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CISG CASE PRESENTATION

China 19 March 2003 Hubei High People's Court [Appellate Court] (TV broadband network products case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030319c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20030319 (19 March 2003)

JURISDICTION: People's Republic of China

TRIBUNAL: Hubei High People's Court [Appellate Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Wuhan Yinfeng Data Network Co. Ltd. and Wuhan Cable Broadcast Television Network Co. Ltd. v. Xu Ming, China Electronics Import and Export (Wuhan) Corporation, and Wuhan Municipal Bureau of Radio and Television

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Hong Kong (plaintiff)

BUYER'S COUNTRY: Mainland China (defendant)

GOODS INVOLVED: TV broadband network products


Classification of issues present

APPLICATION OF CISG: No. The CISG is mentioned in the pleadings. However, the court held that "the Chinese Contract Law is applicable" stating that:

"Hong Kong is a Special Administrative Zone of China with a different legal system [than that in effect in Mainland China]. Hong Kong is not a Contracting State of the CISG. Therefore the CISG is not applicable."

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 93

Classification of issues using UNCITRAL classification code numbers:

93A [Declarations converning Convention's application to territorial units]

Descriptors: Declaration, Art. 93

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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): Click here for Chinese text of case; see also CISG-China Case [HPC/10]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=91>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Hubei High People's Court [Appellate Court]

Wuhan Yinfeng Data Network Co. Ltd.,
Wuhan Cable Broadcast Television Network Co. Ltd.
v.
Xu Ming,
China Electronics Import and Export (Wuhan) Corporation,
Wuhan Municipal Bureau of Radio and Television

19 March 2003

Translation [*] by Jing Li [**]

Appellant (the former Defendant), Wuhan Yinfeng Data Network Co. Ltd. (hereinafter "Wuhan Yinfeng Co."), and Appellant (the former Defendant), Wuhan Cable Broadcast Television Network Co. Ltd. (hereinafter "Wuhan Cable Co.") refused to accept the Civil Judgment by Wuhan Intermediate People's Court (2001) Wu Jing Chu Zi No. 441 on the dispute arising out of a contract for the international sale of goods, and appealed to this Appellate Court.

The Appellees are Xu Ming, the former Plaintiff, owner of Hong Kong Ming Bo Hong Inc. (hereinafter, "Ming Bo Hong"), China Electronics Import and Export (Wuhan) Corporation (hereinafter "China Electronics (Wuhan)"), the former Defendant, and Wuhan Municipal Bureau of Radio and Television (hereinafter "Bureau of Radio & TV"), the former Defendant.

This Appellate Court accepted the case and a collegial bench was formed according to the relevant law, and held a public court session on this case. All parties and their respective representatives were present at the court session. This case is now closed.

CROSS EXAMINATION OF THE EVIDENCE

Wuhan Yinfeng Co.'s evidence and the other parties' response

Before this court session, Wuhan Yinfeng Co. submitted the following evidence:

1. Brief introduction to the situation in which Wuhan Yinfeng Co. purchased a Cisco Network Device.

   -    Wuhan Yinfeng Co. alleges that it and Ming Bo Hong are each other's direct buyer and seller and that it is not the agent of Wuhan Cable Co.

2. Facsimile of brief introduction of Dake Statistics Communications Co. Ltd. (China) (hereinafter "Dake Co.") sent by Dake Co. to Wuhan Yinfeng Co., dated 22 July 1999, and brief introduction of Cisco Systems, Inc. (US).

   -    Wuhan Yinfeng Co. alleges that these prove that before Wuhan Cable Co. negotiated with Dake Co., Wuhan Yinfeng Co. had already discussed with Dake Co. about the network device, and Wuhan Yinfeng Co. had already introduced Dake Co. to Wuhan Cable Co. in order for them to negotiate the detailed requirements.

3. Feasibility report on Wuhan Yinfeng Co.'s Cable Broadband IP Network in Wuhan.

   -    Wuhan Yinfeng Co. alleges that this proves that it acted according to this import program.

4. Invoice of 2,800,000 HKD issued by Chuangyue (Asia) Co. Ltd. for fees on the consideration, investigation, and consultation of the Wuhan Gigabit Switching Router (hereinafter "GSR") Project and the import processing fees.

   -    Wuhan Yinfeng Co. alleges that this demonstrates that Wuhan Yinfeng Co. is not the agent of Wuhan Cable Co.

5. Delivery receipt signed by Wuhan Yinfeng Co. and issued by Datong International Transportation Co. Ltd. Hubei Branch.

   -    Wuhan Yinfeng Co. alleges that this proves that Wuhan Yinfeng Co. and Ming Bo Hong are each other's direct buyer and seller.

6. Receipts of installments paid by Wuhan Cable Co. to Wuhan Yinfeng Co.

   -    Wuhan Yinfeng Co. alleges that this demonstrates that Wuhan Cable Co. and Wuhan Yingfeng Co. are each other's buyer and seller.

7. Receipts of payment by Wuhan Yinfeng Co. to China Electronics (Wuhan).

   -    Wuhan Yinfeng Co. alleges that this proves that China Electronics (Wuhan) is Wuhan Yinfeng Co.'s import and export agent.

8. Purchase contract between Wuhan Cable Co. and Dake Co.

   -    Wuhan Yinfeng Co. alleges that this contract is invalid. The US $2,700,000 stated within is a net price that does not include the customs duty for the imported device and other related fees. However, the price of the contract between Wuhan Yinfeng Co. and Wuhan Cable Co. is reasonable.

9. Purchase contract between Wuhan Cable Co. and Wuhan Yinfeng Co.

   -    Wuhan Yinfeng Co. alleges that this satisfies all the requirements for establishing a contract and that it is valid.

10. Import agency agreement between Wuhan Yinfeng Co. and China Electronics (Wuhan).

   -    Wuhan Yinfeng Co. alleges that this agreement is valid.

11. Purchase contract between China Electronics (Wuhan) and Ming Bo Hong.

   -    Wuhan Yinfeng Co. alleges that this was signed by China Electronics (Wuhan) in accordance with the above Import Agency Agreement.

This Appellate Court presented the above evidence to the other parties at the court session and invited them to cross-examine.

In response:

   -    Xu Ming asserts that Items 1, 2, and 3 are not officially sealed and are not related to this case. They cannot prove Wuhan Yinfeng Co.'s relationship with Xu Ming. Item 6 cannot deny the agency relationship between Wuhan Yinfeng Co. and Wuhan Cable Co.
 
   -    China Electronics (Wuhan) asserts that the first three items are merely unilaterally provided by Wuhan Yinfeng Co. and should not be used as evidence. Item 6 demonstrates that China Electronics (Wuhan) only received RMB 6,840,000. Other payments were made between Wuhan Cable Co. and Wuhan Yinfeng Co. Also, these other proofs of payment were not original copies, and should not be used as evidence. Wuhan Yinfeng Co. and Ming Bo Hong are buyer and seller, which shows that China Electronics (Wuhan) is the agent of Wuhan Yinfeng Co., and hence, China Electronics (Wuhan) does not bear any legal responsibility.
 
   -    Bureau of Radio & TV does not contest the presented evidence.
 
   -    Wuhan Cable Co. also does not contest the presented evidence. It asserts that it has made payment of RMB 28,390,864 to Wuhan Yinfeng Co.

During this court session, Wuhan Yinfeng Co. submitted photocopies of four packing lists received and signed by Wuhan Cable Co. It asserts that Wuhan Yinfeng has delivered the goods, and that both parties were performing under a sales contract.

   -    Wuhan Cable Co. does not contest this presented evidence.
 
   -    Xu Ming argues that these photocopied documents are not the originals, and requested the original copies thereof.
 
   -    China Electronics also asserts that these photocopied documents are not the originals, and requested the original copies thereof. Additionally, the Packing Lists were signed as "the goods are received, and the packages are undamaged." It is unclear from the evidence whether Ming Bo Hong or Wuhan Yinfeng Co. signed the Packing Lists. If it was Ming Bo Hong, then Wuhan Yinfeng Co. should be regarded as the agent.
 
   -    Bureau of Radio & TV does not contest this presented evidence.

Additional evidence and the parties' response

(1) During this court session, Wuhan Cable Co. submitted photocopies of proofs of payment of RMB 28,390,864 to Wuhan Yinfeng Co. and photocopies of the receipts thereof, demonstrating that Wuhan Cable Co. had made payment in full for the device.

   -    Wuhan Yinfeng Co. does not contest this presented evidence or the amount shown therein.
 
   -    Xu Ming asserts that these proofs are photocopies, and that many payments are only proved by receipts. Moreover, some of the payments were made to other companies (instead of to Wuhan Yinfeng Co.). Payments cannot deny the fact that Wuhan Cable Co. and Wuhan Yinfeng Co. are principal and agent.
 
   -    China Electronics (Wuhan) argues that the proofs are photocopies, and some of the payments were made before the conclusion of the contract at issue. These proofs cannot demonstrate that Wuhan Cable Co and Wuhan Yinfeng Co.'s relationship was based on a purchase contract.
 
   -    Bureau of Radio & TV does not contest this presented evidence.

Within the time limit for evidence submission, Wuhan Cable Co. submitted the original copies of the above mentioned proofs of payment of RMB 28,390,864, which were presented by this Court to all other parties at this court session.

   -    Xu Ming asserts that these proofs of payments are genuine pro forma. However, payments made by Wuhan Cable Co. to other companies should not be considered as payments on the goods in dispute. Wuhan Cable Co.'s financial books include a photocopy of a letter from Wuhan Yinfeng Co. to Wuhan Cable Co. dated 6 March 2000, which demonstrates clearly that Wuhan Yinfeng Co. is the import agent, i.e., Wuhan Yinfeng Co. and Wuhan Cable Co. are not buyer and seller.
 
   -    China Electronics (Wuhan) does not contest the authenticity of the proofs of payment, but argues that payments to other companies are not payments on the goods in dispute. Proofs of payments to Wuhan Yinfeng Co. are not invoices. This further demonstrates the fact that the purchase contract between Wuhan Cable Co. and Wuhan Yinfeng Co. are not authentic. It asserts that Wuhan Yinfeng Co. is the agent of Wuhan Cable Co.
 
   -    Wuhan Yinfeng does not contest the proofs of payment but denies that Wuhan Yinfeng has sent Wuhan Cable Co. a letter dated 6 March 2000.
 
   -    Bureau of Radio & TV does not contest these proofs of payment.

Wuhan Cable Co. responds that there is no original copy of the letter dated 6 March 2000, because some of the accounting information was handed over from Wuhan Cable TV Station, and that the source of this letter cannot be tracked down. The person in charge wa not a legal professional, and was not able to differentiate the relationship of buyer and seller from that of principal and agent. The "agent" written in this letter may be due to this person's misunderstanding.

(2) Within the time limit for evidence submission, Wuhan Yinfeng Co. submitted the following evidence:

   1.   Original copies of the four packing lists;
 
   2.   Original copies of the invoices issued by Chuangyue (Asia) Co. Ltd.;
 
   3.   Proofs of payment of RMB 67,057 made by Wuhan Yinfeng Co. on fees for customs supervision and control; and
 
   4.   Explanation of payment of RMB 101,722.7 on domestic carriage and insurance issued by Wuhan Yinfeng Co.

Xu Ming confirms that the original and photocopied documents are identical. When signing the Packing Lists, the recipient was aware that the goods belong to Ming Bo Hong. The fees for customs supervision and control cannot be proved by accounting documents. The unilateral explanation does not qualify as evidence. Therefore, the fees shown in the above third and fourth items cannot be confirmed. The time of issuance of the invoice was 30 December 2000, which was one year after the conclusion of the contract. Additionally, there was no detailed description of each fee. Xu Ming argues that none of the above evidence is effective except for the packing lists.

   -    China Electronics (Wuhan) responds that the packing lists are genuine, which demonstrates that Wuhan Cable Co. is the buyer and Ming Bo Hong is the seller. Wuhan Yinfeng's explanation of payment is not supported by invoices, and thus, shall not be used as evidence. Fees for consideration and investigation cannot be verified. Because the relationship between Chuangyue (Asia) Co. Ltd. and Wuhan Yinfeng Co. is unclear and that the invoice was issued one year after the conclusion of the contract, it can be inferred from other evidence that the overseas investigation fee was paid by the seller.
 
   -    Wuhan Cable Co. does not argue with Wuhan Yinfeng Co.'s evidence. It asserts that Wuhan Cable Co. received the goods from Wuhan Yinfeng Co. and that Wuhan Yinfeng Co. and Chuangyue (Asia) Co. Ltd. were involved in business transactions.
 
   -    Bureau of Radio & TV agrees with Wuhan Cable Co.'s position.

(3) At the court session, Xu Ming demanded this Appellate Court to request the Statement of Complaint of the case of Wuhan Cable Co. v. Wuhan Yinfeng Co., Hong Kong Yinfeng International Co. Ltd., Cheng Dalei, and Zhan Xiangyang decided by Wuhan Intermediate People's Court. This Appellate Court requested Wuhan Cable Co. to submit the Statement of Complaint. Wuhan Cable Co. submitted the Statement of Complaint and Application for Property Preservation within the time limit. Wuhan Cable Co. also supplemented an explanation alleging that it sued Wuhan Yinfeng Co. because it had to protect the national assets. The facts and reasoning stated in this submitted Statement of Complaint were mainly based on the judgment of the first instance of the present case. These facts stated are not necessarily the objective facts. Wuhan Cable Co. asserts that these facts and reasoning stated should not replace the reasoning and opinions it presented to this Appellate Court.

   -    Xu Ming responds that Wuhan Cable Co.'s explanation is not evidence. The Statement of Complaint is not consistent with Wuhan Cable Co.'s own submission to this Appellate Court. Wuhan Cable Co. was aware of the agency relationship and still paid the contract price to personal accounts of Cheng Dalei and Zhan Xiangyang. Therefore, Wuhan Cable Co. was at fault. Wuhan Cable Co. admitted the agency relationship in its own Statement of Complaint as well.
 
   -    China Electronics (Wuhan) responds that it does not object to the Statement of Complaint or the Application for Property Preservation. On the other hand, although Wuhan Cable Co. made certain payment, this was not the payment for the device.
 
   -    Wuhan Yinfeng Co. responds that it does not object to the evidence pro forma. However, the Statement of Complaint mentioned that Wuhan Cable Co. and Wuhan Yinfeng Co. signed a letter of authorization, but Wuhan Yinfeng Co. was not aware of this letter. The fact that Wuhan Cable Co. was directed to transfer money to personal accounts was the internal operations of Wuhan Yinfeng Co. Wuhan Yinfeng Co. argues that Wuhan Cable Co.'s reasoning was not the truth.
 
   -    Bureau of Radio & TV does not contest this presented evidence.

(4) Within the time limit for evidence submission, neither Wuhan Cable Co., Xu Ming, China Electronics (Wuhan), nor Wuhan Yinfeng Co. submitted to this Appellate Court the original copy of the letter dated 6 March 2000 from Wuhan Yinfeng Co. to Wuhan Cable Co.

During this court session, Xu Ming, China Electronics (Wuhan), and Bureau of Radio & TV did not submit any evidence.

Xu Ming withdrew his claim against China Electronics (Wuhan).

FINDING OF THE APPELLATE COURT

After hearing the case, this Appellate Court finds that:

On 22 July 1999, Dake Co. sent facsimiles to Zhan Xiangyang of Wuhan Yinfeng Co. of Brief Introduction of Dake Co., Brief Introduction of Cisco Systems, Inc. (US), and Introduction of the Project in order to promote Cisco's broadband network products. In September 1999, Cisco Systems (China) Network Technologies Co. Ltd. issued a letter of authorization, authorizing Dake Co. as Cisco Systems, Inc. (US)'s exclusive agent and integrator to bid in the networking project of Wuhan Cable TV Station and to provide Cisco Systems, Inc. (US)'s products and related services.

On 12 March 1999, Dake Co. and Wuhan Cable TV Station signed a purchase contract (No.WHCATV1299[S]CH), which stipulated that Wuhan Cable TV Station purchased Cisco Broadband Network product from Dake Co. totaling US $2,700,000, and the place of delivery shall be the City of Wuhan, Hubei (device import fee and customs duty not included). The purchase contract also included quantity, quality, delivery date, payment method, standard of examination, liability for breach of contract, arbitration, and annex.

On the same day, Wuhan Cable TV Station (the Buyer) and Wuhan Yinfeng Co. (the Seller), and Wuhan Jinyang Entertainment Co. Ltd. (the Guarantor) signed a contract (No. YF99118) providing that Wuhan Cable TV Station was to purchase a set of Cisco System Inc. (US)'s TV Broadband Network products integrated by Dake Co. from Wuhan Yinfeng Co., at the price of RMB 3,154,540.20, with the delivery place as the City of Wuhan, Hubei. This contract also provided delivery date, payment method, quantity, package, shipping, insurance, arbitration, and other terms.

On 13 December 1999, Wuhan Cable TV Station issued a letter of authorization to Dake Co., authorizing Wuhan Yinfeng Co. as its foreign trade agent for the Contract (No.WHCATV1299SCH), and Wuhan Yinfeng Co. was responsible for signing a foreign trade contract with Dake Co. on behalf of Wuhan Cable TV Station, arranging customs clearance and export, as well as making payment of the contract price to Dake Co.

On 8 January 2000, Wuhan Yinfeng Co. and China Eletronics (Wuhan) concluded an Import Agency Agreement (No. 2000TONY001), stipulating that China Electronics (Wuhan) is the agent for importing GSR (i.e., the Broadband Network product) at the price of US $2,700,000, and that China Electronics (Wuhan) shall act within its authorized scope and deal with all disputes arising out of the commercial activities it would be involved in. The Import Agency Agreement also provided that China Electronics (Wuhan) charged a commission of 0.9% of the total price of the imported goods. China Electronics (Wuhan) also guaranteed that it was only responsible to China Yinfeng Co. and was not allowed to contact other end users. China Electronics (Wuhan) then signed an import contract with Ming Bo Hong (the Seller) (No. 2000EMEECR-59002HK), with Articles 9 and 14 stipulating that Wuhan Yinfeng Co. shall provide and was legally responsible for the annexes and the Contract (No.WHCATV1299SCH). If Wuhan Yinfeng Co. for any reason causes Ming Bo Hong to ask for a penalty, Wuhan Yinfeng Co. shall be responsible for this penalty. In addition, this contract provided rights and obligations of both contractual parties and responsibilities for breach of contract.

On 14 February 2000, Dake Co. issued a letter of authorization, authorizing Ming Bo Hong to be the commercial agent for the Contract (No.WHCATV1299SCH), responsible for signing a supply contract with Wuhan Yinfeng Co. or its representatives, and for delivering, exporting, and payment.

On the same day, Ming Bo Hong and China Electronics (Wuhan) signed a supply contract (No. 2000EMEECR-59002HK) stipulating that China Electronics (Wuhan) was the Buyer, Ming Bo Hong Inc. was the Seller, and Wuhan Cable TV Station was the end user. In addition, this Contract stipulated that China Electronics (Wuhan) would purchase GSR from Ming Bo Hong, with the quantity indicated in the annexes of imported electromechanical products at the price of US $2,700,000, with the place of delivery to be the City of Wuhan, delivery date to be within ten days after Ming Bo Hong receiving down payment of 30%, and with no option of installment delivery. Except for late delivery or non-delivery due to force majeure, if the late delivery was caused by Ming Bo Hong, Ming Bo Hong shall be responsible for a pecuniary penalty of 0.5% of the total contract price each week for the first four weeks, and 1% of the total contract price each week from the fifth week, with the maximum penalty to be 5% of the total contract price. If the delay was caused by China Electronics (Wuhan), Ming Bo Hong was entitled to adjust the installment project, and China Electronics (Wuhan) shall be responsible for the delayed payment as well as the interest thereon. Within 90 days of the arrival of the products, if the goods were found not fit for the stipulated quality, description, or quantity, on top of the liabilities of the insurance company and the ship owner, China Electronics (Wuhan) was entitled to request an exchange or damages at the cost of Ming Bo Hong based on the inspection certificate issued by the China Commodity Inspection Bureau. It also provided that:

"Parties shall negotiate in solving any disputes arising from this contract; if in vain, submit the disputes to final and binding arbitration by authorized arbitration institutions; matters not covered herein are subject to the import contract between Ming Bo Hong and China Electronics (China) (No. 2000EMEECR-59002HK); matters related to technology and those not covered herein are subject to the contract between Dake Co. and Wuhan Cable TV Station (No. WHCATV1299SCH)."

Finally, the Supply Contract included terms of packages, payment method, quality of the products, force majeure, and inspection of products.

On 3 April 2000, Ming Bo Hong delivered all of the products to Wuhan customs. After inspection by the customs on 4 April 2000, the goods were delivered to China Electronics (Wuhan). On the same day, China Electronics (Wuhan) arranged Datong International Transportation Co. Ltd. Hubei Branch to deliver the goods to Wuhan Cable TV Station. On behalf of Wuhan Yinfeng Co., Cheng Dalei signed the certificate of receipt and took delivery of the goods, and issued receipt to China Electronics (Wuhan). On the same day, Wuhan Yinfeng Co. delivered all of the devices to Wuhan Cable TV Station.

From April to October 2000, Dake Co. sent its technicians to install and test the above mentioned GSR at Wuhan Cable TV Station.

On 10 October 2000, the Leading Group of Preparation of Wuhan Cable Network State-Owned Property Management Co. signed a Certificate of Initial Test with Dake Co., stating that Wuhan's cable broadband IP network's installation was completed between April and October 2000, and that it was tested with ping and passed the test run. The result showed that the whole network was operating normally.

On 17 April 2001, the Leading Group of Preparation of Wuhan Cable Network State-Owned Property Management Co. signed a Certificate of Final Test with Dake Co., stating that the GSR bought from the Cisco System Inc. (US) was installed and tested, and that the entire network was operating normally. The Certificate also stated that from the date of passage of final test, the maintenance period started.

From 24 December 1999 to 6 December 2000, Wuhan Cable TV Station had been making payments on the goods to Wuhan Yinfeng Co. totaling RMB 28,390,864. On 10 March 2000, Wuhan Yinfeng Co. made a down payment of RMB 6,840,000 to China Electronics (Wuhan). Since Xu Ming only received part of the payment for the goods of US $810,000 from China Electronics (Wuhan), not the remaining of US $1,890,000, he brought an action requesting China Electronics (Wuhan), Wuhan Yinfeng Co., Wuhan Cable TV Station, and Bureau of Radio & TV to jointly pay the remaining US $1,890,000 and interests of US $76,000 thereon, as well as the litigation fee, attorney's fee, and travel expenses arising out of the litigation. During the first instance, Xu Ming modified his claims and requested Wuhan Cable Co. and Bureau of Radio & TV to be jointly responsible for all the above mentioned liabilities.

This Appellate Court finds that in July 2001, Wuhan Cable Co. was legally registered in and established at the Administration of Industry and Commerce. The former Wuhan Cable TV Station lost its independent legal person status in March 2001 since its reform of separation of TV station and TV network, and Wuhan Cable TV Station's network assets and related benefits were taken over by Wuhan Cable Co. The Court of First Instance legally modified Wuhan Cable TV Station to Wuhan Cable Co.

This Appellate Court also finds that the Court of First Instance has notified Dake Co. in writing to appear in court as an interested party. However, Dake Co. responded that Ming Bo Hong was its import agent and all matters arising out of this agency relationship shall be handled by Ming Bo Hong. Moreover, Dake Co. responded that the payment on goods was arranged by Ming Bo Hong directly, and therefore, Dake Co. did not appear in court.

REASONING AND RULING OF THE COURT OF FIRST INSTANCE

The Court of First Instance held that since the dispute arose out of a contract for the international sale of goods, the applicable law shall be the Contract Law of the People's Republic of China (hereinafter, "Chinese Contract Law"). As the seller in an international sales contract, Ming Bo Hong was an individual enterprise legally registered in Hong Kong. Xu Ming brought the action as the owner of Ming Bo Hong, i.e., he brought the action as an individual, which was in accordance with Article 4.1 of Answers of the Supreme People's Court to Questions in Deciding Economic Disputes Involving Parties from Hong Kong and Macau. Although Ming Bo Hong was authorized by Dake Co. to export GSR as its agent, Dake Co. clearly responded that the payment was arranged directly by Ming Bo Hong, and that Dake Co. would not appear in court. It can be concluded that the scope of authorization for Ming Bo Hong shall be considered to include the rights to collect payment. Additionally, Dake Co. did not object to Xu Ming's status as the Plaintiff. Hence, the Court of First Instance held that Xu Ming was qualified as the subject of litigation.

Dake Co. and Wuhan Cable TV Station signed a purchase contract (No. WHCATV1299SCH), agreeing on the price, quantity, quality, place of delivery, payment methods for the GSR. It shall be considered as the establishment of a contractual relationship. However, since Wuhan Cable TV Station was not allowed to directly import mechanical and electrical products by law, this purchase contract did not come to effect at the signature by both parties. In accordance with China's foreign trade agency system and in order to perform this purchase contract, Wuhan Cable TV Station issued a letter of authorization to Dake Co. Upon receipt of this letter of authorization, Dake Co. confirmed Wuhan Yinfeng Co. as the commercial agent of Wuhan Cable TV Station. At the same time, Dake Co. sent a letter of authorization to Wuhan Cable TV Station, notifying the latter that Ming Bo Hong was authorized to be Deke Co.'s commercial agent. These conducts demonstrated performance by both parties under the purchase contract and the recognition by Dake Co. and Ming Bo Hong of the agency relationship between Wuhan Cable TV Station and Wuhan Yinfeng Co. Although Wuhan Cable Co. and Wuhan Yinfeng Co. argued that the letter of authorization between them was invalid due to Wuhan Yinfeng Co.'s lack of import and export agency right approved by law, Dake Co.'s letter clearly stated that "signing a supply contract with Wuhan Yinfeng Co. or its representatives". Taking into account the Import Agency Agreement (No.2000TONY001) signed by Wuhan Yinfeng Co. with China Electronics (Wuhan) and the Contract (No.2000EMEECR-59002HK) signed by China Electronics (Wuhan) with Ming Bo Hong, the price of US $2,700,000, quantity, quality, and payment method indicated in these two documents are identical with those in the Contract (No.WHCATV1299SCH). Moreover, these two documents both included a provision that "matters related to technology and those not covered herein are subject to the contract between Dake Co. and Wuhan Cable TV Station (No. WHCATV1299SCH)". It can be concluded that Wuhan Cable Co. and Wuhan Yinfeng Co. have a principal-agent relationship.

Wuhan Cable Co. and Wuhan Yinfeng Co. argued that the contract between them established a purchase and sales relationship, instead of a principal-agent relationship. The Court of First Instance did not agree with this argument. The reasons were as follows:

First, as shown by the ascertained facts, the several sales contracts among Dake Co., Ming Bo Hong, China Electronics (Wuhan), Wuhan Yinfeng Co., and Wuhan Cable Co. formed a complete chain of evidence. On the other hand, the purported sales contract between Wuhan Yinfeng Co. and Wuhan Cable Co. was a single piece of evidence, and thus its weight as evidence was lacking.

Second, the contract between Wuhan Cable Co. and Wuhan Yinfeng Co. stated that "for quantity, refer to the lists of quantity between Wuhan Cable Co. and Dake Co.". It could be concluded that this contract was signed after the contract (No. WHCHTV1299SCH) between Wuhan Cable TV Station and Dake Co. Wuhan Cable Co. and Wuhan Yinfeng were aware of the fact that the basic price of the goods was US $2,700,000, but still entered into a sales contract of US $3,800,000, with a difference of US $1,100,000. In market economy, it is reasonable for market subjects to simplify transaction steps and reduce transaction costs. On the other hand, Wuhan Cable Co. intentionally added transaction steps, causing the transaction costs to increase almost 30%, which led to Wuhan Yinfeng Co.'s obtaining contractual rights of US $1,100,000 without performing the relevant contractual obligations. This violated the basic transaction rules. This contract between Wuhan Yinfeng Co. and Wuhan Cable Co. "conceal[ed] an illegal purpose under the guise of a legitimate transaction", and thus was not valid. On the other hand, the international sales contract between Ming Bo Hong and China Electronics (Wuhan) reflected the genuine intentions of both parties, and the content therein did not violate any mandatory provisions of Chinese Law, and thus was valid. When the contract between Ming Bo Hong and China Electronics (Wuhan) was concluded, the Chinese Contract Law had come into effect. Therefore, the rights and obligations of the parties shall comply with the Chinese Contract Law. Ming Bo Hong performed the contract completely and appropriately after its conclusion. Ming Bo Hong was entitled to request its contractual rights, i.e., payment of the contract price and the interest thereon. Article 402 of the Chinese Contract Law provides that "[i]f within the scope of the power delegated by the principal, the agent, in his/her own name, concludes a contract with a third party, and the third party knows the proxy relationship between the agent and principal at the time of concluding the contract, the contract shall directly bind the principal and the third party, unless there are conclusive evidences to prove that the said contract only binds the agent and the third party." In the present case, Ming Bo Hong knew of the fact that Wuhan Yinfeng Co. authorized China Electronics (Wuhan) to sign the international sales contract with Ming Bo Hong based on the Import Agency Agreement, and this contract did not exceed the scope of authorization provided in the Agreement. Taking into account the wording of the Import Agency Agreement, i.e., "[i]f Wuhan Yinfeng Co. for any reason causes Hong Kong Ming Bo Hong Inc. to ask for a penalty, Wuhan Yinfeng Co. is responsible for this penalty", the payment obligation may directly bind the principal, i.e., Wuhan Yinfeng Co. Moreover, this authorization by Wuhan Yinfeng Co. was based on the authorization by Wuhan Cable TV Station to Wuhan Yinfeng Co. Legally speaking, Wuhan Yinfeng Co.'s sub-authorization was known to Wuhan Cable Co. and was not objected by the latter. It could be proved by the fact that Wuhan Cable Co. officially sealed the Import Application Form and Registration Form of Mechanical and Electrical Products. The import quotas were approved and the exemption from customs duty was awarded to Wuhan Cable Co. Wuhan Cable Co. clearly indicated at the issuance of the letter of authorization that payment shall be made by Wuhan Yinfeng Co. Since Wuhan Yinfeng Co. had not made any payment accordingly, Wuhan Cable Co. shall bear the responsibility of payment directly instead. From another viewpoint, this sales contract not only included the sale of goods itself, but also included installation and technological services, with the Wuhan Cable Co. as the beneficiary. Therefore, Wuhan Cable Co. shall be responsible for the payment for the goods.

Wuhan Yinfeng Co. argued in court that the applicable law shall be the relevant regulations on foreign trade agency system instead of Chinese Contract Law. The Court of First Instance did not support this argument, because these regulations were administrative regulations that were implemented before the Chinese Contract Law was enacted, and if a contradiction occurred, the legal effect of the Chinese Contract Law would be beyond that of the administrative regulations.

According to Article 145 of the General Principles of the Civil Law of the People's Republic of China (hereinafter, "General Principles"), Articles 161 and 402 of the Chinese Contract Law, Articles 243 and 128 of the Civil Procedure Law of the People's Republic of China (hereinafter, "Chinese Civil Procedure Law"), the Court of First Instance held that

   1.   Wuhan Cable Co. shall make payment of US $1,890,000 for the goods to Xu Ming within 30 days upon the judgment coming into effect;
 
   2.   Wuhan Cable Co. shall bear the arrearage of US $108,521.90 with the cut-off date as 25 July 2002 (arrearage arose after 26 July 2002 until the principal was paid in full shall be borne by Wuhan Cable Co. calculated according to Bank of China's interest rate of deposit of U.S. currency);
 
   3.   The other claims by Xu Ming are dismissed;
 
   4.   The litigation fee of RMB 91,599 shall be borne by Wuhan Cable Co.

POSITIONS OF THE PARTIES ON APPEAL

On appeal, Wuhan Yinfeng Co. claimed that

  1. The Court of First Instance erred in the litigation procedure. There was no basis in fact or law for the Court of First Instance to find that Xu Ming (the Appellee) qualified as the subject of litigation. The Court of First Instance listed Xu Ming, Wuhan Cable Co., and Bureau of Radio & TV as defendants. It was not in accordance with the contract between China Electronics (Wuhan) and Hong Kong Ming Bo Hong Inc. Nor did the Court comply with China's foreign trade agency system.

  2. The facts were wrongly ascertained by the Court of First Instance. The Court of First Instance found that Wuhan Yinfeng Co. and Wuhan Cable Co. were to perform the purchase contract between Dake Co. and Wuhan Cable Co., which contradicted the truth, because this purchase contract was invalid and was not performed in actuality. Therefore, this contract should not be considered as major evidence of the case. On the other hand, the contract between Wuhan Yinfeng Co. and Wuhan Cable Co. was valid. It was basically performed completely, and thus shall be considered as evidence. Moreover, the letter of authorization issued by Wuhan Cable Co. unilaterally to Dake Co. was not approved by Wuhan Yinfeng Co., so it was invalid. To sum up, the Court of First Instance ignored important evidence intentionally, fabricated "chain of evidence", and wrongly found that the sales contract between Wuhan Yinfeng Co. and Wuhan Cable Co. was to "conceal an illegal purpose under the guise of a legitimate transaction".

  3. The Court of First Instance applied the wrong law. The foreign trade agency system is a special legal system in China, and should be applied prior to general law.

  4. The original judgment was illogical and illegal. The Court of First Instance was aware that Wuhan Cable Co. had made payment to Wuhan Yinfeng Co. according to the contract between them, and that Wuhan Yingfeng Co. had made part payment to China Electronics (Wuhan) according to the Import Agency Agreement. However, the Court still ordered Wuhan Cable Co. to make full payment to Xu Ming, which caused double payment by Wuhan Cable Co.

Therefore, Wuhan Yinfeng Co. requested this Appellate Court to

  1. Reverse the original judgment;

  2. Find that the sales contract between Wuhan Yinfeng and Wuhan Cable Co. is valid;

  3. Dismiss the action by Xu Ming; and

  4. Find that Xu Ming and China Electronics (Wuhan) bear the litigation fee of the second instance.

During the Court Session, Wuhan Yinfeng Co. supplemented one more point for reasoning, claiming that Article 421 of the Chinese Contract Law should be applied.

On appeal, Wuhan Cable Co. claimed that

  1. The goods delivered by Ming Bo Hong were based on the Supply Contract between itself and China Electronics (Wuhan), but not out of the agency relationship between itself and Wuhan Cable Co. Even if Wuhan Cable Co. officially sealed the Import Registration Form, this Registration Form was not submitted to Ming Bo Hong. Instead, it was submitted to China's administration authority for the use of internal examination and approval. According to the CIF term between China Electronics (Wuhan) and Ming Bo Hong, it was China Electronics (Wuhan)'s obligation to prepare import entry, not Ming Bo Hong's. Therefore, throughout the whole transaction, Ming Bo Hong had never received any document indicating that Wuhan Cable Co. had allowed Wuhan Yinfeng Co. to sub-authorize China Electronics (Wuhan) as the agent to import. Thus, Xu Ming could not assert his rights against Wuhan Cable Co. under the authorization between Wuhan Cable Co. and Wuhan Yinfeng Co. Instead, Xu Ming could only claim his rights against China Electronics (Wuhan) under the contract between them.

  2. Accordingly to the applicable law, Xu Ming as the Seller could only claim his rights from the Buyer, i.e., China Electronics (Wuhan). The applicable law of the present case is the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereinafter, "CISG"). Under Article 53 of CISG, the buyer must pay the price for the goods and take delivery of them as required by the contract and CISG. However, Wuhan Cable Co. was not able to directly pay the price for the goods in its own name, nor was it able to take delivery, because the consignee indicated in the bill of lading was China Electronics (Wuhan). Thus, Wuhan Cable Co. was not qualified as the buyer under the definition and description of CISG. Accordingly, Hong Kong law shall be applied to the rights and obligations under the contract of authorization between Ming Bo Hong and Dake Co. Xu Ming, as the unnamed agent of Dake Co. was not qualified to be the Plaintiff.

  3. The original judgment would confuse enterprises in the import and export industry. The original judgment ordered Wuhan Cable Co. to directly make payment of foreign currency to Xu Ming, contradicting Article 11.2 of the Regulations for Standardizing Import and Export Agency Business issued by the Ministry of Foreign Trade and Economic Cooperation, the General Administration of Customs, and the State Administration of Foreign Exchange in December 1998, which provides that "in the import agency business, the agent shall be responsible for payment of foreign currency; the principal shall not make payment of foreign currency." Thus, Wuhan Cable Co. had to choose between refusing to implement the judgment and violating the Regulations.

Therefore, Wuhan Cable Co. requested this Appellate Court to

  1. Reverse the original judgment;

  2. Dismiss all of the claims by Xu Ming against Wuhan Cable Co.

During the court session, Wuhan Cable Co. supplemented the following for appeal:

  1. The conduct of the international transaction in the present case demonstrated that both parties were performing the contract between China Electronics (Wuhan) and Ming Bo Hong, instead of the contract between Dake Co. and Wuhan Cable Co. Hence, Wuhan Cable TV Station did not bear any responsibility for Hong Kong Ming Bo Hong Inc.

  2. It was not ascertained whether Ming Bo Hong had capacity for civil rights and capacity for civil conducts in order to enter into an international sales contract. Ming Bo Hong was registered with the scope of business as importing and exporting textile, photographic cameras, and hardware. It was unclear whether Ming Bo Hong had the capacity to enter into an export contract for GSR, because communication and data processing equipment may be for military use.

Xu Ming responded that

  1. The CISG is not applicable in the present case as asserted by Wuhan Cable Co., and that Xu Ming was qualified as the subject of litigation;

  2. The facts were clearly ascertained in the original judgment. The relationship between Wuhan Yinfeng Co. and Wuhan Cable Co. should not be used to deny the letter of authorization issued by Wuhan Cable Co. to Dake Co.;

  3. The Court of First Instant was correct in ordering Wuhan Cable Co. to make payment;

  4. According to the facts and the content of the Import Agency Agreement, this Agreement was an agency contract, not a contract of commission agency. As a foreign trade corporation, China Electrics (Wuhan) had performed all the obligations under the contract;

  5. Wuhan Cable Co. knew of the sub-authorization, because China Electronics (Wuhan) accomplished all the customs clearing procedure and Wuhan Cable Co. took delivery of the goods at issue;

  6. The transaction of the goods for civilian use by Ming Bo Hong was legal and should not be exaggerated as military use.

Therefore, the arguments by the appellants are untenable.

China Electronics (Wuhan) responded that

  1. China Electronics (Wuhan) was the unnamed agent of Wuhan Cable Co. and bore the same legal responsibility as named agent;

  2. The Chinese Contract Law (Article 402) should be the applicable law. The Chinese Contract Law was enacted in 1999, but the Provisional Rules on Foreign Trade Agency System were enacted in 1991. The legal effect of the Chinese Contract Law is beyond that of the Provisional Rules.

  3. The Import Registration Form of Mechanical and Electrical Products submitted to the Court of First Instance by China Electronics (Wuhan) was officially sealed by Wuhan Cable Co., and thus Wuhan Cable Co. was aware of the fact that Wuhan Yinfeng Co. had sub-authorized to China Electronics (Wuhan).

Therefore, the facts were clearly ascertained in the first instance. China Electronics (Wuhan) requested this Appellate Court to dismiss the appeal.

Bureau of Radio & TV responded that Wuhan Cable Co. had made full payment to Wuhan Yinfeng Co. after taking delivery of the goods, and thus Wuhan Cable Co. should not bear any responsibility for payment.

Wuhan Cable Co., in response to Wuhan Yinfeng Co.'s claims on appeal, argued that Wuhan Cable TV Station was not familiar with international sale of goods business, but Wuhan Cable TV Station and Wuhan Yinfeng Co. were buyer and seller.

Wuhan Yinfeng Co., in response to Wuhan Cable Co.'s claims on appeal, argued that Wuhan Yinfeng Co. was performing its contract with Wuhan Cable Co., and that the relationship between it and Wuhan Cable Co. was not an agent-principal relationship as found in the first instance.

REASONING OF THE APPELLATE COURT

According to the above ascertained facts and the cross-examined evidence, this Appellate Court finds the following:

Jurisdiction

This Appellate Court finds that although Xu Ming and China Electronics (Wuhan) agreed in their contract "to negotiate in solving any disputes arising from this contract; and, if in vain, to submit the disputes to final and binding arbitration by authorized arbitration institutions." However, the parties did not agree on any specific arbitration institution, nor did they have any supplementary agreement appointing any. Under Article 18 of the Arbitration Law of the People's Republic of China, this arbitration clause is invalid. On the other hand, this contract was signed in the City of Wuhan, Hubei, and the place of performance was in Mainland China. Xu Ming as the seller in the transaction brought an action at the place where Defendants are domiciled, and none of the parties objected to the jurisdiction of the Court of First Instance and they appeared. Therefore, according to Article 245 of the Chinese Civil Procedure Law, the Court of First Instance and this Appellate Court have jurisdiction over the present case.

Applicable law

This Court finds that China Electronics (Wuhan) and Xu Ming did not agree on the applicable law in their contract. According to the Doctrine of Most Significant Relationship, the applicable law shall be the law of the seller's place of business or the law of the buyer's place of business. In the present case, Hong Kong is a Special Administrative Zone of China with a different legal system. Hong Kong is not a Contracting State of CISG. Therefore, the CISG is not applicable. On the other hand, the contract between Xu Ming and China Electronics (Wuhan) was concluded in the City of Wuhan, Hubei. Wuhan was also buyer's place of business. None of the parties objected to the application of Chinese law in the first instance. Therefore, Chinese Law applies to this case. Moreover, since the contractual activities occurred after the Chinese Contract Law was enacted, the Chinese Contract Law is applicable. The Provisional Rules on Foreign Trade Agency System are merely department rules, not special law. Pursuant to Article 4 of the Supreme People's Court's Interpretations of Certain Issues Concerning the Application of the Contract Law of the People's Republic of China (Part One), the people's courts are only allowed to refer to these department rules. Because Chinese Contract Law does not include provisions directly regulating the foreign trade agency system, the disputed issues concerning the foreign trade agency system shall be governed by the Foreign Trade Law of the People's Republic of China (hereinafter, "Chinese Foreign Trade Law").

Xu Ming's qualification to be a subject of litigation

This Appellate Court finds that the matters of whether Ming Bo Hong is the agent of Dake Co., what is the applicable law to decide the relationship between Ming Bo Hong and Dake Co., whether Ming Bo Hong is qualified to bring an action in its own name in the people's court, and whether Dake Co. shall join as a party only need discussion where Ming Bo Hong has no direct contractual relationship with the other parties in the present case. According to the Supreme People's Court Summary of the National Symposium on Economic Cases Involving Foreign Elements or Hong Kong and Macau in the Coastal Area (1988) (hereinafter, "Summary"), "[i]n the event that foreign, Hong Kong, or Macau companies, enterprises, other economic organizations or individuals establishes principal-agent relationship outside China, the law governing the conclusion and the validity of such contract shall be the one of the agent's place of domicile or place of business". Therefore, the applicable law to the above mentioned matters shall be Hong Kong law. Since Dake Co. is not a party to the present case, and none of the parties submitted the related Hong Kong law, this Appellate Court is not able to decide on these matters.

On the other hand, Ming Bo Hong concluded a contract with China Electronics (Wuhan) in its own name, and was the seller in this purchase contract. According to the Summary, the owner of an individual enterprise in Hong Kong and Macau shall be the ultimate person to enjoy and be responsible for the enterprise's rights and obligations, and thus the owner has the enterprise's litigation rights and obligations. In the present case, Xu Ming, the owner of Ming Bo Hong is qualified to be the subject of litigation and to bring an action in his own name. Therefore, this Appellate Court denies Wuhan Yinfeng Co.'s claim that there was no basis in fact or law that the Court of First Instance found that Xu Ming qualified as the subject of litigation. This Appellate Court also denies Wuhan Cable Co.'s claim that Xu Ming as the unnamed agent of Dake Co. was not qualified to be the Plaintiff.

Relationship between Wuhan Cable Co. and Dake Co.

This Appellate Court finds that the contract between Wuhan Cable Co. and Dake Co. was not performed. It was merely a document of intention on the purchase of the device. This document is not valid due to the fact that Wuhan Cable Co. did not have the right to import and export goods or technologies pursuant to Articles 8 and 9 of Chinese Foreign Trade Law. Wuhan Cable Co.'s letter of authorization to Dake Co. according to this invalid contract was not approved by Wuhan Yinfeng Co., and thus not binding on Wuhan Yinfeng Co. In addition, Wuhan Yinfeng Co. did not have the right to import and export either. This letter of authorization is not valid. This Appellate Court finds that there is no basis in fact or law that the Court of First Instance found that the contract between Wuhan Cable Co. and Dake Co. was the underlying contract, and that the subsequent conducts were to perform this contract.

Relationship between Wuhan Cable Co. and Wuhan Yinfeng Co.

This Appellate Court finds that the Court of the First Instance erred in finding the contract between Wuhan Cable Co. and Wuhan Yinfeng Co. invalid. The Court of the First Instance did not deny the authenticity of this contract, nor did Xu Ming or China Electronics (Wuhan). There is no evidence demonstrating that this contract "conceal[ed] an illegal purpose under the guise of a legitimate transaction". Wuhan Cable Co. and Wuhan Yinfeng Co. did not conclude any contract of authorization or agency agreement. Wuhan Yinfeng Co. signed an Import Agency Agreement directly with China Electronics (Wuhan) in its own name. Additionally, this Agency Agreement clearly stated that China Electronics (Wuhan) guaranteed that it was only responsible to China Yinfeng Co. There is no other evidence proving that Wuhan Yinfeng Co.'s signing of the Agency Agreement was a sub-authorization approved by Wuhan Cable Co. Therefore, the relationship between Wuhan Cable Co. and Wuhan Yinfeng Co. is not a direct agency or indirect agency. On the other hand, the contract between Wuhan Cable Co. and Wuhan Yinfeng Co. is valid. Wuhan Yinfeng Co. has already delivered the device to Wuhan Cable Co. and Wuhan Cable Co. has paid most of the contract price. The major obligations under this contract were performed. The relationship between these two parties is a buyer-seller relationship.

As for the Import Application Form and Registration Form of Mechanical and Electrical Products officially sealed by Wuhan Cable Co., this Appellate Court finds that Wuhan Cable Co. is the end user of the products and it was reasonable for it to seal in these Forms. Wuhan Cable Co. is not the direct buyer of the device. To Ming Bo Hong, the direct buyer is China Electronics (Wuhan). There are no laws or regulations in China providing that the company that officially seals the import application form and registration form shall be the direct buyer. In conclusion, the seals by Wuhan Cable Co. in these forms do not affect the buyer-seller relationship between Wuhan Cable Co. and Wuhan Yinfeng Co.

As for the letter from Wuhan Yinfeng Co. to Wuhan Cable Co. dated 6 March 2000, it is a photocopy, even if it was attached to Wuhan Cable Co.'s financial books. Additionally, Wuhan Yinfeng Co. denied that it had issued such letter, and Xu Ming and China Electronics (Wuhan) could not submit the original letter or other evidence to support the authenticity of this photocopy. Therefore, this Appellate Court denies this photocopied letter as evidence. Had the authenticity been proven, this letter could not establish the principal-agency relationship between Wuhan Cable Co. and Wuhan Yinfeng Co., because the agent of foreign trade must have the right of import and export according to the relevant law. Violating the law, the import and export conduct is invalid, and the related conduct between the involved parties is not protected by law.

Relationship between Wuhan Yinfeng Co. and China Electronics (Wuhan)

This Appellate Court finds that China Electronics (Wuhan) and Wuhan Yinfeng Co. are agent and principal. Their rights and obligations are bound by the Import Agency Agreement signed by them. Accordingly, China Electronics Co. was given the full responsibility to handle all of the disputes arising out of the business activities, which shall include the present dispute. China Electronics (Wuhan) is entitled to request compensation from Wuhan Yinfeng Co. according to their Agency Agreement. At the same time, the provision that China Electronics (Wuhan) was only responsible to China Yinfeng Co. and was not allowed to contact other end users shows that there was no subauthorization between Wuhan Yinfeng Co. and China Cable Co. This Appellate Court finds that the delivery of goods by Ming Bo Hong to China Electronics (Wuhan) was not based on the agency relationship between Ming Bo Hong and Wuhan Cable Co.

Relationship between China Electronics and Xu Ming

This Appellate Court finds that China Electronics (Wuhan) and Xu Ming are buyer and seller, and that the contract between China Electronics (Wuhan) and Ming Bo Hong does not involve the rights and obligations of Wuhan Cable Co. and Wuhan Yinfeng Co. Within the time limit for evidence submission, Xu Ming did not submit any evidence proving that he knew of the agency relationship between Wuhan Yinfeng and China Electronics (Wuhan) when he entered into the contract with China Electronics (Wuhan). On the other hand, the Import Agency Agreement provided that China Electronics Co. was given the full responsibility to handle all of the disputes arising out of the business activities. It can be concluded that the purchase contract between China Electronics (Wuhan) and Xu Ming only binds these two parties. Thus, Article 402 of the Chinese Contract Law shall not be applied. Instead, the section regulating sales contract is applicable, which means that Xu Ming could only assert his rights against the buyer, i.e., China Electronics (Wuhan). Wuhan Yinfeng Co. and China Electronics (Wuhan)'s relationship shall be discussed in a separate case, because the disputes between them belong to another legal relationship. Since Xu Ming modified his claim in the first instance requesting the Court of First Instance to order Wuhan Cable Co. and the Bureau of Radio & TV to bear the civil responsibility, which clearly showed that Xu Ming withdrew his claims against China Electronics (Wuhan) and Wuhan Yinfeng Co. In the first instance, Xu Ming brought the action against four defendants but he withdrew the claims against two and the other two left are China Cable Co. and Bureau of Radio & TV. Therefore, Item 3 of the original Statement of Complaint requesting the Court of First Instance to "dismiss other litigation claims by Xu Ming" did not include the litigation claims against China Electronics (Wuhan) and Wuhan Yinfeng Co., because a withdrawn request cannot be dismissed. Since the first two items of the judgment handed down by the Court of First Instance were about obligations of Wuhan Cable Co., the third item to "dismiss other claims by Xu Ming" shall be interpreted as to "dismiss Xu Ming's litigation requests and attorney's fee request against Bureau of Radio & TV". Although Xu Ming made clear that he waived his rights against China Electronics (Wuhan) in the second instance, a party cannot waive his rights against another party after withdrawing his claims against this other party. Therefore, this waiver is invalid. Xu Ming is not bound by this waiver.

Relationship between Xu Ming and Wuhan Cable Co.

This Appellate Court finds that neither Xu Ming nor Ming Bo Hong signed any agreement with Wuhan Cable Co. Xu Ming cannot directly request Wuhan Cable Co. to bear responsibility for payment. The Court of the First Instance held that the contract between China Electronics (Wuhan) and Ming Bo Hong not only included the sale of goods itself, but also included installation and technological services, with the Wuhan Cable Co. as the beneficiary, and thus Wuhan Cable Co. shall be responsible fot the payment for the goods. This Appellate Court does not agree with this reasoning. Xu Ming did not submit any evidence supporting the argument that Wuhan Cable Co. as the end user who received the after-sale service should be the one who makes payment to the seller. On the other hand, the relationships among Xu Ming, China Electronics (Wuhan), and Wuhan Yinfeng Co. shall not be governed by Article 402 of Chinese Contract Law, because Xu Ming was not aware of the agency relationship between China Electronics (Wuhan) and Wuhan Yinfeng Co. when signing the contract, and the Import Agency Agreement included terms stating that the contract only binds Ming Bo Hong and China Electronics (Wuhan). Hence, this Appellate Court does not support Xu Ming's claims against Wuhan Cable Co.

RULING OF THE COURT

In conclusion, even if the present dispute involves quite a few legal relationships among the parties, the main basis of Xu Ming's action was the contract between Xu Ming and China Electronics (Wuhan). The cause of action of the case was disputes arising out of the contract for international sale of goods. Xu Ming as the seller is entitled to assert his rights against the buyer, i.e., China Electronics (Wuhan), requesting China Electronics (Wuhan) to make payment of the arrearage of the contract price. However, he is not entitled to request it from Wuhan Cable Co. directly. The disputes between China Electronics (Wuhan) and Wuhan Yinfeng Co., and the disputes between China Yinfeng Co. and Wuhan Cable Co. do not fall within the cognizance of this Appellate Court, and shall be dealt with in a separate case. The finding of facts in the first instance was ambiguous, the determination of the legal relations was chaotic, the application of laws was wrong, and the handling of part of the substance was not appropriate. It shall be corrected. This Appellate Court supports the reasoning on appeal by Wuhan Yinfeng Co. and Wuhan Cable Co. that the Court of First Instance erred in ascertaining facts and applying laws.

After the discussion by the trial board of this Appellate Court, according to Items 2 and 3 of Article 153(1) of the Chinese Civil Procedure Law, this Appellate Court hands down the following ruling:

  1. Affirms Item 3 of the original judgment;

  2. Reverses Items 1 and 2 of the original judgment; and

  3. Dismisses Xu Ming's claims against Wuhan Cable Co.

The litigation fee of the first instance and the second instance totals RMB 91,599. Xu Ming shall pay the total amount.

This is the final judgment.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. 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]; amounts in the currency of Hong Kong Special Administrative Region (Hong Kong dollars) are indicated as [HKD].

** Jing Li, LL.M., University of Texas at Austin, School of Law; Master of Law, Sun Yat-Sen University School of Law, China; LL.B., Sun Yat-Sen University School of Law, China.

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Pace Law School Institute of International Commercial Law - Last updated May 11, 2010
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