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CISG CASE PRESENTATION

China 30 December 2002 CIETAC Arbitration proceeding (Manganese case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/021230c1.html]

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

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Case identification

DATE OF DECISION: 20021230 (30 December 2002)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2002/30

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Luxembourg (respondent)

GOODS INVOLVED: Manganese


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission (CIETAC) 30 December 2002 (Manganese case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/98],
CLOUT abstract no. 978

Reproduced with permission of UNCITRAL

Abstract prepared by Alexander Shindler

This case deals with a fundamental breach by the buyer where the buyer failed to take delivery of the goods and pay the price, causing the seller to incur various fees and having to resell the goods for a lower price.

The Chinese seller contracted with a buyer from Luxembourg for the sale of manganese, CFR (cost and freight) Rotterdam. The seller shipped the goods to Rotterdam, but the buyer neither took delivery of the goods nor did pay for them. The seller persistently urged the buyer to pay for the goods under article 53 CISG. While the buyer initially faxed the seller a letter that it would pay the price, later it refused to make the payment. As a result, the goods remained at the destination port, and the shipping agent began charging the seller demurrage and dock rental fees. To mitigate its losses, the seller arranged to resell the goods, but it incurred a loss because the market price of manganese was dropping.

The arbitral tribunal ruled that the buyer fundamentally breached the contract and is therefore liable under articles 61 and 64 CISG. The seller fulfilled its obligation to deliver the goods, but the buyer refused to take delivery of the goods and make payment, which constituted a fundamental breach of the contract. The subsequent resale of the goods by the seller under article 75 CISG was a reasonable measure to mitigate the damages under article 77 CISG. Because the market price was decreasing, the seller suffered a loss represented by the price difference after reselling the goods. The tribunal further found that the buyer must compensate for the various costs incurred by the seller.

The tribunal held that the seller was not entitled to interest on a bank loan which the buyer did not foresee when concluding the contract with the seller. The tribunal also denied the seller's claim for interest that the seller would have earned had the buyer paid the purchase price because ultimately the seller was able to resell the goods and already obtained the price difference.

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 53 ; 64 ; 74 ; 75 ; 77 ; 78 [Also cited: Article 61 ]

Classification of issues using UNCITRAL classification code numbers:

53A [Buyer's obligation to pay price of goods];

64A1 [Seller's right to avoid contract (grounds for avoidance): fundamental breach of contract];

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

75A1 [Damages established by substitute transaction after avoidance: resale by aggrieved seller];

77A [Obligation to take reasonable measures to mitigate damages];

78A [Interest on delay in receiving price or any other sum in arrears]

Descriptors: Price ; Avoidance ; Damages ; Cover transactions ; Interest

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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

Manganese case (30 December 2002)

Translation [*] by Meihua Xu [**]

Edited by Zheng Xie [***]

-   Particulars of the proceeding
-   Facts
-   Position of the parties
-   Opinion of the Arbitration Tribunal
-   Award

PARTICULARS OF THE PROCEEDING

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

   -    The arbitration clause in Sales Contract No. 020141 signed by Claimant [Seller], China Tianjin __ International Trade Company, and Respondent [Buyer], __ Industrial S.A., on 6 April 2001; and
 
   -    The written arbitration application submitted by [Seller] on 25 December 2002.

The Arbitration Rules of the Arbitration Commission (hereafter, the "Arbitration Rules"), which took effect on 1 October 2000, apply to this case.

Because the disputed amount is less than renminbi [RMB] 500,000, according to Article 64 of the Arbitration Rules, Section Three, the Summary Procedure of the Arbitration Rules applies to this case.

On 4 September 2002, the Secretariat of the Arbitration Commission sent to the [Buyer] the arbitration notice, the [Seller]'s arbitration application, the attached evidence, the Arbitration Rules, and the arbitrators' name list via express mail based on the address provided by the [Seller]. The acknowledgement of the delivery company indicated that the [Buyer] received the aforesaid documents on 11 September 2002.

Because the [Buyer] and the [Seller] failed to jointly appoint a sole arbitrator within the time stipulated in the Arbitration Rules, according to Article of 65 of the Arbitration Rules, on 18 October 2002, the Chairman of the Arbitration Commission appointed __ as the sole arbitrator forming the Arbitration Tribunal to hear this case.

On 18 October 2002, the Secretariat of the Arbitration Commission sent the Arbitration Tribunal formation notice to the [Buyer] via express mail. The acknowledgement of the delivery company indicated that the [Buyer] received the aforesaid notice on 23 October 2002.

The Arbitration Tribunal examined the [Seller]'s arbitration application and the attached documents, and scheduled a court session on 3 December 2002 in Beijing. On 22 October 2002, via fax and express mail, respectively, the Arbitration Tribunal sent the court session notices to the parties through the Secretariat of the Arbitration Commission.

On 14 November 2002, the [Seller] submitted supplementary documents to the Arbitration Tribunal, which were forwarded by the Secretariat of the Arbitration Commission to the [Buyer] on 15 November 2002 via express mail.

On 3 December 2002, the court session was held in Beijing. The [Seller] sent its arbitration agent to attend the court session; however, after being notified, the [Buyer] was absent without any explanation. According to Article 42 of the Arbitration Rules, the Arbitration Tribunal processed this case by default. At the court session, the agent of the [Seller] stated the facts and reasons for its arbitration claims, clarified its arbitration claims, and made a statement on the facts and legal issues of this case. The Arbitration Tribunal investigated and confirmed the facts of this case.

After the court session, the [Seller] submitted supplementary evidence. On 3 December 2002, the Secretariat of the Arbitration Commission sent (2002) Mao Zhong Zi __ Notice to the [Buyer] via fax and express mail, respectively, notifying the [Buyer] of the court session held on 3 December, forwarding the supplementary evidence submitted by the [Seller] after the court session, and requesting the [Buyer] to submit a written document to the Secretariat of the Arbitration Commission prior to 10 December 2002 if it had any opinion or objection to this case and advised that, otherwise, the Arbitration Tribunal would not accept any document.

This case has been concluded. The Arbitration Tribunal handed down the award within the time stipulated in the Arbitration Rules based on the submitted written material and the court session.

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

FACTS

On 6 April 2001, the [Buyer] and the [Seller] signed Sales Contract No. 020141 (hereafter, the "Contract") with the following terms:

   -    Goods: The [Seller] is to sell 60 tons of manganese (hereafter, "the Goods") to the [Buyer];
   -    Price: The unit price is US $1,420/ton CFR Rotterdam, Netherlands, totaling US $85,200;
   -   Delivery date: June 2001;
   -   Payment: D/P spot;
   -   Loading port: Major port in China;
   -   Destination port: Rotterdam, Netherlands;

The [Buyer] and the [Seller] also reached an agreement on insurance, inspection and compensation issues.

POSITION OF THE PARTIES

[Seller]'s position

The [Seller] alleged that on 22 June 2001, the [Seller] delivered the Goods from Shenzhen, China to Rotterdam, Netherlands and the Goods arrived at Rotterdam port on 24 July 2001. Because the [Buyer] failed to take delivery of the Goods on time, three days after the goods arrived at the destination port, the shipping agent in Rotterdam started charging a demurrage fee and dock rental fee. The [Seller] urged the [Buyer] by calling the [Buyer] continuously and sent a fax to the [Buyer] on 2 August 2001, asking it to make payment and take delivery of the goods. On 3 August 2001, the [Buyer] faxed to the [Seller], promising that it would make payment the week after 3 August, which was 11 August 2001. However, the [Seller] did not receive the [Buyer]'s payment.

On 14 August 2001, the [Seller] again urged the [Buyer] to make payment, and on 17 August 2001, the [Buyer] faxed to the [Seller] refusing to make payment. On the same day, the [Seller] faxed to the [Buyer] declaring that the [Seller] was going to claim damages caused by the [Buyer]'s breach through arbitration. Later, the [Seller] asked the [Buyer] to make payment repeatedly, but with no result.

Three days after the Goods arrived at the destination port, the shipping agent in Rotterdam started charging a demurrage fee and dock rental fee. On 27 August 2001, the [Seller] sent a fax to the [Buyer], asking it to return the shipping documents and stating that the [Seller] would keep the goods at the warehouse in Rotterdam for a while and that the [Seller] would claim compensation from the [Buyer] after reselling the Goods. Later, the [Seller] mailed the shipping documents returned from the [Buyer] to ___ Warehouse in Rotterdam and stored the Goods in the aforesaid warehouse on 10 September 2001.

At that time, the market price of manganese was dropping.

   -    On 4 February 2002, the [Seller] sold 20 tons of Goods to __ (Luxembourg) Company at US $820/ton;
 
   -    On 29 March 2002, the [Seller] sold 20 tons of Goods to __ Industrie AG Company at US $820/ton;
 
   -    On 11 June 2002, the [Seller] sold another 20 tons of Goods to __ Company at US $760/ton.

Due to the [Buyer]'s nonperformance of its contract duties, the [Seller] has suffered economic losses. Therefore, according to Article 16 of the Contract, the [Seller] filed the arbitration application with the Arbitration Commission.

Based on the aforesaid reasons, the [Seller] asks the Arbitration Tribunal to rule that:

1. The [Buyer] should compensate the [Seller] for the losses as follows:

(1) Loss of price difference (loss suffered by the [Seller] due to reselling the Goods at the market price), totaling US $37,600, of which:

(US $1,420 - US $800) 20MT = US $12,400
(US $1,420 - US $820) 20MT = US $12,000
(US $1,420 - US $760) 20MT = US $13,200

Total: 60MT = US $37,600

(2) The demurrage charge and dock rental fee: US $6,856

(3) Storage fee: US $555.72 + US $319.15 + US $437.43 = US $1,312.30

(4) Enlarged interest due to the [Buyer]'s non-payment: When purchasing the goods from China, the [Seller] asked its headquarter in Korea to issue the L/C, so the interest was submitted by the bank in Korea as follows:

US $85,200 18% 42/365 = US $1,789.19 (It should be US $1,764.69 - Note by the Arbitration Tribunal) (20 July 2001 - 30 August 2001)

US $85,200 9% 320/365 = US $6,722 (1 September 2001 - 20 July 2002)

Total: US $8,486 (It should be US $8,486.69 - Note by the Arbitration Tribunal)

The above totals US $54,279.49 (It should be US $54,254.99 - Note by the Arbitration Tribunal)

2. The [Buyer] should bear the entire arbitration fee.

3. The [Buyer] should bear the entire expenses including traveling fee and other expenses incurred by the [Seller] to process this case.

The [Buyer] failed to submit a response to the [Seller]'s claims.

OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The Arbitration Tribunal notes that the [Seller] and the [Buyer] did not stipulate the applicable law in the Contract; therefore, the Arbitration Tribunal shall decide the applicable law. The [Buyer] is a company registered in Luxembourg ___ and the [Seller] is a company registered in China. Both China and Luxembourg are Contracting States of the CISG, so the CISG shall be the applicable law. When there is no definite stipulation in the CISG, according to the stipulations on conflicts of law in China, where the place of arbitration is, and the law where the [Seller]'s place of business is, Chinese law shall be applied.

2. The effectiveness of the Contract

The Arbitration Tribunal deems that the Contract was signed by the [Buyer] and the [Seller] based on mutual agreement, and that both parties had the subject capacity to sign the Contract. The terms in the Contract, which reflect the true minds of the two parties, satisfy the general requirements for the effectiveness of a contract, and do not violate the stipulations in Chinese laws, so the Contract is true and effective. The parties did not raise any objection to this; therefore, the Arbitration Tribunal holds that the Contract is the basis to determine the rights and duties of the parties.

3. The performance of the Contract

The Arbitration Tribunal notes that the fax provided by the [Seller] indicates that the Goods arrived at the destination port, Rotterdam, Netherlands, on 24 July 2001. After the arrival of the goods, the [Seller] faxed to the [Buyer] on 2 August 2001 and 14 August 2001, respectively, asking the [Buyer] to make payment and to take delivery of the goods. However, the [Buyer] failed to do so. The [Seller] had told the [Buyer] that if the [Buyer] failed to make payment and take delivery of the goods, the [Seller] was going to settle the dispute through arbitration and would report the [Buyer]'s breach via media, but the [Buyer] still failed to perform the Contract.

Based on the aforesaid facts, and considering that the [Buyer] failed to provide any evidence proving that its refusal to make the payment is reasonable, the Arbitration Tribunal deems that the [Seller] has fulfilled its obligation to deliver the goods as stipulated in the Contract, and that the [Buyer] failed to make payment and take delivery of the goods, which has constituted a breach of the Contract. Therefore, the [Buyer] shall be liable.

4. [Seller]'s arbitration claims

      (1) Loss of price difference

      The [Seller] alleged that after it delivered the goods to the destination port in accordance with the Contract, the [Buyer] delayed taking delivery of the goods, with the result that demurrage was incurred. After repeatedly being urged by the [Seller], the [Buyer] still refused to make payment and take delivery of the goods. At that time, the market price for Manganese had dropped. In order to avoid further damages, the [Seller] had to resell the goods to other buyers. The [Seller] provided the following evidence to prove the aforesaid allegation:

(1) The three sales contracts which the [Seller] entered into to resell the goods at a discounted price;

(2) Three bank documents indicating that the [Seller] received three payments under the aforesaid three contracts.

Regarding the aforesaid evidence, neither did the [Buyer] give any opinion or raise objection, nor was there inconsistency in the evidence, so the Arbitration Tribunal holds that the facts supported by the evidence are true.

Based on the aforesaid facts, the [Seller] has fulfilled its obligation to deliver the goods, but the [Buyer] refused to take delivery of the goods and make payment, which is a fundamental breach of the Contract. When the [Buyer] refused to take delivery of the goods, the market price for Manganese was decreasing. The [Seller] resold the goods at the destination port by three contracts, which were reasonable measures taken by the [Seller] to mitigate the loss. The Arbitration Tribunal notes that the unit price in the Contract in this case was US $1,420/MT.

   -    On 4 February 2002, the [Seller] signed a contract with __ (Luxembourg) __ Company for the sale of 20 tons of Goods at a unit price of US $800/ton, totaling US $16,000. The document issued by the bank indicates that the buyer has made the aforesaid payment. As to this contract, the [Seller] suffered a loss of price difference of (US $1,420 - US $800) 20MT = US $12,400.
 
   -    On 29 March 2002, the [Seller] signed a contract with __ Industrie AG Company for the sale of 20 tons of Goods at a unit price of US $820/MT, totaling US $16,400. The [Seller] has received the payment made by the buyer, and the loss of price difference suffered by the [Seller] by this contract is (US $1,420 - US $820) 20MT = US $12,000.
 
   -    On 11 June 2002, the [Seller] resold the last 20 MT of Goods at a total contract price of US $15,200. The loss of price difference suffered by the [Seller] in this contract is (US $1,420 - US $760) 20 MT = US $13,200. The bank document issued by the bank indicates that the buyer under this contract only paid US $13,887.70, but not the price indicated in the contract, i.e. US $15,200. Regarding this, the [Seller] explained that a storage fee of US $1,312.30 had been deducted. The Arbitration Tribunal notes that the [Seller] provided the document indicating the occurrence of the storage charge, US $1,312.30.

The Arbitration Tribunal holds that the total loss of price difference suffered by the [Seller] is US $12,400 + US $12,000 + US $13,200 = US $37,600, which shall be paid by the [Buyer].

Pursuant to Articles 53, 61, 74, and 75 of the CISG, the buyer shall compensate the damages suffered by the seller if the buyer refuses to take delivery of the goods and make payment for the goods. In order to mitigate the loss, the [Seller] in this case has resold the Goods reasonably, suffering a loss of price difference between the contract price and the price for resale. The [Buyer] should compensate the [Seller] for the aforesaid loss.

Based on the aforesaid facts and reasons, the Arbitration Tribunal sustains the [Seller]'s claim for loss of price difference.

      (2) The demurrage charge and the dock rental fee

      The Arbitration Tribunal notes that the [Seller] submitted two receipts with __'s seal for a total amount of US $5,136, proving the demurrage charge and the dock rental fee; the fax sent by __ warehouse to the [Seller] confirms the receipt of US $5,136 paid by the [Seller]. The Arbitration Tribunal deems that the demurrage charge and the dock rental fee were incurred due to the [Buyer]'s breach; therefore, they should be borne by the [Buyer].

However, the [Seller]'s claims for a demurrage charge and dock rental fee of US $6,856 lack evidence, so the Arbitration Tribunal does not support the entire amount claimed by the [Seller].

      (3) The storage fee

      The Arbitration Tribunal notes that the [Seller] provided three receipts for storage fee issued by __ warehouse in the amounts of US $555.72, US $319.15, and US $437.43, respectively, totaling US $1,312.30. The Arbitration Tribunal also notes that the total price of the last contract for 20 tons of Goods is US $15,200, but the [Seller] only received US $13,887.70 with the unpaid amount of US $1,312.30, which is the same as the aforesaid storage fee. The [Seller] also explained that it paid the storage fee for this contract. The Arbitration Tribunal notes that the evidence provided by the [Seller] proves that the [Seller] has paid this charge. The storage fee was caused by the [Buyer]'s failure to take delivery of the Goods on time; therefore, the Arbitration Tribunal sustains this claim of the [Seller].

      (4) Interest

      The first amount of interest claimed by the [Seller] is US $85,200 18% 42/365 = US $1,789.19 (should be US $1,764.69 - Note by the Arbitration Tribunal; US $85,200 was the total price of the original Contract, and 18% was the loan interest rate of the bank in Korea). This interest was incurred from 20 July 2001 to 30 August 2001. The [Seller] alleged that it asked its headquarters in Korea to obtain a bank loan from the bank in Korea to issue a L/C to purchase the Goods. Because the [Buyer] did not pay the contract price of the goods, the [Seller] could not pay the bank loan and had to pay the extra loan interest for the aforesaid period of time. The aforesaid interest was caused by the [Buyer]'s breach, so the [Buyer] shall compensate the [Seller]. However, the Arbitration Tribunal deems that the [Seller]'s purchase of the goods by taking out a bank loan was its own cash liquidation issue, which was not foreseeable by the [Buyer] at the time of the conclusion of the Contract, so the [Buyer] has nothing to do with this. The [Buyer] shall not bear the interest incurred by the [Seller]'s delay in loan payment, and the Arbitration Tribunal does not sustain this claim of the [Seller].

The second amount of interest claimed by the [Seller] is US $85,200 9% 320/365 = US $6,722. The [Seller] alleged that if the [Buyer] had paid the price for the goods on time, the [Seller] should have been able to receive the aforesaid interest from the time of deposit to the time of filing the arbitration application. Regarding this claim of the [Seller], considering that the [Seller] has received part of the price for the goods from the reselling, and that the Arbitration Tribunal has sustained the [Seller]'s claim for loss of price difference due to the resale of the goods, and based on the facts of this case, the Arbitration Tribunal holds that it is proper not to sustain this claim of the [Seller].

      (5) The arbitration fee

      Based on the facts of this case, the Arbitration Tribunal holds that the [Seller] shall bear 10% of the arbitration fee and the [Buyer] shall bear 90%.

      (6) Traveling fee and other expenses incurred by the [Seller] by processing this case

      The Arbitration Tribunal deems that because the [Seller] failed to specify the amount in detail for this claim or to provide the corresponding evidence, this claim of the [Seller] is not acceptable.

THE AWARD

Based on the aforesaid facts and reasons, the Arbitration Tribunal rules that:

1. The [Buyer] shall pay the following amount to the [Seller]:

(1)  Loss of price difference of US $37,600;

(2)  Demurrage charge and dock rental fee of US $5,136;

(3)  Storage charge of US $1,312.30.

2. The [Seller]'s other claims are dismissed.

3. The arbitration fee for this case is RMB 25,768. The [Seller] shall bear 10%, i.e., RMB 2,576.80; the [Buyer] shall bear 90%, i.e., RMB 23,191.20. The [Seller] has paid RMB 25,768 to the Arbitration Commission in advance, which offsets the entire arbitration fee; therefore, the [Buyer] shall pay RMB 23,191.20 to the [Seller].

The [Buyer] shall pay the entire aforesaid amount to the [Seller] within 45 days of this award.

This is the final award, which shall take effect from the day of this award.

SOLE ARBITRATOR: ____

30 December 2002 in Beijing


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] and Respondent of Luxembourg is referred to as [Buyer]. 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.

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

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