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CISG CASE PRESENTATION

China 19 June 2003 CIETAC Arbitration proceeding (PTA case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030619c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20030619 (19 June 2003)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2003/09

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Unavailable (respondent)

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

GOODS INVOLVED: PTA


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission (CIETAC) 19 June 2003 (PTA case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/98],
CLOUT abstract no. 977

Reproduced with permission of UNCITRAL

Abstract prepared by Parag Parekh

This case deals primarily with the obligations of the seller to deliver goods in conformity with the contract and the buyer's duty to mitigate any losses which may be incurred.

The parties entered into a contract for the sale of certain chemicals (PTA) which the buyer intended to resell. The buyer took delivery and delivered the goods to its customers. However, after the goods arrived at their destinations, the buyer was informed that the weight of the packages was less than the contracted weight, and it immediately informed the seller. Subject to an inspection clause in the contract, an inspection agency examined the packages and confirmed the non-compliance. The buyer's customers terminated their contracts and the buyer claimed damages from the seller for the monetary loss suffered.

The buyer alleged that the seller did not deliver the goods with the proper weight as specified in the contract and in the required packaging under article 35 CISG. The buyer claimed damages under article 74 CISG.

The seller also argued that despite the faulty packaging the actual products were not defective thus there was no fundamental breach. The seller argued that it was not liable for any damages because there was no clear indication that the goods which were to be resold to the subsequent customers were the goods delivered by the seller to the buyer, the buyer had claimed damages after the time period stipulated in the contract had expired; and the buyer did not mitigate the damages under article 77 CISG.

The tribunal held that the buyer had not filed the claim for damages within time specified in the contract. The tribunal, however, held that the seller had known that the goods the buyer wanted to resell were the same goods it had bought from the seller. The tribunal found that the seller fundamentally breached the contract and article 35 CISG, because the packaging did not conform to the contractual requirements that were of special importance due to the nature of the goods, and the buyer became unable to perform the contracts with its customers. Since the buyer did not take such steps as were reasonable in the circumstances to mitigate its losses, the seller's liability was limited to what the buyer's loss would have been, had reasonable measures to remeasure and repack the goods been taken.

Although the buyer did not claim damages within the stipulated time, the tribunal awarded compensation to the extent that the material could be remeasured and subsequently sold in order to further mitigate the losses.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 35(1) ; 74 ; 77

Classification of issues using UNCITRAL classification code numbers:

35A [Conformity of goods to contract: quality, quantity and description required by contract];

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

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

Descriptors: Conformity of goods ; Damages ; Foreseeability of damages ; Mitigation of loss

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

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

PTA case (June 19 2003)

Translation [*] by Zheng Xie [**]

Edited by Meihua Xu [***]

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

THE ARBITRATION PROCEDURE

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

   -    The arbitration clause in Contract No. 2K01595Z (hereafter, the "Contract") for sale of PTA signed by Claimant [Buyer], Shanghai __Import and Export, Inc., and Respondent [Seller], __Global Co. Ltd., on 16 October 2001; and
 
   -    The written arbitration application submitted by the [Buyer] 5 August 2002.

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

On 19 August 2002, the Secretariat of the Arbitration Commission by express mail sent the Arbitration Notice, the Arbitration Rules, and the Arbitrators Lists to the parties, and also sent the [Buyer]'s arbitration application and the Appendix to the [Seller].

The [Buyer] appointed Mr. Chen __ as arbitrator; the [Seller] appointed Mr. Yao __ as arbitrator. Because the parties neither appointed nor authorized the Chairman of the Arbitration Commission to appoint a Presiding Arbitrator, the Chairman appointed Mr. Wang __ as the Presiding Arbitrator according to Article 24 of the Arbitration Rules. The above three arbitrators formed the Arbitration Tribunal on 11 October 2002 to hear this case.

After reviewing the application and the response of the parties, the Arbitration Tribunal decided to hold a court session in Beijing on 23 December 2002. The court session date was, however, postponed to 21 January 2003. The Secretariat sent the written notice of the time of the court session to the parties.

On 21 January 2003, the court session was held in Beijing. Both parties' representatives made statements, presented opinions, arguments and cross-examinations, and answered the Arbitration Tribunal's questions. After the court session, both parties submitted supplementary material.

This case is completed. Based on the written material submitted by the parties and the court situation, the Arbitration Tribunal handed down the award.

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

FACTS

In the arbitration application, the [Buyer] alleges:

On 16 October 2001, the [Buyer] and the [Seller] signed Contract No. 2K01595Z for the sale of PTA (i.e., terephthalic acid; p-phthalic acid; 1,4-benzendicarboxylic acid). The Contract states that the [Seller] sells 4,000 tons of PTA to the [Buyer] for the unit price of US $415/ton CFR Shanghai and the total contract price of US $1,660,000. The [Buyer] then signed contracts for the resale of 2,000 tons of PTA each with Changzhou __ Chemical Fabric Ltd. [should be Changzhou __ Chemical Fabric Factory: Note by the Arbitration Tribunal] (hereafter, the "Changzhou __ Factory"), and Shanghai __ International Trade Company, (hereafter, the "Shanghai __ Company") respectively. The resale unit prices were renminbi [RMB] 4,635/ton and RMB 4,750/ton, respectively.

After the goods arrived in Shanghai, the [Buyer] took the delivery and completed the customs declaration on time, and delivered the goods directly to the destinations stipulated by the above two domestic sales companies. The factory immediately found that the weight of the packages was not complying; the [Buyer] timely informed the [Seller] of this situation, and accompanied Zhu __ and Shen __ in the [Seller]'s Shanghai office to inspect the goods on site at the Changzhou __ Factory on 2 November 2001, and confirmed that the alleged situation was true. Because the weight of the packages delivered by the [Seller] was not complying, the [Buyer] only delivered 1,200 tons of PTA to Changzhou __ Factory for that 2,000 ton resale contract, and Shanghai __ Company revoked its 2,000 ton resale contract with the [Buyer], and claimed for damages of a total of RMB 140,000 on 2 November and 18 December 2001. For the above reasons, the goods under the Contract could not be sold at RMB 4,635/ton and RMB 4,750/ton in the domestic market as anticipated. In addition, when the market price was decreasing, the [Buyer] suffered a price difference loss, totaling RMB 910,724.00.

Because of the above facts, in accordance with Article 10 of the Contract "Inspection and Claims", the [Buyer] applied to CIQ (Wusong Entry-Exit Inspection and Quarantine Bureau) to inspect the goods. CIQ confirmed that the weight of the packages was not complying. On 17 November 2001, the [Buyer] claimed for damages with the [Seller] in order to negotiate to solve the problems. However, the [Seller] did not respond.

According to Article 6 of the Contract "Packaging", the [Seller] breached the Contract because the weight of the packages was not in compliance. According to Article 35(1) and Article 74 of the United Nations Convention on Contracts for the International Sales of Goods (CISG), the [Seller] is liable for the [Buyer]'s loss incurred due to the non-complying goods delivered by the [Seller].

The [Buyer] filed the following arbitration claims:

      (1) Requesting the [Seller] to compensate the [Buyer] for the damages of RMB 140,000.00, which the [Buyer] paid to the third parties because the goods delivered by the [Seller] were not complying, plus interest, and sales loss of RMB 910,723.00 plus interest;

      (2) Requesting the [Seller] to compensate the [Buyer] for the attorneys' fee, RMB 38,877.00;

      (3) Requesting the [Seller] to bear the arbitration fee.

The [Seller] objected to these claims and requested the Arbitration Tribunal to dismiss them.

The parties submitted supplementary written evidence and statements, and made oral statements in the court session.

ISSUES

After reviewing the material submitted and the statements made in the courts session, the Arbitration Tribunal has determined that the parties' dispute focuses on the following issues:

1. Whether the stipulated period for claiming damages has expired

In its Response, the [Seller] alleges that Article 10 of the Contract "Inspection and Claims" states that "The [Buyer] shall claim for damages due to non-complying quality or quantity within 30 days after the goods are unloaded." No evidence or material submitted by the [Buyer] proves the date when the goods arrived at the port. Thus, the [Buyer]'s application and material cannot prove whether the claims were filed with the [Seller] within the stipulated period.

The [Buyer] then submitted six certificates of taking delivery to prove that the goods arrived at the port on 15, 18, 22 and 25 October 2001, respectively, and that 384.18 tons arrived at the destination port on 15 October 2001. The [Buyer] alleged that the goods under the contracts arrived in Shanghai in four installments; it usually takes one week to unload the goods; the inspection certificate was issued on 17 November 2001; the [Buyer] sent the letter claiming for damages on that same day, 17 November 2001, so the [Buyer]'s claims were filed within "30 days after the goods are unloaded."

As to this allegation, the [Seller] submitted as supplementary material, Shanghai __ Bond Zone Port Service Company's unloading record, and expressed the following opinions: The unloading record shows that the 384.18 tons PTA arrived at the port on 15 October 2001, and was unloaded on 15 and 16 October, but not within one week as the [Buyer] alleged. Thus, the period for filing claims regarding the above 383.18 tons expired on 16 October 2001. [This is what is described in the original text-note by the Arbitration Tribunal]. The [Buyer] did not receive the inspection certificate until 17 October 2001 [This is what is described in the original text-note by the Arbitration Tribunal], and filed the claims for damages with the [Seller] on the same day. According to the Contract, the claims regarding the 384.18 tons of goods were filed after the stipulated period expired.

The [Buyer] did not raise any object to the above unloading certificate.

2. Whether the goods that had packaging defects as alleged by the [Buyer] were delivered by the [Seller]

The [Seller] alleged that PTA is categorized as general goods and that, when the [Buyer] submitted its arbitration application, it did not provide any material showing that it took delivery of the PTA under the Contract and transported the goods to the domestic sellers, so sufficient evidence is not present to prove that the request to revoke the contract and the claim for damages were raised by the [Buyer]'s domestic customers against the goods under the Contract in this case.

The [Buyer] alleges that the goods which it sold to the domestic customers were those delivered by the [Seller] under the Contract, which can be proved by comparing the Contract signed by the parties and the contracts signed by the [Buyer] and its domestic customers as follows:

      1. All contract Numbers are 2K01595Z;

      2. All manufactures are ____;

      3. The time to sign the contracts is close, and the three contracts were signed on 16, 22 and 26 October 2001, respectively;

      4. All goods are all PTA;

      5. The weight per package is five (5) tons;

      6. The quantity (4,000 tons) which the [Buyer] purchased is the same as that which it sold;

      7. The prices have reasonable differences;

      8. The delivery dates are close;

      9. After the disputes arose, the [Seller] went to inspect the goods on site and admitted that the goods were those it delivered.

However, the [Seller] alleged that PTA is categorized as general goods; the Customs Report for the first half year of 2002 shows that the PTA, which was manufactured in Saudi Arabia and was shipped to Shanghai and Nanjing, was 11,934 tons. Although the employee from the [Seller]'s Shanghai office went to Changzhou __ Factory as the [Buyer] requested, and saw the packages with the words "____," this fact was not sufficient to prove that the goods which the [Buyer] showed to the [Seller]'s employee were those under the Contract in this case. Because the [Buyer] did not make any convincing statements or any persuasive evidence to prove the consistency of the PTA delivered by the [Seller] and the non-complying PTA which the [Buyer]'s domestic customers alleged, the [Seller] alleged that the [Buyer] is not entitled to request the [Seller] to compensate for any damages unless it provides relevant evidence to prove that the PTA under the Contract was delivered to its domestic customers, and proves the causal relationship between the PTA under the Contract and the damages which the [Buyer] alleged.

3. Whether the PTA delivered by the [Seller] complies with the Contract

In the written material and the statements made in the court session, the [Buyer] alleged that Article Commodity and Specifications of the Contract stipulates, "Packing: 1MT PP Woven Bag with PE Lining," and Article 6 of the Contract stipulates, "1. MT PP. Woven Bag with PE Lining." The Contract repeatedly stipulates on packaging, because PTA is primary material to produce fabric, and other materials shall be added proportionally to 1 ton PTA; thus, the PTA shall be packed in 1 ton packages, otherwise the production process should be changed greatly, and the quality of the goods would be adversely affected. However, the packaging of the goods delivered by the [Seller] was not in compliance; some packaging is more than one ton, and some is less than one ton; the inspection certificate issued by CIQ proves that the difference between the maximum and the minimum of packaging of the goods delivered by the [Seller] are as much as 140 kg. The [Seller]'s employee conducted the inspection on site, and did not raise any objection; in addition, this employee did not raise any objection in the court session.

Article 35 of CISG states, "The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract." Accordingly, the [Seller] did not deliver the goods with conforming packaging, so it breached a main condition of the Contract; the [Seller] did not deliver the complying goods (the complying packaging), which constitutes the breach of the Contract.

The [Seller] alleges that:

   -    First, the actual sales record shows that except for the 599.64 tons PTA sold to Zhoushan __ Special Fabric Company, the remaining part was sold by integer tons; the [Buyer] alleged that the packaging was uneven, but it could resell the goods by integer tons; such result is dramatic, and the [Buyer]'s allegation that the packaging was in great discrepancy is not persuasive;
 
   -    Second, the inspection certificate neither mentioned the time when the goods arrived at the port, nor the storage place, nor whether the weight was net weight, nor was it accompanied by any list showing that the packaging was not conforming. The parties and the Arbitration Tribunal cannot conclude the non-complying rate of each packaging.

In sum, the [Seller] alleges that the inspection certificate was not sufficient to sustain the [Buyer]'s claims for damages.

4. The [Buyer]'s actual loss and anticipated profits

The [Buyer] alleged that Article 74 of CISG stipulates, "Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach." Because the packaging does not comply with the Contract, this adversely affected the value of the PTA. The result was that the purpose of the Contract could not be realized; the [Seller] should compensate the [Buyer] for its loss including the anticipated profits.

FURTHER COMMENTS ON THE POSITION OF THE PARTIES

[Buyer]'s position

The [Buyer] filed the following arbitration requests:

The [Seller] should compensate the [Buyer] for the damages which its domestic customer claimed for due to the fact that the packaging was not complying, totaling RMB 140,000 plus interest.

The [Buyer] submitted the letters claiming for damages which its domestic customer, Shanghai __ Company, sent on 2 November and 18 December 2001, respectively, to prove that Shanghai __ Company found the packaging was not in compliance after transporting the goods to Wujian Shengze Factory, and requested the return of the goods and compensation for damages, which includes the expenses to transport the 1,000 tons PTA to Wujiang Shengze Factory, totaling 1,000 tons X RMB 100/ton = RMB 100,000, and Shanghai __ Company's anticipated profits of RMB 40,000. On 25 December 2001, the [Buyer] submitted its letter dated 25 December 2001 responding to Shanghai __ Company's claims. In this letter, the [Buyer] agreed to compensate Shanghai __ Company for the loss of RMB 140,000 before the end of June 2002.

[Seller]'s position

The [Seller] alleges:

      (1) First, the [Buyer] lacks the evidence to prove that the amount which it claimed for in the arbitration application is true, except for the two letters in which Shanghai __ Company claimed for damages with the amount in detail. The [Buyer] should also submit the invoice of the transportation expenses, i.e., RMB 100,000, and material relevant to the anticipated profits, i.e., RMB 40,000. Second, the evidence is not sufficient to prove that the [Buyer] had already compensated Shanghai __ Company for the relevant amount or to prove that the [Buyer] suffered the alleged economic loss because of Shanghai __ Company's claims. The [Seller] should not be liable for the [Buyer]'s loss which cannot be proved or which was not incurred at all.

      (2) Article 77 of CISG stipulates that the parties have a duty to take reasonable measures to avoid enlarging the loss. The [Buyer] accepted Shanghai __ Company's claims without verifying the actual transportation expenses incurred and the anticipated profit of Shanghai __ Company, and without considering the reasonableness of Shanghai __ Company's request to revoke the contract. The [Buyer]'s conduct enlarged the loss. According to the CISG, the [Seller] should not be liable for the enlarged loss.

Then, the [Buyer] submitted the transportation contracts which Shanghai __ Company signed with Shanghai __ Transportation Service Company on 25 and 28 October 2001, which entrusted Shanghai __ Transportation Service Company to transport 2,000 tons of PTA from Shanghai to Wujian Shengze, and then from Wujiang Shengze to Shanghai, and two invoices for the transportation expenses.

The [Seller] raised the following supplementary objections:

1. The [Buyer] insisted that "it's claims include the transportation expenses of RMB 100,000", and submitted the transportation contracts and the invoices. However, the transportation contracts and the invoices show the transportation charge is RMB 25 per ton, but not RMB 100 per ton as the [Buyer] alleged; although the transportation receipts show the totaling expenses are RMB 100,000, it was calculated for the transported weight of 2,000 tons, of which 1,000 tons were goods that Shanghai __ Company transported to Wujiang Shengze under the [Buyer]'s contract with its domestic customers, and the other 1,000 tons of PTA were transported by Shanghai __ Company and had nothing to do with the goods under the Contract in this case. The transportation contracts and invoices are not consistent with Shanghai __ Company's claims. In addition, Shanghai __ Company raised its claims on 2 November 2001 before the transportation invoices were issued, i.e., before the date when the transportation expenses were incurred on 5 November 2001. Thus, the [Seller] alleges that the [Buyer] did not provide convincing evidence to sustain its claim for the transportation expenses of RMB 100,000 which is related to Shanghai __ Company. Even if Shanghai __ Company really incurred the transportation expenses, according to the transportation contracts, the actual loss of transportation expenses should be 1,000 tons X RMB 25/ton X 2 = RMB 50,000, but not RMB 100,000 as the [Buyer] alleged.

2. In its letter, Shanghai __Company claimed for the loss of anticipated profits of 2,000 tons X RMB 20/ton = RMB 40,000. This letter and the [Buyer]'s letter promising to pay the claims do not show the basis for calculating the loss of anticipated profits at RMB 20/ton. In the agent's opinions on 17 January 2001, the [Buyer] alleged the above loss of anticipated profits had been offset by other transactions between the [Buyer] and Shanghai __ Company, but it did not provide any evidence to prove other transactions which occurred or would occur, or to prove the loss had been offset; thus, the evidence cannot prove that the [Buyer] has compensated for the loss. The [Seller] should not bear the [Buyer]'s loss which has not been proved or has not been incurred.

The [Buyer] alleges that the [Seller] should also compensate for the loss incurred because the [Buyer]'s domestic customers refused to perform the contracts or refused to perform in accordance with the contracts due to the non-complying packaging and that, in order to protect the [Buyer]'s and the [Seller]'s interests, the [Buyer] sold the goods to mitigate the loss, and incurred the price difference loss of RMB 910,723. The [Buyer] submitted 12 invoices to support its position that it sold the 3,998.64 tons PTA under the Contract for the total price of RMB 17,859,277.

However, the [Seller] alleges that the [Buyer]'s loss of reselling the goods, RMB 910,723.00 plus interest, could not be foreseen by the [Seller] when signing the Contract, and in addition, the loss was caused by the [Buyer]; thus, the [Seller] should not be liable for the loss. Through the written opinions, evidence and statements in the court session, the [Seller] expressed the following opinions:

      (1) The floating factor of market price cannot be excluded as a cause of loss of the price difference. PLATTS is an international authority to provide resources and chemistry information; it released the Asian market price which shows that the price of PTA was dropping from 16 October 2001 when the Contract was signed to the end of 2002. The supplementary evidence submitted by the [Buyer] on 8 January 2003 also proves that the domestic PTA market was dropping. The floating factor in the market is a business risk which the parties cannot control, anticipate or avoid. According to Article 74 of the CISG and Article 113 of the 1999 Contract Law of China, a party shall not be liable for any damages which cannot be foreseen at the time of signing the contract. Thus, the [Buyer]'s claim for the loss of reselling the goods due to the floating factor in the market is unreasonable.

      (2) Even if the packaging was not in compliance with the Contract, the loss to the users which was caused by the packaging should only includes the workers' salary and cost additionally incurred for remeasuring the imput.

According to the sales invoices submitted by the [Buyer], the [Buyer] resold the goods to five end-users including Changzhou __ Factory. Changzhou __ Factory purchased quantities of the goods twice: on 21 November and 5 December 2001, respectively, after finding that the packaging was not complying on 1 November 2001; moreover, Changzhou __ Factory purchased 2,079 tons of PTA which are 79 tons more than the weight stipulated in the original contract. The facts show that the [Buyer]'s allegation that the packaging was unacceptable is not true.

There are two ways to produce PTA. The factory that uses the continuous production method need only input the materials of which the total weight should be complying with the production requirements within a period, and it does not strictly require that the weight of each packaging comply; the factory that uses the periodic input method has higher requirements of packaging, but even if the packaging is uneven, they can remeasure the weight of input during the gap period of each input. For example, in Changzhou __ Factory, the gap period of each production is four to five hours, and the input is three to five tons; Changzhou __ Factory's current equipment (such as ground scale, packaging facilities and materials) can remeasure the materials between each production period.

In this case, the disputed goods have no other defects except that the packaging is not complying. Thus, even if the packaging is uneven and non-complying, it does not constitute a fundamental breach, and the loss can be mitigated by remeasuring the materials.

The [Buyer] has been negligent when dealing with its domestic customers; the [Buyer] accepted its customers' request to reduce the price or return the goods without negotiating with its domestic customers, or taking remedial measures; the [Buyer] did not perform its duty to mitigate the loss stipulated in Article 77 of CISG, so it should be liable for the enlarged loss.

      (3) In addition, the contract between the [Buyer] and its domestic customer, Changzhou __ Factory does not stipulate any special requirement on the packaging of PTA; the [Buyer] should not have agreed to reduce the price due to the non-complying packaging as Changzhou __ Factory requested; the [Buyer] should not request the [Seller] to compensate for such loss. The [Buyer]'s claim for the loss due to the reduced price with Changzhou __ Factory is as high as RMB 398,750.00.

      (4) The sales invoices submitted by the [Buyer] show that on 21 November 2001Wujiang Manufacture Factory purchased the PTA and issued seven invoices, and the prices were reduced by 2.1053% to 10.5263% of the original price; on 23 November 2001 Shanghai Pu Yuan Fabric Ltd. purchased the PTA and issued two invoices, and the prices were reduced by 5.7895% to 9.4737% of the original price. The [Seller] alleged that the above evidence is not convincing, and the amount which the [Buyer] claimed for should not be sustained. In addition, the resale by installment and the reduction of the price are not reasonable, and the loss might be enlarged intentionally.

In sum, the [Seller] alleges that the [Buyer]'s claims lack basis, and the amount claimed for is unreasonable; the [Buyer] was severely negligent when solving the problems with its domestic customers and caused the loss to be enlarged; thus, the [Buyer]'s claims that the [Seller] should bear the entire loss is unacceptable.

[Buyer]'s response

The [Buyer] alleges that it has already taken remedial measures to mitigate the loss. According to Article 77 of CISG, when the goods were not complying with the Contract and could not be sold at the original contract price, the [Buyer] tried its best to sell the goods at a good price in the market at that time; in fact, the reselling price is the highest price at that time; thus, the [Buyer] performed its duty to mitigate the damages stipulated in the CISG. In addition, in the court session the [Buyer] alleged that the expenses to remeasure the PTA are too high, and that mistakes may frequently occur, that no one wants to do this, because it needs new packaging materials and sealing equipment which the factory does not have; as a practical matter it is hard to do. Because PTA is special type of goods, it must be packed 1 ton per package, which is common knowledge in the industry; if the goods are repacked, extra expenses could occur.

At the court session, the [Seller] alleged that the packaged could be opened, and Changzhou __ Factory could remeaure the goods because it has ground scales.

THE OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

According to Article 13 of the Contract "Governing Law", "The United Nations Convention on the Contract for the International Sales of Goods (CISG) shall be the governing law with the exception of clauses on which the People's Republic of China has declared reservation. Unless otherwise stipulated in the CISG, the laws of the People's Republic of China shall be applied" and, considering the facts of this case, the Arbitration Tribunal holds that the CISG shall apply to this case since it has clear stipulations on the dispute in this case.

2. Whether the [Buyer]'s claims were filed in a timely manner

Article 10 of the Contract "Inspection and Claim" stipulates, "The buyer shall, on the strength of the inspection certificate issued by CIQ, have the right to file claims against the seller within 30 days after discharge of the goods at the port of destination." Accordingly, the [Buyer] should claim for damages within 30 days after the goods were unloaded with the inspection certificate issued by CIQ.

On 15 October 2001, the 384.18 tons PTA under the Contract arrived in Shanghai. Although the [Buyer] alleged that it took about one week to unload the goods, it did not submit any evidence; however, the certificate issued by Shanghai __ Bond Port Service Company submitted by the [Seller] showed that the PTA under the Contract was unloaded on 15 and 16 October 2001, and the [Buyer] did not object to this evidence. Thus, the Arbitration Tribunal holds that unloading the PTA under the Contract was completed on 16 October 2001. On 17 November 2001, the [Buyer] obtained the inspection certificate issued by CIQ and filed the claims. Accordingly, the Arbitration Tribunal holds that the [Buyer] did not file the claims within the stipulated time in the Contract, so it lost the right to claim for damages.

3. Whether PTA with defective packaging was delivered by the [Seller]

The [Seller] alleged that PTA is categorized as general goods, and that the [Buyer] neither provided any convincing evidence to prove the consistency of the PTA with non-conforming packaging and the PTA under the Contract, nor did [Buyer] provide any evidence to prove that it took delivery of the PTA under the Contract and transported to the domestic customers' factories.

The [Buyer] alleges that the goods which it delivered to the domestic customers are those delivered by the [Seller] because of the following reasons:

      1. All contract numbers are 2K01595Z;

      2. All manufactures are ____;

      3. The time to sign the contracts is close, and the three contracts were signed on 16, 22 and 26 October 2001;

      4. All goods are PTA;

      5. The weight per package is five (5) tons;

      6. The quantity (4,000 tons) which the [Buyer] purchased is the same as that which it sold;

      7. The prices have reasonable difference;

      8. The delivery dates are close;

      9. After the disputes occurred, the [Seller] went to inspect the goods on site and admitted that the goods were those it delivered.

After reviewing the relevant contracts submitted by the [Buyer], the Arbitration Tribunal confirmed that the Contract under this case is related to the two domestic sales contracts. The Arbitration Tribunal also notes that the goods under the Contract arrived at the port on 15, 18, 20 and 25 October 2001, respectively, and that the Shanghai __ Company's transportation contract submitted by the [Buyer] was signed on 25 October 2001. The Arbitration Tribunal holds that the gap between each activity is reasonable. Especially, Article 1 of the Contract stipulates, "Manufacture: ___" and the [Seller]'s employer found the packages with the words "___" at Changzhou __ Factory, and did not raise any objection to the fact that the PTA is the goods under the Contract.

In sum, the Arbitration Tribunal holds that the available evidence can prove that the PTA with non-conforming packaging as the [Buyer] alleged was the goods delivered by the [Seller]. Although the [Seller] raised objection, it did not provide sufficient evidence; thus, the Arbitration Tribunal does not sustain the [Seller]'s objection.

4. Whether the [Seller] breached the contract

In order to prove the packaging was not conforming, the [Buyer] submitted the domestic customers' letters claiming for damages and the inspection certificate issued by CIQ. The [Seller] alleged that the inspection certificate does not contain sufficient information to sustain the [Buyer]'s claims.

The Arbitration Tribunal notes that Wusong Entry-Exit Inspection and Quarantine Bureau issued the inspection certificate concluding that the 835 packages of goods were inspected; the total weight is 837,926 Kg; the weight of each package is 1,003.50419 Kg; the maximum weight is 1,063 Kg per package, and the minimum weight is 920 Kg per package.

The Arbitration Tribunal holds that the Contract is the true expression of the parties, so it is binding on both parties. The Contract stipulates that the goods should be inspected by CIQ at the unloading port. The Arbitration Tribunal examined related content in the inspection certificate and found that it could prove that the goods inspected were the goods delivered by the [Seller]. Although the [Seller] objected to the inspection certificate, it did not provide sufficient evidence to show that the inspection certificate issued by CIQ cannot prove that the goods inspected are not conforming to the Contract. The Arbitration Tribunal found that the Contract stipulates the packaging, i.e., "1 MT PP Woven Bag," but does not stipulate that uneven packaging is permitted or the rate of the uneven packaging. Thus, according to the inspection certificate issued by CIQ, the Arbitration Tribunal holds that the packaging of the goods which the [Seller] delivered did not conform to the Contract, and breached Article 35(1) of the CISG: "The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract."

The Arbitration Tribunal found that the [Seller] alleged that when the [Buyer] resold the goods which were returned, most of the PTA was sold by integer tons. As to this allegation, the Arbitration Tribunal holds that the contracts for resale by integer tons cannot prove whether the packaging conformed to the Contract, so the [Seller]'s defense shall not be sustained.

5. The [Buyer]'s claim that the [Seller] should pay the loss of RMB 140,000, for which the [Buyer] compensated the third party plus interest, and the loss for reselling the goods, RMB 910,723.00 plus interest

As to this claim, the Arbitration Tribunal holds that the packaging of the goods which the [Seller] delivered was not in compliance with the Contract, and the [Seller] breached the Contract and the stipulation of CISG. Accordingly, the [Seller] shall be liable for the [Buyer]'s loss incurred due to the non-complying packaging. However, Article 77 of CISG states:

"A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated."

The [Seller]'s liability shall be limited to the [Buyer]'s loss after reasonable measures were taken.

The Arbitration Tribunal notes that as to the PTA under the Contract, the [Buyer] did not raise any objections to the quality except for the non-complying packaging. The [Seller] alleged that there are two ways to produce PTA. The factory that uses the continuous production method need only input the materials of which the total weight should be complying with the production requirements within a period, and it does not strictly require the weight of each packaging comply; the factory that uses the periodic input method has higher requirements of packaging, but even if the packaging is uneven, they can remeasure the weight of input during the gap period of each input. As to this allegation of the [Seller], the [Buyer] only objected in the court session by stating that to remeasure the materials would cause errors and be expensive. The Arbitration Tribunal concludes that, according to the parties' statements, it is feasible to remeasure the materials, which is the reasonable measure to solve the problem in this case, so the [Seller] should be liable only for the expenses which would be spent in remeasuring the material. According to the facts in this case, the Arbitration Tribunal holds that the [Seller] shall compensate for 3% of the contract price, totaling RMB 372,290.25 which is calculated as follows:

(4,000 tons - 384.18 tons) X US $415/ton X 3% X 8.27 RMB/US $ = RMB 372,290.25.

The amount which the [Buyer] claimed for exceeds that which the Arbitration Tribunal decided. According to the CISG, the Arbitration Tribunal holds that the [Buyer] has the duty to avoid enlarging the loss. Because the [Buyer] failed to take reasonable measure to mitigate the loss caused by the [Seller]'s breach, the [Buyer] should be liable for the enlarged loss.

6. The [Buyer]'s claim for the attorneys' fee incurred for this arbitration, totaling RMB 38,877

Because the Arbitration Tribunal only sustains part of the [Buyer]'s claims, the [Seller] should compensate the [Buyer] for the attorneys' fee of RMB 13,825.

7. The arbitration fee and the non-local arbitrators' fee

The [Buyer] shall bear 60% of the arbitration fee, and the [Seller] shall bear 40%. Because the arbitrator, Mr. Chen is domiciled in Shanghai, the traveling expenses to Beijing for the court session are RMB 4,000, which the [Buyer] shall bear.

AWARD

   (1)   The [Seller] shall compensate the [Buyer] for damages of RMB 372,290.25;
   (2)   The [Seller] shall compensate the [Buyer] for the attorneys' fee of RMB 13,825;
   (3)   The [Buyer]'s other claims are dismissed;
   (4)   The arbitration fee is RMB 47,240, of which the [Buyer] shall bear 60%, i.e., RMB 28,344, and the [Seller] shall bear 40%, i.e., RMB 18,896. which is offset by the [Buyer]'s prepaid arbitration fee, so the [Seller] shall pay the [Buyer] RMB 18,896;
   (5)   The traveling expenses for the non-local arbitrator is RMB 4,000, which the [Buyer] shall bear; such expenses are offset by the [Buyer]'s prepayment of RMB 8,000; the Arbitration Commission shall refund the remaining RMB 4,000 to the [Buyer].

The [Seller] shall pay the [Buyer] the above amount within 30 days after this award is handed down.

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


FOOTNOTES

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

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

*** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.

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Pace Law School Institute of International Commercial Law - Last updated October 20, 2010
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