Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography
Search the entire CISG Database (case data + other data)

CISG CASE PRESENTATION

China 8 November 2002 CIETAC Arbitration proceeding (Canned asparagus case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/021108c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20021108 (8 November 2002)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2002/05

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Germany (claimant)

GOODS INVOLVED: Canned asparagus

Go to Case Table of Contents


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade Arbitration
Commission [CIETAC], Shenzhen Commission 8 November 2002 (Canned asparagus case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/120]
CLOUT abstract no. 1167

Reproduced with permission of UNCITRAL

Abstract prepared by Zhongjie Shao

A German buyer (claimant) entered into two contracts with a Chinese seller (respondent) for the purchase of canned asparagus. After the conclusion of the contracts the buyer issued two letters of credit (“L/C”) for the full amount of the purchase to the seller. However, despite several requests, the seller refused delivery stating that the price of the products had increased. Eventually the buyer had to purchase substitute goods from another supplier. Due to the persisting refusal of the seller to bear the losses of the buyer, this latter filed for arbitration.

As there was no stipulation on applicable law in the two contracts, the Arbitration Tribunal deemed that, since the place of the formation and performance of the two contracts was in China and so was the seller’s place of business, China had the closest relationship with the contracts. Chinese domestic law should be the applicable law. Further, the places of business of the buyer and the seller were in CISG States, thus the Convention should be applied if there was any contradiction with Chinese domestic law.

At the arbitration hearing, the seller alleged that the buyer had agreed to but failed to return a consistent amount of money for the price of goods purchased the previous year, which constituted a contract violation. Therefore the seller was entitled to avoid the asparagus contracts. In any event, these contracts were invalid because the seller’s Vice President who had signed them had no authorization letter at the time of the conclusion of the contracts, and because neither party had affixed its seal to the contracts. The Arbitration Tribunal did not think that the seller was entitled to avoid the contracts on the former account and did not regard the contracts as invalid.

The seller also alleged that it was entitled to avoid the contracts because the conditions of the L/C the buyer provided made very difficult for the seller to negotiate payment in accordance with the L/C. Moreover, the buyer failed to provide labels and to send a loading notice, which made the seller unable to deliver the goods. The Arbitration Tribunal noted the past practices between the parties and the fact that, prior to the arbitration, the seller had failed to raise the L/C concerns and other concerns raised at arbitration. The Tribunal thus concluded that pursuant to Article 8(3) CISG, the requirements on conditions in the L/Cs “were not the main reason for the seller to refuse to make delivery of the goods”. The Tribunal also rejected the seller’s argument on the label and loading notice, holding that the seller had no right to avoid the contracts and that the seller’s non-delivery was in breach of contract. Applying provisions of the Contract Law of the PRC, the Tribunal held that the buyer had the right to avoid the contracts and purchase replacement goods and ruled in the buyer’s favour on most of the buyer’s damage claims.

Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 7 ; 8(3) ; 47 ; 49 ; 74 ; 75 [Also cited: Article 64(1)(a) ]

Classification of issues using UNCITRAL classification code numbers:

7A3 ; 7C223 [Observance of good faith; Recourse to general principles on which Convention is based: communication and cooperation];

8C [Interpretation of parties statements or other conduct: interpretation in light of surrounding circumstances[;

47A [Buyer's right to fix additional period for performance];

49A [Buyer's right to avoid contract: grounds for avoidance];

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

75A2 [Damages established by substitute transaction after avoidance: repurchase by aggrieved buyer]

Descriptors: General principles ; Good faith ; Cooperation ; Intent ; Nachfrist ; Avoidance ; Fundamental breach ; Damages ; Cover transactions

Go to Case Table of Contents

Editorial remarks

Go to Case Table of Contents

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

Go to Case Table of Contents
Case text (English translation)

Queen Mary Case Translation Programme

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

Canned asparagus case (8 November 2002)

Translation [*] by Meihua Xu [**]

Edited by John W. Zhu [***]

The China International Economic and Trade Arbitration Commission Shenzhen Sub-Commission (hereafter, the "Shenzhen Sub-Commission") accepted the case (case number: SHEN G2002002) according to:

   -    The arbitration clause in the Sales Confirmation signed by Claimant [Buyer], Germany W__ International Trade Company, and Respondent [Seller], China __ Company; and
 
   -    The written arbitration application submitted by [Buyer].

On 11 January 2002, the Secretariat of the Shenzhen Sub-Commission sent to the [Seller] the arbitration notice, the [Buyer]'s arbitration application and the evidence, and related arbitration documents by express mail. The [Seller] thereafter submitted a defense and evidence.

On 8 February 2002, Chen, __, the arbitrator appointed by the [Buyer], Wang, __, the arbitrator appointed by the [Seller], and Han, __, the Presiding Arbitrator appointed by the Chairman of the Arbitration Commission since the two parties failed to jointly appoint or ask the Chairman of the Arbitration Commission to appoint the Presiding Arbitrator within the stipulated time, formed the Arbitration Tribunal to hear this case.

On 11 March 2002, the [Seller] filed an arbitration counterclaim.

After discussion with the Secretariat of the Shenzhen Sub-Commission, the Arbitration Tribunal decided to hold a court session on 25 March 2002 in Shenzhen. The two parties attended this court session. They made statements and arguments and the Arbitration Tribunal asked questions, made investigations, and verified related evidence at the court session.

After deliberation, the Arbitration Tribunal concluded that it was necessary to hold a second court session. The Secretariat of the Shenzhen Sub-Commission scheduled this second session on 28 June 2002, and sent the court session notice to the two parties, asking them to bring the original evidence to the court session for verification.

The second court session was held on 28 June 2002 in Shenzhen. The parties attended, the Arbitration Tribunal heard their statements and arguments, and the parties verified the evidence at the court session. In accordance with the Arbitration Law of the People's Republic of China, before the end of the second court session, the Arbitration Tribunal asked for final opinions of the two parties, and they stated them at the court session.

After the second court session, based on the Arbitration Law of the PRC and the related stipulations in the Arbitration Rules, the Arbitration Tribunal made investigations on certain facts of this case, collected evidence, and sent the investigation result to the two parties, asking their opinions.

During the aforesaid arbitration process, the [Seller] alleged before the second court session that the supplementary evidence submitted by the [Buyer] had a defect, and it should not be admitted since it was submitted beyond the one-week time limitation as required by the Arbitration Tribunal. However, the [Buyer] responded that the Arbitration Tribunal had asked the two parties to submit supplementary materials within two weeks, and that the [Buyer] submitted supplementary materials within the stipulated time.

About one month after the second court session, the [Seller] alleged in a letter sent on 29 July 2002, that the Arbitration Tribunal severely violated the Arbitration Rules and the neutrality principle by allowing the two parties to submit supplementary materials before the end of the first court session, and by holding a second court session on the basis of the parties' supplementary materials.

With respect to the evidence collected by the Arbitration Tribunal, the [Seller] alleged that the Arbitration Tribunal failed to ask the [Seller]'s consent before conducting its investigation, that the [Seller] did not authorize the Arbitration Tribunal to do so, and therefore, the Arbitration Tribunal had no authority to conduct the investigation.

Regarding the [Seller]'s aforesaid allegation, the Arbitration Tribunal conducted an investigation. The following are the facts and the Tribunal's opinion.

Based on the investigation, it was discovered that for the efficiency of the arbitration process, before the end of the first court session, the Arbitration Tribunal orally asked the two parties to submit supplementary material within one week. Meanwhile, the Arbitration Tribunal allowed each party to submit written opinions on the supplementary material submitted by the other party within one week (calculated from the date of receipt of the supplementary material forwarded by the Secretariat of the Shenzhen Sub-Commission) Therefore, both the [Buyer]'s allegation that the supplementary material should be submitted within two weeks and the [Seller]'s allegation of one week differ from the requirements set by the Arbitration Tribunal.

After investigation, it was found that the [Buyer] sent the supplementary material on 2 April 2002 by express mail, which should be regarded as the time that the [Buyer] submitted the supplementary material. 4 April 2002, which was claimed by the [Seller] as the date of the [Buyer]'s submission of supplementary material, was the time when the Secretariat of the Shenzhen Sub-Commission received the supplementary material, and the Secretariat of the Arbitration Commission so wrote on that material. Thus, the [Buyer] submitted supplementary material one day later than the time stipulated by the Arbitration Tribunal.

In the second court session notice, the Secretariat of the Shenzhen Sub-Commission clearly notified the two parties to bring the original evidence to the court session for verification, which actually extended the time for submitting evidence to the time of the second court session. This was beneficial for ascertaining the facts and for making a decision with justice on the basis of the ascertained facts. Both of the two parties had equal rights to make statements and submit evidence. There was no issue of violation of the Arbitration Rules or the neutrality principle, nor was there any injustice or deprivation of any party's right.

At the court session, the Arbitration Tribunal asked the two parties to submit related evidence within a stipulated time, which was a reasonable and proper authority of the Arbitration Tribunal to ascertain the facts and make a judgment with justice. The Arbitration Tribunal exercises this authority in many arbitration cases. The [Seller]'s allegation that this was a new arbitration rule established on the basis of the agreement between the two parties and that the Arbitration Tribunal violated the Arbitration Rules by accepting the [Buyer]'s supplementary material that was submitted one day late lacks legal and factual basis.

In addition, making investigations on certain facts and collecting evidence are also the Arbitration Tribunal's reasonable and proper authorities, which are expressly stipulated in the Arbitration Rules. The two parties had authorized the Arbitration Tribunal by accepting the Arbitration Rules. Therefore, the [Seller]'s allegation that the Arbitration Tribunal had no power to make investigations without the two parties' agreement lacks legal basis. As to the scope and items for investigations, they should be considered and decided by the Arbitration Tribunal itself.

Based on stipulations in the Arbitration Rules, the Arbitration Tribunal should examine the evidence provided by the two parties. For the entire evidence submitted by the two parties before and at the second court session, the Arbitration Tribunal had the power to decide whether they had probative force or the weight that should be given to such evidence, and to make its arbitration award accordingly.

After deliberation, the Arbitration Tribunal handed down this award on 8 November 2002 on the basis of the relevant evidence, the facts ascertained after investigation and provisions of related laws.

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

I. FACTS

On 3 April 2001, the [Buyer] and the [Seller] signed two Sales Confirmations (hereafter, the "Contracts"). During the performance of the Contracts, the parties had a dispute, and the [Buyer] filed its arbitration application based on the arbitration clause in the Contracts, asking the Arbitration Tribunal to rule that:

   (1)   The Contracts signed by the two parties on 3 April 2001 shall be avoided;
   (2)   [Seller] shall compensate the economic loss of the [Buyer] of US $97,080;
   (3)   [Seller] shall bear the arbitration fee and expenses incurred by the [Buyer] for processing this case.

The [Seller] filed a counterclaim, asking the Arbitration Tribunal to rule that:

   (1)   [Buyer] shall pay the loss of the [Seller], including warehouse occupation fee and cost for changing warehouse, totaling renminbi [RMB] 193,178.28;
   (2)   [Buyer] shall pay the [Seller]'s loss of interest on the price of the goods of RMB 990;
   (3)   [Buyer] shall bear the litigation fees for arbitration claim and arbitration counterclaim, attorneys' fee, and other expenses incurred by the [Seller].

THE NATURE OF THE DISPUTE AND POSITION OF THE PARTIES

[Buyer]'s position

The [Buyer] alleges that:

On 3 April 2001, the parties signed a Contract for the sale of 16,000 cases of canned asparagus at a unit price of US $4.8/ carton, FOB Qingdao; one-third of the goods to be delivered in April, May, and June, respectively. On the same day, the parties signed another Contract for 6,800 cases of M1 and 6,800 cases of M2 canned asparagus at unit prices of US $6.10/ carton, FOB Qingdao and US $5.80/ carton, FOB Qingdao, respectively; one-third of these goods was to be delivered in May, June, and July, respectively.

After the conclusion of the aforesaid Contracts, on 26 April 2001, based on the payment terms in the Contracts, the [Buyer] asked the bank to issue two L/Cs for the full amount with the [Seller] as the beneficiary. After signing the Contracts, the [Buyer] urged the [Seller] to deliver the goods several times. However, the [Seller] refused to deliver the goods, stating that the price for material had increased. Later, the [Buyer] sent letters by itself and entrusted its attorney to send letters to the [Seller], asking the [Seller] to perform in accordance with the Contracts and informing that the [Seller] shall be liable for the damages incurred by the [Buyer]'s purchase of substitute goods due to the [Seller]'s non-performance of the Contracts. However, the [Seller] continued to refuse to deliver the goods using all kinds of excuses, and the [Buyer] had to purchase goods in replacement from another supplier.

The [Buyer] has suffered loss of price difference and other expenses, totaling US $97,080.00 for purchasing the following goods:

   -    On 27 August 2001, the [Buyer] purchased 16,000 cartons of canned asparagus from Hupeden & Co. (hereafter, "H Company") at a unit price of US $7.00/ carton with a price difference of US $35,200;
 
   -    On 27 August 2001, the [Buyer] purchased 13,600 cartons of canned asparagus from H Company at a unit price of US $10.50/ carton with a price difference of US $61,880;

Later, on 6 November 2001, the [Buyer] sent a letter to the [Seller], asking it to compensate the aforesaid price differences. This letter was ignored by the [Seller]. The [Seller] has breached the Contracts, and the [Buyer] has suffered losses even after making effort; therefore, the [Seller] should bear these losses of the [Buyer].

[Seller]'s position

The [Seller] alleges that:

The two Contracts in this case were signed in Qingdao, China, with a price term of FOB Qingdao, and the place for the performance of the Contracts was also in Qingdao, China. Therefore, pursuant to the proximate connection principle, Chinese law shall be applied. In addition, this case involves an international business dispute. Therefore, related international trade usages and treaties shall be applied as well.

In addition, the [Seller] alleges that:

(1) The L/Cs issued by the [Buyer] violated the purpose of the Contracts

After signing the two Contracts, trusting [Buyer]'s performance the Contracts, the [Seller] concluded a purchase contract with Shanxi Y Food Company (hereafter, "Y Company") on 5 April 2001, and paid RMB 400,000 for the price of the goods on 6 April 2001. The [Seller] had made preparations to provide the goods for the two Contracts with the [Buyer] and was waiting for the L/Cs issued by the [Buyer]. However, after receiving the L/Cs issued by the [Buyer] on 26 April 2001, the [Seller] discovered many severe problems.

      1. There were as many as twelve documents that were required in the L/C, which were very detailed and complicated. It was very difficult for the [Seller] to perform in accordance with the L/C. A small mistake may lead to an inconsistency between the L/C and the documents, causing the [Seller] to be unable to receive payment from the bank. Items 1, 9, and 10 stipulated in the L/C burdened the [Seller]'s obligations, which were beyond the reasonable requirements of the Contracts, especially item 10, which requires the [Seller] to be responsible for security of the Contracts. This unreasonably increased the [Seller]'s burden and risks. Items 7 overlapped with item 11, which increased the [Seller]'s cost to perform the Contracts.

      2. [Seller] alleged that the L/Cs had many "soft terms", including:

      -    Item 6 requiring that before loading the goods, a trade mark permission shall be issued by W Distribution Center, or W International (Hong Kong) Company (hereafter, "W Hong Kong"), or W Headquarters, or W Company Shanghai Representative Office (hereafter, "W Shanghai");
 
      -    Item 7 of the L/C requiring a label paper signed by W Hong Kong, or W Shanghai, or W Xiamen Inspection Center (hereafter, "W Xiamen") prior to the loading with green environmental protection mark, item code, and an expiration date of 31 December 2004;
 
      -    Item 11 requiring inspection reports on each can-code issued by W Shanghai, or W Hong Kong, or W Headquarters, or by Mr. T of W Xiamen.

Based on the aforesaid three requirements, whether the [Seller] could negotiate payment would excessively depend on the [Buyer]'s performance. In addition, there was no contract stipulation on whether or when the [Buyer] should issue the aforesaid documents, which would be decided by the [Buyer] unilaterally. This could possibly cause the [Seller] to be unable to negotiate payment due to the [Buyer]'s refusal to issue the aforesaid documents. Meanwhile, since the L/Cs had stipulations on expiration dates, and the [Seller] must provide related documents to the negotiation bank within 15 days after loading, if the [Buyer] delayed in issuing the aforesaid documents, the [Seller] would be unable to negotiate payment either.

During the performance of the contract signed on 15 July 1999, the [Buyer] used the same trick, with the result, that the [Seller] suffered losses caused by decreasing market and warehouse occupation fee without receiving payment for the goods. In that transaction, the goods had to be delivered by February 2000 as stipulated in the L/C. However, due to the decreasing market, it was not until March 2000 that the [Buyer] issued the same kind of documents as stated above, causing the [Seller] to be unable to deliver the goods until 9 March 2000. Therefore, the [Buyer] had ulterior motives for including those documents in the L/Cs.

Based on the fear of performing those obligations, after receiving the L/Cs, the [Seller] immediately replied to the [Buyer] on 29 April 2001, asking it to modify the aforesaid requirements. However, the [Buyer] ignored the [Seller]'s aforesaid reasonable requirements, urging the [Seller] to deliver the goods. Moreover, after sending its L/C modification request and before the deadline for making the first delivery, the [Seller], by phone calls and e-mails, was asking the [Buyer] to provide a response to its concern over the L/C modifications by phone, but with no response. This obviously violated the principle of good faith and honesty and the principle of fairness and reasonableness.

In the supplementary defense statement, the [Seller] further alleges that:

On 18 April 2001, the [Buyer] sent the two L/C issuance applications to the [Seller] by e-mail, and on 23 April 2001, the [Seller] asked the [Buyer] to modify the L/Cs. However, the [Buyer] only made some unrelated modifications to the original L/Cs without modifying or deleting those "soft terms".

The e-mail received by the [Buyer] which the [Buyer] provided at the court session was different from the one sent by the [Seller]. There is no page number on the copy of the e-mail provided by the [Buyer], which had been deliberately and carefully amended by deleting the main part of the [Seller]'s modification request. After receiving the original L/Cs, the [Seller] discovered that the essential terms on which the [Seller] has requested modifications had not been changed. Therefore, on 29 April, it sent a fax again asking the [Buyer] to modify the L/C again. However, after that, the [Buyer] had never actively contacted the [Seller] for the modifications to the L/Cs.

(2) The [Buyer] failed to provide labels, or label films, or label samples, causing the [Seller] to be unable to pack the goods to fulfill the delivery obligation

The Contracts stipulate "12 cans per carton and that [Buyer] should provide labels". Therefore, the [Buyer] should have provided label films or label samples to the [Seller] in time. Based on the trade practices between the two parties, the [Buyer] would provide label films or label samples, based on which the [Seller] would print labels. The printed labels then would be confirmed by the [Buyer] to be used for packing the goods. The [Seller] had repeatedly called the [Buyer], asking it to provide label films and label samples. However, the [Buyer] had failed to do so until the [Seller] declared the avoidance of the Contracts. The [Seller] had been unable to pack the goods.

(3) The [Buyer]'s failure to send a loading notice to the [Seller] caused the [Seller] to be unable to deliver the goods

The shipping term in the Contracts indicated that "based on shipping call, one-third of the goods shall be delivered in May, June, and July of 2001, respectively; earlier shipping is allowed; CMA is acceptable". The price terms in the Contracts were FOB Qingdao. Based on the aforesaid stipulations and the definition of FOB terms in Incoterms 2000, the [Buyer] should have sent a loading notice to the [Seller], informing the [Seller] of the shipping date, ship's name, shipping place, and quantity of the goods, which would enable the [Seller] to perform its obligation to deliver the goods after receiving the shipping notice.

The [Buyer] failed to perform three obligations, including issuing conforming L/Cs, providing label films and label samples, and sending the shipping notice. Based on article 67 of the Contract Law of the PRC and international trade usages, the [Seller] is entitled to refuse to deliver. On 29 May 2001, the [Seller] clearly expressed its fear over the [Buyer]'s credibility to perform the Contracts, and its non-performance of the delivery obligation later had legal and factual basis. The [Buyer]'s contract violation has constituted a fundamental breach of contract. Under this circumstance, on 16 July 2001, the [Seller] declared the two Contracts avoided, based on article 64(1)(a) of the CISG. Therefore, it is the [Buyer] who should be held liable for the non-performance of the Contracts.

The [Seller] also alleges that the authenticity of the two documents provided by the [Buyer] to evidence its purchase of the goods from H Company cannot be verified and there is no other additional evidence. Therefore, it is not sufficient to prove that the goods purchased by the [Buyer] as substitute goods were the same or the same kind of goods as the goods in the Contracts only with these two documents. The [Buyer]'s arbitration claims lack legal and factual basis. The Arbitration Tribunal should dismiss them.

[Buyer]'s response

At the court session, the [Buyer] made the following statement in response to the [Seller]'s defense.

The [Seller] had never mentioned "soft terms, label samples, or shipping notice during the business transactions in the past.

The "Production/inspection" clause in the two Contracts stipulates that the goods should be inspected prior to shipment, which included the content mentioned in item 6 and item 11 in the L/C, i.e., trade mark permission and inspection report shall be issued prior to shipment.

During the business transactions conducted between the two parties in the past, the trade mark permission, label papers with signature, and inspection report had been included in the requirements for documents of the L/C, and the [Seller] had never asked for modifications accordingly. Those transactions have been performed successfully, including Sales Confirmation No. 52132 (13 April 2000) and Sales Confirmation No. 5238 (28 September 2000). The defense made by the [Seller]'s agent was not the real reason for the [Seller]'s non-performance of the Contracts.

On 23 April 2001, the [Buyer] received the letter sent by the [Seller], asking it to modify the L/C and the [Buyer] immediately made modifications accordingly and issued the L/Cs. Later, the [Buyer] had repeatedly urged the [Seller] to deliver the goods. However, the [Seller] was avoiding delivery, asking the [Buyer] to first settle problems that remained on other transactions in the past before discussing the transaction in this case. The [Seller] also stated clearly that due to the increasing material price, it was not going to perform the Contracts.

The [Buyer] asked the [Seller] to perform the Contracts and entrusted its attorney to send a letter to the [Seller], agreeing to extend the deadline for contract performance and informing [Seller] of the consequences of contract violation. However, the [Seller] still refused to perform the Contracts. Later, the [Seller] alleged that the [Buyer] violated the Contracts unilaterally using the dispute in past transaction as an excuse and declared the avoidance of the Contracts by raising contract subject qualification issues. The [Seller]'s avoidance of the Contracts has deprived the [Buyer] of what it is entitled to expect under the Contracts. Based on stipulations in the CISG, the [Seller] has fundamentally breached the Contracts, and the [Buyer] is entitled to purchase the goods in replacement reasonably and ask the [Seller] to bear the price difference.

Canned asparagus products need certain time to manufacture and process, and the [Buyer] has to determine proper clients based on the [Seller]'s manufacturing condition, manufacturing time, quantity and quantity of the goods, and then print labels with different contents for different clients, and then contact shipping company to make arrangement for shipment time and space. After confirming the aforesaid items, the [Buyer] should then send the shipment notice.

The procedures for printing labels and making shipping arrangement are easy without costing too much time with a precondition that the goods must be secured first, without which, [Buyer] was unable to determine the clients and arrange for shipment. In addition, the Contracts stipulate that the goods must be inspected prior to shipment, if labels were printed and shipping notice was given, but the goods could not pass the inspection and needed re-production, then the labels and shipment arrangement would be useless. The precondition for printing labels and arranging shipment is that the goods are ready for shipment. The [Buyer] had repeatedly urged the [Seller] to deliver the goods. However, the [Seller] had never informed the [Buyer] of the progress of goods production. Instead, [Seller] stated clearly that it was not going to perform the Contracts. The [Buyer] could not provide labels or send shipping notice, knowing that there were no goods to be delivered.

[Seller]'s counter argument

The following are the [Seller]'s statement on its counterclaims:

After the conclusion of the Contracts, the [Buyer] failed to perform its obligations, which can be proved by the following facts:

   -    The L/Cs issued by the [Buyer] did not conform to the Contracts, and the [Buyer] refused to modify the L/Cs;
 
   -    The [Buyer] failed to provide label films and label samples as stipulated in the Contracts;
 
   -    The [Buyer] failed to send the shipping notice;

The aforesaid contract violations directly caused the Contracts to be invalid and the [Seller] has suffered the following damages:

   -   Due to the non-performance of the Contracts, the [Seller]'s supplier, Shanxi Y Food Company (hereafter, "Y Company") asked the [Seller] to make compensation on its losses of warehouse occupation fee and changing warehouse fee, totaling RMB 193,178.88, which has been deducted from the payment made by the [Seller] in advance to Y Company;
 
   -   Loss of interest on RMB 400,000, which has been paid by the [Seller] in advance to Y Company, totaling RMB 990, calculated from the day of payment to the day of the Contracts being voided, i.e., three months, (calculation basis: 40 0.825/1000 3 = 990).

The [Seller]'s aforesaid damages have a direct causal relationship with the [Buyer]'s breach of Contracts, therefore, the [Seller] should be compensated by law.

[Buyer]'s counter argument

The [Buyer] counter argues that:

The [Seller] has fundamentally breached the Contracts. Therefore, it has no right to ask compensation. The basis for the [Seller]'s counterclaim was only a few pages of corresponding faxes between the two parties without any documents for account settlement or appropriations. The vice president of the [Seller], Mr. Huang, is also the Chairman of the Board of Y Company. Therefore, there is doubt on the authenticity of the documents claiming damages sent by Y Company.

II. OPINIONS AND ANALYSIS OF THE ARBITRATION TRIBUNAL

On 3 April 2001, the [Buyer] and the [Seller] signed two Contracts.

The number 53213 was handwritten on the first Contract (hereafter, "53213 Contract" and the number 53214/53311 was handwritten on the second Contract (hereafter, "53214 Contract"). Jan signed the Contracts on behalf of the [Buyer], and Jack, i.e., Mr. Huang, on behalf of the [Seller].

There was no stipulation on applicable law in the aforesaid two Contracts. The Arbitration Tribunal deems that since the place for the formation and the performance of the two Contracts is in Qingdao, China, and the [Seller]'s place of business is also in China, therefore, China has the closest relationship with the two Contracts. Based on the proximate connection principle, Chinese domestic law shall be the applicable law. In addition, the places of business of the [Buyer] and the [Seller] are in Germany and China, and both Germany and China are Contracting States of the CISG. Therefore, in the event of any discrepancies between the CISG and Chinese domestic law, provisions of the CISG shall prevail.

Article 32 and 44 of the Contract Law of the People's Republic of China stipulates that:

"Where the parties enter into a contract by a memorandum of contract, the contract is formed when it is signed or sealed by the parties; and a lawfully formed contract becomes effective upon its formation."

The Arbitration Tribunal holds that the aforesaid two Contracts executed by the [Buyer] and the [Seller] were concluded based on the two parties' negotiation. Therefore, in accordance with the Contract Law of the PRC, the two Contracts are effective and have binding effect on the two parties.

(1) The content of the Contracts

The following are the contents of the 53213 Contract.

Unless otherwise re-declared or re-confirmed, the [Buyer] and the [Seller] have agreed on the following terms:

   -  Goods: Canned Chinese asparagus harvested in the spring of 2001;
   -  Ingredients: Asparagus, water, salt, lemon acid without preservatives;
   -  Weight: Gross weight: 430g; Net weight: 270g;
   -  Specification: Tender asparagus tips shall be not less than 15%;
   -   Quality: The goods shall be fresh, healthy, and latest harvested asparagus; the asparagus should be free of disease and insect pest; in good condition and merchantable; all white;
   -  Origin: China;
   -   Law requirements: The material and the product manufactured should be in compliance with Food Law of Germany; use of any genetically engineered or radiation processed ingredients is not allowed;
   -  Quantity: 16,000 cartons;
   -  Packaging: 24 cans/ carton, [Buyer]'s label;
   -  Price: US $4.80/ carton, FOB Qingdao;
   -   Shipment: At latest in May, June, and July, one third of the goods shall be delivered per month; based on shipping notice, the goods can be loaded in advance; CMA is acceptable;
   -  Payment: The [Buyer] shall issue an irrevocable and non-transferable L/C with the [Seller] as the beneficiary prior to shipment;
   -  Manufacture/inspection: W Xiamen shall inspect the goods prior to shipment;
   -   Dispute resolution: Any dispute in connection with the Contract shall be settled by negotiation. If negotiation fails, the dispute shall be submitted to Shenzhen Sub-Commission for settlement;
   -   Special term: Mr. Huang is authorized to sign this contract, and will be responsible for the transaction between the two parties.

The following are the main contents of the 53214 Contract.

Unless otherwise re-declared or re-confirmed, the [Buyer] and the [Seller] have agreed on the following terms:

   -  Goods: Canned Chinese asparagus harvested in the spring of 2001, all white;
   -  Ingredients: Asparagus, water, salt, lemon acid without preservatives;
   - Weight: Gross weight: 800g; Net weight: 500g;
   - Quality: The goods shall be fresh, healthy, and latest harvested asparagus; the asparagus should be free of disease and insect pest; in good condition and merchantable; all white;
   -  Origin: China;
   -   Law requirements: The material and the product manufactured should be in compliance with the Food Law of Germany; use of any genetically engineered or radiation processed ingredients is not allowed;
   -  Quantity: 6,800 cartons M1, 6,800 cartons M2 (Maximum forty asparaguses);
   -  Packaging: 12 cans/ carton, [Buyer]'s label;
   -  Price: M1 US $6.1/ cartons, FOB Qingdao; M2 US $5.8/ cartons, FOB Qingdao;
   -   Shipment: At latest in May, June, and July, one third of the goods shall be delivered per month; based on shipping notice, the goods can be loaded in advance; CMA is acceptable;
   -  Payment: The [Buyer] shall issue an irrevocable and non-transferable L/C with the [Seller] as the beneficiary prior to shipment;
   -  Manufacture/inspection: W Xiamen shall inspect the goods prior to shipment;
   -   Dispute resolution: Any dispute in connection with the Contract shall be settled by negotiation. If negotiation fails, the dispute shall be submitted to Shenzhen Sub-Commission for settlement;
   -  Special term: Mr. Huang is authorized to sign this contract, and will be responsible for the transaction between the two parties.

(2) L/C and the terms in the L/C

The two parties confirm that on 26 April 2001, the [Buyer] issued AKI0100361 L/C (hereafter, "361 L/C") and AKI0100362 L/C (hereafter, "362 L/C) L/C and have no dispute on the contents of the L/Cs.

THE CONTENTS OF THE 361 L/C

-    L/C number: AKI0100361 China Merchants Bank;
-    Beneficiary: [Seller];
-    Applicant: [Buyer]; The applicant issues this irrevocable L/C, which can be negotiated at sight by providing the following documents;
--  Expiration date and place: 15 August 2001/China;
--  L/C amount: US $76,800.00, 5% plus or minus is allowed;
-    Installment shipment or transshipment: Allowed;
-    Loading port: Qingdao;
-    Transshipment destination port: Based on shipping notice;
-    Loading date: Based on shipping notice

Description of the goods

-    10 containers of canned asparagus (white color, peeled, harvest in 2001); 24 cans/ carton and 460g/can, totaling 16,000 cartons, under 53213 Contract signed on 3 April 2001;
-    Asparagus content should not less than 15%/can; net weight should be more than 270g;
-    The material shall be in good quality, fresh, and merchantable;
-    US $4.8/ carton;
-    Label and label numbers: Based on shipping notice;
-    5% plus or minus loading is allowed;
-    Delivery term: FOB Qingdao, [Buyer] shall be responsible for insurance contract

Documents required

  1. Five business invoices, indicating place of origin, which have been signed. The following content shall be confirmed in the invoices:

       a)  Transportation mark, transportation method, quantity and size of cans in each carton; there should be no labels outside of the cartons;
       b)  Only labels with green dot, bar code, and an expiration date of 31 December 2004 shall be used;
       c)  No waxed paper, waxed cardboard, asphalt cardboard, plastic belt, plastic tape, or staples shall be used on packages;

  2. Three formal and five non-transferable clean shipped B/Ls with title and endorsement in blank; transportation fee to be paid upon arrival; notice shall be sent to L/C applicant; shipping route shall be based on shipping notice, using "LCL/FCL" shipping route and "FCL/FCL" containers.

       -    Transportation agent B/L is prohibited;
       -    International Transportation Industry Association B/L is prohibited;
       -    B/L or transportation documents issued based on article 30 of UCP 500 are prohibited;

  3. Certificate of origin, issued by CIQ (China Import and Export Commodity Inspection and Quarantine Bureau) in GSP Form A; one original and one copy; origin of China and invoice number shall be included; invoice number and the date on the certificate of origin shall be the same as those indicated in the L/C;

  4. Three packing lists;

  5. Three can packing series number list, indicating manufacturing number, manufacturing date, and carton numbers for each can number;

  6. Label releasing certificate signed by W Xiamen, and/or W Hong Kong, and/or W International Trade Company, and/or W Shanghai prior to shipping;

  7. One original and one copy of inspection certificate issued by CIQ, and/or China Commodity Inspection Bureau (CCIB), and/or China Commodity Inspection Corporation (CCIC), indicating inspection result and address, which can prove that no waxed paper, waxed cardboard, plastic belt, plastic tape, or staples have been used;

  8. Copies of shipping notice (in the form provided by the [Buyer]) and B/Ls, which the [Seller] shall fax to W Hong Kong or W Shanghai within 5 days after loading; shipping notice shall be attached with sending report;

  9. One label with green dot, bar code, and an expiration date of 31 December 2004, issued by W Hong Kong and/or W Shanghai and/or W Xiamen prior to loading;

  10. The beneficiary's documents shall confirm the following items:

       a)  There was no shipping agent during the transportation of the goods, and the agent at destination port shall be indicated;
       b)  The containers have been inspected prior to loading, and no missing part or damages were found;
       c)  The goods were well tied up and suit for shipping;
       d)  Top level of the goods has been covered with carton boxes, and drier has been put into containers;
       e)  No labels outside of the boxes.

  11. Inspection report and/or certificate issued by W Hong Kong, and/or W Shanghai, and/or W International Trade Company, and/or W Xiamen, indicating the inspection results based on the aforesaid can series numbers;

  12. A copy of transshipment notice issued by W Xiamen, indicating contract number, WHI number, L/C number, quantity, goods, loading port, destination port, label, label number, label language, expiration date, shipping route, latest loading date, or shipping deadline.

If the goods are transshipped or shipped directly from Hong Kong, a Non-process certificate is required, which may be issued based on article 4 in GSP Form A with CICL (China Inspection Company Limited)'s seal and issuing date, which should indicate that:

"We hereby prove that the goods under the L/C have not been processed when stayed in Hong Kong or being transshipped from Hong Kong."

A separate Non-process certificate having the same content with CICL's seal, signature, and date is also acceptable.

No non-process certificate is needed under the following situations:

   -    B/L was issued in China;
   -    A loading port in China was indicated; or
   -    Prior to transshipment, the consignee's address (from consignee's address in China to Hong Kong) and shipping method were complete.

Extra conditions

Documents can be provided to any bank, and different documents shall be provided based on the different destination ports and different deliveries.

The entire documents shall be mailed to the L/C issuing bank by express mail to the following address: Hamburgische Landes Bank - Girozentrale-, Gerhart - Haupthann Platz - 50 20095 Hamburg.

The payment shall be made based on documents which are in conformity with the requirements in the L/C.

Based on our terms, if special service is provided, such as adding endorsement to the B/L, sending goods releasing notice (unless otherwise indicated in the L/C), authorization for payment negotiation, and/or the expenses incurred by communications in the case of an inconsistency in the documents, we would deduct related cost.

Accepting the inconsistent documents does not change L/C terms, i.e., for the documents with the same inconsistencies in the future, past acceptance does not affect our decision on whether to make payment or not.

   -    Please advise us of the receipt of L/C.
   -    [Seller] shall bear the commissions or expenses incurred outside of Germany.
   -    The entire documents shall be submitted within 15 days after loading.
   -    To notifying bank: We request that you do not attach any information for confirmation when notifying the L/C to the beneficiary, please have S City Dongmen Branch send the L/C notice.
___________

THE CONTENTS OF THE 362 L/C

   -    L/C number: AKI0100362 China Merchants Bank;
   -    Beneficiary: [Seller];
   -    Applicant: [Buyer]. The applicant issues this irrevocable L/C, which can be negotiated at sight by providing the following documents:
--  Expiration date and place: 15 August 2001/China;
--  L/C amount: US $80,920.00, 5% plus or minus is allowed;
   -    Installment shipment or transshipment: Allowed;
   -    Loading port: Qingdao;
   -    Transshipment destination port: Based on shipping notice;
   -    Loading date: Based on shipping notice

Description of the goods in the first delivery:

   -    6,800 cartons of canned asparagus (white color, peeled, harvest in 2001) under 53214 Contract signed on 3 April 2001; grade M1; 12 cans/carton and 840g/can,
   -    Asparagus content should not less than 500g/can;
   -    The material shall be in good quality, fresh, and merchantable;
   -    US $6.1/case;
   -    Label and label numbers: Based on shipping notice;
   -    Loading date: Based on shipping notice

Description of the goods in the second delivery:

   -    6,800 cartons of canned asparagus (white color, peeled, harvest in 2001) under 53311 Contract signed on 3 April 2001; grade M2; 12cans/carton and 840g/can,
   -    Asparagus content should not less than 500g/can, not more than 40 tender tips/can;
   -    The material shall be in good quality, fresh, and merchantable;
   -    US $5.8/carton;
   -    Label and label numbers: Based on shipping notice;
   -    Delivery term: FOB Qingdao, [Buyer] shall be responsible for insurance

Documents required

  1. Five business invoices, indicating place of origin, which have been signed. The following content shall be confirmed in the invoices:

       a)  Transportation mark, transportation method, quantity and size of cans in each carton; there should be no labels outside of the cartons;
       b)  Only labels with green dot, bar code, and an expiration date of 31 December 2004 shall be used;
       c)  No waxed paper, waxed cardboard, asphalt cardboard, plastic belt, plastic tape, or staples shall be used on packages;

  2. Three formal and five non-transferable clean shipped B/Ls with title and endorsement in blank; transportation fee to be paid upon arrival; notice shall be sent to L/C applicant; shipping route shall be based on shipping notice, using "LCL/FCL" shipping route and "FCL/FCL" containers.

       -    Transportation agent B/L is prohibited;
       -    International Transportation Industry Association B/L is prohibited;
       -    B/L or transportation documents issued based on article 30 of UCP 500 are prohibited;

  3. Certificate of origin, issued by CIQ (China Import and Export Commodity Inspection and Quarantine Bureau) in GSP Form A; one original and one copy; origin of China and invoice number shall be included; invoice number and the date on the certificate of Origin shall be the same as those indicated in the L/C;

  4. Three packing lists;

  5. Three can packing series number lists, indicating manufacturing number, manufacturing date, and carton numbers for each can number;

  6. Label releasing certificate signed by W Xiamen, and/or W Hong Kong, and/or W International Trade Company, and/or W Shanghai prior to shipping;

  7. One original and one copy of inspection certificate issued by CIQ, and/or China Commodity Inspection Bureau (CCIB), and/or China Commodity Inspection Corporation (CCIC), indicating inspection result and address, which can prove that no waxed paper, waxed cardboard, plastic belt, plastic tape, or staples have been used;

  8. Copies of shipping notice (in the form provided by the [Buyer]) and B/Ls, which the [Seller] shall fax to W Hong Kong or W Shanghai within 5 days after loading; shipping notice shall be attached with sending report;

  9. One label with green dot, barcode, and an expiration date of 31 December 2004, issued by W Hong Kong and/or W Shanghai and/or W Xiamen prior to loading;

  10. [Seller]'s documents shall confirm the following items:

       a)  There was no shipping agent during the transportation of the goods, and the agent at destination port shall be indicated;
       b)  The containers have been inspected prior to loading and no missing part or damages were found;
       c)  The goods were well tied up and suit for shipping;
       d)  Top level of the goods has been covered with carton boxes, and drier has been put into containers;
       e)  No labels outside of the boxes.

  11. Inspection report and/or certificate issued by W Hong Kong, and/or W Shanghai, and/or W International Trade Company, and/or W Xiamen, indicating the inspection results based on the aforesaid can series numbers;

  12. A copy of transshipment notice issued by W Xiamen, indicating contract number, WHI number, L/C number, quantity, goods, loading port, destination port, label, label number, label language, expiration date, shipping route, latest loading date, or shipping deadline.

If the goods are transshipped or shipped directly from Hong Kong, a non-process certificate is required, which may be issued based on article 4 in GSP Form A with CICL (China Inspection Company Limited)'s seal and issuing date, which should indicate that:

"We hereby prove that the goods under the L/C have not been processed when stayed in Hong Kong or being transshipped from Hong Kong."

A separate non-process certificate having the same content with CICL's seal, signature, and date is also acceptable.

No non-process certificate is needed under the following situations:

   -    B/L was issued in China;
   -    A loading port in China was indicated; or
   -    Prior to transshipment, the consignee's address (from consignee's address in China to Hong Kong) and shipping method were complete.

Extra conditions

Documents can be provided to any bank, and different documents shall be provided based on the different destination ports and different deliveries.

The entire documents shall be mailed to the L/C issuing bank by express mail to the following address: Hamburgische Landes Bank - Girozentrale-, Gerhart - Haupthann Platz - 50 20095 Hamburg.

The payments shall be made based on documents which are in conformity with the requirements in the L/Cs.

Based on our terms, if special service is provided, such as adding endorsement to the B/L, sending goods releasing notice (unless otherwise indicated in the L/C), authorization for payment negotiation, and/or the expenses incurred by communications in the case of an inconsistency in the documents, we would deduct related cost.

Accepting the inconsistent documents does not change the L/C terms, i.e., for the same inconsistent documents in the future, past acceptance does not affect our decision on whether to make payment or not.

   -    Please advise us of the receipt of L/C.
 
   -    [Seller] shall bear the commissions or expenses incurred outside of Germany.
 
   -    The entire documents shall be submitted within 15 days after loading.
 
   -    To notifying bank: We request that you do not attach any information for confirmation when notifying the L/C to the beneficiary, please have S City Dongmen Branch send the L/C notice.
___________

The aforesaid item 1, 6, 7, 9, 10, and 11 are called "soft terms" and "trap terms" by the [Seller], which is one focus of the disputes in this case.

The Arbitration Tribunal notes that on 23 April 2001, the [Seller] sent an e-mail to the [Buyer], asking for modifications to the L/Cs, and on 29 April 2001, after receiving the L/Cs issued by the [Buyer] on 26 April 2001, the [Seller] sent a fax to the [Buyer], asking to modify the L/Cs again. However, the [Buyer] made no response.

The [Buyer] admitted that on 23 April 2001, it received the e-mail (hereafter, "E-mail 1") sent by the [Seller] for modifications to the L/C. But [Buyer] alleged that the content of E-mail 1 was different from that of the e-mail provided by the [Seller] (hereafter, "E-mail 2"), and that they were sent at different times: E-mail 1 was sent at 11:39; however, E-mail 2 was sent at 16:32. As to the fax sent on 29 April 2001 by the [Seller], the [Buyer] denied the acceptance of it and has doubts with respect to the corresponding evidence provided by the [Seller].

At the first court session and in the supplementary documents submitted thereafter, the [Seller] had denied the authenticity of E-mail 1. However, at the second court session, the [Seller] accepted E-mail 1 and confirmed the sending time and the content of that e-mail. The evidence shows that after receiving E-mail 1, the [Buyer] modified the L/Cs as requested by the [Seller] and issued the L/Cs on 26 April 2001.

As to E-mail 2 of 23 April 2001 provided by the [Seller], the [Seller] alleges that it was also sent to ask the [Buyer] to modify the two L/Cs. E-mail 2 contained more modification requests than E-mail 1. The extra modifications requested in E-mail 2 are a subject of the dispute between the two parties. They were written in capital letters, which were not used in other modification requests.

The [Buyer] issued the L/C on 26 April 2001, and the [Seller] sent E-mail 2 at 16:32 on 23 April. At that time, the [Seller] was unable to know whether the [Buyer] had modified the L/Cs or what modifications had been made by the [Buyer] in detail. However, under this circumstance, in E-mail 2, the [Seller] was still able to specify the terms in the L/Cs which were in dispute in this case, and in which the [Seller] alleged that the [Buyer] failed to modify them even after being requested by the [Seller]. This leads to doubt as to the authenticity of this e-mail. Therefore, it is reasonable that the [Buyer] has such doubts. The [Seller] failed to give any explanation of this. Unless the [Seller] provides other evidence to show the existence of E-mail 2, the Arbitration Tribunal does not accept this e-mail provided by the [Seller].

As to the fax of 29 April 2001 and the supporting evidence submitted by the [Seller], it contradicts itself. The evidence provided by the [Seller] shows that the [Seller]'s fax number is 5409195, and the TX Report of 29 April 2001 provided by the [Seller] indicates that the fax was sent at 16:47. However, the long distance telephone bill for number 5409195 shows that the telephone was being used at 16:41 without any indication that it was being used at 16:47. Regarding this, the [Seller] alleges that it might be due to problems with the fax machine or with the machine's time setting.

Related evidence shows that during the transaction in this case, after sending the fax on 29 April 2001 as alleged by the [Seller] and before the arbitration process, the [Seller] had never mentioned L/C terms or the modifications on the L/Cs, nor raised this as an excuse to refuse delivery. When responding to the [Buyer]'s letters urging delivery, the [Seller] only mentioned that:

   -    Many unhappy things have happened;
   -    Deducting price for the goods unilaterally;
   -    The price for material in Shanxi has increased tremendously, and we would suffer a loss of RMB 200,000 if we fulfill the Contracts.

Even on 16 July 2001, after receiving legal opinions issued by the [Buyer]'s attorney, the [Seller] was still alleging in its reply letter that:

   -    The [Buyer] has promised but failed to return the price for the goods last year, i.e., US $9,760, which has constituted a unilateral breach of the contract. Therefore, the [Seller] has the right to avoid the Contracts;
 
   -    The two parties did not fix seals on the two Contracts (the two sales confirmations in this case - note by the Arbitration Tribunal) signed on 3 April 2001, and Jack Huang of the [Seller] was not the legal representative of the [Seller] and he had no power of attorney issued by the [Seller]. Therefore, the two Contracts are null and void.

In this letter, the [Seller] did not mention terms in the L/Cs either.

The [Seller] alleges in its defense that the "soft terms" in the L/C are the main reason for its refusal to make delivery. However, facing this serious issue, especially when the supplier of the [Seller] was urging it to make arrangement for delivery and asking the [Seller] to bear the warehouse occupation fee and fees incurred by changing warehouse (see the attached corresponding letters - note by the Arbitration Tribunal), the [Seller] failed to contact the [Buyer] for the further modifications to the L/Cs. This violates the principle of good faith.

The Arbitration Tribunal notes that the [Seller] alleged that there might be problems on the fax machine or time settings. However, after conducting investigations and making judgment based on the extent to which the evidence relates to the facts in this case and considering the connections among the existing evidence, the Arbitration Tribunal concludes that it cannot accept the fax of 29 April 2001 and the TX Report provided by the [Seller].

The Arbitration Tribunal also notes that the [Seller] quoted many professionals' statements to support its allegation of "soft terms" in the L/Cs. The Arbitration Tribunal understands the [Seller]'s opinion that too many requirements in the L/C would burden the [Seller] and increase the risks. However, the Arbitration Tribunal also notes that the statements quoted by the [Seller] were only analysis made on "soft terms", which remind the [Seller] to avoid irrational risks or to prevent the [Buyer]'s fraud by using "soft terms". However, those statements did not conclude that based on the applicable law, the stipulation of "soft terms" could cause the L/C to be invalid, or the related contract to be invalid, or that the [Seller] may refuse to deliver the goods.

In the instant case, the [Seller] has no evidence showing that the [Buyer] has committed fraud. On the contrary, the evidence and facts ascertained indicate that, during the past transactions, the terms in the L/Cs were the same as those in the L/Cs in this case, and that those transactions have been fulfilled.

The Arbitration Tribunal notes that in its supplementary statement, the [Seller] mentioned the performance of the contract signed on 15 July 1999. However, the evidence shows that the negotiation bank rejected payment due to the following reason:

   -    CFR Hamburg was indicated in the invoice;
   -    The inspection certificate was inconsistent with the L/C;
   -    The invoice number in the shipping notice was different.

The aforesaid inconsistencies were obviously caused by the [Seller]'s negligence. During the performance of the contract signed on 15 July 1999, the [Buyer] did not issue the related documents until 9 March 2000. However, it was stipulated in the L/C that the goods should be delivered by February 2000. The [Seller] failed to provide evidence either showing the actual reason for the [Seller]'s delay in issuing the documents until 9 March 2000, or showing that the [Buyer] delayed in issuing documents when the market was decreasing in order to postpone the [Seller]'s performance of delivery.

Article 8(3) of the CISG stipulates that:

"In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties may have established between themselves, usages and any subsequent conduct of the parties."

Based on this article and the aforesaid facts, the Arbitration Tribunal has reason to conclude that the requirements on documents in the L/Cs were not the main reason for the [Seller] to refuse to make delivery of the goods.

The Arbitration Tribunal deems that the [Seller]'s using "soft terms" in the two Contracts to allege that the [Buyer] has violated the contract and to refuse to make delivery of the goods lacks legal and factual basis, which cannot be established.

(3) Label films, label samples, and shipping notice

The evidence shows that on 29 May 2001, the [Buyer] sent a fax to Mr. Huang of the [Seller], stating that:

"Part of the goods under contract A3 and 430g tips that you entered into with Mr. B in Qingdao at the beginning of April should be delivered in May, We'd like to ask whether you can deliver them or not."

On 29 May 2001, Mr. Huang replied that:

"Regarding 800g and 430gT/C contract performance:

a. Many unhappy things have happened in the past, and it was hard for us to accept your deducting our payment unilaterally. Therefore, we do not feel confident to continue our business cooperation. For the transactions conducted in recent years, we are suffering losses every year and every time, and we are frightened of making delivery to you. Your employees are utterly unreasonable, thinking you are the 'God' to us forever. Do you remember why we asked you to compensate RMB 200,000 to us on the canned mushrooms purchase order? It was for a better cooperation. However, do you really treat us as your business partner???

b. Since the price for material in Shanxi has increased tremendously, if we fulfill the Contracts, we will suffer another RMB 200,000 loss. This is too difficult for us ... If you want to continue to cooperate with us, you must return the price which was detained overseas to us within a few days. That was earned by our entire coworkers! Certainly, we would not give up taking back that money by proper legal method."

On 30 May 2001, the [Buyer] sent a letter to the [Seller], stating that:

"For the 800g and 430g TC asparagus contracts of the beginning of April, please inform us of your arrangement for delivery by this Friday (1 June). If we don't receive your written reply before that, we would assume that you are intentionally not performing the contracts and we would purchase goods in replacement from other suppliers. You would bear the price difference thereby incurred ... We hope that you can make a positive response based on our long term cooperation."

On 6 July 2001, the [Buyer]'s attorney sent a legal opinion to the [Seller], referring to the Contracts as follows:

"The aforesaid Contracts are legally effective. However, you have refused to make delivery to the [Buyer] using excuses that the material price was increasing and that you would suffer losses due to the performance of the Contracts. You have violated the Contracts. ... Based on aforesaid reasons, on behalf of the [Buyer], we ask you to perform your obligation to deliver the goods by the end of this year and to make response to this within seven days. Otherwise, the [Buyer] would purchase goods in replacement and you should bear the price difference incurred thereof. Based on the current price, the price difference will be 30% ~ 40% of the original price."

On 16 July 2001, Mr. Huang, who signed the two Contracts as the representative of the [Seller], replied to the [Buyer]'s attorney on the aforesaid "legal opinion" as follows:

"We have received your legal opinion, and we make the following statement regarding the contract dispute between our company and the [Buyer]:

On 30 April 2001 (this is a typo. The correct date should be on 3 April - note by the Arbitration Tribunal), we signed two Contracts with the [Buyer] for the sales of asparagus. At the time of the conclusion of the Contracts, we mentioned that the [Buyer] unilaterally held back our price for the goods of US $9,760.00 (which has not yet been returned), and asked the [Buyer] to return this amount first before continuing the business in this year. At that time, Ms. Yu of the [Buyer]'s Shanghai Office accepted our request and later asked us to fax our bank account for transferring money (see fax). However, we have not yet received that payment. Based on this, we deem that the [Buyer] has unilaterally violated the contract.

The following are our opinions on the Contracts signed on 3 April 2001:

1) The [Buyer] has agreed but failed to return US $9,760 to us, which has constituted a contract violation; therefore, we are entitled to avoid the Contracts;

2) Both parties failed to affix seals on the two Contracts signed on 3 April 2001;

3) Jack, who signed the Contracts (Jack is Mr. Huang, the vice president of [Seller], who sent this letter), was not the legal representative of the [Seller] and he had no power of attorney at the time of the conclusion of the Contracts. Based on all of the above, the two Contracts signed on 3 April 2001 are invalid."

Evidence shows that the supplier of the [Seller], Y Company, has been sending letters to the [Seller], asking to make arrangement for delivery.

On 8 May 2001, Y Company sent a letter to the [Seller], informing that:

"We have manufactured 1,000 tons of goods until now, and 50% of the goods for A3 and 430g/TC under (01) KF - 3E011 contract have been produced. As required, 3 containers of each kind of goods shall be delivered by May. Please inform us of carton marks, and send us labels as soon as possible, so that we can start packing."

On 21 May 2001, Y Company sent a letter to the [Seller] to urge the delivery of the goods, stating that:

"Mr. Lian of our storage and transportation department said that he had contacted you for the delivery of A3/430g tender tips cut repeatedly with the response that you had not received notice from your client. Please understand, we are manufacturing a large quantity of goods now, and facing great pressure in terms of finance and storage, please make arrangement for delivery as soon as possible."

On the same day, Mr. Huang replied that " ... We are currently contacting our client overseas to take delivery of the goods in the near future, we'd appreciate your cooperation".

On 12 June 2001, Y Company sent a letter again urging delivery, saying that:

"... you have seen our production ability when you visited us last week. You said that you would negotiate with your client when you went back and would arrange for delivery. However, we have not received your labels and shipping notice. We produce 40 ~ 50 tons of goods everyday and the storage space is far beyond enough. If you do not arrange for delivery, we have to transfer your goods to a warehouse in the urban district. As you know, 10 containers of goods is not a small quantity, so are the costs, including loading and unloading fee, transportation fee, and rental fee. In addition, due to your failure to make arrangement for delivery, our funds are being largely occupied, please consider paying an extra part of the price or taking delivery of the goods in May as stipulated in the contract... if our pressure is too much, then we have to sell the goods which you are supposed to buy to recover some money; otherwise, I cannot explain to our board of directors."

On 19 June 2001, the [Seller] sent a fax to Y Company, stating that:

"Our business partner overseas has not sent us related labels and shipping notice, and related terms in the L/Cs have not been modified based on our requirements. However, we will seek other alternatives to take delivery of the goods. Please do not sell our goods; otherwise, we can not make explanation to our client."

On 4 July 2001, Y Company sent a letter to the [Seller], stating that:

"Our manufacturing has been completed, and now our main task is to deliver the goods. You have told us your difficulties, and we understand that it is not your responsibility causing the delay in delivery. We also know that the [Buyer] is difficult to cooperate with since it is a notorious claimer for compensation. Another client of us has also suffered damages due to this [Buyer]. When the market is not good, the [Buyer] would refuse to take delivery of the goods by using various kinds of excuses (such as that the goods are non-conforming after inspection), or would ask to lower the price for the goods after delivery by providing a report indicating the defects on the goods. Therefore, you should be careful. However, no matter what, you should find a way to settle our problem. Our warehouse is rented, and the rental fee is a huge cost to us. In addition, asparagus farmers come here everyday, waiting for the price for asparagus. If the money cannot be collected, they will make trouble, and it is possible that they may haul back the canned goods. If that happens, we will suffer severe losses."

The [Seller] replied on the same day as that:

"We've acknowledged that you have rented a warehouse following our telephone instructions. Please send us the list of expenses incurred due to the transfer, and we will bear these expenses."

The Arbitration Tribunal notes that from the time when the [Buyer] and the [Seller] signed the Contracts to the time when Y Company was urging the [Seller] to take delivery of the goods, there was no evidence showing that the [Seller] had contacted the [Buyer] on the delivery issue.

The Arbitration Tribunal also notes that, from the perspective of logic and the rationality of business transactions, the [Seller] should have notified the manufacturing process to the [Buyer] after making arrangement for the manufacturing of the goods under the Contracts, and asked the [Buyer] to send label films or label samples within a certain period of time, which would enable the [Seller] to prepare the goods using those labels. After the [Seller] prepares the goods in accordance with the requirements, it should have informed the [Buyer] to make shipping reservations and to send the shipping notice. If the [Buyer] fails to provide or fails to provide label films or label samples within a reasonable time, causing damages to the [Seller], the [Seller] is entitled to claim damages based on the facts and legal stipulations. Similarly, if the [Seller] prepares and informs the [Buyer] to arrange shipment, but the [Buyer] fails to send the shipping notice in time, the [Seller] is entitled to exercise related rights. However, there is no evidence in this case to prove that the [Seller] has sent those notices to the [Buyer], asking the [Buyer] to provide label films or label samples. Even under the circumstance that on 6 July 2001, the [Buyer] sent the legal opinion to the [Seller], asking the [Seller] to deliver the goods by the end of the year, and to respond to that legal opinions within seven days after receipt, the [Seller] still failed to ask the [Buyer] to send the label film or label samples. Instead, [Seller] replied on 16 July 2001, declaring the avoidance of the Contracts by raising the dispute in another transaction as an excuse.

The Arbitration Tribunal also notes that the [Seller] declared the avoidance of the Contracts alleging that the signer of the Contracts had no authority, and entered into a contract with H Company in Germany, selling to it part of the goods with the same specifications as those under the Contracts in this case.

Article 62(5) of the Contract Law of the PRC stipulates that:

"If the method of performance was not clearly prescribed, performance shall be rendered in a manner which is conducive to realizing the purpose of the contract."

The Arbitration Tribunal deems that even though the method for providing label films and label samples was not clearly prescribed, as alleged by the [Buyer], the [Seller] is still liable for providing label films and label samples.

Without settling the issue of label films and label samples, the [Buyer] was unable to know the manufacturing process and the [Seller]'s preparation of the goods. Therefore, the [Seller]'s assertion that the [Buyer] should have sent the shipping notice, and [Seller] using that as an excuse to accuse the [Buyer] of contract violation cannot be established.

(4) Contract avoidance and [Buyer]'s compensation claim

Article 94 of the Contract Law of the PRC stipulates that:

"The parties to a contract may rescind the contract if (i) one party thereto explicitly expresses or indicates through its acts, before the expiry of the performance period, that it will not perform its principal obligations thereunder; or (ii) one party thereto delays in performing its principal obligations and fails, after being urged, to perform them within a reasonable period; or (iii) one party thereto delays in performing its obligations or commits other breaches of the contract that cause the purpose of the contract can not be realized; or (iv) any other circumstances set out by the law occurred."

Based on the aforesaid facts and legal stipulations, the Arbitration Tribunal deems that the [Seller]'s contract violation has satisfied the requirement for rescinding the Contracts. Therefore, the [Buyer]'s claim to rescind the Contracts is acceptable.

The Contract Law of the PRC stipulates that:

"The parties to a contract shall fully perform their contract obligations in accordance with the contract; the parties shall abide by the principle of good faith and perform obligations such as notification, assistance and confidentiality, etc., based on the nature and purpose of the contract and business practices established; If a party fails to perform its obligations under a contract, or renders non-conforming performance, it shall bear such liabilities for breach of contract as to continue to perform its obligations, to take remedial measures, or to compensate for losses."

Based on the aforesaid facts, analysis, and law stipulations, the Arbitration Tribunal deems that for the dispute over the Contracts in this case, the [Seller] has violated its obligation to deliver the goods as stipulated in the Contracts, which has constituted a contract violation. Therefore, the [Seller] shall be liable for the [Buyer]'s losses caused by its breach of Contracts.

Based on the evidence, on 27 August 2001, the [Buyer] signed an order confirmation with H Company in Germany for the purchase of substitute goods after the [Seller] failed to deliver the goods in accordance with the Contracts. The following are the items of goods the [Buyer] purchased from H Company:

   -    16,000 cartons of 245oz canned asparagus with 430g tips, 24 cans/carton at a unit price of US $7, totaling US $112,000;
 
   -    13,600 cartons of A12/Q3 canned asparagus; 800g, 12 cans/carton at a unit price of US $10.5, totaling US $142,800.

After investigation, it was found that the aforesaid goods the [Buyer] purchased from H Company had the same specifications as the goods in this case.

The Arbitration Tribunal notes that the Contracts in this case were under FOB Qingdao term, which means that the goods should have been delivered to the [Buyer] at Qingdao port. Transportation fee and customs tax are not included in the price. If the Contracts had been performed, the [Buyer] would have borne the aforesaid costs. However, the evidence shows that even though FOB was mentioned in the order confirmation signed by the [Buyer] and H Company, no destination port or place was mentioned after FOB, but only a stipulation that the contract was to be performed in Hamburg, Germany. In addition, evidence shows that H Company and the [Seller] agreed on a payment term by L/C, and that the [Buyer] and H Company agreed on D/P at sight. The order confirmation between H Company and the [Buyer] was signed on 27 August 2001, the documents were delivered on 31 August 2001, and the payments were made on 1 September, 14 September, and 19 October 2001, respectively.

Based on the aforesaid evidence, a reasonable assumption is that H Company had received or was confident that it would be able to receive the documents when signing the order confirmation. In addition, only after H Company rented ship and informed the [Seller] to load the goods at Qingdao, based on the FOB price term which it had agreed with the [Seller], would it be able to receive the documents from the bank by issuing the L/C, and then ask the [Buyer] to make payment right after it delivered the documents to the [Buyer] in Germany on 31 August 2001.

Under the circumstance that there is no other evidence showing that the [Buyer] has paid the shipping fee separately, the Arbitration Tribunal has reason to deem that since H Company was responsible for renting ship for the transaction between H Company and the [Seller], H Company should bear the transportation fee from Qingdao to Hamburg. The price term agreed by H Company and the [Buyer] included transportation fee. Therefore, the [Buyer]'s claim for the entire loss of price difference raising that it had reached an agreement with H Company on FOB Qiangdao term, lacks sufficient evidence. This amount shall be deducted from the amount [Buyer] claimed.

Based on the facts, the principle of reasonableness, and relevant laws, the Arbitration Tribunal made necessary investigations and collected related evidence pursuant to the Arbitration Rules. Based on those investigations and that evidence and considering the opinions made by the two parties on them, the Arbitration Tribunal holds that it is proper to use 20 size containers and that 18 containers are reasonable; the transportation fee from Qingdao to Hamburg is about US $1,212/container, and the transportation fee (including fuel charges) is US $21,816 (1,212 18).

Based on this calculation, the loss of price difference suffered by the [Buyer] is: [(7 - 4.8) 16,000 + (10.5 - 6.1) 6,800 + (10.5 - 5.8) 6,800 - 21,816 = 35,200 + 29,920 + 31,960 - 21,816] = 75,264.

(5) [Buyer]'s attorneys' fee and traveling fee

Evidence shows that the [Buyer] has paid attorneys' fee and traveling fee, totaling RMB 49,693, for this case. Based on article 59 of the Arbitration Rules, the Arbitration Tribunal holds that the [Seller] shall compensate the entire aforesaid amount to the [Buyer].

(6) [Seller]'s counterclaim

The Arbitration Tribunal has made analysis above that the fundamental reason for the Contracts to be unable to be performed is that the [Seller] failed to fulfill its obligation to deliver the goods. The warehouse occupation fee, changing warehouse fee, and the interest on the price for the goods paid in advance that have been incurred were caused by the [Seller]'s failing to deliver the goods to the [Buyer]. Therefore, the [Seller] shall bear these expenses by itself. Similarly, the [Seller] shall bear the expenses incurred for this case by itself as well.

III. THE AWARD

The Arbitration Tribunal rules that:

  (1)   The two Contracts signed by the [Buyer] and [Seller] on 3 April 2001 are rescinded;
 
  (2)   [Seller] shall pay the [Buyer]'s loss of price difference of US $75,264 within 30 days of this award;
 
  (3)   [Seller] shall bear the [Buyer]'s expenses incurred by processing this case, i.e., RMB 49,693, within 30 days of this award;
 
  (4)   [Seller]'s counterclaims are dismissed;
 
  (5)   [Buyer] and the [Seller] shall bear the arbitration fee jointly.

This is the final award.

Presiding Arbitrator:

Arbitrator:

8 November 2002 in Shenzhen


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Germany is referred to as [Buyer] and 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].

** 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 a 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 W. Zhu, LL.M. China University of Political Science and Law (National Graduate Scholarship); Bachelor of Law, Southwest University of Political Science and Law; Double Degree, English Literature, Sichuan International Studies University, Chongqing, China. Focus: International Economic Law.

Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated December 5, 2012
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography