China 27 November 2002 Higher People’s Court of Ningxia Hui Autonomous Region (Xinsheng Trade Company v. Shougang Nihong Metallurgic Products) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/021127c1.html]
DATE OF DECISION:
JURISDICTION:
TRIBUNAL:
JUDGE(S):
CASE NUMBER/DOCKET NUMBER: (2002) Ningminshangzhongzi No. 36
CASE NAME:
CASE HISTORY: 1st instance Shizuishan Intermediate People's Court of Ningxia Hui Autonomous Region 2 December 2001 [reversed]
SELLER'S COUNTRY: China (plaintiff)
BUYER'S COUNTRY: Japan (defendant)
GOODS INVOLVED: White Corundum
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
25B [Definition of fundamental breach: substantial deprivation of expectation, etc.]; 66A1 [Conformity of goods determined as of time risk passes: prior damage or deterioration at seller's risk]; 67A [When contract involves carriage of goods, risk passes on handing over goods to carrier]
Descriptors:
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1029&step=Abstract>
CITATIONS TO TEXT OF DECISION
Original language (Chinese): <http://www.ccmt.org.cn/hs/writ/judgementDetial.php?sId=477>
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
Unavailable
Go to Case Table of ContentsCase text (English translation) [second draft]
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27 November 2002
[PROCEEDINGS]
FIRST INSTANCE. Shizuishan Intermediate People's Court 2 December 2001; (2000) Shijingchuzi No.11. PARTIES AND COUNSEL. Defendant (Appellant) [Buyer]: Japanese Xinsheng Trade Company, Place of Business: Tokyo Dugang District Park 2-3-4 Japan. Legal Representative: Songxia Shanfu (Chairman of the Board of Directors). Attorney: Wutian Zhengshi, Employee of Xinsheng Trade Company Dalian Office; ZHAO Wei, Lawyer of Xinjiyuan Law Firm. Plaintiff (Appellee) [Seller]: Ningxia Hui Autonomous Region Shougang Nihong Metallurgic Products Company (Joint Venture), Place of Business: Ningxia Shizuishan Dawukou District Yongkang Road 2. Legal Representative: LIU Yangui (General Manager). Attorney: LI Lequan, Lawyer of Zhihe Law Firm; Wang Bangqing, Employee of Shougang Nihong Metallurgic Products Company.
After accepting the appellate plea, the Court held open hearing on 6 June and 20 November 2002. Counsel for [Seller] and [Buyer] attended the hearing. Trial on this case is now completed.
[Facts]
On November 11 1998, [Buyer] and [Seller] entered into Contract (No. 98NSN-1101) and its memorandum. The contract stipulated:
In the memorandum, the quantity for each month during the period of loading was stipulated.
During performance, [Seller] delivered 240 tons of goods to the Bayuquan harbor on 23 December 1998, 1 February 1999 and 11 February 1999. However, [Buyer] altered the time of loading many times so that 120 tons of goods were loaded on 3 March 1999 which should have been loaded in January and the other 120 tons that should have been loaded in February were not loaded at all. In respect of the remaining 120 tons, [Seller] sent five letters to [Buyer] to request it to fulfill its obligation. However, [Buyer] responded to ask for reduction of price, but no problem of quality was mentioned.
Later after negotiation, on 11 November 1999 the parties signed another contract (No. 99NSN-11-1) in respect of the goods not loaded under Contract No. 98NSN-1101. The new contract stipulated:
The memorandum thereof stipulated: This memorandum could not be separated from Contract 98NSN-1101 and Contract 99NSN-11-1. After Contract 99NSN-11-1 was performed, the former Contract 98NSN-1101 would be cancelled automatically. If new packages were needed, [Buyer] should be responsible for this. All the packing fee, loss of goods and manual work should be borne by [Buyer]. Even no new packages were changed, the loss of broken bags should be borne by [Buyer] as well. Before loading, [Buyer] should notify [Seller] in time so that the latter could send persons to watch the changing of bags and loading.
On 23 November 1999, Yingkou Shipping Agency Company as [Seller]’s agent applied for inspection of 120 tons of white corundum to Bayuquan Entry-Exit Inspection and Quarantine Bureau. On 3 August 2000, upon the request of the Court of First Instance, the Bayuquan Entry-Exit Inspection and Quarantine Bureau issued a certification of the inspection of the exported white corundum involved in the present case (Inspection Number: 70673). It stated:
"We accepted Yingkou Shipping Agency Company’s application for inspection of 120 tons/bags of white corundum on 23 November 1999. On the same day, we sent inspectors to take samples and make preparation according to the GB/T4676-84 Standard. After inspection, we found that the result conformed to the requirements of the No. 99NSN-11-1 Contract. However, as the goods had not been loaded and exported yet, we did not issue a certification of quality."
On 26 November 1999, the two parties came to the port to change the bags and found 60 tons of goods had 1-3 mm thickness of breeze on their bags. Therefore, they opened some of the bags and found part of the goods polluted by breeze to different extents. The other 60 tons of goods, stored in the Shengxing Storage out of the port, were found wet partly. LI Ming, employee of [Buyer], and WANG Baojian, employee of [Seller] so reported to their corresponding companies in writing. [Buyer] therefore raised objection on quality to [Seller], which later led to litigation.
The Court of First Instance also found: [Buyer] applied for custody of evidence on 7 September 2000 and [Seller] applied for custody of samples and requested to deliver the goods to other clients. On 25 September 2000, [Buyer] applied again for overall sampling of the goods and claimed that if [Seller] did not remove the goods and withdrew its application, [Buyer] would withdraw its application for custody as well. When the Court of First Instance notified the two parties to submit custody fee, [Buyer] remitted renminbi [RMB] 7,000 on 16 October. Later, [Seller] withdrew its application for custody and promised not to remove the goods. Therefore, the Court of the First Instance notified the two parties that no measures of custody would be taken temporarily. On 8 January 2001, [Buyer] again applied for overall sampling of the goods. Two days later, the Court of First Instance made a ruling ((2000) Shijingchuzi No.12-1 Civil Rule) and approved it. On 15 January 2001, the Court of First Instance sent judges to the port and requested the two parties to arrive there as well. The two parties agreed that the Bayuquan Entry-Exit Inspection and Quarantine Bureau would be the inspector. [Buyer] still requested to spread all the bags and take samples from each bag. [Seller] agreed, but requested [Buyer] to offer a guarantee of RMB 900,000 before taking this measure of custody. After field survey and query for opinion of commodities inspection agency, it was confirmed that all the bags had to be spread to take samples from each bag. Meanwhile, to spread all the bags, the upper packages had to be removed first as the goods were piled up in three layers and for a long time, and this would cause the goods to be scattered and suffer great loss. Therefore, the Court of First Instance directed [Buyer] to provide a deposit of RMB 900,000 before the custody was taken. However, [Buyer] refused to provide the deposit, and said if the deposit was required [Buyer] would give up the application for custody. So at last no measure of custody was employed. On 21 January 2001, [Seller] submitted an application for disposal of the goods to mitigate the loss. [Buyer]’s letter arrived on 29 January 2001, in which [Buyer] requested the Court of First Instance to take measures of custody to preserve the evidence. The Court of First Instance on 12 February notified [Buyer] to provide a deposit of RMB 900,000 in seven days; otherwise [Seller] would be able to dispose the goods at its will. But [Buyer] still did not provide the deposit as it regarded that the amount exceeded the real value of the goods. Upon this, the Court of the First Instance did not take measures of custody and notified the two parties. On 17 May 2001, [Seller] resold the goods to the Shougang No.1 Refractory Materials Company. [Buyer] on 10 August 2001 submitted a demur to the Court of First Instance in respect to the disposal the goods.
In respect of the quality problem of the 120 tons of corundum caused by the breeze and water, the parties stuck each to its own position and neither offered any persuasive proof as to where the pollution came from.
The Court of First Instance held that the contract between the parties showed their true minds and therefore should be observed. However, [Buyer] was in delay of receiving the goods, which caused the 120 tons of corundum to be stored at the port for such a long time and thus breached contract (No. 98NSN-1101). Though the two parties signed the No. 99NSN-11-1 contract later, disputes arose when implementing this contract and it was not implemented at all. In the memorandum of this contract, Article 1 stipulated:
"This memorandum cannot be separated from Contract No. 98NSN-1101 and Contract No. 99NSN-11-1. Contract No. 98NSN-1101 will be cancelled automatically upon the fulfillment of Contract No. 99NSN-11-1."
Therefore, it could be observed that the conclusion of Contract No. 99NSN-11-1 did not terminate Contract No. 98NSN-1101, but maintained it. The fact of the performance showed that [Buyer] altered the loading time many times and thus did not fulfill its obligations; this constituted a fundamental breach of contract. According section B5 of the term "FOB" under Incoterms 2000, [Buyer] should bear all the risks of these goods. Consequently, the total loss should include that under the aforesaid two contracts. When [Seller] delivered the goods to the port, they conformed to the requirements of the contracts; the goods had to be stored at the port due to [Buyer]’s breach of contract, which caused losses. [Seller] therefore had no default in this case. In addition, [Seller] in order to perform the contracts used the Letter of Credit provided by [Buyer] as a guarantee to get loans to maintain its business. Due to [Buyer]’s breach and alteration of the L/C, [Seller] could not reimburse the loan in time and further could not get loans from other banks as the evaluation of its credit was lowered for this. [Seller] therefore could not maintain its normal production and had to stop production. Consequently, [Buyer] should compensate [Seller]’s fees for implementing the contracts and loss of profits RMB 774,962.4 and US $9,060. [Seller]’s other claims were not supported. The suit fee corresponding to these claims should be borne by [Seller].
Pursuant to Articles 25, 73(1) and 74 of the CISG, the Court of First Instance decided:
After this judgment was made, [Buyer] was not convinced and appealed to the present court. Its claims and corresponding accounts are:
In sum, [Buyer]’s claims are: 1) to overrule the original judgment and dismiss [Seller]’s claims; 2) to direct [Seller] to bear the acceptance fee of the appeal.
[Seller] asserts that:
Therefore, [Seller] alleges that the Court of First Instance found the facts clearly, tested the evidence impartially and fairly, and applied the law correctly.
The present Court holds that this case arose from a sales contract which reflected the true minds of the two parties and did not violate the CISG or Chinese laws so that it was valid. When delivering the second installment of goods (120 tons of corundum) under Contract No. 98NSN-1101, [Buyer] was in delay of loading due to the price dispute and this caused the goods had to be stored at the port for a long time. To settle the dispute in respect of the aforesaid 120 tons of goods, the two parties entered into Contract No. 99NSN-11-1 and altered the loading period to November/December 1999. The Court holds that, this was a modification of the former contract by the two parties and should be implemented. When fulfilling the second contract, the two parties went to the port to change the packages and check the goods, when they found the goods were polluted by breeze and water. Three days before that, the Bayuquan Entry-Exit Inspection and Quarantine Bureau had inspecting personnel take samples from the goods and do inspection, who issued an inspection report claiming that they conformed to the requirements of the No. 99NSN-11-1 Contract. However, the Bureau did not provide a reasonable explanation for the pollution by breeze and water and the inspection conclusion could not negate the fact that the goods had been polluted. Therefore, the inspection report could not be regarded as proof that the goods conformed to the quality requirements of the contract. As neither party could provide evidence to prove the origins of the pollution, according to the CISG and Incoterms 2000, the risks of the goods should be transferred to [Buyer] when they cross the ship’s rail because FOB was the price term used in the contract. In addition, before loading, the two parties agreed to modify the contract and alter the loading period of the goods, which reflected the true minds of the parties and should be implemented. So, the risk of losses had not yet passed to [Buyer] and [Seller] did not take care of the goods in the proper manner before loading. Therefore, [Seller] should bear all the risks of the goods; its claims and accounts lack support by facts or laws and so could not be supported by the Court. [Buyer]’s appeal and accounts conform to the relevant stipulations of the CISG and Incoterms 2000, so that is supported by the Court.
[HOLDING]
In sum, pursuant to Article 153 paragraph 1 item 3 of the Civil Procedure Law of the People’s Republic of China, the Court makes the following judgment:
The present judgment is final.
FOOTNOTES
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Defendant-Appellant of Japan is referred to as [Buyer] and Plaintiff-Appellee of the P.R. 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].
** Wu Dong, LL.M. candidate, Peking University School of Law, Beijing, P.R. China, 2001 to present; LL.B. Peking University School of Law, 2001.
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