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CISG CASE PRESENTATION

China 9 September 2002 Shanghai Yangpu District People's Court (China Shanghai Dongda Import & Export Corp. v. Germany Laubholz - Meyer Corp.) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020909c2.html]

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

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Case identification

DATE OF DECISION: 20020909 (9 September 2002)

JURISDICTION: People's Republic of China

TRIBUNAL: Shanghai Yangpu District People's Court

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: China Xhanghai Dongda Import & Export Corp. v. Germany Laubholz - Meyer Corp

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (defendant)

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

GOODS INVOLVED: Hornbeam lumber


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 35 ; 39 ; 49 ; 51(2) ; 74 , 81(2) ; 86(1)

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach];

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

39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];

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

51B1 [Non-conformity of part of goods (avoidance of entire contract): must be based on fundamental breach of contract as a whole];

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

81C [Effect of avoidance on obligations: restitution by each party of benefits received];

86A [Duty of buyer who has received goods and intends to reject: buyer's duty to preserve goods]

Descriptors: Fundamental breach ; Avoidance ; Conformity of goods ;Lack of conformity notice, timeliness ; Damages ; Restitution ; Preservation of goods

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): 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

Shanghai Yangpu District People's Court

China Shanghai Dongda Import & Export Corp. v. Germany Laubholz - Meyer Corp.

Translation [*] by Xu Meihua [**]

Edited by John Zhu [***]

[Published case undated: dated here 2002]

[FACTS]

Plaintiff (hereafter, "[Buyer]"): Shanghai Dongda Import & Export Corp. Defendant (hereafter "[Seller]"): Germany Laubholz - Meyer Corp.

On 15 March 2001, the [Buyer], as the agent, and Shanghai Chenchuan Corp., as the principal, (hereafter "Chenchuan Corp.") signed an import agency agreement, by which the [Buyer] was to import 15m (10% plus or minus error was allowed) Hornbeam for Chenchuan Corp. On the same day, the [Buyer] and the [Seller] entered into a sales contract with the following terms:

   -    Goods: Hornbeam after drying process, white color, diameter cut;
   -    Thickness: 30mm (30mm~33mm);
   -    Quality Grade: A/B grade, 60% with clean surface, 40% with defective surface is allowed, no scar within 500mm, 10% water content (+/-2);
   -    Width: Not less than 10cm;
   -    Length: 2.1m ~ 3.5m;
   -    Quantity: 15m (10% plus or minus error is allowed);
   -    Price: US $370/m CIF Shanghai;
   -    Shipping term: The goods shall be loaded no later than 20 April 2001 from port in Europe;
   -    Payment term: An irrevocable L/C shall be issued within 45 days after the B/L is issued, which should be paid to the specified bank in Germany.

On 28 May 2001, after having received 13.999 m of Hornbeam as listed in No. HDMIUBMCH100030 B/L, the [Buyer] discovered that the goods were not in conformity with the contract; therefore, the [Buyer] asked the Waigaoqiao Entry-Exit Inspection and Quarantine Bureau of the PRC (hereafter "CEEIQB") to inspect the goods in June. The inspection result issued on 14 June 2001 indicated that there were 192 blocks of other kinds of lumber among the contract goods, totaling 2.628 m, and that 52% of the delivered goods were not cut in diameter; therefore, it was concluded that the type and the quality of the goods did not conform to the contract. On 11 June 2001, Chenchuan Corp. paid US $5,179.63, i.e., renminbi [RMB] 42,991, to the [Seller] by L/C. In addition, the [Buyer] paid the customs cost of RMB 10,434.24.

On 22 June 2001, Chenchuan Corp. asked the [Seller] to provide compensation for its contract violation through Legal Department of the Shanghai Representative Office of the Germany Industry and Commercial Union but with no result; therefore, the [Buyer] filed a lawsuit with the court, asking the [Seller] to return the price for the goods of RMB 42,991, and to bear the entire import cost of RMB 10,434.24, Chenchuan Corp.'s economic loss of RMB 100,000 and damages to its good will of RMB 50,000, cost of RMB 2,653 incurred by the Shanghai Representative Office of the Germany Industry and Commercial Union, the entire cost for returning and making disposal of the goods, and the litigation fee.

POSITION OF THE PARTIES

[Buyer]'s position

[Buyer] alleges that:

      Being entrusted by Chenchuan Corp., the [Buyer] ordered Hornbeam from the [Seller]. On 15 March 2001, the [Buyer] and Chenchuan Corp. signed an import agency agreement. On the same day, the [Buyer] and the [Seller] concluded a lumber import contract with stipulations on goods name, thickness, quality grade, length, quantity, price, shipping term, and payment term.

On 28 May 2001, the [Buyer] received 13.99m of goods from the [Seller]. After inspection, it was found that 40% of the goods were Red Zelkova, and only 60% were Hornbeam. Chenchuan Corp. then sent faxes to the [Seller] repeatedly regarding the aforesaid problem. The faxes were ignored by the [Seller]. In June 2001, the [Buyer] asked CEEIQB to inspect the goods. The inspection certificate indicated that the goods were not in conformity with the contract.

On 11 June 2001, Chenchuan Corp. paid US $5,179.63 , i.e., RMB 42,991, to the [Seller] by L/C, and a customs charge of RMB 10,434.24. Chenchuan Corp. was unable to manufacture and deliver the keyboard and frame for digital pianos ordered by Japan __ Company, with the result, Chenchuan Corp. paid a contract violation fee of RMB 100,000. Chenchuan Corp. and the [Buyer] contacted the Shanghai Representative Office of the Germany Industry and Commercial Union constantly for the issue of the [Seller]'s contract violation, and paid RMB 2,653 for their work.

Because the [Seller]'s contract violation caused severe economic loss including good will damages to Chenchuan Corp., the [Buyer] asked the [Seller] to return the price for the goods of RMB 10,434.24, to bear Chenchuan Corp.'s economic loss of RMB 100,000 and damages to its good will of RMB 50,000, the cost of RMB 2,653 incurred by the Shanghai Representative Office of the Germany Industry and Commercial Union, the entire cost for returning and making disposal of the goods, and the litigation fee.

[Seller]'s position

      The [Seller] argues that the quantity of Red Zelkova alleged by the [Buyer] conflicted with the inspection certificate, that the inspection certificate lacked legality and relevance, and that it could not prove that the goods were not conforming. As to the applicable law, the United Nations Convention on Contracts for the International Sales of Goods (hereafter, "the CISG") should be given preference. Basically, the [Seller]'s contract performance was in accordance with the contract. Moreover, even though delivery of Red Zelkova instead of Hornbeam violated the contract, there was a limitation on [Seller]'s liability; thus, the amount claimed by the [Buyer] had no legal basis, and should be dismissed by the court.

[AWARD]

As to the admissibility of the inspection certificate as evidence, the court notes that the [Buyer] alleges that the inspection certificate is legal and effective, however, the [Seller] asserts that it lacks of legality and relevance, alleging that the [Buyer] failed to inspect the goods right after their arrival at the port following statutory procedures, but inspected them after noticing defects upon unwrapping the goods. The goods inspected were sorted by the [Buyer] (evidenced by the photos provided by the [Buyer]), which were lacking and severely damaged. Therefore, it cannot be concluded that the goods inspected were the goods under HDM15BMCH100030 B/L, and the inspection certificate is not acceptable.

The court notes that the [Buyer] did fail to inspect the goods in time, but inspected them after they arrived at the manufacturer without giving notice to [Seller]'s representative in Shanghai therefore, the [Buyer] is at fault in this respect. However, the effectiveness of the inspection certificate cannot be denied because of the [Buyer]'s fault.

   -    First, according to the evidence provided by the [Buyer], the goods purchased by the [Buyer] were for special use, which could not be substituted. The two parties were aware of this when signing the contract. The [Seller] unilaterally modified the type of the goods, and the [Buyer] discovered this after unwrapping the goods, which indicated that the [Buyer] did not committed fraud deliberately.
 
   -    Second, the evidence provided by the [Buyer] indicated that Chenchuan Corp.'s client has asked for compensation, which leads to the conclusion that Chenchuan Corp. and the [Buyer] did not purchase Hornbeam from other vendors, otherwise, the consequence could be prevented. Thus, it is impossible that the quantity of the goods the [Buyer] exchanged before inspection was almost the same as the [Seller] admitted.
 
   -    In addition, during the processing of this case, the [Seller] had never asked for inspections on quality, origin, quantity, and on whether the goods had been exchanged to prove the goods inspected were the contract goods under HDMUYBMCH100030 B/L.

Therefore, the court concludes that the inspection certificate is effective.

As to the applicable law, the [Buyer] asserts that the General Principles of the Civil Law of the PRC and the Contract Law of the PRC shall be applied, however, the [Seller] alleges that the CISG should be the applicable law according to Article 2 of the Notice on Several Issues Regarding Trial and Enforcement of Civil and Commercial Cases Involving Foreign Interest issued by the Supreme Court on 17 April 2000 (Law No. [2000] 51), which stipulates that:

"Except otherwise as stipulated in Article 126 of Contract Law of the PRC or agreed by the parties, the applicable law shall be decided properly; international conventions to which China is a Contracting State have priority except the provisions on which China has made reservation, and international usages shall be considered."

The [Buyer] and the [Seller] did not stipulate the applicable law in the contract. The countries of the [Buyer] and the [Seller] are Contracting States of the CISG, therefore, the CISG shall be applied.

As to whether the [Buyer]'s compensation claim has legal basis. According to the CISG, the [Seller] failed to deliver the goods based on the specification and quality stipulations in the contract, which constituted a fundamental breach of the contract, and the [Seller] shall be liable for this. The [Buyer] alleges that Chenchuan Corp. has paid RMB 100,000 for contract violation fee and damages to its good will of RMB 50,000, which should be borne by the [Seller]. However, the [Buyer] failed to provide any evidence showing that it had informed the [Seller] in order to make it aware of the consequence of contract violation. The [Buyer] insists on its original claims, but failed to apply the CISG to notify the [Seller] of its liability; therefore, this claim of the [Buyer] is not acceptable.

The court notes that after the conclusion of the contract, the two parties should have performed the contract strictly. However, due to the [Seller]'s contract violation, the [Buyer] was unable to realize its purpose for concluding this contract, which caused dispute. Therefore, the [Seller] shall take the responsibility. The [Buyer]'s request for returning the goods and compensations on cost for returning the goods, cost for import, and the cost for returning the imported goods or for making disposal of them were all foreseeable by the [Seller], therefore, this claim of the [Buyer] shall be supported. The [Buyer]'s claim for the amount paid to the Shanghai Representative Office of the Germany Industry and Commercial Union has legal basis, and is acceptable. For the [Buyer]'s other claims, since they lack legal basis, the court does not accept them. According to Article 142 of the General Principles of the Civil Law of the PRC, Articles 25, 49(1)(a), 49(2)(b), 51(2), 81(2), and 86(1) of the CISG, the court hands down the following award:

   -    [Seller] shall refund the [Buyer] the price for the goods of RMB 42,991 within ten days of the award;
 
   -    [Seller] shall pay the import cost of RMB 10,434.24 incurred by the [Buyer] within ten days of this award;
 
   -    [Seller] shall pay the cost the [Buyer] paid to the Shanghai Representative Office of the Germany Industry and Commercial Union of RMB 2,653 within ten days of this award;
 
   -    [Buyer]'s other claims are dismissed;
 
   -    Within ten days after the [Seller] makes the aforesaid payment, the [Seller] shall pick up 11.371m of Hornbeam and 2.628m of Red Zelkova at the place specified by the [Buyer] at its own cost. If the [Buyer] fails to provide the goods properly, it should pay to the [Seller] US $370/m for the missing part.

The parties did not appeal this award.

[ANALYSIS]

The dispute in this case was for specification and quality of the goods. The dispute on the effectiveness of the inspection certificate arose from the dispute on whether there were specification and quality problems on the contract goods, and the dispute on the applicable law led to the issue of whether the [Buyer]'s compensation claim had legal basis. Based on the focuses of the disputes, the court ruled on the confirming evidence. First, the court confirmed the effectiveness of the inspection certificate, and held that the [Seller] fundamentally breached the contract. Second, according to Article 1(1) of the CISG, "the CISG applies to contracts of sales of goods between parties whose places of business are in different States." In the instant case, the countries of the [Buyer] and the [Seller] are Contracting States of the CISG, and the two parties failed to stipulate the applicable law in the contract. According to the Notice on Several Issues Regarding Trial and Enforcement of Civil and Commercial Cases Involving Foreign Interest issued by the Supreme Court on 17 April 2000 (Law No. [2000] 51), the CISG shall apply to this case.

According to the CISG:

"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. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract." [Article 74]

The [Buyer]'s claims for the price of the goods, cost for import, and the cost for returning and making disposal of the imported goods were foreseeable by the [Seller], therefore, they should be accepted. As to the contract violation fee of RMB 100,000 the [Buyer] paid to its client in Japan, and damages to its good will of RMB 50,000, since the [Buyer] failed to perform its obligation to inform the [Seller] of the consequence of the breach of the contract, and it insisted on its original claim without adding the interest claim and refused to apply the CISG to notify the [Seller] of its liability. Therefore, according to the CISG, the [Buyer]'s other claims are not acceptable.

Regarding the cost for litigation, based on the Measures of the Supreme People's Court on the Charging of Litigation Fees, the cost shall be borne by the losing party. In the instant case, the court did not grant all of the claims of the [Buyer]; therefore, the [Buyer] shall bear the case procedure fee and property preservation fee for the un-granted part on its own.

Editor: Zhu, Shengli of Shanghai Yangpu District People's Court
Chief Editor: Wu, Guangrong


FOOTNOTES

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

** 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.

*** John Zhu, LL.M. China University of Political Science and Law on a national graduate scholarship. He received his Bachelor of Law degree from Southwest University of Political Science and Law and Double Degree of English Literature from Sichuan International Studies University in Chongqing, China. His focus is on International Economic Law.

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