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CISG CASE PRESENTATION

China 21 October 2002 CIETAC Arbitration proceeding (Engraving machine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/021021c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20021021 (21 October 2002)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2002/16

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Switzerland (respondent)

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

GOODS INVOLVED: Engraving machine


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 36(2) ; 46(3) ; 74 ; 79 [Also cited: Articles 45 ; 47(2) ]

Classification of issues using UNCITRAL classification code numbers:

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

46C [Buyer's right to require repair of non-conforming goods];

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

79A [Impediment excusing party from liability for damages]

Descriptors: Conformity of goods ; Guarantees ; Repair ; Damages ; Exemptions or impediments

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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

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Case text (English translation)

Queen Mary Case Translation Programme

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

Engraving machine case (21 October 2002)

Translation [*] by Zheng Xie [**]

Edited by Meihua Xu [***]

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

   -    The arbitration clause in Contract No. PR20003 (hereafter, the "Contract) signed by Claimant [Buyer], Wenzhou __ Company, and Respondent [Seller], Switzerland __ Company on 31 January 2000; and
 
   -    The written arbitration application submitted by [Buyer] on 30 March 2001.

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.

On 10 April 2001, the Secretariat of the Arbitration Commission by fax and express mail sent the Arbitration Notice, the Arbitration Rules and the Arbitrators' List to the parties, and sent the [Buyer]'s arbitration application to the [Seller]. At the same time, the Secretariat informed the parties that because the amount disputed in this case is less than RMB 500,000, according to the Arbitration Rules, the Summary Procedure applied to the case. The Arbitration Notice required the parties to appoint a sole arbitrator within the stipulated time and the [Seller] to submit its response.

On 14 May 2001, the [Seller] submitted its response.

Because the parties failed to jointly appoint or authorize the Chairman of the Arbitration Commission to appoint a sole arbitrator, according to Article 65 of the Arbitration Rules, the Chairman of the Arbitration Commission appointed __ as the sole arbitrator to form the Arbitration Tribunal on 16 May 2001 to hear this case.

The Arbitration Tribunal carefully reviewed the documents submitted by the parties and held a court session in Beijing on 2 July 2001. Both parties sent the representatives to attend the court session. The representatives made oral statements and arguments on the facts and legal opinions of this case and answered the Arbitration Tribunal's questions.

At the court session, the [Buyer] submitted an application to add arbitration claims and to postpone hearing this case.

Because this case is complicated, in response to the request of the Arbitration Tribunal, the Chairman of the Arbitration Commission agreed to postpone the deadline of this case from 2 August 2001 to 2 May 2002.

On 28 November 2001, the [Buyer] submitted its supplementary evidence and statement on the damages and prepaid the arbitration fee. Because the amount disputed now exceeds RMB 500,000, according to Article 64 of the Arbitration Rules, the General Procedure applies to this case. On 7 January 2001, the Secretariat of the Arbitration Commission sent the Arbitration Notice of General Procedure to the parties and required the parties to appoint arbitrators in accordance with the General Procedure.

Because the parties did not appoint a presiding arbitrator within the stipulated time, on 22 March 2002, according to Article 24 of the Arbitration Rules, the Chairman of the Arbitration Commission appointed __ as the presiding arbitrator. The presiding arbitrator, arbitrator __, appointed by the [Buyer] and arbitrator __, appointed by the [Seller], formed the Arbitration Tribunal on 22 March 2002 to hear this case.

The Arbitration Tribunal carefully reviewed the arbitration documents submitted by the parties and held a court session in Beijing on 28 May 2002. Each party's representatives made statements and arguments on the facts and legal questions and answered the Arbitration Tribunal's questions. After the court session, the parties submitted supplementary written documents, which were exchanged between the parties by the Secretariat of the Arbitration Tribunal.

This case is concluded. According to the written documents and the ascertained facts at the court session, the Arbitration Tribunal handed down its award within the stipulated time according to the Arbitration Rules.

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

FACTS

On 10 January 2001, the [Buyer] and Wenzhou __ Electronic Engraving Plate Company (hereafter, the "Domestic User") signed an Import Agency Agreement, which stipulates that the Domestic User authorized the [Buyer] to import an American __ engraving machine, and authorized the [Buyer] in its own name to sign the contract for importing the machine and to issue the L/C. The understanding was that the Domestic User should confirm the contents of the contract and the L/C and, if an issue of claiming for damages arose, the [Buyer] should represent the Domestic User to claim for damages from the foreign company.

According to the above Agreement, on 31 January 2000 the [Buyer] and the [Seller] signed the contract in this case. According to that contract:

The goods. The [Buyer] purchased from the [Seller] an engraving machine (hereafter, the "Machine") manufactured by the American __ Electronic Engraving Company;
The price. The contract price is US $218,000;
Shipment. The shipping time is March 2000.

The contract also states:

Article 14 QUALITY GUARANTEE. The [Seller] guarantees that the Machine under this contract is manufactured by the best materials and technology, and has never been used. The quality, specification and quantity of the Machine shall be in compliance with the contract.

Article 15 CLAIMS. The [Buyer] has the right to claim for damages, exchange or refund with 90 days after the goods arrive at the destination port with an inspection certificate issued by the China Import and Export Commodities Inspection Bureau if it finds that the quality, specification or quantity does not conform to the contract and neither the transportation company nor the insurance company is liable for such non-conformity. The [Seller] shall bear the costs of the inspection fee, transportation expenses, insurance premium, storage charges, loading and unloading expenses which are incurred related to the aforesaid claims. The [Seller] shall be deemed to have accepted the claims, if it does not reply within 30 days after the [Seller] received the claims.

Article 18 ARBITRATION. Any dispute arise out of the contract shall be solved by friendly negotiation. If the parties fail to reach an agreement by negotiation, the disputed shall be submitted to the Arbitration Commission in Beijing for arbitration according the Arbitration Rules, and the arbitration award shall be final. The losing party shall bear the arbitration fee.

Appendix I contains the components list.
Appendix II contains the detailed list.
Appendix III recites the payment terms.

Appendix IV has to do with installation, adjustment, acceptance testing and training. This Appendix includes the following provisions:

1. Within 10 days after receiving the [Buyer]'s written notice, the [Seller] shall send its engineers to perform installation, adjustment, acceptance testing and technician training for a period of twenty-one days.

2. The acceptance testing shall start immediately after the [Seller] has finished installation; the [Buyer] shall follow the [Seller]'s instructions to finish positioning the Machine.

3. The acceptance testing of the function and quality of the Machine shall be conducted by the acceptance testing steps provided by the Manufacturer.

4. The parties shall sign an acceptance certificate when the acceptance testing shows that the Machine is in compliance with the data described in the acceptance testing steps.

5. The warranty period is one year from the date on which the acceptance testing is completed. The [Seller] shall be responsible for the repair and maintenance of the machine within its agency period, and shall assist to transfer the repair and maintenance service when the agent is changed.

6. If it is not the [Seller] who caused that the installation cannot be completed, the warranty period shall be six months after the goods arrive at the destination port.

7. The [Seller] shall send two engineers to assist the [Buyer] in making the design for production and teaching production experience for three months. The [Buyer] shall pay for the food, accommodation and transportation incurred during this period.

Disputes on the quality of the Machine arose during the performance of the Contract. The parties failed to resolve the disputes by negotiation. Thereupon, the [Buyer] filed its arbitration application.

POSITION OF THE PARTIES

[Buyer]'s claims

In the arbitration application, the [Buyer] filed the following claims:

1. The [Seller] should compensate the [Buyer] for the third-party repair charges of RMB 67,000, which were incurred due to the [Seller]'s breach of the Contract;

2. The [Seller] should compensate the [Buyer] for the economic loss of RMB 129,000, which was incurred due to the stoppage of operation for forty-three days because of the defects of the Machine;

3. The [Seller] should pay the [Buyer] for the arbitration fee and the attorneys' fee for this arbitration.

The [Buyer]'s position

After the Machine was delivered in May 2000, the Domestic User performed the installation and adjustment and finished the acceptance testing according to the Contract. However, severe problems occurred since the beginning of July. On September 2, the Domestic User by fax requested the [Seller] to repair the Machine immediately. Although the [Seller] replied and promised to repair, it did not send any engineer immediately to repair as requested, using the problem of repair tools as an excuse. When the [Seller] did not send any engineer to repair the Machine, in order to mitigate the loss, the Domestic User had to hire some engineers to repair the Machine. The [Domestic User] sent a written notice to the [Seller] requiring the [Seller] to compensate the [Domestic User] for the relevant expenses and economic loss incurred, but the [Seller] refused. On 30 January 2001, the operation had to be stopped again due to some severe problems with the Machine. The Domestic User again informed the [Seller] and required it to send an engineer immediately to repair the Machine. Again the [Seller] did not perform as requested, stating as an excuse that the repair tools were in Singapore. The [Domestic User] therefore had to hire third-party engineers to repair the Machine.

Because the [Seller] did not perform its duty to repair the Machine (twice: in September 2000 and February 2000), in order to mitigate the loss, the Domestic User had to hire engineers from Shanghai __ Trade Company to repair the Machine. Expenses of RMB 67,000 were incurred, and the Machine could not be operated for 43 days. The economic loss suffered by the Domestic User was RMB 129,000; the attorneys' fee incurred by the [Buyer] for this arbitration was RMB 40,000.

In accordance with Article 36(2) and Article 45(2) of United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG) and Article 113 of the Contract Law of the People's Republic of China, the [Buyer] filed the above claims.

The [Seller]'s position

      1. The [Seller] should not be liable for any compensation for not repairing the Machine within the time stipulated by the [Buyer] due to objective barriers which were out of the [Seller]'s control.

After the Machine was installed and adjusted, the Domestic User accepted the Machine. Thus, the Machine delivered by the [Seller] had no defects. The problems, which occurred thereafter, were not predictable and needed special repairing tools, which could be obtained only from the manufacturer. The [Seller] promptly informed the [Buyer] of the situation and also the fact that there was no qualified engineer found in China who was able to repair the Machine. The [Seller] warned the [Buyer] that it should not blindly hire any engineer, and hoped the [Buyer] could inform it of the checking and repairing charges for confirmation. However, the [Buyer] neither confirmed the checking and repairing charges, nor understood the actual and uncontrollable barriers for the [Seller], and insisted on hiring an engineer who the [Seller] did not agree on. The [Buyer] should thus be liable for the consequences. Although the [Seller] has the duty of a one-year warranty, the problems of the machine in this case fall within the scope of [the Article 79] liability exemption stipulated in the CISG.

      2. The [Buyer]'s allegations pertaining to the loss of repairing charges and stoppage of operation lack factual and legal basis.

The [Seller] has doubts on the facts whether Shanghai __ Trade Company really repaired the Machine, and whether it was qualified to repair the Machine. Also, the [Buyer] did not deduct the legal holidays from the 43 days when calculating the days when the operation was stopped. In addition, the problems occurred during the time the Machine was operated after the [Buyer] had accepted the testing; thus, the [Buyer] should have allowed necessary and reasonable time for the repair. According to the facts in this case, it needed at least more than 20 days for the [Seller] to transport the repairing tools from the manufacturing place, i.e., the United States, and to process the customs clearance, so the [Buyer]'s claim for the loss of 43 days' operation stoppage, i.e., RMB 129,000, lacks a factual basis. In addition, this loss was not predictable by the [Seller] at the time of signing the contract. Accordingly, even if the [Seller] had breached the Contract, it should not be liable for the loss of RMB 129,000 alleged by the [Buyer].

      3. The [Buyer]'s claim for the attorneys' fee, i.e., 40,000, from the [Seller] lacks basis.

According to the above reasons, the [Seller] requests the Arbitration Tribunal to dismiss the [Buyer]'s claims, and to require the [Buyer] to bear the arbitration fee.

The [Buyer]'s rebuttal

As to the [Seller]'s response, the [Buyer] alleges that

      1. The completion of the acceptance testing does not mean that the Machine had no quality problems. Because of the special character of the machine, the quality defects of the Machine cannot be excluded as the cause of the problem unless the [Seller] could prove that the problem was caused by the Domestic User's improper use. However, in the faxes sent on 4 and 7 September 2000, the [Seller] stated that the problems could be solved by mechanical adjustment; this statement proves that the problems were caused by the defects of the Machine. Thus, the [Seller]'s allegation that the acceptance testing report could prove that the Machine had no quality problems is not objective. It is the [Seller]'s duty to guarantee the smooth running of the Machine throughout the warranty period. The [Seller]'s defense that the non-performance of the duty to repair the Machine was caused by unpredictable and uncontrollable reasons is not established.

      2. On the one hand, the [Seller] asserted that there was no qualified engineer who was able to repair the Machine; on the other hand, the [Seller] did not send its own engineers to repair the Machine. Thus, the [Buyer]'s Domestic User had only two choices, one of which was to keep the operation stoppage situation unchanged until the [Seller] got the so-called "special repairing tools. The other was to hire engineers to repair the Machine to avoid enlarging the stoppage loss. The first choice was impracticable because the [Seller] neither brought nor knew when it could bring the repairing tools after knowing the problems with the Machine for almost one month, and the loss would be enlarged if the situation remained unchanged. Therefore, the Domestic User had to take the second choice. Considering the quality of the engineer, the [Buyer] hired an engineer who used to work in the [Seller]'s Printing department and had participated in installing and adjusting the Machine, and was working at Shanghai __ Trade Company. The loss that occurred during the operation stoppage period is scientifically calculated according to the company's financial statements. The [Seller] knows the production quantity per day under the ordinary operation of the Machine, so it could not only predict but also know the economic loss caused by the problems with the Machine

      3. The [Buyer] hired its attorney for this case and paid for the attorneys' fee, which was calculated according to the work that needed to be done, so the attorneys' fee was reasonably incurred for this case and the loss caused by the dispute in this case. According to the principle of fairness and reasonableness, the Arbitration Tribunal should support the [Buyer]'s claim for the attorneys' fee.

During this arbitration procedure, the problems of the Machine occurred again. The [Seller] still alleged that it needed the special repairing tools and did not repair the Machine. The [Buyer] directly required the manufacturer of the Machine to send engineers to repair the Machine. The manufacturer sent engineers to complete the repairs to the Machine, which was restored to normal operation. As to the relevant facts, the [Buyer] submitted the following supplementary statement:

      1. On 4 June 2001, the Domestic User by fax informed the [Seller] that the problems of the Machine occurred again and required the [Seller] to send engineers to check and repair the Machine. On June 7, the [Seller] sent its engineers to Wenzhou to do an initial check of the Machine. Their report was:

"The head and end of the Machine need specific adjustment, which needs special repairing tools from the manufacturer. The [Seller] cannot immediately perform the specific adjustment."

Then, the [Seller]'s engineers left Wenzhou. After that the [Seller] did not do any repairing, and only by fax asked the [Buyer] to inform of the prior two repairs. The Domestic User replied and objected to the [Seller]'s excuse and reasons for delay repairing the Machine and shirking the responsibility, and also informed that losses were being incurred due to the stoppage of the operation and required the [Seller] to send engineers to repair the Machine immediately. However, the [Seller] did not perform as required. During this period, the warranty period expired on June 28. On July 3, the Domestic User sent another letter to the [Seller] requiring it perform its warranty duty, and also stated that if the [Seller] was unable to repair the Machine, the [Buyer] would require the manufacturer to send engineers to repair the Machine, and the [Seller] should bear all expenses incurred. However, the [Seller] insisted on repairing the Machine when the repairing tools arrived, and objected to the fact that the manufacturer's engineers came to repair the Machine. On July 18, the [Seller]'s engineers arrived in Wenzhou with the special repairing tools, but still failed to fix the Machine well on July 23. The Domestic User had to again require the manufacturer to send engineers to repair the Machine, which was restored to normal operation on October 11.

      2. This operation stoppage lasted for 92 days, and caused the economic loss of RMB 359,534; the total amount of the repairing charges, the expenses of the machine parts and traveling expenses is US $32,580 (the foreign exchange rate is 1:8.27, and it is equal to RMB 269,435.60.) With the economic loss incurred during the prior two stoppages of operation, the total economic loss is RMB 824,970.60, for which the [Seller] should compensate the [Buyer]. Meanwhile, the [Buyer]'s attorneys' fee was increased from RMB 40,000 to RMB 74,247. According to Article 59 of the Arbitration Rules, the [Seller] should bear such a fee.

The [Seller]'s response

As to the [Buyer]'s allegation, the [Seller] makes the following statements in its supplementary response.

The [Seller] was unable to repair the Machine within the time stipulated by the [Buyer] due to the uncontrolled barriers, which is a ground for exemption. After June 4 when the problems of the Machine occurred, because the [Buyer] doubted the [Seller]'s capability of repairing the Machine and refused to have the [Seller] repair the Machine, and required some additional conditions, the [Seller] could not perform the duty of repairing on time. During this period, the [Buyer] without notifying the [Seller], contacted and required the manufacturer to repair the Machine. When acknowledging this situation, the [Seller] stated that if the [Buyer] insisted that the manufacturer send engineers to repair the Machine, the [Seller] should be the one to contact the manufacturer and make the arrangement; otherwise, the [Buyer] should bear the expenses incurred. However, the [Buyer] did not consider the [Seller]'s suggestion.

The [Buyer]'s claim for the repairing fee of RMB 67,000 is not within the scope of this arbitration. The [Buyer]'s added claim for the loss of 92 days of operation stoppage from June 24 to October 10 is not established. The [Buyer]'s claim for the repairing fee of US $32,580 for hiring the manufacturer's engineers to repair the Machine is not established. Neither the financial statements prepared by the [Buyer] nor the testimony by the Economic Commission of the city as an administration can be used as evidence to prove its own economic loss. The Arbitration Tribunal should dismiss all of the [Buyer]'s claims.

Further data and comments by the [Buyer] on the [Buyer]'s claims

As to the [Seller]'s above objections, on 20 June 2002 the [Buyer] provided the Report issued by the Pingyang __ Accounting Firm to prove its loss, and also made the following statements about its claims:

      1. The [Seller] should compensate the [Buyer] for the loss of repair fee of RMB 336,436.60, which was incurred due to having to hire a third party and the manufacturer's engineers to repair the Machine.

      2. The [Seller] should compensate the [Buyer]'s Domestic User for the loss of profits, i.e., RMB 488,831, which was caused by the 135 days' operation stoppage;

      3. The [Seller] should compensate the [Buyer] for the arbitration fee, i.e., RMB 38,874.

      4. The [Seller] should compensate the [Buyer] for the attorneys' fee, i.e., RMB 74,247.

The [Buyer] breaks down the economic loss of RMB 488,831 suffered by the Domestic User due to the operation stoppage and repair as follows:

      (1) From August to September 2000, the loss of profits suffered by the Domestic User due to the 43 days' operation stoppage is RMB 129,297;

      (2) From June to October 2001, the loss of profits suffered by the Domestic User due to the added 92 days' operation stoppage is RMB 359,534.

As to the loss of repairing charges, i.e., RMB 336,436.60, the [Buyer] makes the following statements:

      (1) From 22-30 September 2000, the repair charges by Engineer __ are RMB 53,000;

      (2) From 8-11 February 2001, the repair charges by Engineer __ are RMB 14,000;

      (3) From 26 July -3 August 2001, the repair charges and traveling expenses incurred by the engineer __ of the manufacturer __ (Ohio __, Inc.) and the engineer __ of the __ Beijing Office, are US $13,114.

      (4) From 3-10 October 2001, the repair charges and traveling expenses incurred by Mr.__ and Mr.__ are US $13,066.

      (5) From July to October 2001, the costs of the Machine parts which the Manufacturer's engineers used to repair the Machine are US $6,400.

After that the [Seller] did not submit any further written statements or objections.

THE ARBITRATION TRIBUNAL'S OPINION

1. Applicable law

The parties did not stipulate the applicable law in the Contract. Because the parties cited the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG) and the Contract Law of the People's Republic of China (hereafter, the "Contract Law") as the legal basis, the Arbitration Tribunal holds that CISG and the Contract Law apply to this case.

2. Should the [Seller] be exempted from the liability?

According to Appendix IV of the Contract, the [Seller] sold the goods with a one-year warranty after the Machine was installed and adjusted and the testing was accepted. Problems with the machine occurred three times during the warranty period, and the [Seller] did not repair and restore the Machine to its normal operation.

In response, the [Seller] alleged that the problems of the Machine were out of its control and that it should be exempted from the liability. And, as to the third time the problems occurred, the [Seller] alleges that it did not repair the Machine because the [Buyer] did not cooperate.

Article 79 of CISG states:

"(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences."

Considering this, the Arbitration Tribunal holds that the problems of the Machine are not beyond the manufacturer's or the [Seller]'s control. Therefore, the [Seller] is not exempt from liability. And the [Seller]'s allegation that it was waiting for the special repairing tools cannot be used as the reason to delay repairing the Machine.

Article 46 (3) of CISG states:

"If the goods do not conform with the contract, the buyer may require the seller to remedy the lack of conformity by repair ..."

Article 47(2) of CISG states:

"(2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract. However, the buyer is not deprived thereby of any right he may have to claim damages for delay in performance."

According to the above provisions, when receiving the [Buyer]'s notice of the problems with the Machine, the [Seller] should have repaired the Machine as soon as possible. However:

   -    On 2 September 2000, when the [Buyer] informed the [Seller] that the Machine had stopped running for more than ten days due to mechanical problems, the [Seller] did not repair the Machine on time. On September 12, the [Buyer] advised the [Seller] that it would hire engineers to repair the Machine, and on September 21, the [Seller] replied still stating that it was contacting the manufacturer, __ Company, for the special repairing tools. Under this circumstance, the [Buyer] hired engineer __ -- who had participated in installing and adjusting the Machine -- to repair the Machine. This was a reasonable remedial measure.
 
   -    On 30 January 2001, the [Buyer] again informed the [Seller] of problems with the Machine, and the [Seller] did not repair the Machine on time still stating that it need to wait for the special repair tools.
 
   -    On June 4, when the problems with the Machine occurred once again, the special repair tools as the [Seller] alleged were delivered at the factory on 18 July 2001, but the [Seller]'s engineers failed to fix the Machine well. In this situation, the [Buyer] contacted the manufacturer directly and required it send some engineers to repair the Machine. This was a reasonable remedial measure.

The [Seller] failed to repair the Machine on time. It thereby breached the warranty duty stipulated in the Contract. The [Seller] shall therefore be liable for the repair charges which were incurred because the [Buyer] hired engineers to repair the Machine, and the loss of the expected profits which was incurred because the [Seller] did not send its engineers to repair the Machine on time.

3. The [Buyer]'s claims

      1. The repair charges

      The [Buyer] seeks to have the [Seller] compensate for the loss of the repair charges, i.e., RMB 336,436.60, which were incurred by hiring a third party engineer and the engineers from the manufacturer to repair the Machine due to the [Seller]'s breach.

            (1) The Arbitration Tribunal reviewed the payment certificates provided by the [Buyer] and ascertained that:

            -    On 1 November 2000, the [Buyer] paid by T/T for the repair charges of RMB 53,000 to Shanghai __ Trade Company, where the engineer __ worked; and

            -    On 21 February 2001 the [Buyer] paid by T/T for the repairing charges of RMB 14,000 to Shanghai __ Trade Company; because the engineer __ who worked for Shanghai __Trade Company, repaired the Machine.

Although the company which issued the invoice did not conform to the one which received the payment, it cannot be denied that the [Buyer] made the payment. Furthermore, the [Seller]'s assertion that the [Buyer]'s claim for the aforesaid repair charges is not within the scope of this arbitration lacks basis and cannot be established.

The Arbitration Tribunal supports the [Buyer]'s claim for the repair charges of RMB 67,000.

            (2) The [Buyer] provided:

            -    The invoice of US $13,114 for the repair charges and the traveling expenses which were incurred by the engineer, Mr. __ of the manufacturer __ (Ohio __ Inc.) and the engineer __, Mr. __of the Beijing office from 26 July to 3 August 2001; and
 
            -    The invoice of US $13,066 for the repair charges and the traveling expenses incurred by Mr. __ and Mr. __ from 2-10 October 2001; and
 
            -    The invoice of US $6,400, the costs of the Machine parts which were used by the manufacturer's engineer for repairs from July to October 2001.

According to the above Item (2) of the Arbitration Tribunal's opinion, Tribunal supports the [Buyer]'s aforesaid claims.

      2. The loss of profits, i.e., RMB 488,831, incurred by the Domestic User due to the 135 days' operation stoppage caused by the problems with the Machine

The Arbitration Tribunal holds that the problems with the machines occurred three time within the warranty period. Because the [Seller] failed to prove that the problems were caused by the Domestic User's improper use or other outside reasons, the [Seller] shall be held liable for the loss of profits caused by the operation stoppage and the prolonged stoppage period due to the [Seller]'s failure to perform its duty to repair.

The [Seller] alleged that the [Buyer] did not deduct the legal holidays from the days of operation stoppage, but did not provide reasonable basis; in addition, after knowing that the Machine stopped running, the [Seller] neither sent any engineer to repair the Machine nor sent any person to collect the information about the operation stoppage; accordingly, the operation stoppage period shall be the one provided by the [Buyer].

As to the claim for the loss of expected profits, the [Buyer] provided the loss of profits schedule during the operation stoppage period as evidence; the [Seller] objected to this claim, but did not provide sufficient reason or submit any profits which it thought reasonable; and then the [Buyer] provided the Auditing Report of Wenzhou __ Engraving Plate Company's Annual Profits Statements (2000-2001) prepared by Pingyang __ Accounting Firm to prove that the date used to calculate the Domestic User's loss of profits is reliable, and the [Seller] did not object to it. Therefore, the Arbitration Tribunal accepted the data for the loss of profits provided by the [Buyer].

According to the above analysis, the Arbitration Tribunal supports the [Buyer]'s claim for the loss of profits, i.e., RMB 488,831, which was caused by the operation stoppage.

      3. The [Buyer]'s claim for the attorneys' fee

      The [Buyer] seeks to have the [Seller] compensate for the attorneys' fee, i.e., RMB 74,247, and provided the attorneys' invoice as evidence. According to Article 59 of the Arbitration Rules:

"The arbitration tribunal has the power to decide in the arbitral award that the losing party shall pay the winning party as compensation a proportion of the expenses reasonably incurred by the winning party in dealing with the case. The amount of such compensation shall not in any case exceed 10% of the total amount awarded to the winning party."

The Arbitration Tribunal supports the [Buyer]'s claim for the attorneys' fee.

      4. The arbitration fee

      The [Seller] as the losing party shall bear the entire arbitration fee.

THE AWARD

According to the above analysis, the Arbitration Tribunal hands down the following award:

    1.   The [Seller] shall compensate the [Buyer] for the loss of repair charges, i.e., RMB 336,436.60.
    2.   The [Seller] shall compensate the [Buyer] for the loss of profits, i.e., RMB 488,831.
    3.   The [Seller] shall compensate the [Buyer] for the attorneys' fee, i.e., RMB 74,247.
    4.   The [Seller] shall pay for the entire arbitration fee of this case, i.e., RMB 38,874, which has been prepaid by the [Buyer]. The [Seller] shall therefore compensate the [Buyer] for the prepaid arbitration fee, i.e., RMB 38,874.

The total amount of the above items is RMB 938,388.60. The [Seller] shall pay this amount within 45 days after this award is handed down; otherwise, the [Seller] shall pay interest at the annual rate of 5%.

This is the final award.

THE CHIEF ARBITRATOR
THE ARBITRATOR
THE ARBITRATOR

In Beijing, 21 October 2002


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the People's Republic of China is referred to as [Buyer]; Respondent of Switzerland 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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Pace Law School Institute of International Commercial Law - Last updated April 3, 2008
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