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CISG CASE PRESENTATION

China 18 April 2003 CIETAC Arbitration proceeding (Desulfurization reagent case) [English text]
[Cite as: http://cisgw3.law.pace.edu/cases/030418c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20030418 (18 April 2003)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2003/05

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: United States (respondent)

GOODS INVOLVED: Desulfurization reagent


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission [CIETAC] 18 April 2003 (Desulfurization reagent case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/120]
CLOUT abstract no. 1165

Reproduced with permission of UNCITRAL

Abstract prepared by Aaron Bogatin

The parties entered into a contract for the provision of a desulfurization reagent. The goods were to be delivered in three installments (between July and September 2001) and transportation was to be organized by the seller.

Although the goods were delivered to the correct port by the due dates, the buyer only made a partial payment. The seller filed for arbitration asking for the balance and interest on the unpaid amount.

In its defence, the buyer asserted that it did not pay the full amount because instead of three deliveries of equal quantities, there where twelve deliveries with differing net weights in goods. Furthermore, a subsequent agreement (“the Agreement”) made with the seller in March 2002 provided that the seller would deliver additional goods in return for the outstanding payments by the buyer. The Agreement reconstituted a contractual relationship between the parties. Since the seller did not deliver the additional goods, the buyer was not obliged to fulfill its obligation to pay.

The seller stated that the applicable law should be Chinese law, as the contract was concluded and performed in China and the place of arbitration was in China. It then alleged that the terms of the contract did not specifically say that there could only be three shipments of goods. The seller delivered exactly the required quantity of goods by the due date, it just occurred over a larger span of shipments: clause 12 of the contract supported this view. The Agreement was merely entered into to ensure that the buyer would not continue to breach the contract. It did not modify the terms of the original contract and it was thus not to be seen as excusing the buyer’s breach under the original contract. The seller did not lose its right to claim damages to the buyer.

The buyer counter argued that the CISG should apply as both parties had their places of business in Contracting States to the Convention; the Agreement was not an independent contract but modified the payment terms of the original contract and, given the new terms of payment, the time for calculating interest should be set at April 2002.

Since the place of arbitration was in China the Arbitration Tribunal decided to apply the rules of conflict in Chinese law to determine the applicable law to the dispute. Pursuant to those rules, the Tribunal found that Chinese law should be applied directly to the case when it was in conformity with the CISG. The Convention was to be applied if the applicable Chinese law conflicted with the Convention, and international practice was to be applied when neither Chinese law nor the CISG had any relevant provisions.

Ruling on the merits of the case, the Tribunal held that the seller was not in breach of contract by providing deliveries in more than 3 installments, thus the buyer was required to pay the balance of the contract. The Agreement was merely a way of ensuring compliance under the original contract and did not modify the original rights and obligations of the parties in any significant way. It did not “replace the [original] contract”, it was an amendment. However, in line with the Agreement, that had laid down a new stipulation on the date of the outstanding payment, and Article 78 CISG, the interest due was to be calculated as from April 2002.

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)] ["The Tribunal finds that the law of the PRC shall be applied directly to the case when the law of the PRC is in conformity with the Convention; While the Convention shall be applied in the case if the law of PRC applied conflicts with the Convention; and the International practice shall be applied to the case when neither the law of PRC nor the Convention has any provision."]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 29 ; 53 ; 74 ; 78 [Also cited: Articles 18(1) ; 19 ]

Classification of issues using UNCITRAL classification code numbers:

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

53A [Obligation of buyer to pay price of goods];

74A ; 74B [General rules for measuring damages: loss suffered as consequence of loss; Outer limits of damages: foreseeability of loss];

78B [Rate of interest];

Descriptors: Modification of contract ; Price ; Damages ; Foreseeability of damages ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (English): Text presented below

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text [original text in English]

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

Desulfurization reagent case [*] of 18 April 2003

[...]

      -    Particulars of the arbitration
      -    Facts of the case
      -    Position of the parties
      -    Tribunal's opinions
(1)  Applicable law
(2)  Formation of the contract
(3)  Terms of payment
(4)  Performance of the contract
(5)  On the 3.13 Agreement
(6)  Seller's claims
(7)  Attorney's fee
(8)  Arbitration fees
      -    The Award

[PARTICULARS OF THE ARBITRATION]

In accordance with:

   -    The arbitration clause included in the Sales Contract No. JHRB01 (hereinafter referred to as "the Contract") concerning the sale of the Desulfurization Reagent signed on June 28, 2001 by and between the Claimant, Hebi J... Smelting Co., Ltd (hereinafter referred to as "[Seller]") and the Respondent, R...-R..., LLC (originally named as R... Manufacturing Co., L.P. (hereinafter referred to as "the [Buyer]") and
 
   -    Upon the written Application for Arbitration submitted by the [Seller] on July 9, 2002,

the China International Economic and Trade Arbitration Commission (hereinafter referred to as "CIETAC") took cognizance of the case concerning the disputes arising out of the said Contract. The number of the arbitration case is R....

The Arbitration Rules of CIETAC (hereinafter referred to as the "CIETAC Rules"), which came into force as from October 1, 2000, shall apply to the present case.

According to Article 24 of the CIETAC Rules, the Chairman of CIETAC, entrusted by the [Seller], appointed Ms. Jia J... as a co-arbitrator, while the [Buyer] appointed Mr. Wang C... as another co-arbitrator. Since the two parties failed to jointly choose or jointly entrust the Chairman of CIETAC to appoint the presiding arbitrator within the time limit provided in the CIETAC Rules, the Chairman, pursuant to Article 24 of the CIETAC Rules, appointed Mr. Wei R... as the presiding arbitrator for the case. The aforesaid three arbitrators formed the Arbitral Tribunal on October 17, 2002 to hear the case.

On November 18, 2002, the Tribunal held the first hearing of the case as scheduled. Each party sent its arbitration agents to attend the hearing. Each of them presented their statements respectively on the facts and legal issues of the case, answered the questions raised by the Tribunal, and rendered their respective arguments. With the consent of both parties, the disputes have been conciliated by the Tribunal but not been settled by conciliation.

After the first hearing, both parties submitted their written supplementary opinions respectively within the time limit set forth by the Tribunal. Since the [Buyer] brought up a challenge against the new evidences submitted by the [Seller], the Tribunal held the second hearing on February 12, 2003. Parties' arbitration agents so attended the hearing, and made their presentments and arguments on the main issues of the disputes, as well as answered the questions raised by the Tribunal and examined the relevant evidences produced by each other.

The Secretariat of CIETAC delivered all the submissions received from one party to other party in time, and both parties were given adequate time to present their opinions.

The case is now concluded. Based on the written submissions sent by each party and the two hearings, the Tribunal, after due deliberations, rendered this Award within the time limit provided by the CIETAC Rules.

The facts of the case, the reasoning of the Tribunal and its result of the Award are respectively set forth as follows

I. FACTS

On June 28, 2001, the Contract No. JHRB01 was signed by and between the [Seller] and the [Buyer], under which the [Seller] shall deliver 5,289,600 pounds Desulfurization Reagent to the [Buyer] under the following terms and conditions:

   -    "Unit price: US $0.6750 per pound CIF Chicago, USA
   -    Total amount: US $3,570,480.00
   -    Time of delivery: 1,763,200 pounds on July 30, 2001; 1,763,200 pounds on August 30, 2001; 1,763,200 pounds on September 30, 2001
   -    Shipping terms: (a) The carrying vessel shall be arranged by the Seller. Partial shipments, transshipping and container transportation shall be permitted unless otherwise stated on face hereof. ..."

Disputes occurred during the performance of the Contract, and were unable to be settled by amicable negotiation. Therefore, the [Seller] filed an application for arbitration with CIETAC.

[POSITION OF THE PARTIES]

[The Seller's allegations]

The [Seller] alleges in its Arbitration Application that

According to the Contract, the date of delivery of goods should be on July 30, 2001, August 30, 2001 and September 30, 2001, respectively, at the named port of destination with quantified 1,763,200.00 pounds. The [Seller] fully performed its contractual obligations, but the [Buyer] has only paid US $837,619.05 to the [Seller], with the balance of payment remaining unpaid. Therefore, the [Seller] applied to CIETAC and put forward its claims as following:

   (1)    The [Buyer] pays the [Seller] the outstanding payments of US $2,733,809.54 and interest of US $118,167.40 (at a rate of 5.16‰ of the overdue sum for each month of delay, temporarily up to June 25, 2002), and also bears the liability of breach of the Contract.
   (2)    All the arbitration fees shall be borne by the [Buyer].

[The Buyer's defense]

In view of the [Seller]'s aforesaid allegations, the [Buyer] refuted in its written defense submitted to CIETAC on November 11, 2002 as following:

1. The [Seller] failed to submit sufficient evidences to prove that its contractual obligations have been duly performed. It is the opinion of the [Buyer] that the [Seller]'s fulfillment of the obligations under the Contract is the prerequisite for acquiring the contractual payment, therefore, the [Seller] shall in advance prove that to what extent it has performed the Contract.

2.The [Seller] did not deliver the goods in compliance with the contracted time and quantity. According to the Contract, all the goods should be delivered averagely in three shipments, but the [Seller] delivered in 12 shipments with large difference of quantity in each shipment.

3. There are no sufficient evidences indicating that the manner of the calculation of the interest is correct. According to the Contract, the date of starting calculation of interest shall be the 61st day after the shipment of goods. Hence, the date of each lot is the key to the calculation of the interest, but the [Seller] did not provide the relevant evidence on the time of each shipment.

4. The [Seller] did not provide another agreement signed by the two parties on March 13, 2002 (hereinafter referred to as "the 3.13 Agreement"). According to the 3.13 Agreement, the [Seller] shall continue to supply 300 MT goods, and the [Buyer] shall make outstanding payment of US $1,130,000 by installments. The [Buyer] is of the opinion that the 3.13 Agreement re-constituted the rights and obligations between the two parties, the outstanding payment of goods and interest under the Contract have been replaced by the 3.13 Agreement, therefore, payment obligation borne by the [Buyer] has been reduced by the [Seller] to some extent. In fact, the [Buyer] has paid US $300,000 on time as provided by the 3.13 Agreement, but the [Seller] did not deliver the goods. So, it was not necessary for the [Buyer] to fulfill its obligation of payment under the 3.13 Agreement anymore.

[The Seller's response]

During the first hearing, the [Seller] put forward that three mistakes in the Arbitration Application should be rectified.

      Firstly, the terms of payment C.I.F. shall be changed to F.O.B. The [Seller] showed before the Tribunal the Contract modified with an original hand script and stated that, this modification was made on the request of [Buyer] on June 29, 2001 and has been signed by both parties.

      Secondly, the "Date of delivery" shall be "the Date of shipment".

      Thirdly, the sentence "reached the named port of destination" should be deleted.

The [Seller] further stated that the above second and third points just were the mistakes of translation. Meanwhile, the [Seller] stated furthermore that it has fulfilled all its obligations in conformity with the Contract that the date of delivery of goods shall be on July 30, 2001, August 30, 2001 and September 30, 2001, respectively, at the named port of destination with quantified 1,763,200.00 pounds, however, the [Buyer] only paid US $892,619.05 and the balance of payment has not been paid yet. Therefore, the [Seller] put forward its final arbitration claims as followings:

   (1)   The [Buyer] pays the [Seller] outstanding payment of the goods US $2,678,809.54 and interest US $227,118.85 (up to November 18, 2002 ), the manner of calculation is: interest = outstanding payment of goods X monthly overdue interest (6.3‰) 30 X number of overdue days.
 
   (2)   The [Buyer] pays the [Seller] insurance premium, maritime freight and all other costs prepaid by the [Seller].
   (3)   The [Buyer] compensates the drawback loss amounting to US $348,245.2402. The manner of calculation is: loss = outstanding payment of goods rate of drawback (13%).
   (4)   The [Buyer] shall compensate the following charges: The [Seller]'s travel expenses to USA for negotiation with the [Buyer] amounting to US $2,251.51 and RMB 20,205. The [Seller]'s travel expenses incurred during the arbitration proceedings amounting to RMB 20,000. The attorney's fee incurred by the [Seller] amounting to RMB 100,000.

Furthermore, the [Seller] restated in the supplementary statements respectively dated on November 18, 2002 and February 15, 2003 that:

1. Applicable law shall be Chinese law

Since there is no provision in the Contract with regard to the applicable law, the [Seller] is of the opinion that the law of P.R. China shall be applied in the case. The reasons are as follows: (a) the Contract was concluded in China. It is the [Buyer] who made the acceptance, so the Contract was formed in China in terms of provisions of the PRC Contract Law that a contract established when an acceptance becomes effective and the place of effectiveness of an acceptance is the place of the establishment of the contract. (b) The place of performance is in China. Because the disputes were the result of delaying payment by the [Buyer], according to the PRC Contract Law, the place of performance shall be at the payee's place. In this case the place of performance is in China. (c) The place of arbitration is in China. Based on the above points, it is understandable that both parties were willing to apply Chinese law.

2. The [Seller] has fulfilled its obligation of delivery under the Contract

The [Seller] is of the opinion that Article 9 of the Contract, "the time of delivery of goods shall be on July 30, 2001, August 30, 2001 and September 30, 2001 respectively at the port of destination with quantified 1,763,200.00 pounds", does not expressly mean that the [Seller] shall deliver the goods in three shipments by average, however, it only points out that the [Seller] shall deliver the goods at that time. The same conclusion can also be reached from Article 125 of the PRC Contract Law.

      (1) From Article 9 of the Contract, it cannot be seen that shipment shall not be in batches or in advance.

      (2) According to Article 12 of the Contract, "the carrying vessel shall be arranged by the Seller. Partial shipments, transshipping and container transportation shall be permitted unless otherwise stated on face hereof ...", the [Seller]'s shipment of goods in batches is not deemed to be breach of the Contract.

      (3) For the purpose of the Contract, the [Buyer] is willing to receive goods not less than the amount as provided in the Contract within the time limit set forth in the Contract. The [Seller] has delivered sufficient goods within this time limit, and this shipment is in conformity with the purpose of the Contract. Even though this shipment is considered to be an advance one, according to Article 71 of the PRC Contract Law, this advance shipment did not impair any interest of the [Buyer], and the [Buyer] did not file any rejection or objection in this regard.

      (4) Following the custom of transaction, any advance shipment of goods is permitted when the [Buyer] needs the goods.

      (5) Based on the principle of good faith, the [Buyer] shall forthwith make the payment of the goods immediately after the receipt of the goods without any objection. The [Buyer], after its breach of the Contract, shall not refuse such payment on the basis that the goods have been shipped in advance.

3. The nature of the 3.13 Agreement and the relationship between the two contracts

The 3.13 Agreement is in its nature the consolidation of two parts of contents, and it shall be treated as two independent agreements.

The provision for the terms of payment is part of the Contract. It constitutes a manner of assumption of the responsibility after the [Buyer] breached its contractual obligation, i.e. "continue to perform the Contract". The provision for the time of payment shall be deemed as the limit set for the continuation of the performance, and shall not be interpreted as the modification of the original term of payment. Therefore, this action only constitutes the result of an intermit of the limitation of action in the legal point of view, rather than the result of the exemption of the liability for breach of the Contract. The reasons are as follows:

The provision for a shipment of 300 MT goods was another agreement and it is independent to the Contract.

4. The [Buyer] shall bear the liability for breach of Contract and compensate losses to the [Seller].

[Restatement of the Seller's claim]

The [Seller] is of the opinion that, according to Articles 107, 112 and 113 of the PRC Contract Law, the [Buyer] shall compensate the losses incurred by its undue performance of the payment obligation, which shall include:

      (1) Interest. including attainable interest caused by the delaying payment; and direct losses, namely the interest and penalty interest incurred from the bank's loan borrowed by the [Seller] due to the [Buyer]'s failure to make payment of goods to the [Seller] on time. As to the attainable interest, the [Seller] considers that, the date of starting calculation of the interest shall be accounted from the date immediately from the following day next to the last day of the acceptance of the bill of exchange made by [Buyer] of each batch of goods.

      (2) The losses of drawback. The [Seller] did not receive drawback owing to the late payment of goods by the [Buyer], these losses shall be foreseeable and indispensable for the [Buyer] on dealing international trade with Chinese companies.

      (3) The [Seller]'s travel expenses for negotiation with the [Buyer] to USA.

      (4) The arbitration fees.

      (5) The attorney's fee.

[The Buyer's response]

Against the [Seller]'s foregoing, the [Buyer] refuted in his written defense dated on December 20, 2002 and February 26, 2003 respectively as follows:

1. The United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as the Convention") shall be applied by preference

The [Buyer] claims that in view of the business places of both parties are in the Contracting States of the Convention, when there are no clear provisions on the law applicable to the Contract, the Convention shall be applied. Meanwhile, according to Article 142 of General Principles of The Civil Law of PRC, Chinese law does not exclude the application of international treaty concluded or acceded to by the PRC. Hence, the application of the Convention shall be preferred.

2. The Terms of Payment are C.I.F. not F.O.B.

The [Buyer] states that, because of the burden of the insurance premium, maritime freight and all other costs, C.I.F. is beneficial to the [Buyer]. If the F.O.B. terms were adopted, it would be unreasonable for the [Buyer] to increase its financial burden. Besides, considering that the [Seller] has voluntarily paid insurance premium, maritime freight and all other costs, and never asked the [Buyer] to compensate the above expenses, it could be deemed that the C.I.F. terms were the true expression of both parties.

In addition, according to Article 19 of the Convention that a reply to an offer which purports to be an acceptance but contains material modification of the offer constitutes a counter-offer, and Article 18(1) that silence or inactivity does not in itself amount to acceptance, it can be considered non-acceptance that the [Seller] did not expressly acknowledge but voluntarily perform the contract. Hence, the F.O.B. terms signed only by foreign party not by the [Seller] does not bind upon both parties.

3. The [Seller] has breached its obligation in the aspect of shipment

According to the Contract, all the goods shall be dispatched by three batches averagely as each batch is 800 MT, and detailed time of each delivery has been clearly provided. But the [Seller] dispatched the goods in 14 batches with quantity ranging from 34 MT to 40 MT from July 8, 2001 to September 25, 2001. The manner of delivery adopted by the [Seller] is in its breach of the Contract.

4. The 3.13 Agreement is the substantial modification to the Contract, it is the new agreement with regard to the reimbursement of the outstanding payment by [Buyer].

From the expression of the 3.13 Agreement, the contents of the provision are mutually relevant and coherent. The 3.13 Agreement is an integral and intact agreement. The purpose of the [Seller]'s continuing to supply the goods to the [Buyer] is to help the [Buyer] increasing the circulation of capital and profitability so as to ensure that the outstanding payment of goods can be paid on time.

Besides, owing to the lack of the legal elements, the 3.13 Agreement cannot exist and cannot be performed independently. Therefore, the 3.13 Agreement is only a new provision agreed upon by both parties to postpone the date of the payment on the part of [Buyer] to March 15, 2002.

5. As to the each arbitration claim filed by the [Seller]

      (1) The interest. The [Seller] agreed that the [Buyer] should pay the outstanding payment of goods from March 15, 2002 according to the 3.13 Agreement, for the [Seller]'s reason that the [Buyer] did not pay the amount of money which shall be due on April 5, 2002, therefore, the date from which the interest shall be calculated shall not be earlier than April 6, 2002. As to the rate of interest, the reference shall be made to the standard international annual loan rate in April, LIBOR 2002 which is 2.613%, owing to the international trade relationship formed between the parties. With regard to the interest of banking loan paid by the [Seller], it shall not be borne by the [Buyer]. It is the [Seller]'s responsibility to perform its obligations.

      (2) Insurance premium and maritime freight shall be borne by the [Seller] according to the C.I.F. terms set forth in the Contract, and it had been paid by the [Seller] in fact. The [Buyer] has no obligation to compensate them to the [Seller].

      (3) The losses of drawback. Firstly, the policy of drawback is a particular policy adopted by Chinese Government, the [Buyer] has no way to know its rate and details. According to Article 74 of the Convention and Article 113 of the PRC Contract Law, the [Buyer] shall not bear losses which was beyond the [Buyer]'s expectation and foreseeability at the time of the conclusion of the Contract. Secondly, according to the drawback policy, no obtaining drawback in time does not necessarily means that the [Seller] will lose its right for drawback. In case the evidences provided to the competent authority indicates that, the export has been in fact achieved and the reason why the price of goods can not be obtained, the drawback shall however be reimbursed by that competent authority.

      (4) The [Seller]'s travel expenses for negotiation with the [Buyer] to USA. This sum of money shall be treated as the normal cost of the international business, and as clearly indicated in the scheduling program arranged for the [Seller] from March 9, 2002, this is an itineration travel. Hence, even if this cost shall be compensated, its amount shall be limited to the US $1,007.64 incurred at the [Buyer]'s business place.

      (5) The [Seller]`s travel expenses incurred during the arbitral proceedings. In case of no evidence provided by the [Seller], the Tribunal shall not support this claim.

      (6) The attorney's fee. The [Buyer] claims that this fee shall be dealt with according to the principles of Chinese Law and CIETAC Rules by the Tribunal.

      (7) The arbitration fees. The [Buyer] would like to draw Tribunal's attention that not only the liability of the [Buyer] but the [Seller]'s breach of Contract shall be both impartially considered by the tribunal.

II. TRIBUNAL'S OPINIONS

(1) Applicable Law for Resolving the Disputes under the Contract.

The Tribunal takes notice that the parties made no provision in the Contract for the applicable law for resolving the disputes.

Taking into consideration that the place of arbitration is in China, the Tribunal decides that it shall apply the rules of conflict in Chinese law to determine the applicable law to the disputes resolving. With respect of Article 142 of General Principles of Civil Law of PRC (hereinafter referred as "Civil Law"), "If any international treaty concluded or acceded to by China contains provisions differing from those in the Civil Law of China, the provisions of the international treaty shall apply, ... International practice may be applied to matters for which neither the law of China nor any international treaties concluded or acceded to by China has any provisions", and in view of the facts that the disputes arose from international sale of goods to which both parties` places of business are in different Contracting States of the Convention, the Tribunal finds that the law of PRC shall be applied directly to the case when the law of PRC applied is in conformitywith the Convention; While the Convention shall be applied to the case if the law of PRC applied conflicts with the Convention, and the International practice shall be applied to the case when neither the law of PRC nor the Convention has any provisions.

(2) The Formation of the Contract

The Tribunal takes notice that each party has different understanding on the partial provisions of the Contract, such as the manner of shipment, but the Contract was signed by the parties' authentic representatives and it is the real intention expressed by each party.

Therefore, the Tribunal holds that the Contract was effective and binding upon both parties. Both parties shall perform the contractual obligations, that is, the [Seller] shall dispatch the contractual goods and the [Buyer] shall accept the goods and make the payment of goods.

(3) The Terms of Payment of the Contract

The Tribunal takes notice that the [Seller] changed the terms of payment from C.I.F. to F.O.B. and produced the amended contract signed by the [Buyer] in script as the evidence at the first hearing, but it gave up the claim on the changing of the payment terms at the second hearing.

The Tribunal holds that the both parties have no dispute on the terms of payment of the Contract, the Contract shall still be performed in C.I.F. terms.

(4) Performance of the Contract

The Tribunal, after having scrutinized the evidences submitted by both parties, confirms the following facts: the [Seller] dispatched the goods in 14 batches totally amounts to 2,400 MT (1 MT amounts to 2,204.6 pounds according to the international standard metrology, thus 2400 MT amounts to 5,289,600 pounds as provided in the contract -- a note by the Tribunal), evidenced by the commercial invoices, bills of lading, producers packing list, cargo transportation insurance policy, fumigation / disinfection certificate and the notice of payment by acceptance, priced US $3,571,428.59 in total evidenced by invoices. The factual payment of goods made by the [Buyer] is US $892,619.05. The Tribunal takes notice that the status of the goods described in the commercial invoices, bills of lading and other evidences are in conformity to the goods described in the Contract.

Based on the above points, the Tribunal cognizes that the goods under the Contract had been dispatched in 14 batches to the designed port of named destination from June 8, 2001 to September 25, 2001 by the [Seller], and were well received by the [Buyer]. The price of the goods dispatched by the [Seller] amounts to US $3,571,428.59, but the factual payment made by [Buyer] was only US $892,619.05, the balance of payment US $2,678,809.54 has not been paid yet by the [Buyer].

(5) On the 3.13 Agreement

The Tribunal is of the opinion that, from the conclusion of the 3.13 Agreement, its purpose is to resolve the outstanding payment of goods under the Contract. It is a new agreement on the outstanding payment of goods reached by the both parties, which is an amendment to the original Contract. Therefore, the 3.13 agreement did not replace the Contract to exempt all the outstanding payment of goods borne by the [Buyer], nor modified the Contract substantially.

(6) Each claim filed by the [Seller]

      A. The outstanding payment of goods US $2,678,809.54 and interest

      The Tribunal takes notice that, although the each party has different understanding on the manner of shipment, but they have no difference on the facts that the [Seller] did dispatch all the contractual goods and the [Buyer] did accept all the above goods without any rejections and objections.

Thus the Tribunal is of the opinion that, despite of any defects during the performance of the Contract of either party existed or not or its extent in case of existence, the fact is that the [Seller] had dispatched all the contractual goods and the [Buyer] has received it without any objections. Therefore, the [Buyer] shall pay the [Seller] forthwith all the payment of goods amounting to US $3,270,480. The [Buyer]'s partial payment constitutes breach of the Contract and it shall bear the liability therefore:

The [Buyer] shall continue to pay the outstanding US $2,678,809.54 payment of goods;

The [Buyer] shall compensate the interest incurred from this outstanding payment. Owing to the lack of relevant provisions in the PRC Contract Law, the provisions regarding to the interest of outstanding payment in the Convention shall be applied directly. According to Article 78,

"If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74."

The Tribunal is of the opinion that, owing to the new stipulation on the date of outstanding payment laid down by the parties in the 3.13 Agreement, the date of calculation of the interest shall be from April 6, 2002; The [Seller]'s request that interest shall be charged until November 18, 2002 is supported by the Tribunal. The Tribunal holds that, the US $300,000 paid by the [Buyer] abiding by Article 1 of the 3.13 Agreement shall not be calculated with interest. Since the 3.13 Agreement is a new agreement, the date of starting calculation of interest of the rest payment shall be in conformity with the new terms for outstanding payment. The Tribunal supports the [Buyer]'s argument that "the date of starting calculation of interest of outstanding payment shall not be earlier than April 6, 2002". As to rate of the interest, 6.3‰ per month held by the [Seller] based on its loan interest is not supported by the Tribunal, because the loan interest paid by the [Seller] is irrelevant to the [Buyer]. According to the general practice, the Tribunal decides that it is reasonable and impartial that the interest rate shall be 3.4‰ per month. Therefore, after calculation, the interest that the [Buyer] shall compensate the [Seller] amounts to US $68,613.24. [the manner of calculation is: interest = outstanding payment of goods (US $2,678,809.54) rate: 3.4‰ per month 30 overdue number of days (226) ]

      B. The insurance premium, maritime freight and all other costs

      Taking into consideration that the [Seller] has expressly given up the claim of changing the terms of payment from C.I.F. to F.O.B., and according to the C.I.F. term expressed in the "Incoterms 2000", the insurance premium, maritime freight and all other costs shall be borne by the seller, therefore, the insurance premium, maritime freight and all other costs shall be borne by the [Seller] under the Contract. This claim is not supported by the Tribunal.

      C. The drawback

      According to Article 78 of the Convention, one party claiming the interest would have no prejudice to any claim for damages, and according to Article 74 of the Convention, such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known. The Tribunal holds that:

      Firstly, this part of losses is an inevitable benefit for the [Seller] as the Seller in the international trade, preconditioned with the [Buyer]'s fulfillment of its contractual obligations and making the whole payment of goods.

      Secondly, the [Buyer], as a businessman in the international trade, shall be prudential to its rights and obligations. It shall know and foresee the relevant laws, regulations and policies of the State of the counter party before the international business carried out. Thus the Tribunal is of the opinion that it is reasonable that the [Buyer] has knowledge of Chinese relevant trading policies.

The Tribunal decides that [Buyer] shall compensate the [Seller] the loss of drawback owing to the [Buyer]'s delayed payment of goods.

Taking into consideration of the provisions of "Notice on Carrying Out the Work of Withdrawing the Tax of Exported Goods in 2002 of the State Administration of Taxation of China " issued by the State Administration of Taxation of China on December 26, 2002 (SAT No. 1138/2002), that "the authorities would withdraw the tax of exported goods to the factory which declare the Drawback tax before June 30, 2003, ... the authorities would levy tax on the exported goods referred to as the goods sold in domestic markets in case that the documents of exported goods could not be collected before June 30, 2003". Therefore, the Tribunal holds that there would exist two situations that whether the [Buyer] shall bear that part of loss or not. Namely, if the [Buyer] could pay all the outstanding payment of goods before June 15, 2003, so as to enable the [Seller] to report its drawback before June 30 2003, it would have no loss and the [Buyer] shall not bear it anymore; If the [Buyer] could not pay before June 15, 2003 and the [Seller] could not thus declare the drawback in time, the [Buyer] shall not only compensate the loss of drawback but also the loss of tax levied upon the exported goods comparing with the goods sold in domestic markets.

      D. Other expenses

      The [Seller]'s travel expenses for negotiation with the [Buyer] in USA amounting to US $2,251.51 and RMB 20,205. The Tribunal does not support this claim in holding that this part of fees happened before the Arbitration, and it is the normal cost of the international business.

The [Seller]'s travel expensesincurred during the arbitral proceedings. Since this part of expenses is also the normal cost like above and not evidenced by the [Seller], the Tribunal does not support this claim.

(7) The Attorney's fee

The attorney's fee amounting to RMB 100,000, incurred by the [Seller] in the arbitration, has been evidenced by the submissions, the Tribunal decides that this part of fees shall be borne by the [Buyer] according to Article 59 of CIETAC Rules.

(8) The Arbitration Fees

The arbitration fees of the case shall be borne by the [Seller] for 30 percent and by the [Buyer] for 70 percent.

III. AWARD

The Tribunal, after deliberations, made the award as follows:

   1.   The [Buyer] shall pay the [Seller] the outstanding payment of goods in an amount of US $2,678,809.54.
 
   2. The [Buyer] shall pay the [Seller] an interest on the principal in an amount of US $68,613.24.
 
   3. The [Buyer] shall pay the [Seller] the loss of drawback in an amount of US $348,245.2402, and the tax levied upon the exported goods under the Contract comparing with the goods sold in domestic markets if the [Buyer] could not pay the above-said item 1 before June 15, 2003.
 
   4. The [Seller]'s claims for the travel expenses due to the negotiation between the [Seller] and the [Buyer] in USA and travel expenses incurred during the arbitration proceedings are rejected.
 
   5. The [Buyer] shall pay the [Seller] RMB 100,000 as attorney's fee incurred by the [Seller] in the arbitration.
 
   6. The arbitration fees are determined to be RMB 356,714, which should be borne by the [Seller] for 30 percent, that is RMB 107,014.2, and the [Buyer] for 70 percent, that is RMB 249,699.8. Such fees have been deposited with CIETAC in advance by the [Seller]. Accordingly, the [Buyer] shall reimburse the [Seller] at sum of RMB 249,699.8 paid by the [Seller] in advance as a deposit for the arbitration fees.

The [Buyer] shall make aforesaid payments in a lump within 30 days after this award is rendered, otherwise an interest at the rate of 2.1%% per day shall be charged.

This Award is final and binding upon both parties.

PRESIDING ARBITATOR: (signature)
CO-ARBITRATOR: (signature)
CO-ARBITRATOR: (signature)

Rendered in Beijing on April 18, 2003


FOOTNOTES

* For purposes of this reproduction, Claimant Hebi J... Smelting Co. Ltd of the People's Republic of China is referred to as [Seller] and Respondent R...-R... LLC of the United States is referred to as [Buyer]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of the People's Republic of China (renmimbi) are indicated as [RMB].

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