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CISG CASE PRESENTATION

China 23 June 2003 Shanghai No. 1 Intermediate People's Court [District Court] (Cashmere sweater case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030623c1.html]

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

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Case identification

DATE OF DECISION: 20030623 (23 June 2003)

JURISDICTION: People's Republic of China

TRIBUNAL: Shanghai No. 1 Intermediate People's Court [District Court]

JUDGE(S): Unavailable

DOCKET NUMBER: Unavailable

CASE NAME: Shanghai Wangruixiang Fashion Co. Ltd. v. U.S. Trend Co. Ltd., Shanghai Silk (Group) Co. Ltd.

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: United States (defendant)

GOODS INVOLVED: Cashmere sweaters


Classification of issues present

APPLICATION OF CISG: Yes. However, the court stated:

"Since the parties did not agree on the applicable law in case of disputes, the law of the country to which the contract is most closely connected shall be applied. The seller in the present case is a registered enterprise in the People's Republic of China. In addition, the place of performance of the contract is Shanghai, China. Therefore, the People's Republic of China is most closely connected to the contract, and thus, Chinese law shall be the applicable law of the present case. At the same time, since the parties to the sales contract are located in different Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereinafter, "CISG"), according to Article 142 of the General Principles of the Civil Law of the People's Republic of China, if the CISG contains provisions differing from those in the Chinese Civil Law, the provisions of the CISG shall apply. As for the disputes in the present case, the CISG and the Contract Law of the People's Republic of China (hereinafter, "Chinese Contract Law") do not have different provisions. Hence, the Chinese Contract Law shall be applicable to the present dispute."

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 6

Classification of issues using UNCITRAL classification code numbers:

6B [Implied inclusion of Convention]

Descriptors: Autonomy of parties ; Choice of law

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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 [IPC/17]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=61>

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

Shanghai No. 1 Intermediate People's Court

Shanghai Wangruixiang Fashion Co. Ltd.
v.
U.S. Trend Co. Ltd., Shanghai Silk (Group) Co. Ltd.

23 June 2003

Translation [*] by Jing Li [**]

Plaintiff (hereinafter "[Seller]"), Shanghai Wangruixiang Fashion Co. Ltd., filed a lawsuit with this Court against Defendants, U.S. Trend Co. Ltd. (hereinafter, "[Buyer]") and Shanghai Silk (Group) Co. Ltd. On 27 January 2003, the Court formed a collegiate bench, and on 20 March 2003, held a public court session. The [Seller]'s representative and both of the Defendants' representatives attended the court session. This case is concluded.

POSITION OF THE PARTIES

[Seller]'s claims

[Buyer] concluded a sales contract with the [Seller] by purchase orders through facsimile (hereinafter, "Purchase Orders"). The Shanghai Silk (Group) Co. Ltd. (hereafter "[Buyer's agent]") is the agent and the payer of the payment on goods for the [Buyer]. After receiving the Purchase Orders, the [Seller] and the [Buyer's agent] signed an agreement for a down payment (hereinafter, "Agreement"), which provides that the [Buyer's agent] will give the [Seller] RMB 300,000 as a loan. It also provides expressly that the Purchase Orders are integral to the Agreement. Thereafter, the [Seller] manufactured and delivered products in accordance with the Purchase Orders. When the balance was calculated, the [Buyer's agent] told [Seller] that the [Buyer] would pay only 50% of the price indicated under Item 12a of the five Purchase Orders and directed [Seller] to issue value-added tax invoices [hereinafter, "VAT invoices"] accordingly, otherwise it would not settle up with the [Seller] or make any payment of the interest on the down payment. Under this condition, the [Seller] had to issue the VAT invoices as told. After deducting the amount of the down payment (RMB 300,000) and the interest thereon (RMB 5,040), the [Buyer's agent] paid the [Seller] of RMB 171,476.60 on behalf of the [Buyer]. However, the [Buyer] was still in default on RMB 265,216.52 for the goods delivered by the [Seller]. In addition, since the [Buyer] unilaterally cancelled Purchase Order No. 401623 two days before the delivery date, the [Seller] had to stock in its own warehouse 327 products produced for the [Buyer].

The [Seller] allegeded that the modification of payment was not agreed upon by both the [Seller] and the [Buyer]. The [Seller] did not deliver the goods under Purchase Order No. 401623 because it was worried that the [Buyer] was not able to make payment on the goods, and that it was exercising its right to suspend performance. The [Buyer] breached the contract by not make the remaining payment and unilaterally cancelling Purchase Order No. 401623, nor did the [Buyer] fulfill its payment obligation. Therefore, the [Seller] requested the Court to rule that

   1)    The [Buyer] shall pay the [Seller] the remaining payment on the goods: RMB 265,216.52;
 
   2)    The [Buyer] shall take delivery of the 327 products stocked and pay the respective amount due: US $5,232 (totaling RMB 49,180.80);
 
   3)    The [Buyer's agent] shall be jointly and severally liable for the above payments.

The defense of the [Buyer] and the [Buyer]'s agent

The [Buyer] acknowledged that it had concluded a sales contract with the [Seller]. However, due to the unsatisfactory quality of the goods provided, both parties modified the payment under the five Purchase Orders under Item 12a and discounted it to 50%. In addition, both parties came to an agreement to cancel Purchase Order No. 401623 under Item 18a because of the continuous delays of delivery thereof by the [Seller]. Therefore, the [Seller]'s claims were unfounded and the Court should dismiss the case.

The [Buyer's agent] agreed with the [Buyer] on its response to the [Seller]'s description of the facts and the [Seller]'s claims. Additionally, the [Buyer's agent] alleged that it was the [Seller]'s export agent, and that it had fulfilled its obligations as an agent. Therefore, it was not liable for any duties that arose from the dispute between the [Seller] and the [Buyer] on their sales contract.

FACTS

None of the three parties disputed the following facts:

On 29 August 2000, the [Buyer] sent the [Seller] five Purchase Orders (No. 401781 to No. 401785) under Item 12a, in which the [Seller] agreed to provide the [Buyer] 2,500 cashmere sweaters of several designs. The agreed contract price was RMB 533,500. It was also noted in every Purchase Order that each Order substitutes the Purchase Order from No. 401861 to No. 401865.

On 9 August 2000, the [Seller] asked for a down payment of RMB 300,000 from the [Buyer] because the [Seller] encountered financial difficulties in producing products for the [Buyer]. Thereafter, the [Seller] and the [Buyer] signed an agreement on the down payment. The hand-written provisions of the Agreement provided that the [Buyer] shall make a down payment to the [Seller] in the amount of RMB 300,000 as well as the interest thereon, which later would be subtracted from the payment for the goods. Interest of 8‰ on the down payment shall be calculated from September 2000 to the date of subtraction. On the other hand, the printed provisions of the Agreement provide that the related Purchase Orders or task orders are integral.

On 29 and 30 October, the [Buyer] conducted a sampling inspection of the goods produced by the [Seller] under the five Purchase Orders. The [Buyer] entered its concrete comments on the goods on the five inspection certificates, respectively. Under Purchase Orders No. 401781 and No. 401783, the [Buyer] had written "guaranteed" as the results of inspection, and under the other three Purchase Orders, the [Buyer] had written "passed." The [Seller] had signed and sealed to confirm these five inspection certificates as well. Afterwards, the [Seller] delivered 2,491 cashmere sweaters to the [Buyer] through the [Buyer's agent] according to the abovementioned five Purchase Orders. According to the unit price provided in the Purchase Orders, the total price on the goods delivered was RMB 530,376.

On 11 November 2000, the [Buyer] sent a facsimile to the [Seller] commenting on the quality of the goods it received. The [Buyer] stated that the sweaters had dark creases and requested the [Seller] to compensate the expenses incurred to handle the quality problems. On 30 November, the [Buyer] sent a letter to the [Seller] demanding that the price be reduced to 50%. On 6 December, the [Seller] issued to the [Buyer] the VAT invoices for the quantity of the goods delivered under the five Purchase Orders. The total price was specified as RMB 265,162.84.

On 10 October 2000, the [Buyer] issued to the [Seller] three Purchase Orders (No. 401622, No. 401623, and No. 401624) that were under Item 18a, stipulating that the [Seller] shall provide 1,532 pieces of clothing that are of the styles of 01181, 01183, and 01185, and that the total price shall be US $27,332.20. In addition, it was noted in these three Purchase Orders that the delivery date was modified from 18 October to 21 October, 2000.

On 19 October 2000, the [Buyer] sent a facsimile to "Manager Wang and Min Li" of the [Seller] offering the following two options to the [Seller] in solving the delivery problems under Item 18a:

   a)    The [Buyer] takes all delivery, but the price on the clothing in the annexed table shall be discounted to 50% (the table faxed yesterday);

   b)    The [Buyer] accepts styles 01181 and 01185, but refuses style 01183.

On the same day, the [Buyer] issued Purchase Order No.401623 again for the style of 01183, and noted therein that "the Purchase Order was cancelled due to a delayed delivery." On 20 October, the [Seller] delivered the goods under Purchase Orders No. 01181 and No. 01185 to the [Buyer] through [Buyer's agent]. The [Seller] actually handed over 572 piece of clothing of style 01181 and 654 of style 01185, which totaled US $22,484.80 according to the contract. On 6 December, the [Seller] issued to the [Buyer's agent] VAT invoices for the quantity and price of the goods under the above two Purchase Orders. The total price specified therein was RMB 211,353.76.

On 21 December 2000, after subtracting the down payment of RMB 300,000 and the interest thereon RMB 5,040, the [Buyer's agent] paid RMB 171,476.60 to the [Seller].

On 20 November 2002, the [Seller]'s employee Min Li, who was in charge of the transaction for the [Seller], wrote on the written copy of the facsimile of 19 October 2000 sent by the [Buyer] for the attention of "Manager Wang and Min Li" that "Accountant Dong [of Buyer's company] had selected the second option."

In December 2002, the [Seller] filed suit against the [Buyer's agent] based on the facts and claims stated above. In January 2003, the [Seller] applied for withdrawal of the suit, and the People's Court approved.

The above facts were stated by the parties and were supported by the following evidence:

   a)    The five Purchase Orders (Nos. 401781, 401782, 401783, 401784, and 401785) sent by the [Buyer] to the [Seller] on 29 August 2000 and the three Purchase Orders Nos. 401622, 401623, and 401624 sent by the [Buyer] to the [Seller] on 16 October 2000;
   b)    The application letter of 12 September 2000 sent to the [Buyer] and the Agreement;
   c)    The five inspection certificates;
   d)    The delivery receipts and the relevant air freight export certificates of receipt;
   e)    Facsimiles sent from the [Buyer] to the [Seller] on 19 October, 16 November, and 30 November 2000;
   f)    Purchase Order No. 401623 of 19 October 2000 sent by the [Buyer] to the [Seller];
   g)    Packing lists issued by the [Seller] (the letter sent from the [Seller] to the [Buyer] on 20 October 2000);
   h)    VAT invoices issued by the [Seller] to the [Buyer];
   i)    Invoices issued by the [Buyer's agent] to the [Buyer];
   j)    Proof of payment issued by the bank and the explanation of the situation;
   k)    Explanation issued by the [Buyer]'s Shanghai representative office;
   l)    Written copy of the facsimile of 19 October 2000 sent by the [Seller] to the [Buyer];
   m)    The Civil Order (2002) No. 1889 rendered by the People Court of Xuhui District, Shanghai, and the Court Record thereof.

The above evidence was cross-examined by all of the parties and this Court confirms it.

In order to prove that the [Seller] repeatedly delayed the delivery of the goods covered by the Purchase Orders under Item 18a, the [Buyer] submitted two purchase order allocations to the Court. The [Seller] confirmed the authenticity of the purchase order allocations, but insisted that both parties had agreed on the delayed delivery and that the [Seller] was not at fault.

According to the confirmed evidence, the delivery was postponed and expressly agreed upon in the relevant Purchase Orders sent by the [Buyer]. Therefore, it can be concluded that both parties had agreed on postponing the delivery and thus, the [Seller] was not at fault.

Based on the parties' arguments, the disputed points of the present case are:

   1)    Whether the [Seller] and the [Buyer] had agreed on modifying the payment under the five Purchase Orders under Item 12a to discount it to 50%;
   2)    Whether the [Seller] and the [Buyer] had agreed on cancelling the Purchase Order No. 401623; and
   3)    Whether the [Buyer's agent] shall bear responsibilities that arose from the disputes in performing the sales contract.

REASONING OF THE COURT

This Court finds that the present case falls under the jurisdiction of this Court because the [Seller] filed this action based on the performance of an international sales contract, and the general terms and conditions of this contract are FOB Shanghai, which means that the place of delivery is located in this Court's jurisdiction.

Since the parties did not agree on the applicable law in case of disputes, the law of the country to which the contract is most closely connected shall be applied. The seller in the present case is a registered enterprise in the People's Republic of China. In addition, the place of performance of the contract is Shanghai, China. Therefore, the People's Republic of China is most closely connected to the contract, and thus, Chinese law shall be the applicable law of the present case. At the same time, since the parties to the sales contract are located in different Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereinafter, "CISG"), according to Article 142 of the General Principles of the Civil Law of the People's Republic of China, if the CISG contains provisions differing from those in the Chinese Civil Law, the provisions of the CISG shall apply. As for the disputes in the present case, the CISG and the Contract Law of the People's Republic of China (hereinafter, "Chinese Contract Law") do not have different provisions. Hence, the Chinese Contract Law shall be applicable to the present dispute.

The first disputed point

This Court finds that although the [Seller] and the [Buyer] had not come to a written agreement on modifying the price of the goods under the five Purchase Orders under Item 12a, the [Seller] issued VAT invoices in accordance with the unit price stated in the Purchase Orders and the actual quantity delivered after the [Buyer] requested that the price be calculated with a 50% discount. Also, the [Buyer] made payment according to the VAT invoices. The [Seller] argued that the invoices were issued under the threat of the [Buyer]. However, the [Seller] did not provide evidence proving this threat. Nor did it submit any request of modification or cancellation to the Court or to any Arbitration Institute within the limitation period. Therefore, the Court does not accept the [Seller]'s argument that the invoices were issued under threat. In conclusion, the [Seller] and the [Buyer] modified the price under the five Purchase Orders under Item 12a by actual performance, and both parties had agreed on discounting the total price to 50%.

The second disputed point

The Court finds that the facsimile of 19 October 2000 sent from the [Buyer] to the [Seller] for the attention of "Manager Wang and Min Li" expressly set forth two suggestions by the [Seller], the second of which was to cancel Purchase Order No.401623 for style 01183. The [Seller] had not delivered the goods under this Purchase Order. The employee of the [Seller] who was in charge of this transaction confirmed their choice of the second option when making a copy of the facsimile two years later. The [Seller] said that it did not deliver the goods under Purchase Order No. 401623 because it was worried that the [Buyer] was not able to perform the contract, and that [Seller] was exercising its right to suspend performance. However, the [Seller] did not provide evidence of the statutory situations where it was authorized to suspend performance, nor did it provide evidence of the fact that it had notified the [Buyer] of its intent to exercise this right. Therefore, the Court does not support the [Seller]'s argument that it had the right to suspend performance. It can be concluded from the act of actual delivery and the settlement, as well as the confirmation by the [Seller]'s staff in charge of the transaction that the [Seller] and the [Buyer] had agreed on cancelling Purchase Order No. 401623.

The third disputed point

The Court finds that all of the evidence of the present case indicates that the [Seller] and the [Buyer] had concluded a sales contract, and that the [Buyer's agent] was merely the export agent for the goods concerned. The [Seller] and the [Buyer] were aware of the other party at the conclusion of the contract. Thus, these two parties are directly bound by the contract. In conclusion, the [Buyer's agent] does not bear any responsibility arising from the performance of the contract by the [Seller] and the [Buyer].

RULING OF THE COURT

To sum up, the Court does not support any of the claims by the [Seller]; they lack of factual and legal bases. Therefore, according to Article 243 of the Civil Procedure Law of the People's Republic of China, Articles 8, 77(1), 99(1), and 402 of the Chinese Contract Law, the Court hands down the following ruling:

  1. The Court rejects the [Seller]'s claim that the [Buyer] shall make payment to the [Seller] of the remaining contract price totaling RMB 265,216.52;

  2. The Court rejects the [Seller]'s claim that the [Buyer] shall take delivery of 327 products and make payment of US $5,232 (RMB 49,180.80) thereon; and

  3. The Court rejects the [Seller]'s claim that the [Buyer's agent] shall be jointly and severally liable for the above payments.

The litigation fee of the present case is RMB 7,226, which the [Seller] shall pay.

Should there be an objection to this ruling, the [Seller] or the [Buyer's agent] may appeal by submitting a Petition of Appeal with copies for other parties through this Court to the Shanghai High People's Court within 15 days after the judgment is served; the [Buyer] may appeal by submitting a Petition of Appeal with copies for other parties through this Court to the Shanghai High People's Court within 30 days after the judgment is served.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff Shanghai Wangruixiang Fashion Co. Ltd. of the People's Republic of China, is referred to as [Seller] and Defendants U.S. Trend Co. Ltd. of the United States and Shanghai Silk (Group) Co. Ltd. of the People's Republic of China, are referred to as the [Buyer] and the [Buyer's agent], respectively. 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].

** 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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