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CISG CASE PRESENTATION

China 26 July 2002 CIETAC Arbitration proceeding (Green beans case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020726c1.html]

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

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Case identification

DATE OF DECISION: 20020726 (26 July 2002)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2002/12

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Germany (claimant)

GOODS INVOLVED: Green beans


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade Arbitration
Commission (CIETAC) 26 July 2002 (Green beans case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/112],
CLOUT abstract no. 1099

Reproduced with permission of UNCITRAL

Abstract prepared by Shiquan Zhao

A German buyer and a Chinese seller signed a contract for the sale of mung beans. It was agreed that the method of payment would be by letter of credit (L/C). Following the delivery of the goods and the payment, the buyer discovered that the quality of the goods did not comply with the provisions of the contract, and asked to return the goods. The seller agreed to take them back, and proposed to pay to the buyer 50 per cent of the money received, after the goods were shipped back to a Chinese port. The balance and the other costs confirmed by both parties would be repaid in tranches by deducting them from the trade conducted between the parties within a certain subsequent period. The parties signed a supplementary agreement on the amount of financial compensation the seller was to make as a result of its breach of contract. The buyer agreed that the seller would supply pineapples and new mung beans to offset the compensation. If full compensation was not made within a certain period of time, the seller would pay in cash within another agreed period of time. Later the buyer claimed that the seller had not delivered new goods as agreed nor repaid in cash the money owed, and initiated arbitration proceedings, demanding that the seller should pay the outstanding amount with interest, and the legal and arbitration fees.

The contract did not establish a law to govern it. Since the place of business of the parties concerned was in Germany and China respectively, and the two countries are both States Parties to CISG, the Arbitration Tribunal ruled that the Convention would govern the settlement of the dispute. As for those matters for which the Convention did not provide regulation, the law of China would be applicable according to the principle of the closest connection.

The Tribunal ruled that the seller had failed to pay the money to the buyer within the period of time stipulated in the supplementary agreement, and its behaviour was a breach of contract, for which it must accept responsibility. In accordance with Article 74 CISG, the Tribunal supported the buyer's request for the seller to pay the rest of the money. In addition, under Article 78 CISG, the Tribunal supported the request of the buyer for the seller to pay the interest on the rest of the money. The Arbitration Tribunal noted that the interest claimed by the buyer was too high and ruled that it should be calculated according to the relevant Chinese regulations on the interest on delayed payments.

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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 74 ; 78

Classification of issues using UNCITRAL classification code numbers:

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

78B [Rate of interest]

Descriptors: Damages ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

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

Green beans case (26 July 2002)

Translation [*] by Zheng Xie [**]

Edited by Meihua Xu [***]

The China International Economic and Trade Arbitration Commission (hereafter, the "Arbitration Commission") accepted this case (Case number: G_____) according to:

   -    The arbitration clause in Contract No. GXBE98-2-025 (hereafter, the "Contract) signed by Claimant [Buyer], __ and __, and Respondent [Seller], China __ Guangxi Company, on 8 August, 1998; and
 
   -    The written arbitration application submitted by [Buyer].

The Arbitration Rules of China's International Economic and Trade Arbitration Commission [hereafter, the Arbitration Rules], which took effect on 1 October 2000, apply to this case.

The [Buyer] appointed __ as its arbitrator. Because the [Seller] did not appoint or authorize the Chairman of the Arbitration Commission to appoint an arbitrator within the stipulated time, according to Article 26 of the Arbitration Rules, the Chairman of the Arbitration Tribunal appointed __ as the arbitrator. Because the parties did not appoint or authorize the Chairman of the Arbitration Commission to appoint the presiding arbitrator within the stipulated time, according to Article 24 of the Arbitration Rules, the Chairman of the Arbitration Commission appointed __ as the presiding arbitrator. The above three arbitrators formed the arbitration tribunal on 3 December 2001 to hear this case.

On 21 January 2002, the Arbitration Tribunal held a court session in Beijing. Both parties' representatives attended the court session; they made the oral statements and arguments, and answered the Arbitration Tribunal's questions. After the court session, the parties submitted supplementary documents.

This case is completed. According to the ascertained facts and the written documents, the Arbitration Tribunal handed down the arbitration award by consent. The following are the facts, the Tribunal's opinion and the award.

THE CONTRACT

On 28 August 1998, the [Buyer] and the [Seller] signed a Contract which includes the following terms:

   -    Goods: The [Buyer] purchases green beans from the [Seller];
   -    Quantity: 6,600 cartons;
   -    Unit price: US $6.60/carton CFR Hamburg;
   -    Total price: US $43,560;
   -    Shipping period: Before the end of September 1998;
   -    Payment terms: L/C.

POSITION OF THE PARTIES

[Buyer]'s allegations and claims

When the [Seller] delivered the goods and the [Buyer] made the payment, the [Buyer] found that the quality of the good did not conforming to the contract. [Buyer] therefore required return of the goods. In a letter dated 3 December 1998, the [Seller] admitted that the goods delivered had defects and agreed to the return of the goods. [Seller] also promised to refund 50% of the amount which had already been paid when the goods were shipped to the port in China., and to refund the remaining amount by deducting the payment by installments from the transactions between the parties during this period before the end of March 1999.

Then, on 23 July 1999, the parties signed a supplementary agreement, which confirmed that the [Buyer]'s loss caused by the [Seller]'s breach is RMB 49,817.56, and the [Buyer] agreed that the [Seller] could use new transactions involving pineapples and green beans to offset the compensation. It was understood that, if the new transactions cannot offset the entire compensation before 31 December 1999, the [Seller] shall refund the remaining part of the payment in cash received no later than 31 March 2000.

The [Buyer] alleges that, thereafter, the [Seller] neither delivered the new goods as stipulated nor refunded the payment. Therefore, the [Buyer] filed arbitration claims requesting the Arbitration Tribunal to direct the [Seller] to:

   -    Pay the contract price of US $49,817.56;
   -    Pay interest in the amount of US $10,967.16;
   -    Pay for the [Buyer]'s attorneys' fee and traveling expenses, i.e., US $1,200; and
   -    Bear the entire arbitration fee.

The [Seller]'s position

In its response dated on 20 December 2001, the [Seller] alleges that:

1. The contract that was signed by the [Buyer] and the [Seller] was unexecuted

The Contract was signed on 31 August 1998. However, the [Buyer] did not issue the L/C to the [Seller] in accordance with the Contract, but issued the L/C directly to Guangxi __ Production Materials Company (hereafter, Guangxi __ Company) on 9 September 1998. Accordingly, the relationship between the [Buyer] and the beneficiary of the L/C was established. After receiving the L/C:

   -    Guangxi __ Company signed a contract of production and supply with the producer, Guangxi __ Canned Food Company;
 
   -    The goods were inspected by China Import and Export Commodities Inspection Bureau Yulin Office, which issued a qualification certificate for the goods;
 
   -    Guangxi __ Company booked a ship and shipped the goods from Shekou Port Shenzhen, China to Hamburg, Germany on 9 October 1998.

Meanwhile, Guangxi __ Company negotiated the L/C with the bank by presenting the documents stipulated in the L/C and received the payment.

The [Seller] and the [Buyer] have done business for many years. Considering the business relationship, the [Seller] agreed to cooperate with the [Buyer] to claim for compensation from Guangxi __ Company, but the [Seller] does not bear any legal liability.

2. The supplementary agreement signed by the [Seller] and the [Buyer] on 23 July, 1999

After the parties exchanged many letters, this supplementary agreement was signed in accordance with the parties' long time business relationship and friendship. After signing this supplementary agreement, the [Seller] negotiated with Guangxi __ Company and actively worked to perform this supplementary agreement.

On 16 December 1999, the [Seller] and the [Buyer] signed Contract GXBE99-2-021 pursuant to which the [Seller] shipped 2X20 cartons of canned French green beans with a total value of US $16,102.40 within the shipping period stipulated in L/C No. BG26AI9900253 under this Contract.

However, after the aforesaid goods arrived at the destination port, Hamburg, Germany, the [Buyer]'s conduct did not conform to the Contract, the L/C and the parties' trade practice. The [Buyer] unreasonably requested the [Seller] to instruct its bank to inform the negotiating bank that it should release the documents to the [Buyer] for taking the delivery of the goods before the [Buyer] made the payment for the documents. The [Buyer] stated that it would decided whether to make the payment after inspecting the goods.

Because by making the aforesaid request, the [Buyer] seriously breached the supplementary agreement signed by the parties, after discussion with Guangxi __ Company and the [Seller]'s bank, the [Seller] refused the [Buyer]'s requests, and authorized its bank to sell the goods to other foreign purchasers.

Due to the aforesaid situation, the [Seller] incurred the demurrage at Hamburg, the bank charges and the loss of the price difference because of reselling, etc., totaling US $19,568.10, which the [Seller] requests the [Buyer] compensate for, and the [Seller] reserved the right for other legal remedies.

In addition, the [Buyer] threatened the [Seller] by stating that it would by any means detain the [Seller]'s goods shipped to Germany

The [Seller] alleges that the disputes with the [Buyer] should be solved according to the supplementary agreement singed by the parties in Guangzhou, but the precondition was that the [Buyer] should be liable for the [Seller]'s loss caused by the [Buyer]'s breach of the Contract. Accordingly, the [Buyer] should compensate the [Seller] for US $49,817.56 - US $19,568.10 = US $30,249.46.

The [Buyer]'s response

In its document dated 6 March 2002, the [Buyer] stated that it had never entered into the second transaction with the [Seller] as the [Seller] alleged, so the allegation that the [Buyer] breached another contract is untrue. The [Buyer] requires the [Seller] provide all of the original documents to prove this alleged transaction.

The [Seller]'s response

The [Seller] provided a document dated 2 April 2002 with the Appendixes containing Contract No. GXBE99-2-021, the L/C BG26AI9900253 the Loading Notice the B/L No. NNG100277 and the Invoice No. GXBE99-2-021, and made the following statements:

Contract No. GXBE99-2-021. This contract was concluded by the [Seller] and the [Buyer] by fax, the parties' trade practice, after reaching an agreement in Guangzhou.

The L/C BG26AI9900253. According to the requirements of the L/C and the bank's procedure, after loading the goods, the [Seller] presented the documents for negotiation, and the [Seller]'s bank mailed the original L/C and other original documents to the negotiating bank in Germany. The [Buyer] did not go to the negotiating bank for the documents against payment within the time stipulated in the L/C. All of the original documents are still with the issuing bank.

The [Buyer]'s further response

In its letter dated 19 April 2002, the [Buyer] alleged that:

   -    Because the contract provided by the [Seller] was not definite, the [Buyer] could not verify whether the documents which the [Seller] listed were those under the contract;
 
   -    The [Buyer] did not have the contract which the [Seller] mentioned, and could not admit the transaction which the [Seller] mentioned;
 
   -    Moreover, even if the transaction existed, it is another legal relationship and cannot be used against the [Buyer]'s arbitration claims.

The [Seller]'s further response

In its written document dated on 8 May 2002, the [Seller] alleged that the documents related to the transaction between the [Seller] and the [Buyer] were recorded by the relevant banks, and suggested that the Arbitration Tribunal conduct an investigation to verify the documents.

As to the [Buyer]'s allegation that even if the transaction existed, it is another legal relationship and cannot be used against the [Buyer]'s arbitration claims, the [Seller] asserted that this allegation is unreasonable and proves that the [Buyer] has no basis to support its claims.

THE ARBITRATION TRIBUNAL'S OPINION

1. The applicable law

The parties did not stipulate the applicable law in the Contract. Because the parties' places of business are in China and Germany, respectively, and the two countries are Contracting States of United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG), the Arbitration Tribunal holds that the CISG applies to this case.

In addition, because both the [Seller]'s business place and the arbitration place stipulated in the Contract are in China, according to the principle of proximate connection, if CISG has no stipulation on some issues, the Laws of the People's Republic of China apply.

2. The validity of the Contract and the agreement

The parties in this case are the [Buyer] and the [Seller] under the Contract; the Contract was the true intention of the parties, so it is a valid contract. After signing the contract, the [Seller] delivered the goods according to the Contract, and the [Buyer] made the payment. The parties did not object to the aforesaid facts.

After the [Buyer] found the defects and required return of the goods, the [Seller] sent a letter on 3 December 1998, stating

"As you know, according to our current financial situation and China's policy on payment in foreign currency, our best possibility is to refund 50% of the amount which we received when the goods arrive at the port in China, and the remaining amount and other expenses confirmed by the parties will be offset of in transactions between the parties by installments during this period before the end of March of 1999."

Accordingly, the [Seller] agreed on return of the goods and refund the amount paid, and also agreed to pay any expenses incurred due to return of the goods. However, because of financial difficulty, the [Seller] did not make the payment as it promised. On 23 July 1999, the parties reached an agreement on the arrangement that the [Seller] compensate the [Buyer] for US $49,817.56, the price for the goods that had already been paid and related expenses.

The Arbitration Tribunal holds that the agreement was reached through the parties' negotiation on 23 July 1996 in order to solve the disputes arising out of the performance of the Contract reflected the true intention of the parties. The parties did not object to the validity of this agreement. The agreement is valid.

In its response the [Seller] alleged that:

   -    The [Buyer] did not issue the L/C to the [Seller], but directly to Guangxi __ Production Materials Company (hereafter, Guangxi __ Company) and that Guangxi __ Company shipped the goods;
 
   -    The [Buyer] made the payment to Guangxi __ Company, which also received the return of the goods; thus, the business relationship exited between the [Buyer] and Guangxi __ Company.
 
   -    The [Seller] represented the [Buyer] to claim for compensation from Guangxi __ Company, so it shoulf not be held liable.

As to this allegation, the Arbitration Tribunal holds that the Contract in this case and the agreement reached on 23 July 1999, clearly stated that the parties were the [Buyer] and the [Seller] in this case, and did not mention Guangxi __ Company. The letter sent by the [Seller] on 3 December 1998 clearly stated that the receiver of the goods returned was to be Guangxi __ Company. The [Buyer] followed the [Seller]'s instruction in returning the goods to Guangxi __ Company.

Even if the [Seller]'s allegation that the [Buyer] issued the L/C to Guangxi __ Company and made the payment to Guangxi __ Company, and Guangxi __ Company shipped the goods, is true, the facts cannot show that Guangxi __ Company took the [Seller]'s position under the Contract, and that, as alleged by the [Seller], Guangxi __ Company should be liable for the compensation claimed in this case.

Thus, the [Seller] should have performed its duty in accordance with the agreement reached on 23 July 1999. If the [Seller] failed to perform its duty, it breached the Contract and shall be liable for the breach.

3. The ruling on [Buyer]'s claims

According to the agreement reached on 23 July 1999, the parties agreed that the [Seller] would compensate the [Buyer] for the amount of US $49,817.56 by offsetting from new transactions of pineapples and green beans. If the [Seller] did not pay off the amount by this means by 31 December 1999, the [Seller] should pay off the remaining part to the [Buyer]'s Xiamen office or its account in Germany no later than 31 March 2000. In this case, the [Seller] alleged that it signed the contract for sales of canned green beans with the [Buyer]; because the [Buyer] breached the contract, the [Seller] suffered the loss of US $19,568.10, which should be deducted from amount which the [Seller] should pay for. The [Buyer] denied that transaction.

The Arbitration Tribunal holds that because canned green beans are not the goods listed by the parties as the new transaction to offset the amount which the [Seller] should pay for, the [Seller] should bear the burden to prove that the purpose of this transaction was to offset the amount under the Contract in this case. Because the [Seller] failed to provide any evidence to prove that alleged fact, the Arbitration Tribunal does not support this allegation.

The Arbitration Tribunal holds that the [Seller] did not make the payment by 31 March 2000 in accordance with the agreement signed on 23 July 1999, so it breached the agreement and should be liable for the breach.

Article 74 of the CISG stipulates:

"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. …"

In this case, the loss the [Buyer] suffered due to the [Seller]'s breach of the agreement signed on 23 July 1999 mainly includes the amount which the [Seller] did not refund to the [Buyer], i.e., US $49,817.56, so the Arbitration Tribunal supports the [Buyer]'s claim for the amount which the [Seller] should refund, i.e., US $49,817.56.

Furthermore, according to Article 78 of CISG, the Arbitration Tribunal supports the [Buyer]'s claim for the interest which the [Seller] shall pay, but the [Buyer] did not explain to the Arbitration Tribunal how to calculate the interest of US $10,967.16 which it claimed. The Arbitration Tribunal holds that the interest which the [Buyer] claimed is too high, and, according to the Supreme Court's Confirmation on The Methods to Calculate Delayed Paid Breach of Contract Damages (it took effect on 16 February 1999) and the Revision of The Supreme Court's Confirmation on The Methods to Calculate Delayed Paid Breach of Contract Damages (it took effect on 21 November 2000), the Arbitration Tribunal holds that the [Seller] shall pay the [Buyer] for the interest on the delayed payment which shall be calculated from 1 April 2000 to the date when the payment is actually made at the interest rate stipulated by the People's Bank of China for calculating the interest on delayed payment.

In addition, the [Buyer] did not provide any evidence to support its claims for the attorneys' fee and the traveling expenses, i.e., US $1,200; so the Arbitration Tribunal does not support this claim.

The [Buyer] shall pay for 20% of the arbitration fee, and the [Seller] shall pay for 80%.

AWARD

The Arbitration Tribunal handed down the following award:

1. The [Seller] shall pay the [Buyer] the contract price, i.e., US $49,817.56 and interest on this amount which shall be calculated from 1 April 2000 to the date when the payment is actually made, at the interest rate stipulated by the People's Bank of China for calculating interest on delayed payment.

2. The [Buyer]'s other claims are dismissed.

3. The arbitration fee is US $3,374, of which the [Buyer] shall pay 20%, i.e., US $674.80, and the [Seller] shall pay 80%, i.e., US $2,699.20. The arbitration fee has been offset by the equal amount prepaid by the [Buyer]; so the [Seller] shall pay the [Buyer] US $2,699.20.

The [Seller] shall pay the amount listed in above items within 30 days after this award is handed down.

This is the final award.

THE PRESIDING ARBITRATOR
THE ARBITRATOR
THE ARBITRATOR

Beijing, 26 July 2002


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the Germany is referred to as [Buyer]; Respondent of the People's Republic of China 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].

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

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

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