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CISG CASE PRESENTATION

China 19 January 2003 CIETAC Arbitration proceeding (Ferrochrome case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030119c1.html]

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

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Case identification

DATE OF DECISION: 20030119 (19 January 2003)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2003/07

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Netherlands (respondent)

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

GOODS INVOLVED: Ferrochrome


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 50 ; 70 ; 77

Classification of issues using UNCITRAL classification code numbers:

50A [Buyer's right to reduce price for non-conforming goods];

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

77A [Obligation to take reasonable measures to mitigate loss]

Descriptors: Reduction of price, remedy of ; Damages ; Mitigation of loss

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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

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

Ferrochrome case (19 January 2003)

Translation [*] by Zheng Xie [**]

Edited by Meihua Xu [***]

-    The arbitration procedure
-    Facts
-    Position of the parties
-    Opinion of the Arbitration Tribunal
-    Award

THE ARBITRATION PROCEDURE

The China International Economic and Trade Arbitration Commission (hereafter, the "Arbitration Commission") accepted the case (Case number: R....) on 26 June 2002 according to:

   -    The arbitration clause in Contract No. 2001-I&E-25 (hereafter, the "Contract") for the sale of ferrochrome signed by Claimant [Buyer], Xi'an __ Materials Company, and Respondent [Seller], G __ (Netherlands) B.V. on 25 May 2001; and
 
   -    The written arbitration application submitted by the [Buyer].

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

On 26 June 2002, the Secretariat of the Arbitration Commission sent Arbitration Notices CIETAC (2002) No. __ and No. __ to the [Buyer] and the [Seller], respectively, and sent the [Buyer]'s arbitration application, the Arbitration Rules, the Arbitrators List, and the English Translation of the Arbitration Notice CIETAC (2002) No. __ to the [Seller].

On 22 July 2002, the [Seller] sent a fax to the Arbitration Commission alleging that because it does not understand Chinese, and the Contract was signed in English, the correspondence in this case should be in English. In addition, because the documents which it received were in English, and it does not understand Chinese, the [Seller] asked to extend the deadline for the arbitration until it received the arbitration documents in English.

On 7 August 2002, the Arbitration Commission responded to the [Seller]'s request stating that according to Article 85 of the Arbitration Rules, unless the parties agree otherwise, Chinese is the official language of the Arbitration Commission. Because the Arbitration Clause in the Contract does not stipulate the arbitration language, the official language of this arbitration shall be Chinese. Although the Secretariat translated the Arbitration Notice No. __ , it is for the [Seller]'s convenience, and it is not the Arbitration Commission's duty. In addition, because the [Seller] alleged that it does not understand Chinese, and asked to extend the deadline of the arbitration, the Arbitration Commission decided that 7 August 2002 should be deemed as the date when the [Seller] received the Arbitration Notice, and the deadline should be that stipulated in the Arbitration Notice.

Because the [Buyer] and the [Seller] neither jointly appointed nor authorized the Chairman of the Arbitration Commission to appoint a sole arbitrator; according to Article 65 of the Arbitration Rules, on 18 September 2002 the Chairman appointed Mr. Wang as the sole arbitrator forming the Arbitration Tribunal to hear this case.

Then, on 28 September 2002, the [Seller] sent another fax expressing that it did not agree that Chinese is the arbitration language, and alleging that the Contract was in English, and the Arbitration Clause is an indivisible part of the Contract, so the arbitration language should be English.

The Secretariat forwarded the [Seller]'s letter to the [Buyer] and solicited the [Buyer]'s opinion about the arbitration language. On 11 October 2002, the [Buyer] sent a fax alleging that it did not agree that English is the arbitration language, and insisted that Chinese be the arbitration language. The Secretariat forwarded the letter to the [Seller] and meanwhile sent Letter CIETAC (2002) No. ___ to the parties notifying that because the parties neither stipulated the arbitration language in the Contract nor reached an agreement on the arbitration language at the beginning of the arbitration process; according to Article 85 of the Arbitration Rules, the arbitration language shall be Chinese.

After reviewing the [Buyer]'s arbitration application and the Appendix, the Arbitration Tribunal decided to hold the court session in Beijing on 5 November 2002. Then, the Arbitration postponed the court session until 19 November 2002. The Secretariat sent written notices to the parties.

On 12 November 2002, the [Seller] submitted its Response and Appendix thereto.

On 19 November 2002, the court session was held in Beijing. Before the court session, the [Buyer] and the [Seller] submitted supplementary material, and the [Buyer] submitted an amended arbitration application. The [Buyer]'s representative and the [Seller]'s representative and arbitration agent were present at the court session. They made statements and arguments on factual and legal issues and answered the Arbitration Tribunal's questions. After the court session, the parties submitted supplementary material and statements.

On 13 December 2002, the Arbitration Tribunal sent Letter CIETAC (2002) No. __ to the parties, notifying that since both parties submitted supplementary material after the court session, if the parties request another court session in order to cross-examine the evidence, please notify the Arbitration Tribunal in writing by 20 December 2002; otherwise, the Arbitration Tribunal would hear the case by written material.

The [Buyer] notified that it was not necessary to hold another court session; the [Seller] did not submit any opinions.

Because both parties submitted supplementary material, and the case was complicated, the Arbitration Tribunal needed additional time to resolve this case. According to the Arbitration Tribunal's request, on 16 December 2002, the Secretariat issued Letter CIETAC (2002) No.__ approving an extension of the proceeding for an additional one month, i.e., to 19 January 2003.

The case is completed. According to the written material submitted by the parties and the presentations at the court session, the Arbitration Tribunal handed down its award.

FACTS

POSITION OF THE PARTIES

[Buyer]'s position

The [Buyer] alleged that on 25 May 2001 the [Buyer] and the [Seller] signed Contract No. 2001-I&E-25 for the sale of 120 tons ferrochrome originated in Turkey. The Contract included the following terms:

Content: Cr 68%-75%; C 0.10% max;
Shipping time: 60 tons in June 2001; 60 tons in July 2001;
Price: US $0.57/bl CIF Xin Gang, Tianjin;
Payment: Irrevocable spot L/C;
Inspection: The content/weight inspection certificate issued by the Turkey __ Inspection Company shall be the basis for the payment; the [Buyer] has the right to apply to CIQ for inspection after receiving the goods, and if the inspection result shows an 0.5% difference with the original inspection result, an independent third inspection agency can be entrusted to do an inspection, the result of which shall be final on the parties, and the fee for which shall be paid by the losing party.

Chronology

On 31 July 2001, the first 60 tons of ferrochrome arrived in Xin Gang, Tianjin; the inspection result of the [Buyer]'s Tianjin office shows that the content is Cr 69.1% and C 0.18%, which is not consistent with the inspection certificate (Cr 73.26% and C 0.08%) issued by the Turkey __ Inspection Company. According to the Contract, the [Buyer] entrusted Tianjin Entry-Exit Inspection and Quarantine Bureau to inspect the first installment on 22 August 2001, and the inspection result shows that the content is Cr 69.45& and C 0.13%, which is not in compliance with the Contract.

On 23 August 2001, the [Buyer] informed the [Seller]'s Beijing office of the inspection result; after negotiating with the [Seller]'s representative, Mr. He __, the parties agreed to select A __ (China) Ltd. (__ (China)) as the third party to inspect the goods in Tianjin, and that the third party's inspection conclusion should be final.

On 23 August, the [Buyer] sent a fax to the [Seller] notifying that according the Contract it would entrust a third party to inspect the goods, and that the inspection conclusion would be final.

On 24 August, __ (China) accepted the entrustment.

On 31 August, __ (China) issued its inspection certificate which shows the content is Cr 71.2% and C 0.14%.

On 5 September 2001, the [Buyer] sent a written notice to the [Seller]'s Beijing office requesting to return the goods and claiming for damages. Mr. He __ replied to the [Buyer] stating that they would solve the problem after the inspection result for the second installment was issued.

On 29 August, the second installment arrived at the port. The Turkey __ Inspection Company's inspection certificate submitted by the [Seller] shows that the content is Cr 73.73% and C 0.082%.

On 19 September, the [Buyer] entrusted Tianjin Entry-Exit Inspection and Quarantine Bureau and __ (China) to inspect the goods.

On 27 September, the inspection certificate issued by Tianjin Entry-Exit Inspection and Quarantine Bureau shows that the content is Cr 72.6% and C 0.18%. The inspection conclusion made by __ (China) shows that the content is Cr 71.96% and C 0.12% (the inspection certificate records Cr 71.92% and C 0.14%: Note by the Arbitration Tribunal). The inspection conclusions prove that neither the first installment nor the second conforms to the Contract.

On 15 October 2001, the [Seller] sent a fax to the [Buyer] agreeing to reduce the price by US $0.02/bl, and provide 120 tons high carbon ferrochrome with the reduced price of US $0.27/lb.

On 1 November, the parties reached an agreement that the price of the 120 tons ferrochrome was reduced to US $0.53/lb, and the [Seller] should sell 120 tons high carbon ferrochrome at the price of US $0.27/lb CIF Xin Gang, Tianjin, to the [Buyer]; but the [Seller] neither executed the agreement signed on 1 November nor negotiated with the [Buyer] to solve the problem.

The [Buyer] pointed out that according to China's national standard, the content of carbon decides the category of ferrochrome; ferrochrome containing C< 0.1% and that containing C<0.15% falls within two categories and the prices are different. According to the information released by metal price website:

   -    The price of Cr LC 0.15% was US $0.51/lb from August to September 2001;
   -    According to the metal information newspaper, the average price of Cr LC 0.1% at the end of August 2001 was from US $ 0.49 to 0.53/lb; thus, the price for Cr LC 0.15% was even lower.

The information released in the metal price website shows that the price difference of Cr LC 0.15% and Cr LC 0.1% is at least US $0.02/lb.

The [Buyer] has modified its arbitration claims. Its final claims are as follows:

1.  Requesting the [Seller] to compensate the [Buyer] for the inspection fee paid to Tianjin Entry-Exit Inspection Quarantine Bureau, i.e., RMB 450 per inspection and totaling RMB 900 for two inspections;

2.  Requesting the [Seller] to compensate the [Buyer] for the inspection fee paid to __ China, i.e., US $480 + US $450 = US $930;

3.  Requesting the [Seller] to reduce the contract price from US $0.57/lb to US $0.51/lb, which leads to a refund of US $11,666.06;

The amount which should be refunded is calculated as the content of Cr described in the [Seller]'s content list X US $ (0.57-0.51) X 2.20462 (the exchange rate of lb and kg) X the quantity of goods = the amount which should be refunded. According to this formula, the amounts, which should be refunded for the two installments, are 732.6 0.06 2.20462 60 = US $5,814.38 and 37.3 0.06 2.20462 60 US $5,851.68, respectively.

4.  Requesting the [Seller] to refund US $2,610.75 based on the different Cr contents. The amount which should be refunded is calculated as (the content of Cr described in the [Seller]'s content list - the content of Cr described in __ (China)'s inspection certificate) X US $0.51 (the unit price /lb) X 2.20462 (the exchange rate of lb/kg) X the amount of the goods delivered.

The amounts which should be refunded for the two installments are: (732.6-712) 0.51 2.20462 60 = US $1,389.70 and (737.3-719.2) 0.51 2.2046260 US $1,221.05, respectively.

5.  Because the content of carbon highly exceeds that required, the [Buyer] could not conduct normal production, and incurred the loss of anticipated profits, RMB 150,000.

There are 15 business days from 22 August 2001 when Tianjin Entry-Exit Inspection and Quarantine Bureau issued the inspection certificate to 5 September 2001 when the [Buyer] claimed for damages in writing to the [Seller], and the daily production rate of chromium nitride was two tons.

The [Buyer]'s production cost was RMB 10,01074/ton in August 2001, and RMB 10,200.36/ton in September 2001, and RMB 9,355.196/ton in October 2001; the average production cost for these three months was RMB 9,855.432.

The three invoices for sales of chromium nitride selected by random include one dated 25 June 2001 at the price of RMB 18,803.4188/ton, one dated 4 September at the price of RMB 14,615.3846/ton, and one dated 10 October at the price of RMB 14,529.9145/ton. The average price is RMB 15,982.91/ton.

The unit price of chromium nitride is RMB 15,982.91/ton -- the unit production cost is RMB 9,855.432/ton = RMB 6,127.48/ton.

The total loss of anticipated profits for 15 business days is RMB 6,127.28/ton X daily output of two tons X 15 days = RMB 183,824.4. The [Buyer] requested the [Seller] to compensate as least for RMB 150,000.

6.  The demurrage is RMB 5,382.40.

7.  The [Seller] should bear the arbitration fee, i.e., RMB 20,000.

[Seller]'s position

The [Seller] responded to the above, stating that it lacks factual and legal basis for the [Buyer] to allege that the [Seller] breached the Contract because the content of carbon was not in compliance with the Contract.

[Seller] presented the following support for its position:

1.  __ (China)'s inspection conclusion is one-sided and cannot be deemed as a final conclusion.

      (1) The content of ferrochrome stipulated in the Contract applies to all of the 120 tons ferrochrome, not only to part of the goods. ___ (China) only selected 30% of the goods to inspect; thus, the inspection conclusion can only show part of the goods, but not all of the goods; accordingly, its inspection conclusion cannot negate Turkey __'s inspection conclusion based on the inspection of 100% of the goods.

      (2) __ (China)'s inspection conclusion was criticized and denied by __ International Inspection (Netherlands) (hereafter, "__ Netherlands").

The [Seller] selected __ Netherlands as the independent third party inspection agency; in October 2001 __ (China) sent a gross sample and a well made sample to __ Netherlands for re-inspection. After the inspection, __ Netherlands found that the 120 tons ferrochrome have two different crystal structures. The conclusions on the two different crystal structures are totally different. __ (China) is not capable of analyzing the two different crystal structures and making the inspection conclusion, so it failed to draw a correct conclusion on the content of all of the goods. __ Netherlands made a clear conclusion:

"Considering the comprehensive factors, we conclude the samples inspected by __ (China) cannot represent the goods, so it did not make the correct conclusion of the content of the goods."

The inspection certificate issued by __ Netherlands shows that the content of the goods is Cr 72.44% and C 0.062%, which is in compliance with the Contract. Thus, __ (China)'s inspection conclusion cannot show the true content of the goods, so it cannot be used as the basis to determine this case.

      (3) [Buyer] selected __ (China) as the final inspection agency as the [Buyer]'s unilateral act without the [Seller]'s acceptance. The [Seller] neither received any notice, nor reached any agreement with the [Buyer] on the inspection agency, nor did the [Seller] ratified the inspection. Thus, __ (China)'s inspection cannot be deemed as the independent third party's final inspection conclusion agreed by both parties.

      (4) Turkey __' s inspection certificate was issued after 100% of 120 tons goods were inspected; the inspection certificate issued by __ Netherlands submitted by the [Seller] is scientifically correct; the above two inspection certificates show that the content of carbon complies with the Contract.

      (5) At the court session, it was verified that the 120 tons of ferrochrome which the [Buyer] purchased had been fully used, which shows that the goods were in compliance.

2.  __ Netherlands is the final inspection agency for the Contract. The [Seller] repeatedly emphasized to select __ Netherlands as the independent final inspection agency. With the [Buyer]'s approval, __ (China) sent the well made sample and the gross sample to __ Netherlands for inspection; the [Buyer] agreed on and admitted __ Netherlands' inspection result, and did not raise any objection. The [Buyer] had been asking for __ Netherlands' inspection result many times by phone, which shows that the [Buyer] agreed that __ Netherlands is the final inspection agency.

[Buyer]'s response

As to the [Seller]'s above allegation, the [Buyer] made the following objections:

1.  __(China)'s inspection conclusion is the basis to determine this case.

      (1) The [Buyer] and the [Seller]'s representative, Mr. He___, negotiated many times by phone and reached agreement that the inspection was to be conducted by __ (China). On 28 August 2001, __ (China)'s representatives, Zhang __, and the [Seller]'s representative, Mr. He __, and the [Buyer]'s representative together arrived at the warehouse, and selected the samples, and no party raised any objection, which was proved by the certificate issued by the warehouse keeper. On 13 September 2001, the [Buyer] sent an e-mail to the [Seller] requesting to solve the quality disputes; the [Seller] suggested to await the inspection conclusion on the second installment. Then, the second installment was still inspected by __ (China), and the three parties jointly selected the samples. From 5 September 2001 when the parties selected the samples from the second installment of 60 tons ferrochrome to 25 September 2001 when the inspection certificate was issued, totaling 20 days, the [Seller] did not object to having __ (China) as the independent third party inspection agency. The above facts show that it was the [Seller]'s definite position to select __ (China) as the independent third party inspection agency.

      (2) __ (China)'s inspection certificate is scientifically reasonable. The sample selection process complied with International ISO4552-1 standard, and the sample was made in accordance with International T4010-90 standard. The [Seller] alleged that __ (China) did not inspect all of the 120 tons ferrochrome, so the inspection has defects. However, it is impossible to inspect all of the goods; if the sample is selected in accordance with the inspection standard, the inspection conclusion can show the quality of the goods.

2.  __ Netherlands' inspection conclusion should not be sustained. The parties did not jointly entrust __ Netherlands to inspect the goods; its inspection conclusion points out that __ (China) did not select samples from every package, and that therefore its conclusion and analysis have errors; however, __ Netherlands inspected the original sample which __ (China) inspected; __ Netherlands' inspection conclusion was based on the other's mistake, so it is doubtful; __ Netherlands used weighted average data, which is "about" but not actual; the data of 80% and 20% originated from "what the Chinese colleague said"; the inspection report shows, "Two different crystal structures were found, so the goods have different appearance and quality," which sufficiently proves that the goods delivered by the [Seller] have defects.

3.  When knowing the goods could not be used for its purpose, according to Article 119 of the Contract Law of the People's Republic of China, "when one party breached the contract, the other party shall take reasonable measures to avoid enlarging the loss," the [Buyer] actively contacted other purchasers and resold the goods under the Contract to other purchasers after soliciting and obtaining the [Seller]'s agreement, but the [Seller] alleged, "the [Buyer] fully used the 120 tons ferrochrome." The [Seller] should not deny the [Buyer]'s active conduct.

[Seller]'s response

The [Seller] made the following objections to the above allegations of the [Buyer]:

1.  The [Buyer] alleged that the parties jointly selected __ (China) as the inspection agency, but did not provide any evidence. The [Buyer] alleged that the [Seller] agreed during the phone conversation, but did not provide any evidence; the proof which the [Buyer] alleged that the warehouse keeper issued was forged. The [Seller] submitted the proof issued by __ (China) to prove that on 28 August 2001 when the samples were selected in the warehouse in Tianjin, the [Seller]'s representative, Mr. He __, was not present.

2.  The [Buyer] admitted that __ Netherlands is the final third party inspection agency. The [Seller] insisted the inspection certificate issued by __ Netherlands be final from the beginning; the [Buyer] not only agreed but also requested __ (China) to send the samples to __ Netherlands, and then inquired regarding the inspection result many times by phone; the above facts show that the [Buyer] agreed that __ Netherlands is the third party inspection agency.

3.  The amount and calculation which the [Buyer] alleged should not be sustained.

      (1) Item 1 and Item 2 in the [Buyer]'s claims should be decided according to the Contract;

      (2) As to Item 3 in the [Buyer]'s claims, the metal information newspaper submitted by the [Buyer] proves that the prices of ferrochrome containing C 0.10% and containing C0.15% have no difference. In addition, US $0.57/lb is the contract price; during the performance of the Contract, the price fluctuation has nothing to do with the Contract.

      (3) Item 4 in the [Buyer]'s claims should be calculated according to __ Netherlands' inspection report.

      (4) Regarding Item 5 in the [Buyer]'s claims for anticipated profits, the evidence submitted is unilateral evidence, i.e., the [Buyer]'s statements, and cannot be admitted as evidence.

      (5) Item 6 in the [Buyer]'s claims was caused by the [Buyer] and has nothing to do with the [Seller].

OPINION OF THE ARBITRATION TRIBUNAL

1.  The applicable law

The Contract does not stipulate the applicable law. Because the parties' business places are in Contracting States of United Nations Convention on Contracts for International Sales of Goods (CISG), the Arbitration Tribunal holds that CISG applies to this case.

2.  Whether the quality of the ferrochrome was in compliance with the Contract

The parties' disputes focus on whether the quality of the two installments is in compliance with the Contract. The Arbitration Tribunal notes that the Contract stipulates that Turkey __ Inspection Company's content/weight inspection certificate is the basis for payment; the [Buyer] has the right to apply with CIQ, i.e., China Entry-Exit Inspection and Quarantine Bureau for inspection after receiving the goods. If the inspection conclusion shows the error is more than 0.5%, a third independent inspection agency shall be entrusted to conduct inspection; the inspection result shall be final to the parties, and the losing party shall bear the fee.

Thus, the quality of the ferrochrome under the Contract shall be determined by the independent third party inspection agency which both parties agreed on. The [Buyer] alleged the inspection conclusion which __ (China) made should be final, but the [Seller] alleged that the inspection conclusion which __ Netherlands made should be final.

Based on the evidence submitted by the parties, and statements made and facts verified in the court session, the Arbitration Tribunal holds that __ (China) was jointly selected by the parties, so its inspection conclusion is final.

In order to prove that the parties agreed that __ (China) is the independent third party inspection agency, the [Buyer] made the following statements:

On 23 August 2001, the [Buyer] sent a fax to the [Seller] alleging that the inspection conclusion made by Tianjin Entry-Exit Inspection and Quarantine Bureau shows that the content of the goods is not in compliance with the Contract, and it is necessary to select an independent third party inspection agency to inspect the goods. The [Seller]'s representative, Mr. He __, and the [Buyer] negotiated by phone and selected __ (China) as the inspection agency. On 24 August, the [Buyer] contacted __ (China) for inspection. On 28 August, __ (China)'s representative, Zhang __, the [Seller]'s representative, Mr. He __, and the [Buyer]'s representative arrived at the warehouse, and successfully selected the samples. On 31 August, __ (China) issued the first inspection report. On 5 September, the [Buyer] sent a letter to the [Seller] claiming for damages and requesting to return the goods. On 10 September, the [Buyer] sent an e-mail to the [Seller] stating:

"After negotiating and receiving your agreement, we appointed a third independent assayers, A___ S___ (Assayers) Ltd, to inspect the goods again. Their results should be taken as final for our both parities. But now you informed that your suppliers disagree with A.S.'s results and suggest you send the control sample, you hold, to us for reinspection by A___ S___ China and they accept the results by A.S. We think this suggestion is ridiculous, unreasonable and unfair."

Then, on 13, 21 and 24 September, the [Buyer] sent letters requesting to return the goods according to __ (China)'s inspection certificate. On 25 September, __ (China) issued the inspection certificate on the second installment; on 15 October 2001, the [Seller] sent an e-mail to the [Buyer] stating that it agreed to reduce the price by US $0.02/lb and provide high carbon ferrochrome at a low price. On 9 November 2001, the [Buyer] sent a letter recalling the performance of the Contract, and except for the above contents, also emphasizing the parties' agreement that __ (China) is the final inspection agency; the letter includes the following contents:

"We reached an agreement that the results by Alex in China will be final for both parties, But now you put forward that Alex in Holland will authorize the final. So what is the basis for your judgment?

"We informed your Beijing Office the results of CIQ on August 23 and negotiated with Mr. He. Your Beijing Office also agrees that Alex's judgment as the third independent assayer will be final. The next day Alex accepted our entrustment for the inspection for the goods."

In this letter, the [Buyer] objected to the __ Netherlands' inspection conclusion by alleging:

"However, when we received your e-mail dated November 5th, you hold the negative view for reducing the price in LC Fe Cr. You persist in that the results by Alex in Holland will be the final. We are so surprised about your response."

Regarding the [Buyer]'s above fax sent on 9 November 2001, the [Seller] replied by fax alleging:

"We have no opinion on the authority of Alex Stewart in China. But from what we have understood, Alex Stewart Rotterdam was extremely displeased with the performance of the Alex Stewart office in China in this particular case."

In addition, in the fax the [Seller] also alleged:

"We also accept that indeed we did sent the e-mail dated 15 October 2001, however, this was rejected since according to you, the local market situation did not permit you to accept our reduced price for HC Fe Cr (local prices were lower), nor were you prepared to accept our proposal of US $ 055 per Lb Cr on the LC Fe Cr. Since then the market situation has changed and the Alex Stewart Rotterdam findings became known. Your proposal of US $0.53 per Lb Cr on LC Fe Cr and US $0.27 per Lb on HC Fe Cr we received from you on 2/11/2001 by e-mail and was dealt with accordingly."

Regarding the [Buyer]'s above claims and the relevant evidence, the [Seller] denied that its representative, Mr He__, had negotiated by phone with the [Buyer] and agreed to select __ (China) as the inspection agency, and also submitted the proof issued by __ China's employer to show that Mr. He __ was not present when the samples were selected on site (but the [Buyer] submitted proof provided by the warehouse keeper to prove that Mr. He __ was present when the selection was conducted: Note by the Arbitration Tribunal). The [Seller] also alleged that it received the [Buyer]'s e-mail on 14 October, and the fax sent on 9 November, but did not receive the [Buyer]'s other mails. The [Seller] also admitted that it received the [Buyer]'s fax on 9 November, and replied to this fax.

The Arbitration Tribunal holds that, according to the above facts, especially the corresponding faxes between the two parties, it is reasonable to deem that the [Seller] agreed that __ (China) was selected as the independent third party inspection agency. The Arbitration Tribunal does not sustain the [Seller]'s allegation that __ Netherlands was selected as the independent third party inspection agency, because the [Seller] did not submit sufficient evidence. The Arbitration Tribunal notes that the [Seller] objected to __ (China)'s inspection conclusion alleging that its inspection conclusion was not scientifically correct, and its objection is primarily based on __ Netherlands' inspection report, which states that __ (China) did not select samples from every package, so the inspection conclusion cannot represent the quality of the goods.

The Arbitration Tribunal holds that __ (China)'s inspection report expressly states that the inspection was conducted in accordance with the International Standards ISO-4552-1 and T4010-94, and the [Seller] failed to prove that __ (China) improperly applied the international standards. It is unnecessary for the Arbitration Tribunal to comment on the __ Netherlands' inspection report, but the inspection conclusion basis that the goods of two different crystal structures are 80% and 20%, respectively, as the Chinese colleague said is not convincing.

In conclusion, the Arbitration Tribunal holds that the parties agreed that __ (China) is the independent third party inspection agency, and its inspection conclusion is the basis to determine this case.

According to __(China)'s inspection conclusion, the content of the two installments delivered by the [Seller] is Cr 71.2% and C 0.14%, and Cr 71.92% and C 0.14%, respectively. Thus, the Arbitration Tribunal holds that the content of carbon of the two installments exceeds the requirement in the Contract.

3.  The liability for breach of the Contract and the [Buyer]'s arbitration claims

The Arbitration Tribunal holds that the Contract is the true expression of the parties, and complies with the stipulations of CISG, and is binding on both parties. The [Buyer] has performed its duty under the Contract, however, the [Seller] delivered the non-complying goods, so the [Seller] should be liable for its breach.

      (1) The claim for the inspection fee. The Arbitration Tribunal holds that according to the Contract, it is the [Buyer]'s duty to apply to Tianjin Entry-Exit Inspection and Quarantine Bureau to inspect the goods, so the [Buyer] shall be liable for the inspection fee for the inspection conducted by Tianjin Entry-Exit Inspection and Quarantine Bureau. However, the two inspections conducted by __ (China) were caused by Tianjin Entry-Exit Inspection and Quarantine Bureau's inspection conclusion that the goods delivered by the [Seller] were not in compliance with the Contract; thus, according to the Contract, the [Seller] shall be liable for the inspection fee of the two inspections conducted by __ (China), i.e., A___ China Ltd.

      (2) The claim for the loss due to reduced price, i.e., the difference of the original contract price, US $0.51/lb, and the reduced price, US $0.57/lb, totaling US $11,666.06.

The [Buyer] alleges that the price of Cr LC 0.10% and that of Cr LC 0.15% are different, and submitted the chart downloaded from the metal price website to prove that the price of the former is higher, and that the price of Cr CL 0.15% was US $0.51/lb from August to September 2001; the [Buyer] also provided information on 31 August downloaded from the metal price website to show that the international prices of C0.10%Cr average 68-70% were from US $0.49/lb to US $0.53/lb. As to this allegation, the [Seller] objected by alleging that the prices of these two kinds of ferrochrome are the same, and that the prices released in the metal price website are not authoritative, and that the information downloaded from the metal information newspaper website on 22 June, 20 July, 3 and 31 August shows that the prices of C0.10%Cr62% min and C 0.15%C Cr 60% min plus tax were US $0.53-0.56/lb, and had no difference.

The Arbitration Tribunal notes that both parties submitted the prices released by the metal information newspaper website to prove their allegations; however, the [Buyer] chose C0.10%Cr68-70%, and the [Seller] chose C0.10%Cr0.62%min and C0.15%Cr0.60%min.

Because the Contract stipulates the goods are C0.10%max Cr 68%-75%, the Arbitration Tribunal holds that the [Buyer]'s selection is consistent with the Contract. Both parties submitted the information released in the metal information newspaper website dated 31 August 2001. According to the information, on 10 August 2001 the prices of C0.10% Cr68-70% were US $0.49-0.53/lb. Accordingly, the Arbitration Tribunal holds that it is reasonable for the [Buyer] to claim to reduce the price to US 0.51/lb, according to the quality of the goods delivered as the [Buyer] required.

In conclusion, the Arbitration Tribunal sustained Item 3 in the [Buyer]'s arbitration claims, and the [Seller] should refund the price of US $11,666.06.

      (3) The claim for the refund of US $2,610.75 due to the different contents of the goods. In the court session, the [Seller] expressed that it did not object to the refund of the price according to the different contents, but insisted that the content of Cr should be calculated according to __ Netherlands' inspection result. Because the Arbitration Tribunal has decided that __ (China)'s inspection conclusion is the basis to determine the case, this item in the [Buyer]'s claims shall be sustained.

      (4) The claim for the loss of anticipated profits of RMB 150,000. The [Buyer] submitted its internal production cost calculation schedule and three sales invoices, but the [Seller] objected by alleging that the above evidence cannot prove the [Buyer]'s claim for anticipated profits. The Arbitration Tribunal holds that internal production cost calculation schedule is for its internal use only; the [Buyer] did not provide the relevant contract and the market price of the same kind to sustain the sales price which it alleged. Thus, because the [Buyer] did not provide sufficient evidence, the Arbitration Tribunal does not sustain this claim of the [Buyer].

      (5) The claim for the demurrage of RMB 5,382.40. The Arbitration Tribunal holds that the demurrage was incurred because the goods were not in compliance with the Contract, and the [Buyer] could not input the goods for production, the Arbitration Tribunal sustains this claim of the [Buyer].

      (6) The claim for the arbitration fee. The Arbitration Tribunal holds that the [Buyer] shall bear 30% of the arbitration fee, and the [Seller] shall bear 70%.

AWARD

1.  The [Seller] shall compensate the [Buyer] for the inspection fee of two inspections conducted by ___ (China), totaling US $930;

2.  The [Seller] shall refund to the [Buyer] the price of US $11,666.06 due to the non-compliance of the goods;

3.  The [Seller] shall refund the price of US $2,610.75 due to the difference of the content of Cr;

4.  The [Seller] shall compensate the [Buyer] for the demurrage of RMB 5,382.40;

5.  The [Buyer]'s other claims are dismissed.

6.  The arbitration fee is RMB 20,000, of which the [Buyer] shall pay 30%, i.e., RMB 6,000, and the [Seller] shall pay 70%, i.e., RMB 14,000. The [Buyer] has prepaid the arbitration fee to the Arbitration Commission, so the [Seller] shall pay the [Buyer] RMB 14,000, the amount which the [Buyer] paid in advance.

The [Seller] shall pay the [Buyer] the above amounts within 30 days after the award is handed down; otherwise, the annual interest rate of 6% shall be added.

This is the final award, which takes effect when it is made.

SOLE ARBITRATOR

10 January 2003 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 [Buyer]; Respondent of the Netherlands 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].

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

*** 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 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.

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Pace Law School Institute of International Commercial Law - Last updated December 20, 2007
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