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CISG CASE PRESENTATION

China 27 November 2002 High 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]

Primary source(s) of information for case presentation: Wu Dong

Case Table of Contents


Case identification

DATE OF DECISION: 20021127 (27 November 2002)

JURISDICTION: China

TRIBUNAL: High People's Court, Ningxia Hui Autonomous Region

JUDGE(S): Chief Judge: Ye, Jinzhong; Judge: Kang, Guohua; Judge: Zhu, Hong

CASE NUMBER/DOCKET NUMBER: (2002) Ningminshangzhongzi No. 36

CASE NAME: Japanese Xinsheng Trade Company v. Ningxia Hui Autonomous Region Nihong Metallurgic Product Company

CASE HISTORY: 1st instance Shizuishan Intermediate People's Court of Ningxia Hui Autonomous Region 2 December 2001 [reversed]

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

BUYER'S COUNTRY: Japan (defendant)

GOODS INVOLVED: White corundum


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 66 ; 67 [Also relevant: Articles 73(1) ; 74 ; 77 ]

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: Fundamental breach ; Passage of risk ; Incoterms

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

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>; CISG-China Case [HPC/18]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=83>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Joint translation project:
New York University School of Law
and Pace University School of Law

Ningxia Hui Autonomous Region High People's Court

27 November 2002

Translation [*] by Wu Dong [**]

Edited by Zheng Yu [***]

[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 hearings on 6 June and 20 November 2002. Counsel for [Seller] and [Buyer] attended the hearings. Trial on this case is now completed.

[FACTS]

On 11 November 1998, [Buyer] and [Seller] entered into Contract No. 98NSN-1101 (and its memorandum). The contract stated:

Goods. [Seller] sold 720 tons of white corundum to [Buyer];
Delivery term. FOB;
Price. US $518 per ton; total price US $372,960;
Loading port. Yingkou China or Bayuquan harbor;
Loading period. January to June 1999 (installments are acceptable).

The memorandum stipulated the quantity for each month during the period of loading.

[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 a reduction of price; 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 stated:

Goods. [Seller] sold 120 tons of white corundum to [Buyer];
Delivery term. FOB;
Price. US $563 per ton; total price US $67,560;
Loading port. Bayuquan harbor;
Loading period. November to December 1999;
Quantity and quality identification. Identification of quantity and quality should be issued by the CCIB of Bayuquan harbor.

The memorandum thereof stipulated: This memorandum cannot 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 if 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 to the Bayuquan Entry-Exit Inspection and Quarantine Bureau for inspection of 120 tons of white corundum 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 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 Contract No. 99NSN-11-1. 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 partly wet. 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 for custody, [Buyer] would withdraw its application for custody as well. When the Court of First Instance notified the two parties to submit the custody fee, [Buyer] remitted renminbi [RMB] 7,000 on 16 October 2000. 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 this. 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 the 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 stating that if the deposit was required [Buyer] would give up its 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 this letter, [Buyer] requested the Court of First Instance to take measures of custody to preserve the evidence. On 12 February 2001, the Court of First Instance informed the [Buyer] that unless the [Buyer] provided a deposit of RMB 900,000 in seven days, the [Seller] would be allowed to dispose the goods at its will. However, the [Buyer] 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 accordingly. Whereupon, 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 each retained its own position but 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, the [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 their new Contract No. 99NSN-11-1 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 to Section B5 of the Incoterms 2000 term "FOB", [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 of contract 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 774,962.40 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:

[POSITION OF THE PARTIES]

[Buyer]'s position

After this judgment was handed down, [Buyer] was not convinced and appealed to the present court. Its claims and corresponding accounts are:

1.    The contentious focus of the present case has to do with the quality of the goods. The quality of the goods accounts for the contractual dispute arising from the international transaction between the two parties. As the goods were polluted by breeze and water, they lost their original value. [Buyer] deems that [Seller]'s neglect during the packaging and transportation caused the problem of quality.
 
2.    The evidence found in the process of the first instance was erroneous. In the judgment of the Court of First Instance, the evidence provided by the two parties was listed and partly confirmed, however, all the essential evidence provided by the [Buyer] was not adopted. As to the evidence provided by the Yingkou Bayuquan Entry-Exit Inspection and Quarantine Bureau, [Buyer] alleges that: first, its inspection was in respect of whether the goods conformed to the requirements of the contract but did not inspect the mixture of the breeze; second, when the Court of First Instance collected this evidence on 3 August 2000, it sent only a clerk accompanied by [Seller] to the Bureau. This did not comply with the legal procedural requirement that evidence shall be collected by more than two persons of the People's Court. Therefore, [Buyer] alleges that this evidence should be excluded.
 
3.    The test of evidence during the process of the first instance was not impartial. As the quality was the focus of the dispute, the two parties both provided related evidence. Nevertheless, the Court of First Instance only confirmed the evidence provided by [Seller], which clearly showed its partiality.
 
4.    The calculation of the compensation was erroneous. The goods in dispute in the present case amounted to 120 tons, but the Court of First Instance calculated the loss of profits on the basis of the 480 tons not delivered under Contract No. 98NSN-1101 and held that [Buyer]'s breach caused the quality problem. This was clearly incorrect.
 
5.    According the custody of the evidence, before the first instance hearing, the Court of First Instance made a ruling (2000 Shijingchuzi No.12-1) to take custody of the evidence, but due to the so-called problem of guarantee raised by [Seller] the custody measures were not taken at the end. Therefore, the behavior of the Court of First Instance to meet [Seller]'s request was actually to connive at [Seller]'s destroying the evidence.
 
6.    The false founding led to the false application of rules or laws. The Court of First Instance did not accept the [Buyer]'s evidence, favored the [Seller] and found the [Buyer] in breach so that it applied Incoterms and directed the [Buyer] to bear the risk of loss caused by the quality problem. In [Buyer]'s viewpoint, due to the inclination of the Court of First Instance, its founding of the key merits of the case was false, which led to its false application of international trade customs. According to the term FOB, the risk of the goods passes when the goods cross the ship's rail, and the rule of advance passing of risk in the B5 provision should not be applied in the present case. Therefore, the risk of loss should be borne by [Seller].

In sum, [Buyer]'s claims are: 1) to overrule the original judgment and dismiss [Seller]'s claims; and 2) to direct [Seller] to bear the acceptance fee of the appeal.

[Seller]'s position

[Seller] asserts that:

1.    [Buyer] regards the key issue of the present case as the quality problem, while [Seller] regards [Buyer]'s fundamental breach as the key issue.
 
2.    In respect of the so-called quality problem, it was caused completely by [Buyer]'s fundamental breach. Therefore, [Buyer] should bear all the corresponding liabilities.
 
3.    In [Seller]'s viewpoint, the test of evidence during the first instance was impartial and fair.
 
4.    In respect of the calculation of the compensation, [Seller] held that Contract No. 98NSN-1101 and Contract No. 99NSN-11-1 could not be separated from each other. Due to [Buyer]'s fundamental breach, Contract No. 99NSN-11-1 was not implemented. Therefore, the calculation based on 480 tons of goods was proper.
 
5.    In respect of the custody of the evidence, it was not taken because [Buyer] refused to offer the requisite guarantee.
 
6.    In respect of the so-called false application of law held by [Buyer], [Seller] alleges that in the first instance judgment, Incoterms was not referred to nor was the advance passing of risk. It was just an envisage or presumption of [Buyer].

The [Seller] alleges that the Court of First Instance found the facts clearly, tested the evidence impartially and fairly, and applied the law correctly.

[REASONINGING OF THE APPELLATE COURT]

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. Therefore, the contract 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. The result was 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, at which time they found that the goods were polluted by breeze and water. Three days before that, the Bayuquan Entry-Exit Inspection and Quarantine Bureau had inspection personnel take samples from the goods and do an inspection. They issued an inspection report stating that the goods conformed to the requirements of Contract No. 99NSN-11-1. 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. Therefore, 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. Accordingly, [Seller] should bear all the risks of the goods; [Seller]'s 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, therefore, they are 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 hands down the following judgment:

1.    The Civil Judgment of Shizuishan Intermediate People's Court of Ningxia Hui Autonomous Region ((2000) Shijingchuzi No. 12) is reversed;
 
2.    [Seller]'s claims are dismissed;
 
3.    The acceptance fee of the first instance and appeal costs (RMB 14,284.17 each) should be borne by [Seller].

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; LL.B. Peking University School of Law, 2001.

*** Zheng Yu, LL.M., New York University School of Law (2010).

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