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CISG CASE PRESENTATION

China 18 December 2002 CIETAC Arbitration proceeding (Sausage casing case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/021218c1.html]

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

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Case identification

DATE OF DECISION: 20021218 (18 December 2002)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2002/14

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Germany (respondent)

GOODS INVOLVED: Sausage casing


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission [CIETAC] 18 December 2002 (Sausage casing case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/120]
CLOUT abstract no. 1166

Reproduced with permission of UNCITRAL

Abstract prepared by Aaron Bogatin

A contract was concluded between a German buyer and a Chinese seller for the delivery of 105 casks of pork sausage to Hamburg, Germany, no later than 20 July 2000. After receiving the goods on 19 October 2000, the buyer raised objection to the late delivery as well as to the quality of the goods. In response to the quality complaint, the seller agreed to fly to Germany to undertake a joint inspection of the goods. Shortly afterward the joint inspection, the Veterinary Bureau of Germany sealed 88 of the casks and ordered the buyer to destroy them. One day after the Bureau’s order, the seller requested that all 105 casks be sent back to China for re-examination by the China Import and Export Commodities Inspection Bureau. The buyer replied that the request could not be fulfilled as 88 boxes had been sealed and set for destruction. The seller faxed to the buyer requesting it to convince the Veterinary Bureau to release the 88 sealed casks, stating that it would take responsibility for the sea freight back to China as well as some of the buyer’s loss. Nevertheless, the 88 casks were destroyed.

The seller filed for arbitration. It argued that due to factors such as differing serial numbers found on the casks and different salting procedures, there was sufficient evidence that the contaminated casks were not those delivered by the seller. Further, it produced a certificate documenting the conformity of the goods that had been issued by the China Entry-Exit Inspection and Quarantine Bureau in July 2000.

Although the contract was silent as to the governing law, both parties had their places of business in CISG countries and both requested that the CISG be applied; the Arbitration Tribunal concurred. In its ruling on the merits, the Tribunal held that the buyer’s “OK” found on the bottom of the seller’s fax which changed the date of delivery amounted to an acceptance of the new delivery date and not merely a sign that the fax had been received. Hence, the buyer’s claim that the goods were delivered late was not sustained.

The Tribunal disregarded the seller’s claim that the goods sealed by the Veterinary Bureau were not the seller’s goods since prior to arbitration the seller had never raised this objection. Moreover, the buyer provided rebuttal evidence.

The Tribunal also stated that the 88 casks of goods did not conform to the contract. The inspection in China, which occurred six weeks before the goods were shipped, was not sufficient to rebut this. The buyer inspected the goods and reported their non-conformity within a reasonable time (Articles 38 and 39 CISG). The disposal by the buyer of the 88 casks of non-conforming goods was a valid decision by the buyer as the direction to dispose of them by the German Veterinary Bureau was an effective administrative order. The seller was thus not entitled to any compensation for its travel to Germany to jointly inspect the goods. However, with respect to the remaining 17 casks, there was no evidence presented as to their lack of conformity. Therefore, the buyer had to pay their price.

The buyer had also claimed compensation for the expenses incurred as a result of the non-conformity of the 88 casks, which included rent for a second warehouse to store the bad smelling meat, disposal charges and transportation charges. However, since the buyer did not provide evidence as to any of these costs except for the disposal fee, it was not allowed to claim any compensation beside that fee (Article 45(1) CISG).

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 29 ; 74 ; 85 ; 88 [Also cited: Articles 30 ; 38 ; 39 ; 45 ; 50 ]

Classification of issues using UNCITRAL classification code numbers:

8C [Interpretation of party's statements or other conduct: interpretation in light of surrounding circumstances];

29A [Parties by agreement may modify or terminate contract];

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

85B [Seller's duty to preserve goods: seller in possession or controlling disposition of goods];

88A ; 88B ; 88C [Party obliged to control goods may sell them; Duty to sell; Right to retain reasonable expenses from proceeds of sale]

Descriptors: Intent ; Modification of contract ; Damages ; Preservation of goods ; Sale of goods

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Editorial remarks

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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

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Case text (English translation)

Queen Mary Case Translation Programme

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

Sausage casing case (18 December 2002)

Translation [*] by Zheng Xie [**]

Edited by John W. Zhu [***]

  1. Forward
  2. The arbitration procedure
  3. Facts
  4. The [Seller]'s position and claims
  5. The [Buyer]'s position and counterclaims
  6. The Opinion of the Arbitration Tribunal
  7. Award

I. FORWARD

1.1 The parties and their attorneys

The Claimant [Seller], Hebei __ Trade and Economic Company of the People's Republic of China filed this arbitration for the dispute arising from Sales Contract MG0609 (hereafter, the "Contract") of 13 June 2000 executed by and between the [Seller] and the Respondent [Buyer] __ of Germany.

The [Seller]'s attorney: __, Hebei __ Law Firm, Address: __, Zip Code: 050081. The [Buyer]'s attorney: Dr. __, __ & __, Address: __.

1.2 The arbitration clause

Article 9 of the Contract states:

"Disputes: All disputes arising from the execution of this sales contract shall be settled by both parties through friendly negotiation. In case no agreement can be reached, the dispute shall be submitted to CIETAC for arbitration. The award shall be final and binding upon both parties."

II. THE ARBITRATION PROCEDURE

2.1 The arbitration application and acceptance

On 26 October 2001, the [Seller] filed the arbitration application with the China International Economic and Trade Arbitration Commission [hereafter, the "Arbitration Commission"]. The Arbitration Commission accepted the case (Case number: G_____). On 27 November 2001, the Arbitration Commission sent the arbitration notice to the parties by express mail. The Arbitration Rules of the Arbitration Commission [hereafter, the Arbitration Rules] which took effect on 1 October 2000, apply to this case.

On 22 January 2002, the [Seller] submitted a written response containing counterclaims to the Arbitration Commission.

2.2 The formation of the Arbitration Tribunal

The [Buyer] appointed Mr. __ as its arbitrator and the [Seller] appointed Mr. __ as its arbitrator. According to Article 24 of the Arbitration Rules, the Chairman of the Arbitration Commission appointed Mr. __ as the presiding arbitrator. On 19 March 2002, these three arbitrators formed the Arbitration Tribunal to hear this case.

2.3 The language to be used in the arbitration

Because the [Buyer] and the [Seller] had a dispute on the arbitration language, according to Article 85 of the Arbitration Rules, the Secretariat of the Arbitration Commission (hereafter the "Secretariat") and the Arbitration Tribunal on 29 April 2002 made the following decisions:

      (1) Because the parties did not reach any agreement on the arbitration language, according to Article 85(1) of the Arbitration Rules, the official language of this arbitration shall be Chinese. Thus, the written statements submitted by the parties shall be in Chinese or with Chinese versions.

      (2) Considering the [Buyer] is a German company, according to Article 85(3) of the Arbitration Rules, the Secretariat and the Arbitration Tribunal hold that it is necessary for the parties to submit English versions of the written statements.

      (3) With respect to evidence, the party shall provide an English version for the evidence in Chinese, however, if it is in English, no corresponding Chinese version is required to be provided.

      (4) At the court session, the Secretariat will provide an English interpreter for the Arbitration Tribunal and the parties.

2.4 The court session

After reviewing the [Seller]'s application and the [Buyer]'s response, the Arbitration Tribunal held a court session in Beijing on 3 June 2002. Both the [Seller] and the [Buyer] were present at this court session.

2.5 Jurisdiction

The Arbitration Tribunal received a letter from the [Buyer]'s attorney on 25 December 2001 and the [Buyer]'s written response on 22 January 2002. In the letter and the written response, the [Buyer] alleged that the Arbitration Tribunal formed in accordance with the Arbitration Rules of the Arbitration Commission had no jurisdiction to this case.

On 9 January 2002 and 31 January 2002, the Arbitration Tribunal received two opinions from the [Seller] on the [Buyer]'s objection to the Tribunal's jurisdiction, respectively. The [Seller] alleged that the [Buyer]'s objection to the jurisdiction lacks basis.

After the court session, both parties submitted supplementary materials in this respect.

On 3 December 2002, the Arbitration Commission handed down the (2002) Mao Zhong Zi No.__ Decision on Jurisdiction. It was held that the Arbitration Commission had jurisdiction over this case and that the [Buyer]'s objection to the jurisdiction shall be dismissed.

III. FACTS

On 13 June 2000, the [Seller] and the [Buyer] entered into Sales Contract No. MG0609. It included the following provisions.

Goods. The [Seller] agreed to sell and the [Buyer] agreed to purchase 105 casks of pork sausage casing;
Contract price. 194,805 Deutsche Mark [DM] CIF Hamburg;
Shipping period. Before 20 July 2000;
Payment terms
. By T/T 10 days.

On 22 August 2000, the [Seller] sent a fax to the [Buyer] informing that the goods under Contract No. MG0609 would be shipped on 27 August 2000. On 23 August 2000, the [Buyer] replied by fax agreeing to this.

After receiving the goods on 19 October 2000, the [Buyer] sent a fax to the [Seller] on 23 October 2000 raising objection to the delayed delivery and the defects (including smell, size, color, etc.) of the goods. The [Buyer] requested the [Seller] to "take full settlement back" and compensate the [Buyer] for the loss.

On 24 October 2000, the [Seller] replied to the [Buyer] stating that it would come to Germany to examine the goods.

On 16 November 2000, the [Buyer] sent a fax to the [Seller] alleging that the goods caused considerable problems, and that because the smell of some casks was bad, the chief veterinary officer (CVO) did not permit the goods to be stored in the normal EU warehouse.

On 7 November 2000, the [Seller] informed the [Buyer] that it would go to Germany with the manager of the sausage casing factory to inspect the goods, and also suggested that the [Buyer] put the casks that smelled outside in order to release the smell.

On 8 November 2000, the [Buyer] informed the [Seller] that it had to rent another warehouse to store the casks that smelled bad, and that the [Seller] should be liable for the expense.

On 19 December 2000, the [Seller] and the [Buyer] jointly inspected the goods in Germany.

On 22 December 2000, the [Buyer] sent a fax to the [Seller] stating that __ Veterinary Bureau had inspected the goods, attached 88 casks of the goods, and required that the attached goods be immediately sent to the garbage disposal site.

On 23 December 2000, the [Seller] sent a fax to the [Buyer] requesting that 105 casks of the goods be shipped back to Xingang China, and stating that the China Import and Export Commodities Inspection Bureau (CCIB) would inspect the goods.

On 24 December 2000, the [Buyer] sent a fax to the [Seller] stating that it could not deal with the 88 sealed casks, but there were 17 casks which were not attached by the Veterinary Bureau. The [Buyer] also agreed that it would contact the Veterinary Bureau by cell phone during the holiday regarding the 88 attached casks of goods and would know the result next week.

On 29 December 2000, the [Seller] sent a fax to the [Buyer] with the following statements:

"In order to enlarge the market in Germany, we have tried to find new friends to compete in the market together with best quality of goods. So we adopted T/T payment which is the first time in our casing business history. Our desire is that we help our friends become capable competitors. Our desire is good. But we had no idea such a problem would occur (the problem with the smell).

"I believe both of us should consider our reputations and benefit as we are remain [sic] good business partners in the future. For the same aim, you are kindly requested to do your utmost to convince your veterinaries to release the 88 casks of casing. As a good partner, we guarantee that we will take the responsibility for the sea freight back to China as well as some of your loss during this business."

On 2 January 2001, the [Seller]'s attorney sent a fax to the [Buyer] stating:

"In your letter of 23 October 2000, you asked the [Seller] to take back the total shipment. During negotiations in your office on 19 December 2000, you repeated this request. In the [Seller]'s fax dated 23 December 2000, the [Seller] accepted your request although the [Seller] does not share your opinion on the quality of the goods.

"The [Seller] does not agree to the return of a part of the goods only.

"... In your fax dated 22 December 2000, you report that 88 casks were confiscated by the veterinary department. Unfortunately, the [Seller] did not receive any document related to this confiscation.

"If you claim that you cannot return the goods due to the confiscation, it would be necessary to furnish the [Seller] with substantial documentation to this effect."

On 3 January 2001, the [Buyer] faxed the written request, which was made by __ on 2 January 2001 and confirmed the oral request made on 22 December 2000 to the [Seller]'s attorney. On the same day, the [Seller]'s attorney confirmed that he received this request and at the same time informed the [Seller] that the Veterinary Bureau confirmed that the [Buyer] could execute this request by re-exporting the goods to China. The [Seller]'s attorney therefore asked the [Buyer] to return the goods.

On 4 January 2001, the [Buyer] informed the [Seller]'s attorney that the 88 casks of goods had been destroyed by ___on 28 December, 2000 and also faxed the delivery order to the [Seller]'s attorney.

On 5 January 2001, the [Seller]'s attorney requested the [Buyer] to ship the remaining 17 casks of goods back to China.

On 15 January 2001, the [Buyer] replied that it could ship the remaining 17 casks of goods back to China only after [Buyer] was compensated for the import/transportation expenses, the storage fee and the expense involved in destroying the goods, totaling 8,398 DM.

The [Seller] filed this arbitration because the [Buyer] failed to pay although urged to by the [Seller] several times.

IV. THE [SELLER]'S POSITION AND CLAIMS

4.1 The applicable law

Because both Germany and China are Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (CISG), the [Seller] states that the CISG and the international trade customs specified by the parties, such as CIF, are applicable to the instant case.

4.2 Formation of the Contract

The [Seller] alleged that the [Seller] and the [Buyer] had signed Contract No. MG0609 which includes a valid arbitration clause.

On 13 June 2000, the [Seller] faxed two pages together to the [Buyer]; the first page was a letter which specified that "We have sent the enclosed sales contract" and the second page was the sales contract. On the same day, the [Buyer] returned these two pages by fax; in the first page, the [Buyer] sealed and made some notes on SHIPPING MARK, NOTIFY PARTY, BANKERS, etc. by handwriting; on the second page, the [Buyer] signed and dated the document. Thus, the [Buyer] accepted the [Seller]'s offer. According to the CISG, Contract No. MG0609 was formed when the [Buyer]'s acceptance reached the [Seller].

The Sales Contract No. MG0609 submitted by the [Seller] was signed by the [Buyer]'s person in charge, Mr. __. The text of the fax submitted by the [Seller] was affixed with the [Buyer]'s name, address, time, etc. as a result of the settings of the [Buyer]'s fax machine.

4.3 The delivery time

On 22 August 2000, the [Seller] sent a fax to the [Buyer] requesting a postponement of the delivery date to 27 August 2000. The [Buyer] return the fax with the note "OK" added to show its acceptance and agreement.

4.4 The quality of the goods

The [Seller] alleged that it had delivered conforming goods, so it had performed its duty in accordance with the Contract.

Before the goods were loaded, the China Entry-Exit Inspection and Quarantine Bureau had inspected the goods and issued an "Animal Veterinary Certificate for Animal Casings Intended for Dispatch to the European Community" to prove that the goods had been properly prepared sufficiently to avoid contamination, and also, as an official veterinary agency, proved that the goods were complying with the requirements of the EU law and had no defects.

After receiving the [Buyer]'s fax on 23 October 2000, the [Seller] immediately replied proposing to go to Germany to inspect the goods. However, if the goods were "considerably short in AB quality," it would be more reasonable to agree on the [Buyer]'s proposal to dispose of the goods at a reduced price than for the [Seller] to go to Germany to re-examine the goods.

Because of the [Buyer]'s obstruction, the joint inspection by the parties was not completed, but the [Seller]'s representative still raised the following clear opinion on the goods inspected:

      (1) The top of each of the ten opened casks had a short code, but these short codes were not the same as those made in the [Seller]'s factory;

      (2) The salt used for the inspected goods was not the same as that the [Seller]'s factory used. The salt used in the inspected goods was uneven and not as purified as the salt the [Seller]'s factory used.

In sum, the goods inspected were not those delivered by the [Seller]. The [Buyer]'s supervisor was very angry with the [Seller] for expressing that opinion, but did not give any reasonable explanation. The [Seller] asked to continue the inspection, but the [Buyer]'s veterinary officer did not agree, alleging the odor of the goods as his reason. Thus, the joint inspected was not completed, and no final conclusion was reached. In order to solve the dispute, the [Seller] planned to apply to the China Commodity Inspection Corporation's Werder Bremen Office to objectively, fairly and impartially inspect the goods, but was unable to do so because the [Buyer] refused to coordinate and destroyed the goods without notifying the [Seller].

If the goods had serious defects, normally the [Buyer] should have applied to a neutral commodity inspection agency to conduct an objective, impartial and fair inspection of the goods and to issue an official inspection report as valid evidence. It was irrational for the [Buyer] to have destroyed the goods while the [Seller]'s representative was in Germany waiting for the goods to be shipped back to China.

In addition, the [Buyer]'s descriptions of the quality of the goods in faxes dated 23 October 2000, 6 November 2000 and 8 November 2000 conflict with each other.

4.5 Origin of the destroyed casks

The [Buyer] alleged that the Veterinary Agency of Germany inspected the goods on 22 December 2000 and orally required the destruction of the goods. However, this agency's written confirmation made on 2 January 2001 proved that the [Buyer]'s allegation was not in accord with the facts for the following reasons:

      (1) The goods delivered by the [Seller] had specific shipping marks, but the written document had no words to confirm that the goods inspected were those delivered by the [Seller].

      (2) The written document described the inspected goods as 85 casks, but not 105 casks, so the inspected goods were not those delivered by the [Seller].

      (3) The written document indicated that on 22 December 2000, the veterinary officer at the [Buyer]'s business place inspected the 85 casks of sausage casing imported from China, but the [Buyer]'s documents (i.e., the faxes sent on 6 November 2000 and 8 November 2000, respectively) showed that the goods delivered by the [Seller] had been transported to another warehouse on 22 November 2000 before the veterinary officer conducted the inspection. In addition, the [Buyer] requested the [Seller] to pay an additional storage fee from November 2000. Thus, it was impossible that the goods inspected by the veterinary officer were those delivered by the [Seller].

In order to prove that the goods delivered by the [Seller] had already been destroyed, the [Buyer] provided three delivery orders and one invoice, but these delivery orders and invoice could only prove that the [Buyer] delivered 88 casks of sausage casing to Germany __ Company on 27 and 28 December 2000, and paid 2,807.20 DM, but could not show that these 88 casks of sausage casing were those delivered by the [Seller].

4.6 Unauthorized destruction of the goods

Under the circumstances that the [Seller] did not admit the goods inspected and attached by the Veterinary Agency of Germany were those it delivered, the [Seller] alleged that the [Buyer] had no legal or contractual basis for destroying the goods.

      First, according to the written confirmation on 2 January 2001, the veterinary agency required the disposition of the goods, but did not exclude the possibility of returning the goods to China to solve the problem. When counseling with the veterinary agency, the [Seller] got the definite response that it was permitted to ship the goods back to China. If the [Buyer] had also counseling with the veterinary, the response should have been the same. Thus, it was the [Buyer] who unilaterally decided to destroy the goods.

      Second, according to the written confirmation, the veterinary agency did not require that the goods be disposed of immediately, but before 17 January 2001. The [Buyer] decided to destroy the goods on 27 and 28 December 2000 during the Christmas vacation, which was inconsistent with its allegation in the fax sent on 24 December 2000, "Final confirmed decision from them (veterinary authority) will be awaited during next week."

      Third, in the written confirmation, the veterinary agency clearly specified three remedies for the [Buyer] to obey the decision. Two of these remedies could suspend the execution of the decision. However, the [Buyer] neither tried these remedies nor informed the [Seller], but destroyed the goods.

      In addition, the written document signed on 2 January 2001 indicated that the decision was made after the veterinary agency discussed the matter with the [Buyer] and the [Buyer] agreed. Thus, the [Buyer] should be liable for the consequences caused by the [Buyer]'s irresponsible conduct.

4.7 The [Buyer]'s duty to ship the goods back to China

On 23 October 2000, the [Buyer] sent a fax to require the [Seller] to ship the entire goods back to China. After jointly inspecting the goods, on 19 December 2000 the [Buyer] proposed the same requirement in its office. Without admitting the goods had defects and that the goods inspected were those delivered by the [Seller], on 23 December 2000, the [Seller] sent a fax to the [Buyer] accepting its requirements of returning and shipping the goods back to China. According to the CISG, the parties reached an agreement on the disputed goods, which was binding on both parties. Thus, the [Buyer] had the duty to ship the goods back to China.

4.8 The fax sent by the [Seller] on 29 December 2000

The entire context of the fax sent by the [Seller] on 29 December 2000 should be considered. In this fax, the [Seller] first considered that there was mad cow disease at that time in the EU market. In order to find a new business partner and enlarge the German market with the best quality products, the [Seller] first adopted T/T as the payment method in its sausage casing transactions, so that its business partner (the [Buyer]) could be more competitive. However, an unpredictable event occurred. The [Seller] added "SMELL PROBLEM" in the fax because the product of sausage casing itself had a smell, and even the newly manufactured sausage casing had a smell. There had been no claims filed due to a smell problem in the former transactions. In addition, when by fax proposing to ship the goods back to China and compensate the [Buyer] for part of its losses incurred in this transaction, the [Seller] raised the precondition that the parties should keep their business cooperative relationship and the [Buyer] should persuade the Germany veterinary agency to permit the goods to be shipped back to China. This proposal by the [Seller] was a compromise in order to mitigate damages but not an admission that it had any fault for the quality disputes.

4.9 The [Seller]'s arbitration claims

The [Seller] requests the Arbitration Tribunal rule that

      (1) The [Buyer] should pay the [Seller] the contract price of 99,602.21 Euro (= 194,805.00 DM);

      (2) The [Buyer] should pay the [Seller] for the loss of interest on the overdue payment of contract price, i.e., 6,972.16 Euro (= 13,636.35 DM. The interest period is from 14 September 2000 to 14 November 2001, and the annual interest rate is 6%.) The [Seller] require the [Buyer] pay the interest until the payment is actually made.

      (3) The [Buyer] should pay the [Seller] for the expenses of 3,971.56 Euro (= 7,767.70 DM) including the transportation and accommodation expenses and the local attorneys' fee incurred when the [Seller] went to Germany to examine the goods.

      (4) The [Buyer] should pay the [Seller] for the roundtrip ticket of RMB 21,500.00 or equal value in Euro (calculated at the exchange rate of the day that the payment is actually made) which the [Seller] bought to go to Germany to inspect the goods.

      (5) The [Buyer] should pay the [Seller] for the attorneys' fee or equal value in Euro (calculated at the exchange rate of the day that the payment is actually made);

      (6) The [Buyer] should bear the entire arbitration fee.

V. THE [BUYER]'S POSITION AND COUNTERCLAIMS

5.1 The applicable law

The [Buyer] agrees that the CISG applies to the Contract between the [Seller] and the [Buyer].

5.2 Execution of the contract

The [Buyer] alleged that although the [Seller] and the [Buyer] signed the Contract for sales of 105 casks of sausage casing at the price of 194,805 DM, they did not reach any arbitration agreement.

The Contract was based on the fax sent by the [Seller] to the [Buyer] on 9 June 2000 which did not contain an arbitration clause. On 13 June 2000, the [Buyer] replied to the [Seller]'s fax.

The Sales Contract with the arbitration clause, i.e., Appendix I of the arbitration application, submitted by the [Seller], was not signed by the [Buyer]. The signature block under the item "Buyer" of this Contract did not contain the signature of Mr. __ nor of any employee or representative of the [Buyer]. In fact, the Sales Contract (i.e., the [Buyer]'s Appendix R27) which the [Buyer] has does not have the same signatures as those in the contract provided by the [Seller]. The [Seller] has the duty to explain the absence of signature.

5.3 Delayed delivery

The parties agreed that the delivery period was "before 20 July 2000". However, the 105 casks of sausage casing were not shipped until 4 September 2000, and the goods arrived in Hamburg, Germany on 19 October 2000.

The [Seller] submitted the fax sent to the [Buyer] on 22 August 2000 in which the [Seller] informed the [Buyer] that it had arranged for the goods to be shipped on 27 August 2000. The [Buyer] returned this fax to the [Seller] with a note "OK" to confirm receiving the fax. When returning the fax to the [Seller], the [Buyer] had no other expression other than to confirm receiving the fax and acknowledging the context of the fax. The note "OK" did not mean that the [Buyer] agreed on the delayed delivery or waive the right to claim for damages due to the delayed delivery.

5.4 Origin of the casks

When conducting inspection in Bornheim, Germany, the parties jointly opened the casks with seals in Chinese. Like the casks formerly opened, the newly opened casks were contaminated too. After jointly examining the newly opened casks, the parties did not discuss the origin and quality of the casks anymore.

The [Buyer] submitted to the Arbitration Tribunal all of the correspondence concerning the 105 casks of goods between the parties, in which neither the [Seller] nor its attorney had ever stated that the goods jointly inspected by the [Seller] and the [Buyer] were not those the [Seller] delivered.

On the contrary, after the joint inspection of the goods, the [Seller] sent a letter to the [Buyer] on 29 December 2000 confirming that it "had no idea such a problem happened (smell problem)," and promised to "take responsibility for sea freight back to China as well as some of your loss during this business." If the goods which the [Seller] inspected were not those it delivered, the [Seller] would not have agreed to compensate the [Buyer] for "loss during this business."

In addition, the [Seller] asked the [Buyer] to return the 105 casks of sausage casing to China and to contact the veterinary agency to release the attached goods, which indicated that the [Seller] admitted that the goods were those it manufactured. If the [Seller] did not think the goods were those it delivered, how could it promise to take responsibility to ship the goods back to China and to tell the veterinary agency that it shipped the goods to Germany?

5.5 Non-conforming quality of the sausage casing

The [Buyer] submitted sufficient evidence to prove that the goods which the [Seller] delivered were not conforming.

The [Seller] confirmed that the quality of sausage casing was not conforming in its fax sent on 29 December 2000, and agreed to compensate the [Buyer] for "loss in this business." This fax was written and sent after the joint inspection of the 105 casks of goods, and clearly proved that the casks had a bad odor.

The veterinary agency (1) did not permit the 105 casks of goods to be stored in the [Buyer]'s daily warehouse; (2) attached the 105 casks of goods; and (3) required the destruction of the goods. The above facts sufficiently prove that the sausage casing delivered by the [Seller] had been contaminated. The veterinary agency also confirmed the above issues in its documents issued on 2 January 2001.

The [Seller] alleged that Animal Veterinary Certificate for Animal Casings Intended for Dispatch to the European Community issued by China Entry-Exist Inspection and Quarantine Bureau sufficiently proved that the goods were conforming. However, it must be noted that this certificate was issued on 25 July 2000, but the 105 casks of sausage casing were shipped on 4 September 2000. Thus, the goods had been shipped six weeks later.

5.6 The 88 casks of goods that were destroyed

On 22 December 2000, the Rhein-Sieg-Kreis Veterinary Bureau inspected the casks and was surprised at the condition of the goods. The veterinary officer, Dr.___, immediately sealed 88 casks of goods and required the [Buyer] destroy the goods immediately.

On 2 January 2001, the president of the Rhein-Sieg-Kreis Veterinary Bureau, Mr. __, confirmed Dr. __'s oral order by a written order, which stated that:

   (1)  It is correct for Dr. __ to seal the goods on 22 December 2000 and these goods should be separated from other goods;
   (2)  The sausage casing shall be disposed of;
   (3)  Written materials shall be submitted before 17 January 2001 to prove the disposal of the goods;
   (4)  This order shall be executed immediately.

After failing to persuade the veterinary bureau to release the goods, in order to follow the Rhein-Sieg-Kreis veterinary bureau's order, the [Buyer] transported the 88 casks of sausage casing with bad odor to __ at Viersen on 27 December 2000. This company, which specializes in disposing of animal remains, charged the [Buyer] 1,237.33 Euro (2,420 DM) to dispose of the 88 casks of sausage casing.

The [Buyer] provided the invoice issued by __ on 29 December 2000 to prove that it paid 1,237.33 Euro (2,420 DM) for disposing of the 88 casks of sausage casing. In addition, the delivery note submitted by the [Buyer] was executed by __, which can also confirm that __ has received the 88 casks of sausage casing delivered by the [Buyer].

The [Buyer] alleged that it had provided sufficient evidence to prove that the 88 casks of goods had been disposed of by __; the [Seller] only raised the objection to the disposal of the goods, but did not provide any evidence to support its objection.

5.7 The legal basis for the disposal of the goods

The legal basis for disposing of the 88 casks of sausage casing was the oral order issued by Dr. Mann of Rhein-Sieg-Kreis on 22 December 2000. According to German public law, the state government can make an oral order, and the oral order has the same validity and binding power as a written order. North Rhine-Westphalia, the state where the [Buyer] was, has the same stipulation according to Article 37 Clause 2 and Article 43 of the State Administrative Procedure Law.

Accordingly, when the sausage casing was disposed of on 27 and 28 December 2000, the [Buyer] had the legal duty to dispose of the 88 casks of goods immediately according to the Veterinary's order.

The [Buyer] alleged it should be emphasized that the written confirmation issued by the Veterinary Bureau on 2 January 2001 did not make the former oral order invalid, but only confirmed the existing, valid and binding oral administrative order made on 22 December 2000.

At the court session held on 3 June 2002, the [Seller] raised objection to the written confirmation issued by the Veterinary Bureau.

The [Seller] alleged that the written confirmation issued by the Veterinary Bureau only described 85 casks of sausage casing but not 88 casks. As to this allegation, the [Buyer] provided the letter sent by the [Buyer] on 9 January 2002 (one week after the Veterinary Bureau issued the written document on 2 January 2002). In this letter, the [Buyer] stated that the correct number should be 88 not 85. In addition, because the [Seller] raised the issue of the number of casks at the court session on 3 June 2002, the [Buyer] contacted the Veterinary Bureau and requested it to verify the fact.

On 26 June 2002, the Veterinary Bureau confirmed the [Buyer]'s correction and explained that it did not rectify the number "85" in the written confirmation dated 1 January 2001 because the [Buyer] has submitted the proof evidencing the disposal of the 88 casks of goods.

In addition, the Veterinary Bureau again confirmed Dr. __'s oral order of 22 December 2000 that the 88 casks of sausage casing should be sent to a company specializing in disposing of animal remains for disposal.

The [Seller] also requested the Arbitration Tribunal to note that the second paragraph in the written confirmation mentioned that the [Buyer] agreed to this order. From the legal perspective, it does not matter whether the corresponding party agrees to the order; in other words, to make an order binding does not need the corresponding party's agreement. The only condition for the Veterinary Bureau to make the order is the necessity to dispose of the sausage casing in order to protect public health.

The time described in Item 3 of the written confirmation only refers to when the proof of disposing of the sausage casing was submitted, and it shall consider the time needed to provide such evidence (such as providing the invoice). However, the time did not affect the [Buyer]'s obligation to follow the order to dispose the sausage casing. The [Buyer] had asked Dr.__ whether the law permitted the return of the goods to China; Dr. __ replied the law did not permit that.

The correspondence sent by the Veterinary Bureau on 26 June 2002 confirmed the above fact.

According to item 4 of the written confirmation, the order should be immediately executed, which means appealing to either the Veterinary Bureau or the administrative court would not temporarily stop execution of the order.

Meanwhile, the [Seller] also contacted the Veterinary Bureau in order to get the goods released. With its attorney's assistance, the [Seller] got the Rhein-Sieg-Kreis Veterinary Bureau's confirmation permitting the return of the defective goods to China. However, the [Buyer] did not know of the negotiation between the [Seller] and the Veterinary Bureau.

The [Buyer] alleged that even if the [Buyer] disposed of the 88 casks of the goods too early, the [Seller] had no right to claim for the contract price. The [Seller] had only the right to request the [Buyer] to pay the actual value of the 88 casks of sausage casing. Because the quality of the sausage casing delivered by the [Seller] was not conforming and must be disposed of, the 88 casks of goods were of no value at all.

5.8 The [Buyer]'s counterclaims

Because the sausage casing delivered by the [Seller] was not conforming, until 14 December 2001 the [Buyer] incurred the following losses:

      (1) Import expenses of 996.00 Euro (= 1,948.00 DM);

      (2) Transportation expenses/labor fee of 899.87 Euro (= 1,760.00 DM);

      (3) Charges by Gustav Denzin GmbH for disposing of the sausage casing, i.e., 1,237.33 Euro (= 2,420.00 DM);

      (4) Storage fee incurred in November 2000, i.e., 536.86 Euro (= 1,050.00 DM);

      (5) Storage fee incurred in December 2000 (105 casks, 5.11 Euro/cask/month = 10.00 DM);

      (6) Storage fee incurred in 2001, i.e., 5,215.18 Euro (= 10,200.00 DM) (17 casks, 25.56 Euro/cask/month = 50.00 DM).

In addition, the storage fee for 17 casks incurred from January to June 2002. This fee is 17 casks 25.56 Euro (50.00 DM) 6 months = 2,607.12 Euro, which includes the charges for necessary maintaining sausage casing, and monthly washing and salting.

Thus, until June 2002 the [Buyer] incurred the total loss of 12,029.20 Euro.

If the Arbitration Tribunal holds the [Seller] is entitled to the contract price for the 17 casks of goods, the [Buyer] requests to offset this amount against 12,029.00 Euro, the amount for which the [Buyer] counterclaims.

5.9 The arbitration fee

The [Buyer] incurred the following expenses for this arbitration: (1) the pre-payment to the Arbitration Commission, i.e., US $10,000; (2) the arbitration fee for the counterclaims, i.e., US $1,205; (3) the attorneys' fee (including added value tax) of 15,119 Euro; (4) the expenses of 5,057.05 Euro incurred on 3 June 2002.

According to the foreign exchange rate of 1 Euro: 0.96 and US $ : 7.97 RMB, the [Buyer] incurred 31,717.20 Euro until 3 June 2002.

5.10 The [Buyer]'s conclusion

The [Seller] delivered defective and non-conforming goods, and in accordance with Article 39(1) of CISG, the [Buyer] raised the timely objection to the quality of the goods. Thus, the [Seller] is not entitled to the contract price for the 88 casks of defective sausage casing.

Even if, as the [Seller] alleged, the [Buyer] disposed of the 88 casks of defective sausage casing too early, the [Seller] has no right to claim for the contract price, because this contract price was determined based on conforming goods, and the 88 casks of defective sausage casing had no value at all.

As to the remaining 17 casks of sausage casing, according to Article 45(1)(b) and Article 74, the [Buyer] has the right to claim for damages due to the non-conforming goods delivered by the [Seller]. Until June 2002, the total loss incurred was 12,029.20 Euro. According to the above stipulation, when the [Seller] did not perform the duty to deliver conforming goods in accordance with the Contract, the [Buyer] has the right to claim for damages. Under Article 30 of CISG, the [Seller] has the duty to deliver conforming goods. However, the [Seller] delivered 88 casks of defective and non-conforming goods.

The [Seller]'s claim for traveling expenses lacks basis. It was for the [Seller]'s own benefit to inspect the 105 casks of goods. Through the inspection, the [Seller] could prove the [Buyer]'s objection to the quality of the goods and know the [Buyer]'s objection was valid. Because the [Seller] has no right to claim for the contract price, it was not entitled to interest on the amount claimed.

According to Article 59 of the Arbitration Rules, the Arbitration Tribunal has the power to rule that the losing party shall compensate the winning party for a proportion of the reasonable expenses incurred for the case. Because the [Seller]'s claims lack any legal basis, the [Seller] should compensate the [Buyer] for the expenses according to the above stipulation.

VI. THE OPINION OF THE ARBITRATION TRIBUNAL

6.1 The applicable law

Because the countries in which the [Seller]'s and the [Buyer]'s places of business places are located, the People's Republic of China and Germany, are Contracting States of the United Nations Convention on Contracts for the International Sales of Goods (CISG), and the parties agree that the CISG applies to this case, the Arbitration Tribunal rules that the CISG applies to this case.

6.2 Conclusion of the contract

The [Buyer] confirmed that the [Seller] and the [Buyer] concluded an agreement for the sale of 105 casks of sausage casing at the price of 194,805 DM. The parties agreed that the delivery date was before "20 July 2000", but the [Buyer] alleged that the signature block in the item "Buyer" of Contract No. MG0609 submitted by the [Seller] was signed neither by Mr. __, the [Buyer]'s only authorized person to contract with the [Seller], nor by the [Buyer]'s employee or other representative.

According to Appendix R1 and Appendix R27 provided by the [Buyer], the Arbitration Tribunal holds that the [Buyer] actually received both the fax stating "We have sent the enclosed sales contract" sent by the [Seller] on 9 June 2000, and Sales Contract No. MG0609 attached to the fax. Because on 13 June 2000 the [Buyer] sealed the [Seller]'s fax, expressed "OK" to the Contract attached, and returned this fax to the [Seller], the Arbitration Tribunal holds that the [Buyer] accepted the [Seller]'s offer sent on 9 June 2000, so the Contract was concluded and included the provisions in Contract No. MG0609 attached by the [Seller].

6.3 The origin of the disposed goods

In this arbitration, the [Seller] denied that the goods sealed by the Veterinary Bureau of Germany were those it delivered. After reviewing all of the correspondence between the parties, the Arbitration Tribunal did not find that the [Seller] had raised this objection before this arbitration. The [Buyer] informed the [Seller] that the 88 casks of goods were sealed by the Veterinary Bureau on 22 December 2000. If the [Seller] had any objection to the origin of the goods, it should have immediately raised such objection to the [Buyer] or the Veterinary Bureau; at that time it was easier to ascertain whether the goods inspected were delivered by the [Seller]. It is obviously unreasonable for the [Buyer] not to raise this objection until after the goods were disposed of and the arbitration was filed. The [Seller] did not provide any definite evidence to support its objection other than the doubt raised according to the written confirmation issued by the Veterinary Bureau on 2 January 2001. Thus, the Arbitration Tribunal does not support the [Seller]'s allegation that the goods inspected were not those it delivered.

6.4 The quality of the goods

The [Seller] alleged that it delivered conforming goods and performed its duty under the Contract. In support of this, the [Seller] provided the Animal Veterinary Certificate for Animal Casings Intended for Dispatch to the European Community issued by China Entry-Exit Inspection and Quarantine Bureau on 25 July 2000, i.e., more than one month before the goods were shipped.

The Arbitration Tribunal finds that the Contract did not stipulate on inspection of the goods or on matters related to objection to the quality of the goods. However, Article 38(1) CISG states:

"The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances."

And Article 39(1) states:

"The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it."

In fact, the [Buyer] conducted the inspection immediately after the goods arrived, and immediately informed the [Seller] of the defects. The [Seller] went to Germany and jointly inspected the goods with the [Buyer] on 19 December 2000.

The [Seller] alleged that during the joint inspection, the [Seller] stated that the goods inspected were not the goods that had been delivered by the [Seller], and that the [Buyer] was very angry. However, the [Seller] did not raise this statement in any correspondence between the parties; on the contrary, it agreed to ship the goods back to China while jointly conducting the inspection. After the 88 casks of goods were sealed, on 29 December 2000, the [Seller] request the [Buyer] to "ship the 105 casks of goods back to China." On 29 December 2000, the [Seller] stated in its fax, "we had no idea such a problem happened (smell problem)," and agreed to "take responsibility for sea freight back to China as well as some of your loss during this business."

Accordingly, the Arbitration Tribunal holds that the 88 casks of goods inspected by the Veterinary Bureau of Germany were those which the [Seller] delivered, and were not conforming to the Contract.

6.5 The disposal of the 88 casks of goods

The [Seller] alleged that there was no legal and contractual basis for the [Buyer] to dispose of the 88 casks of the goods.

The [Buyer] submitted to the Arbitration Tribunal the written administrative order which confirmed the oral order made on 22 December 2000. According to this order, the sealed goods were to be immediately disposed by safe methods. The [Buyer] also submitted the delivery note which shows that the 88 casks of goods were delivered to __, and the invoice which shows that __ received the payment of 2,420 DM for disposing of the goods.

The Arbitration Tribunal finds that, according to German law, the oral order made by Veterinary Bureau of Germany on 22 December 2000 was an effective administrative order, and the [Seller] did not raise any objection to its validity. According to this order, the [Buyer] had the duty to dispose of the goods immediately. In addition, in the correspondence sent to the [Buyer] on 27 June 2002, the Veterinary Bureau of Germany confirmed that, according to the oral order, the 88 casks of goods were to be disposed of immediately at the animal remains disposal site. It was not until 4 January 2001 that the [Seller] got permission from the Veterinary Bureau of Germany to have the goods re-exported to China; so the Arbitration Tribunal holds that the [Buyer] neither had any fault nor did the [Buyer] conduct itself in an unreasonable manner by delivering the 88 casks of goods to __ for disposal.

According to the above item 6.4 and item 6.5, the Arbitration Tribunal holds that the [Seller] is not entitled to the contract price of the sealed 88 casks of the goods and interest on that amount. Considering that the 88 casks of goods delivered by the [Seller] were disposed of due to the quality problems, the Arbitration Tribunal holds that the [Seller] should bear its own expenses including accommodation, transportation, local attorneys' fee and airplane ticket, etc. incurred when going to Germany for the inspection.

6.6 The remaining 17 casks of goods

Because on 23 December 2000, the [Buyer] requested to return the goods, and when doing the joint inspection, the [Seller] agreed to have goods shipped back to China, the [Buyer] has the duty to return the remaining 17 casks of goods to the [Seller]. On 15 January 2001, the [Buyer] agreed to return the goods on the condition that it was compensated for the import/transportation expenses, the storage fee and the charges for disposing the goods, totaling 8,398 DM.

The [Buyer] filed counterclaims requesting the [Seller] to compensate for its loss incurred due to the nonconforming goods. The loss was 12,029.20 Euro through 30 June 2002. According to Article 45(1) CISG, the [Buyer] has the right to request the [Seller] to compensate for the loss caused by the nonconforming goods. However, except for the disposal charge of 2,340 DM, the [Buyer] did not submit any evidence including invoices to support the amount which it request in the counterclaims. Thus, except for the disposal charge, the Arbitration Tribunal does not accept the amount which has no evidence supporting it.

The remaining 17 casks of the goods were not sealed and had value, and the [Buyer] did not return them to the [Seller]; thus, the [Seller] is entitled to the contract price.

The Arbitration Tribunal notes that Article 50 of CISG states

"If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time."

However, the [Buyer] did not provide any evidence to prove whether and to what extent the quality of these goods affected their value. Thus, the Arbitration Tribunal holds that the [Buyer] shall pay the [Seller] for the contract price of the remaining 17 casks of the goods as 194,805 DM / 105 casks 17 casks = 31,539.86 DM.

The [Buyer] alleged that if the Arbitration Tribunal rules that the [Seller] is entitled to the contract price of the remaining 17 casks of the goods, it requests that this contract price be offset by the [Buyer]'s counterclaim. The Tribunal accepts this request to the following extent. After the disposal charge of 2,420 DM is deducted, the [Buyer] shall pay the [Seller] 29,119.86 DM, equal to 14,888.74 Euro according to the foreign exchange rate adopted by the parties.

Because the amount to which the [Seller] is entitled will be determined after this award is made, the Arbitration Tribunal does not support the [Seller]'s claim for interest.

6.7 The expenses incurred for this arbitration

Article 59 of the Arbitration Rules states:

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

Considering the result of this case, the Arbitration Tribunal holds that each party shall bear its own expenses incurred for this case.

6.9 The arbitration fee

Article 58 of the Arbitration Rules states;

"The Arbitration Tribunal has the power to determine in the arbitral award the arbitration fee and other expenses to be paid to the Arbitration Commission."

Considering the result of this case, the [Seller] shall bear a majority of the arbitration fee. The Arbitration Tribunal holds that the [Seller] shall pay 80% of the arbitration fee and the [Buyer] shall pay 20%.

VII. AWARD

The Arbitration Tribunal handed down the following award:

   (1)   The [Buyer] shall pay the [Seller] the contract price of 14,888.74 Euro;
 
   (2)   The arbitration fee is RMB 42,332 and US $11,205, of which the [Seller] shall pay 80%, i.e., RMB 33,865.6 and US $8,964, and the [Buyer] shall pay 20%, i.e., 8,466.4 and US $2,241. The [Seller] has prepaid RMB 42,332 to the Arbitration Commission, and the [Buyer] has prepaid US $11,205 to the Arbitration Commission. According to the foreign exchange rate of 1 US $ : 8.3 RMB, the [Seller] shall pay the [Buyer] for the arbitration fee, i.e., US $7.943.95.
 
   (3)   The other claims of the [Seller] and the [Buyer] are dismissed.

This is the final award which is binding on both parties.

PRESIDING ARBITRATOR:
ARBITRATOR:


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the People's Republic of China is referred to as [Seller]; Respondent of Germany is referred to as [Buyer]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the former currency of Germany (Deutsche Mark) are indicated as [DM]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.

*** 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.

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Pace Law School Institute of International Commercial Law - Last updated December 5, 2012
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