the [Buyers] delayed in making the down payment and should be blamed for the delay of delivery is inconsistent with the facts.

The Respondents alleged that the reason for the delay of delivery was that the [Buyers] delayed issuing the Letter of Credit and the plant for the equipment was not competed on time. In addition, the [Buyers] have made the full payment under the contract, which shows that they accepted the Respondents' delay.

      (3) Quantity of the goods

      The [Buyers] alleged that the goods delivered were short in quantity. The shortages of equipment included (1) AE100F analytical scale; (2) 130DM oven; (3) Model 307 core-making machine. The Respondents have not yet delivered to the [Buyers] these items of equipment.

The Respondents, in turn, alleged that, they had delivered all of the equipment. The reason why the goods were in shortage was that the [Buyers] managed the goods poorly which caused some of the equipment to be lost and damaged. The packing list and the bill of lading provided by the Respondents provided that all items of the equipment had been delivered, and the fact that the [Buyers] had paid for those goods allegedly in shortage also showed that they received all equipment and parts.

      (4) About the quality of the goods

      The [Buyers] alleged that, the quality of the equipment delivered by the Respondents was inconsistent with the Contract and that the equipment could not produce qualified products as agreed. Serious quality problems alleged included that:

            (1) In the pulping process, the filter of the Model FT-295 Automatic Weighing Delivery Equipment got blocked before weighing and could not completely deliver the materials into the agitator tank, causing the proportion described in the formula to be inaccurate; the principal axis of the Model DAVHR Pulping and Agitating Machine were overheated and could not work continuously;

            (2) In the coating process, because the crushing output had design defects, the coating machine could neither position accurately nor keep the base band clean;

            (3) In the stripping process, the velocity of the stripping machine was not stable, and the stripping was uneven, etc.

In November 1999, the Import and Export Commodity Inspection Bureau of Shandong Province issued a Certificate of Inspection after on-site inspection, confirming that the equipment had defects in quality and quantity and therefore "the equipment could not run normally."

Regarding the Test Report by the Electronic Industrial Magnet Floppy Disk Quality Inspection Center submitted by the Respondents to prove that the equipment had produced qualified products, the [Buyers] alleged this report was only based on test on samples submitted, rather than those picked up randomly, so it should neither be admitted as evidence to prove the inspection prescribed, nor be admitted as a proof of the fact that the disks produced met the standards stipulated in the Contract, which was "passing rate of the finished products should be over 95%, and the threshold drop-out rate should be over 72%". The Respondents argued that inspection by C___ Techniques Corporation of the United States confirmed that the floppy disk chips produced had met high quality standards. However, there is no evidence to prove that the samples inspected were produced by the equipment of the First Claimant, so this inspection certificate is not admissible evidence. A letter of V___ Corporation dated 10 December 1999, was only a quick review of the Inspection Report dated on September 1996, and could not prove that the equipment could produce products agreed on.

The Respondents argue that the equipment they delivered was complying with the Contract, that the products produced by the equipment passed the tests by the Electronic Industrial Floppy Disk Quality Test Center of the Department of Electronic Industry and C___ Techniques Corporation of the United States, and the equipment was proved to be in conformity with the standards stipulated in the Contract. In addition, internal tests of the First Claimant [Buyer] also had the same results. In the board meeting of the joint venture on 8 March 1997, it was pointed out that "the coating machine of the production line is very good in quality. It functions well, and some technologies are advanced. Passing rate of the chips is 94%, 40-64% of which are of first class. This meets ISO standard." Mr Gu, the general manager of the First Claimant [Buyer], mentioned in a fax dated 18 October 1996 that "the calendar and coating by our joint venture is among the first class of the world"; in a fax dated 8 October 1997, Mr. Gu alleged "products reached a high level in the passing rate and in physical appearance. The rate of standardization also exceeded 96%. More than three factories in Hangzhou have started to order from us."

The Respondents rebutted the [Buyers]' argument on the specific quality problems of the equipment.

      (5) About the adjustment and inspection of the equipment

      The [Buyers] allege that installation and adjustment of the equipment started from December of 1995, but has not been completed by the Respondents. Final inspection and acceptance has not been performed by the parties, and they have never signed any documents about final acceptance. The [Buyers] allege that, according to the Methods of Payment under Section 7 of Article 12 in the Equipment Sales Contract, payment of the balance by the [Buyers] was conditioned on stable and continuous running of the equipment for a month, the passing of initial inspection, and signing of the final acceptance letter by both parties. During the performance of the Contract, as a courtesy to cooperate, the [Buyers] paid the balance in advance. However, this should not be deemed as the [Buyers]' agreement that the equipment had met the requirements and passed the final inspection and acceptance.

The Production Inauguration Ceremony was held per the request of the First Respondent and was only for promotion. The First Respondent in its fax confirming the date of the ceremony admitted that the equipment had quality problems and would be improved after the ceremony. But the Respondents clearly knew that the problems had not been solved, and therefore the equipment could not be accepted. The Respondents spent one year and a half installing and adjusting the equipment (and have not finished yet), which greatly exceeded the time prescribed in the Contract. In addition, the production had to cease because of the failure of installation and adjustment. The Third Respondent [Seller] and its technicians from the United States failed to solve the quality problems, products produced during the adjustment period could not meet the Contract standard, acceptance inspection had never been carried out by both parties, and no acceptance document was signed. The Respondents' argument that the Production Inauguration Ceremony signified the final acceptance is without proof.

However, the Respondents argued that:

      They had completed delivery, installation, adjustment, trial running, production, and product inspection;

      The Production Inauguration Ceremony held by the [Buyers] showed that they inspected and completely accepted the equipment and that the equipment was fully complying with the adjustment requirements stipulated in the Contract.

      The Contract does not stipulate anything about acceptance in writing, but only stipulates the condition of payment that the Certificate of Final Inspection and Acceptance issued by the [Buyers]' agency should be presented for payment of the balance.

      When mentioning the Methods of Payment in Appendix II of the Contract, the [Buyers] only focused on "signing the Certificate of Inspection and Acceptance" and ignored the purpose of the statement "as to prove the payment of balance." In fact, signing the Certificate of Final Inspection and Acceptance was the condition to pay the balance. The [Buyers] had made the actual payment, which proved that they accepted the delivery and inspection of the equipment.

      The [Buyers]' argument that they paid because the First Respondent threatened to delay delivering the goods and the Third Respondent [Seller] lost their trust has no factual basis. The Production Inauguration Ceremony on 2 November 1996 showed that the adjustment had been completed.

      (6) About the [Buyers]' claim for damages

      The equipment under the Contract is still within its quality warranty period and the limitation of action. The [Buyers] allege that, according to Article 12 of the Equipment Sales Contract, the quality warranty period was originally one year after the [Buyers]' plant finished adjustment of the equipment, and then the Respondents promised to extend it to five year thereafter. Since the adjustment had not been completed and the parties have not performed final acceptance, the quality warranty period does not start. The equipment delivered by the Respondents was in shortage, and the Respondents have not finished delivery. According to Article 13 of the Equipment Sales Contract, the calculation of limitation of action has not started, either. In addition, according to the Equipment Sales Contract, as long as the equipment is within its quality warranty period, the [Buyers] have the right to file a claim based on the quality of the equipment. The [Buyers] have not lost the right to file a claim against the Respondents based on the quality and quantity of the equipment.

The Respondents argue that the [Buyers] have lost their right to claim damages. The Respondents allege that, according to Section 4 of Article 12 and Article 13 of the Equipment Sales Contract, the latest date for the [Buyers] to file a claim should be the end of July 1996 and that the quality warranty period ended on 2 November 1997. The Respondents had never extended the warranty period in writing in any document (including any meeting minute). The statement in the meeting minutes that "life of the equipment is over five years" means that the equipment could be used for at least five years, rather than a warranty period of five years.

      (7) About the Certificate of Commercial Inspection

      The [Buyers] allege that the Certificate of Commercial Inspection is legitimate and valid. According to Article 22 of PRC Implementation Rules for Imported Equipment Inspection and Monitoring Management:

The "commercial inspection agency should inspect and issue the Certificate of Commercial Inspection when ... (2) the contract stipulates that inspection should be performed by both parties of the trade, but the representative of the seller is absent, and the receiving party performs inspection and discovers defects."

From October to November 1997, the Import and Export Commodity Inspection Bureau of Shandong Province had inspected the production line equipment on site, and issued the Certificate of Commercial Inspection. The Certificate of Commercial Inspection confirmed the problems of quantity and quality of the equipment delivered by the Third Respondent [Seller]. The Certificate of Commercial Inspection was issued by China's commercial inspection department, and is valid evidence under the law, which can prove the Respondents' fundamental breach of contract.

The Respondents allege that the Certificate of Commercial Inspection is not valid. In the present case, the Certificate of Commercial Inspection by the inspection bureau requested by the [Buyers] was issued on as late as 14 November 1997 and had exceeded the period of claim and equipment quality warranty period stipulated in the Contract. In fact, the equipment had been taken by the [Buyers] after the Production Inauguration Ceremony. Due to mismanagement of the plant and the equipment by the [Buyers], the equipment was operated abusively and got damaged. Neither did the [Buyers] repair the equipment nor called for help from the Respondents. They even requested, without consent of the Respondents, inspection by a commercial inspection bureau that lacked the experience and equipment to inspect this kind of equipment. The report it issued by this commercial inspection bureau is without any credibility. At the same time, according to Article 16 of PRC Implementation Regulations of Import and Export Commodity Inspection, which provides that the "commercial inspection agency should finish inspection about the imported commodity within the period of claim," the commercial inspection report issued after the period of claim should be void as inconsistent with the mandatory regulation.

      (8) The governing law

      The [Buyers] allege that the Equipment Sales Contract should be governed by Chinese law, including the Contract Law of the People's Republic of China. Because the parties are all in countries which are Contracting States of the United Nations Convention on Contracts for International Sales of Goods (CISG), relevant articles of the Convention should apply in the present case. In addition, according to China's relevant law on the conflicts of law, the civil status of the Third Respondent [Seller] should be subject to the Company Law of its place of incorporation, i.e., the State of California of the United States.

The Respondents allege that this case should be subject to Chinese law.

OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

In the Equipment Sales Contract, the [Buyers] and the Respondents did not explicitly stipulate the applicable law. The Arbitration Tribunal concludes that, because the place of business of the Claimant [Buyers] is in China, the place of business of the Seller (the Respondents) is in the United States, and both China and the United States are Contracting States of the CISG, according to Article 1 of the CISG, it applies. However, the subject qualification and civil status of the six Respondents should be governed by the law of the United States.

2. The contracting parties and liability under the Equipment Sales Contract

The Seller stipulated in the Equipment Sales Contract was the Third Respondent; the foreign party in the Sino-America Joint Venture Contract was the Third Respondent; the foreign party in the Approval Certificate of the joint venture was the Third Respondent. The corresponding English name of the Third Respondent was not recorded in these documents. The First Respondent in the faxes dated 23 March 1994 and 6 April 1994 explicitly stated "the full name of our company is [the name of the Third Respondent]" and "we cooperate with the First Claimant in the name of [the Third Respondent]." In the arbitration process, the parties agreed that the Third Respondent was the subject of liability and obligation. Therefore, the Arbitration Tribunal concludes that the Third Respondent is one of the subjects of liability and obligation under the Equipment Sales Contract.

Meanwhile, the Arbitration Tribunal notes that the Joint Venture Project Proposal and the Feasibility Analysis Report provided by the parties showed that the foreign party of the joint venture was the Third Respondent, with the English name of [the Fourth Respondent]. None of the parties submitted any evidence to show that in the material submitted to the relevant authority, the foreign party had been changed from the Fourth Respondent to the Third Respondent. Though the Contract at issue is the Equipment Sales Contract, rather than the Sino-America Joint Venture Contract, these two contracts were closely related and were concluded on the same day. There is no reason for the Arbitration Tribunal to believe that the name of Third Respondent in the Sino-America Joint Venture Contract was different with that of the name of the Third Respondent in the Equipment Sales Contract. The Arbitration Tribunal notes that the name of the Third Respondent in the Equipment Sales Contract and the Sino-America Joint Venture Contract could refer to two different companies at the same time. In the present case, the Arbitration Tribunal concludes that the Fourth Respondent is also one of the subjects of liability and obligation under the Equipment Sales Contract.

Regarding the issue whether the First, the Second, the Fifth, and the Sixth Respondents were the subjects of liability and obligation under the Equipment Sales Contract, the key question is whether the [Buyers] can establish the argument of "piercing the corporate veil". According to the Arbitration Tribunal's opinion in Item 1, above, the qualification and status of the Respondents should be governed by the law of their country, i.e., the United States. The [Buyers] also agreed on this. The law of the United States is foreign law to an arbitration tribunal in China. The party which proposes the application of the law of the United States should bear the burden to provide the relevant provisions of the US law. However, the [Buyers] failed to satisfy this burden. When the applicable US law cannot be identified, the Arbitration Tribunal has to apply the law of the place of arbitration, i.e., the law of the PRC. Under the Corporate Law of China, there is no provision on "piercing the corporate veil." Therefore, the Arbitration Tribunal cannot support the [Buyers]' claim that the First, the Second, the Fifth, and the Sixth Respondent were also the subjects of liability and obligation under the Equipment Sales Contract.

3. The quality and inspection of the equipment under the Contract and the [Buyers]' claim for damages

The key items of equipment under the Contract were packed in the United States in October 1995 and shipped to the destination, Weihai of China, in January 1996. Some other equipment and accessory parts were packed in April 1996 and arrived in Weihai in May. From April to October 1996, the parties installed, adjusted and tested the set of equipment.

The [Buyers] allege that:

   -    The set of equipment had many quality defects including: technical defects in the key part of the coating machine and defects that existed in stages such as pulping, coating, calendar, stripping and slicing;
 
   -    The production line could neither run normally, continuously and stable, nor produced qualified products, etc.

The Arbitration Tribunal carefully examined the evidence and material submitted by the [Buyers] and the Respondents, especially the documents and faxes among the parties during the adjustment. Based on these items of evidence and materials as well as the statements of the parties in the court session, the Arbitration Tribunal concludes as follows:

      (1) The quality of the equipment

      The equipment at issue, which is used for the production of chips of floppy disks, is of advanced and high technology. Production, installation, adjustment, and running of the equipment is complicated, and technology, environment, and maintenance in the above processes is highly demanding. Therefore, it is not surprising that some problems might arise during these processes, and adjustment of equipment is in itself a process of diskovering and then problem- solving . The issue here is not how many and what problems arose during installation and adjustment of the equipment, but whether the equipment had the quality and functions complying with the Contract during the warranty period stipulated in the Contract or promised by the Seller.

The Arbitration Tribunal notes that, the Respondents provided an Inspection Report No. (91) (H0523) issued by the Electronic Industrial Floppy Disk Inspection Center dated 27 November 1996. The Report described that The products described in the report were 90mm 2HD "floppy disks", the sampling was "random," and the first applicant was the First Claimant [Buyer]. The inspection result was described as

"The 90mm 2HD floppy disks produced by the First Claimant [Buyer] all meet the National Standard of GB/T15130.1 in all tests. The thresholds of spot pulse and extra pulse are above standard. The products passed the inspection."

The [Buyers] did not object to the authenticity of the inspection report. However, they alleged that the sampling of the product in the report was not random; instead, samples tested were provided by the First Claimant [Buyer], and should not be admitted as evidence prescribed in the Contract. The [Buyers] did not provide enough evidence to support their argument that the sampling in the report was not random. Therefore, the Arbitration Tribunal does not sustain the [Buyers]' argument. According to the above Inspection Report, the Arbitration Tribunal notes that, until November 1996, the equipment was able to produce qualified products.

The Arbitration Tribunal notes that in its fax dated 22 October 1996 to Mr. Gu, the General Manager of the First Claimant [Buyer], the First Respondent alleged "after the Production Inauguration Ceremony, some parts of the equipment still needed to be improved." On 9 November 1996, Mr. Gu stated in his fax to Mr. D__ N__ of the producer ___ Company that the equipment had problems such as that the bearing had no lubricating oil and therefore, could not cool down. On 7 March 1997, the First Claimant [Buyer] held a Board Meeting, in which Mr. K__ Chan, the agent of the First Respondent participated. According to the minutes of the Board, problems in the production line equipment included that the oven, the analytical scale, the substrate analyzer, the camera, the mechanical repairing manual, the software, and the calibration disk were missing. Based on this evidence, the Arbitration Tribunal concludes that some defects did exist in the equipment.

However, the Arbitration Tribunal also notes the following facts:

      (1) In his fax to Mr. D__ N__ dated 9 November 1996, Mr. Gu stated "with the efforts of both American and Chinese parties, we finally completed the coating line very successfully." (emphasis added by the Arbitration Tribunal)

      (2) In the Board Meeting on 7 March 1997, the comments about the quality of the equipment were as follows: "generally, the production line equipment is good in quality. It is at an advanced level, and functions very well ..."

      (3) On 2 November 1996, the First Claimant [Buyer] held an official Production Inauguration Ceremony for the production line equipment. It shows that both parties were satisfied with the quality of the equipment at that time. In other words, though the equipment had some defects, it was still acceptable to the [Buyers]. From the legal perspective, the Production Inauguration Ceremony constituted de facto the First Claimant [Buyer]'s acceptance of the equipment.

The Arbitration Tribunal concludes that the above evidence and material shows that the defects did not constitute a fundamental breach of contract. Therefore, according to CISG, the [Buyers] do not have the right to rescind the Contract.

      (2) About the Certificate of Inspection issued by the People's Republic of China Bureau of Import and Export Commodity Inspection Shandong Sub-Bureau

      The [Buyers] submitted to the Arbitration Tribunal a Certificate of Inspection issued by the People's Republic of China Bureau of Import and Export Commodity Inspection Shandong Sub-Bureau. The Certificate of Inspection concluded that:

"The equipment under the Contract was short in quantity, the design was defective, and/or the installation and adjustment did not meet the standard; therefore the equipment cannot be used for normal production."

The [Buyers] submitted the Certificate of Inspection to prove that the equipment delivered by the Respondents was defective.

Article 13 "Claim of Damages" of the Contract stipulates:

"After the goods reach the port of destination, if any inconsistency of quality, specification, and quantity with the Contract is found within half a year thereafter, in addition to what the insurance company and the shipping company are liable for, the Buyer, with a certificate of inspection issued by a China commodity inspection agency as proof, has the right to claim the expenses of replacement and for indemnification of all costs (e.g., cost of inspection, shipping cost of returning goods, cost of replacement, cost of storage, etc.). The Seller promises to indemnify within the warranty period for losses caused by defects in the Equipment. The Buyer should notify the Seller immediately and provide the certificate of inspection issued by a China commodity inspection agency as proof to file a claim. The Seller should accept the certificate of inspection issued by a China commodity inspection agency as the basis of the claim ..."

Article 3(3) "Method of Payment" of Appendix II of the Contract prescribed that:

"The equipment should all be safely delivered to the location of the joint venture, after commercial inspection, installation, adjustment, normal running, and passing of the acceptance ..."

According to these provisions, the [Buyers] are entitled to conduct commercial inspections twice after receiving the equipment: First, within half a year after the goods reach the port of destination, and before the installation and adjustment of the Equipment starts, the [Buyers] have the right to request a Chinese commercial inspection agency to inspect the goods; Second, if quality defects are found within the quality warranty period promised by the Seller, the [Buyers] have the right to request a Chinese commercial inspection agency to inspect the goods.

Considering the facts in this case, the [Buyers] had in fact waived their right to conduct a commercial inspection before installation and adjustment. And the [Buyers] requested the People's Republic of China Bureau of Import and Export Commodity Inspection Shandong Sub-Bureau to inspect after the quality warranty period prescribed in the Contract expired.

Article 12(4) "Warranty of Quality" of the Contract prescribed,:

"The period of warranty is within one year after adjustment of the equipment is completed in the Buyer's plant."

Accordingly, the warranty period promised by the Respondents should start from the date when the adjustment finishes, and the length is one year. However, the parties did not stipulate in the Contract or in any other document how to determine this date.

The Arbitration Tribunal notes that Article 3(3) of Appendix II "Methods of Payment" of the Contract prescribed:

"The equipment should all be safely delivered to the location of the joint venture, after commercial inspection, installation, adjustment, normal running, and passing of the acceptance, and one month of continuously stable running and trial production is required. Final acceptance should confirm that the equipment meets all standards under the Contract.Certificate of inspection and acceptance should be signed ..."

Accordingly, "adjustment" is a stage between installation and trial production, and it is prior to trial production. Both parties agreed that on 2 November 1996, the First Claimant [Buyer] held an official Production Inauguration Ceremony at its plant. It shows that the adjustment in any event should be completed before 2 November 1996. Even if the adjustment was completed on 2 November 1996 for the purpose of calculation, the warranty period expired on 2 November 1997. According to Article 13 of the Contract, even if the equipment is defective, the [Buyers] should conduct a commercial inspection and file a claim with the certificate of inspection within the period of warranty. The People's Republic of China Bureau of Import and Export Commodity Inspection Shandong Sub-Bureau issued the Certificate of Commercial Inspection on 14 November 1997, which is obviously beyond the quality warranty period under the Contract.

Therefore, the Certificate of Commercial Inspection issued by the People's Republic of China Bureau of Import and Export Commodity Inspection of the Shandong Province is not a valid basis for the [Buyers] to file a claim for damages or request to return the goods.

The [Buyers] allege that, according to the Meeting Minutes signed by the Second Claimant [Buyer] and the Third Respondent [Seller] on 20 March 1994, "Mr. R__ promises that the production line is with the international advanced level. There will be no problem in normal running, and the life expectancy of the production line will be at least five years," and therefore, the Respondents had changed the warranty period from one year as prescribed in the Contract to five years. The Arbitration Tribunal cannot sustain the [Buyers]' argument.

First, there is no evidence to prove that the statement made by Mr. R__ was authorized by the Third Respondent [Seller] and was made in order to change the stipulation in the Contract. Second, based on the literal meaning of the statement it cannot be construed as a revision of the warranty period. Obviously, "the life expectancy of the equipment" and "the quality warranty period" are two totally different concepts. In the present case, the life expectancy of the equipment is irrelevant to the issue.

      (3) [Buyers]' right to file a claim for damages

      The [Buyers] allege that the parties had neither performed final acceptance of the equipment nor signed any document about final inspection and acceptance. Therefore, the [Buyers] still have the right to file a claim under the contract, and the period to file a claim has not expired.

Article 13 of the Contract has specific provisions on [Buyers]' right to file a claim. As stated above, the [Buyers] did not perform a valid commercial inspection within the quality warranty period prescribed in the Contract, and the certificate of inspection they obtained was issued after the warranty period expired. Thus, the [Buyers] have lost their "basis for claim".

In addition, though Appendix II of the Contract contained a provision about the certificate of inspection, this provision just stipulates that the signing of the final acceptance certificate as a precondition for the [Buyers] to pay the Respondents the US $275,000 balance; it was not a precondition for the [Buyers] to accept the equipment. In fact, the [Buyers] did not even insist on this condition, but paid the US $275,000 balance to the Respondents without signing any final acceptance certificate.

Based on the above analysis, the Arbitration Tribunal believes that, although the equipment delivered by the Respondents was not without any defect, the [Buyers] failed to prove that these defects constituted a fundamental breach of contract. Moreover, the [Buyers] did not perform a valid inspection within the quality warranty period prescribed in the Contract. Thus, according to the CISG, the [Buyers] do not have the right to rescind the Equipment Sales Contract and return the goods to the Respondents.

      (4) The quantity of equipment under the Contract

      The [Buyers] allege that, the Respondents did not deliver all of the equipment, apparatus, accessories and parts under the Contract and that the goods delivered were short in quantity, and that the missing parts of the equipment included the AE100F analytical scale, 130DM oven, Model 307 core-making machine, etc. The Respondents, however, deny this allegation and provided related business invoices, bills of lading and other shipping documents.

According to Article 13 of the Contract:

"If, within half a year after the goods reach the port of destination, the quality, specification, and quantity of the goods are found to be inconsistent with the Contract, the [Buyers], have the right to file a claim for damage with the certificate of inspection issued by the China commodity inspection agency ..."

However, the [Buyers] did not perform an effective inspection, including inspection of the quantity of the goods, within a half a year after the equipment under the Contract reached the port of destination in early 1996. It was not until 14 November 1997 that the People's Republic of China Bureau of Import and Export Commodity Inspection Shandong Sub-Bureau issued the certificate of inspection that confirmed that the goods delivered by the Respondents were in shortage. The Arbitration Tribunal concludes that this was too late to be regarded as a valid proof that the Respondents delivered in shortage.

The Arbitration Tribunal notes that, though the [Buyers] did not perform an effective inspection of the quantity of the goods within the period prescribed in the Contract, the Respondents did, upon the request of the [Buyers], supply some equipment and apparatus in May 1996. Thereafter, the Respondents continued to provide parts until June 1998.

The Arbitration Tribunal concludes that the [Buyers] did not perform an effective inspection of the quantity of the goods within the period prescribed in the Contract, and that they did not provide enough evidence to prove that the Respondents' short delivery caused serious damages to them so that it constituted a fundamental breach of contract. Therefore, according to the CISG, the [Buyers] do not have the right to rescind [avoid] the Equipment Sales Contract.

      (5) About the Respondents' delay in delivery

      Appendix II (1)(3) of the Contract, which is titled "Methods of Payment", prescribed that:

"The key equipment under the contract, including the coating machine, the calendar machine, and the stripping machine, should be packed and shipped to the export port of the United States within 32 weeks after the Seller (the Respondents) receives the down payment."

According to Appendix II (3)(1), the first installment of the down payment should be sent in cash by the middle of October 1994.

The parties' opinions did not agree on when the first down payment was made and received, and why the delivery was delayed. However, the Respondents did not deny the fact that they delayed delivery. Therefore, the Arbitration Tribunal concludes that the Respondents delayed delivering the goods.

The Respondents argue that their delay of delivery was caused by the [Buyers]' delay in issuing the L/C and making the down payment. However, the Respondents did not provide sufficient evidence to prove that the time of issuing the L/C and paying down payment affected the delivery. Therefore, the Arbitration Tribunal does not support this allegation of the Respondents.

The Arbitration Tribunal notes that the Board Meeting Minutes dated 8 March 1997 stated: "c. According to the Contract, the equipment made in the United States delayed shipping by 3 months." These minutes was signed by the [Buyers] and the Fifth Respondent, who was authorized by the First Respondent. The Arbitration Tribunal concludes that, according to the confirmation made by the parties in the Board Meeting Minutes, the Respondents delayed in delivery by three months, and this constitutes a breach of contract.

Regarding what liability the Respondents should be held be liable for due to the delay in delivery, there were different stipulations in the Contract and Appendix II of the Contract.

Article 15 of the Contract prescribed:

"Except for a force majeure event, if the Seller delays delivery, the Seller should pay the Buyer 0.5% of the total price of the equipment for every two weeks in delay. In making the payment, [this amount] should be credited by the bank or deducted by the Buyer."

However, Article 3(1) of Appendix II of the Contract titled "Methods of Payment" prescribed that:

"The American side should guarantee the quality complies with the design, and should finish on time or in advance and should not delay. If there is delay, it should be regarded as breach of contract. If this causes serious loss to the joint venture, i.e., delay in delivery as late for at least 30 days, it should pay a liquidated damage amounting to 20% of the total price of the equipment."

The [Buyers] allege that Article 15 of the Contract was modified by Article 3(1) "Methods of Payment" of Appendix II of the Contract. However, the Arbitration Tribunal concludes that, though Article 15 of the Contract and Article 3(1) "Methods of Payment" of Appendix II of the Contract were related to the Seller's delay in delivery, the percentage of fine in Article 3(1) of Appendix 2 of the Contract, namely, 20% of the total price of the equipment, is based on the condition that the Seller's delay causes serious loss to the joint venture, but Article 15 of the Contract does not contain such a precondition. Therefore, these two provisions are not contradictory to each other, and the Arbitration Tribunal does not support the [Buyers]' argument that Article 15 of the Contract was modified by Article 3(1) "Methods of Payment" of Appendix 2 of the Contract. Since the [Buyers] did not submit any evidence that the Respondents' delay in delivery had caused serious economic loss to the joint venture, the [Buyers]' claim that the Respondents should pay a fine of 20% of the total price of the equipment is not sustained. But the [Buyers] can still get compensation according to Article 15 "Delay and Penalty" of the Contract. After calculation, the Respondents should pay the [Buyers] a liquidated damage of US $169,975, calculated as US $5,288,096.76 * 90/14= US $169,975.

      (6) The arbitration claims of the [Buyers]

      According to the Arbitration Tribunal's opinion in Sections 3 and 4 above, the [Buyers]' first and second claims are not sustained.

According to the Arbitration Tribunal's opinion in Section 5 above, since the Respondents delayed delivery of the goods, the Respondents should pay to the [Buyers] a fine totaled US $169,975 for breach of contract. According to the Equipment Sales Contract, the Buyer of the Contract was the First Claimant. The Respondents should pay this liquidated damage to the First Claimant.

Since most of the [Buyers]' claims are rejected, the fourth claim of the [Buyers], that the Respondents should indemnify their attorneys' fee and other related costs, is rejected.

The two [Buyers] should bear 70% of the arbitration fee in the case jointly, and the Third Respondent [Seller] and the Fourth Respondent [Seller] should bear 30% of the fee jointly.

AWARD

Accordingly, the arbitration award of the Arbitration Tribunal is handed down as follows:

      (1) The Third Respondent [Seller] and the Fourth Respondent [Seller] should jointly pay the First Claimant [Buyer] the liquidated damage of US $169,975 for breach of contract. This payment should be made within 45 days after the arbitration award is handed down. If in default, interest should be paid at an annual rate of 5%.

      (2) The other claims of the [Buyers] are rejected.

      (3) The [Buyers] should bear 70% of the 681,000 RMB arbitration fee, which totals 476,700 RMB. The Third Respondent [Seller] and the Fourth Respondent [Seller] should bear 30% of the 681,000 RMB arbitration fee, which totals 204,300 RMB. The arbitration fee should be deducted from the 681,000 RMB paid to the Arbitration Commission by the [Buyers] in advance. Therefore, the Third and the Fourth Respondents [Sellers] should jointly pay the 204,300 RMB arbitration fee to the [Buyers] within 45 days after the arbitration award is handed down. If in default, interest should be paid at an annual rate of 5%.

This is the final award.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimants of the People's Republic of China is referred to as [Buyers] or First Claimant [Buyer] and Second Claimant [Buyer], respectively; and Third and Fourth Respondents of the United States are referred to as Third Respondent [Seller] and Fourth Respondent [Seller], respectively. 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 October 22, 2010
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