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CISG CASE PRESENTATION

China 8 July 2003 CIETAC Arbitration proceeding (Copper case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030708c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20030708 (8 July 2003)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2003/13

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (claimant)

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

GOODS INVOLVED: Copper


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade Arbitration
Commission (CIETAC) (now South China Branch) 8 July 2003 (Copper case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/114],
CLOUT abstract no. 1123

Reproduced with permission of UNCITRAL

Abstract prepared by Zhe Zhang

A Chinese buyer and a seller from the United States of America signed a series of contracts for the purchase of honey copper and birch and cliff copper. The seller delivered batches of the contracted goods to a carrier, who signed off a clean bill of lading. After the goods arrived at the destination port, the parties signed a memorandum agreeing to reduce the price of the copper because a portion of the goods had quality problems and the market prices were volatile. However, the buyer refused to make payment. Eventually the seller had to hand over to the buyer the documents related to the goods without receiving any payment. The buyer went on to sell the goods to a third party, and the third party paid the amount (lower than the contract price stipulated in the original contract between the seller and the buyer) directly to the seller. The seller initiated arbitration proceedings, arguing that the buyer had breached the contract, and asked the Arbitration Tribunal to order the buyer to compensate for the damages and pay the arbitration fees and other related fees.

The parties had not chosen in the contract a law to govern disputes. The Tribunal found that the places of business of the parties were in States Parties to the CISG and under article 1(1)(a) CISG, the dispute in this case should be governed by the Convention. The Tribunal held that, under article 29 CISG, the memorandum signed after the goods arrived at the destination port represented a voluntary agreement between the seller and the buyer. The changes made to the original price were thus effective and the seller's allegations that the memorandum was void were rejected.

The Tribunal further found that there was no evidence showing that the buyer had followed article 38 of the Convention in examining the goods, i.e. within 90 days after they had arrived at the port of destination. In claiming that the goods had serious quality problems and refusing to take delivery and make payment, without providing any evidence confirming the quality problems, the buyer had clearly violated both the provisions of the CISG, and the contract. Under article 74 CISG, the Tribunal ordered the buyer to compensate the seller for its loss and to cover the other costs related to arbitration.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 38 ; 74 [Also cited: Article 29 ]

Classification of issues using UNCITRAL classification code numbers:

38A [Buyer's obligation to examine goods: time for examining goods];

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

Descriptors: Examination of goods ; Damages

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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 Award

Copper case (8 July 2003)

Translation [*] by Zheng Xie [**]

Edited by William Zheng [***]

-   Particulars of the proceeding
-   Facts
-   Position of the parties
-   Opinion of the Arbitration Tribunal
-   Award

PARTICULARS OF THE PROCEEDING

The China International Economic and Trade Arbitration Commission (hereafter, the "Arbitration Commission") accepted the case (Case no. R...) on 6 December 2002 according to:

   -    The arbitration clauses in Contracts No. 1GXBHQ20020US, 1GXBHQ20021US, 1GXBHQ20022US, and 1GXBHQ30001US (hereafter, the "Contracts") signed by Claimant [Seller], A __ Metal Trading Inc., and Respondent [Buyer], China __ Resources Import and Export Ltd, from June to September 2001; and
 
   -    The written arbitration application submitted by the [Seller] dated 5 April 2002.

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

The [Seller] appointed Tao __ as arbitrator, the Chairman of the Arbitration Commission on behalf of the [Buyer] appointed Dong __as arbitrator according to Article 26 of the Arbitration Rule. Because the parties neither jointly appointed nor authorized the Chairman to appoint the Presiding Arbitrator within the stipulated period, the Chairman appointed Liu __ as the Presiding Arbitrator according to Article 24 of the Arbitration Rules. On 13 February 2003, the above three arbitrators formed the Arbitration Tribunal to hear this case.

On 7 April 2003, the Arbitration Tribunal held a court session in Beijing. The [Seller] and the [Buyer] sent their representatives and arbitration agents to attend the court session. The parties made statements regarding the facts and answered the Arbitration Tribunal's questions. After the court session, the parties submitted supplementary opinions and evidence within the stipulated period. Neither party asked to open a second court session within the stipulated period.

After carefully reviewing the written material, evidence and the reasons alleged by the parties in the court session, the Arbitration Tribunal completed this case and handed down the arbitration award. The following are the facts, the Arbitration Tribunal's opinions and the award.

FACTS

From June to August 2001, the [Seller] and the [Buyer] signed Sales Contracts No. 1GXBHQ20020US, 1GXBHQ20021US, 1GXBHQ20022US, and 1GXBHQ30001US (hereafter, the "Contracts") stipulating that the [Buyer] shall purchase honey copper and birch & cliff copper from the [Seller].

   -    Contract No. 1GXBHQ20020US signed on 26 June 2001 stipulates that the quantity of honey copper is 200MT, and the contract price is US $1,240/PMT CIF Ningbo;
 
   -    Contract No. 1GXBHQ2002lUS signed on 8 August 2001 stipulates that the quantity of honey copper is 200MT, and the contract price is US $1,210/PMT CIF Ningbo;
 
   -    Contract No. 1GXBHQ20022US signed on 28 August 2001 stipulates that the quantity of honey copper is 200MT, and the contract price is US $1,190/PMT CIF Ningbo;
 
   -    Contract No. 1GXBHQ30001US signed on 8 August 2001 stipulates that the quantity of birch & cliff copper is 200MT, and the contract price is US $1,400/PMT CIF Xingang.

Other terms:

   -    Payment. All payment terms stipulated in the above Contracts: "D/P at 15 days after sight";
 
   -    Inspection and claims. "At the destination port, the [Buyer] has the right to apply to the Import and Export Commodities Inspection Bureau of the People's Republic of China/China Import and Export Commodities Inspection Corporation for inspection. If the quality and/or quantity/weight do not comply with the Contracts or invoices or quality certificates, except for the liability of the insurance companies and/or shipping companies, the [Buyer] has the right to claim for damages with the inspection certificates issued by the Import and Export Commodity Inspection Bureau of the People's Republic of China/China Import and Export Commodity Inspection Corporation within 90 days after the goods are unloaded at the destination port."

From 15 September to 5 November 2001, the [Seller] delivered the honey copper, and birch & cliff copper to carriers by installments in accordance with the Contracts. Each installment was delivered under each Contract according to the stipulations. The carriers issued clean Bills of Lading. The goods arrived in Ningbo and Xingang, respectively.

On 14 November 2001, the parties' agents signed a memorandum, which stipulated that the prices under the Contracts were reduced by 2-3 cents.

However, a dispute on payment of the contract price arose. After failing to reach agreement, the [Seller] submitted the arbitration application to the Arbitration Commission in accordance with the Arbitration Clause in the Contracts.

POSITION OF THE PARTIES

[Seller]'s position

The [Seller]'s claims are as follows:

   (1)   [Seller] requests the [Buyer] to compensate the [Seller] for the loss, US $145,775.90, caused by the [Buyer];
 
   (2)   [Seller] requests the [Buyer] to pay the arbitration fee and the [Seller]'s attorneys' fee, US $7,600, and traveling expenses incurred due to this arbitration, US $28,422.85.

The [Seller] alleges the following facts and reasons in support of its claims:

1. Facts

After the goods arrived at the destination ports, the parties confirmed that the total price under the Contracts was US $471,587.75 including $ 312,401.45 for honey copper and $159,186.30 for birch & cliff copper. Because the payment terms under the Contracts were D/P at 15 days after sight, the [Buyer] did not make the payments against documents, and the [Seller] did not receive any payment under the Contracts. At that time, the [Buyer] requested the [Seller] to reduce the price because of the volatility in the international market. In order to avoid incurring demurrage, storage charges, and other expenses if the [Buyer] did not take the deliveries on time, on 22 October 2001, the [Seller] had to agree to the [Buyer]'s request to reduce the contract price of honey copper by 2 cents and that of 2 # birch & cliff copper by 3 cents, and hoped that the [Buyer] could perform the Contracts immediately. On 14 November 2001, the [Seller] was forced to sign the unreasonable memorandum with the [Buyer] to reduce the contract prices by 2-3 cents.

The [Buyer] still failed to make the payments against documents and take the deliveries in accordance with the Contracts. The money order, Bills of Lading, and other documents were held by the company which received the goods on the [Buyer]'s behalf; the goods had been stored in the customs warehouse, and there was a risk of the Customs selling them by auction anytime at a low price. The [Seller] is a U.S. company, and is not familiar with China's market, so it was unrealistic for the [Seller] either to sell all the goods at reasonable prices in China or to transport the goods back the U.S. By using the above dilemma of the [Seller], the [Buyer] forced the [Seller] to instruct the bank to release the documents to it without making any payments. However, the [Buyer] still failed to perform the Contracts; the [Buyer] neither compensated the [Seller] for the additional expenses incurred due to the [Buyer]'s non-performance, nor paid a penny toward the contract price. It was more surprising for the [Seller] to receive three payments by T/T, totaling US $252,312.65, for the goods under the Contracts directly from the third party during April to May 2002.

2. The legal issues

      (1) The price terms in the Contracts are CIF. According to Incoterms (2000), if the contract term is CIF under a contract, and if the seller delivers the documents conforming to the contract, when the goods have passed the ship's rail, the risk of the goods passes to the buyer. The [Seller] had delivered the goods to carriers, and the carriers issued clean Bills of Lading, and the Commodity Inspection Bureau's inspection certificates showed the goods conform to the Contracts. The goods delivered by the [Seller] conformed to the Contracts; the [Buyer] has never objected to this fact. Thus, after the goods were delivered to the carriers, the risk related to the goods was transferred the [Buyer].

      (2) The Contracts in this case were established and took effect, so the [Seller] should have performed in accordance with all of the provisions of the Contracts. The price volatility in the international market cannot be used as a defense against the valid Contracts. Therefore, it is unreasonable and lacks legal basis for the [Buyer] to request the [Seller] to reduce the price due to the price volatility in the international market. In addition, the normal price volatility in the international market constitutes neither force majeure nor situation change, etc., stipulated in the General Principles of Civil Law of the People's Republic of China.

      (3) According to the United Nations Convention on Contracts for International Sales of Goods (CISG), the buyer has the duty to take any reasonable step for the seller to deliver the goods. According to Incoterms (2000), the character of the CIF contract is symbolic delivery, which means the seller completes its duty of delivery after loading the goods on board at the loading port and delivering the full set of documents to the buyer. The [Seller] had already delivered the goods to the carriers, and the carriers issued clean Bills of Lading, and the carriers delivered the documents to the remitting bank according to the payment term stipulated in the Contracts; the remitting bank forwarded the documents to the collecting bank. Then, the [Buyer] had the duty to make the payment to the collecting bank in accordance with the Contracts and international customs, and to take delivery of the goods from the carriers. However, the [Buyer] failed to perform its duty to take delivery of the goods, so it fundamentally breached the Contracts.

      (4) Because the [Seller] had already delivered the goods to the carriers, according to the terms and conditions of CIF, the risk related to the goods passed to the [Buyer]. Because the goods arrived at the destination port, if the [Buyer] did not take the delivery, the demurrage and customs storage charges would increase; after a certain period, the Customs would sell the goods by auction at low price. Because the [Seller] is a U.S. company, and is not familiar with the China's market; under this circumstances, in order to mitigate loss, the [Seller] had to agree on the [Buyer]'s requests to reduce the prices by 2-3 cents and release the documents before the payments were made. The [Seller] had to conduct in this way without any choice. The [Buyer]'s conducts constituted "exploitation of one's unfavorable position" stipulated in the General Principles of Civil Law of the People's Republic of China and the Contract Law of the People's Republic of China. The [Seller] requests the Arbitration Tribunal to revoke the aforesaid conduct of the [Seller] under such circumstances and restore the original status stipulated in the Contracts.

[Buyer]'s response

In response, the [Buyer] alleged that:

1. The goods delivered by the [Seller] do not conform to the Contracts, and the [Seller] expressly admitted that the goods had defects.

      (1) Article 1 of the Contracts definitely stipulates that the content of scrap honey brass shall not be less than 60%; according to the industry standards, the content of iron shall not exceed 3%. However, the goods delivered by the [Seller] do not conform to the Contracts at all; the contents of iron, water container parts, dirt, corrosive material and other impurity contained in the goods are 10% or even 15%, far more than 3% stipulated in the Contracts, and are severely inconsistent with the ISRI's specification standard of yellow brass scrap honey stipulated in the Contracts, i.e., "the yellow brass scrap honey shall not contain manganese, bronze, used water container or parts, iron, excessive dirt and corrosive material." The [Buyer] submitted the Quality Certificate issued by the People's Republic of China Tianjin Donggang Entry-Exit Inspection and Quarantine Bureau. The Quality Certificate shows that the goods inspected were in containers No. CCLU3194703 and CCLU3239182 under Contract No. 1GXBHQB3000lUS and described the inspection as "all goods were inspected: the containers contain a small quantity of used computers, printers, used metal, and game machine parts, etc.", "the above goods do not comply with the Document (Environmental Protection Bureau) (2000) No. 19 and the Contracts." The [Seller]'s above breach directly caused that all the qualifications of the [Buyer] to import material were suspended. In addition, the content of scrap honey brass contained in the goods does not conform to the requirement of 60%, in the Contracts. At the court session, the [Seller] did not raise any objection to or deny the condition of the goods. Thus, the [Seller] agreed to reduce the price because it knew the goods did not conform to the Contracts and the relevant industry standards, but not because the [Buyer] exploited the [Seller]'s unfavorable position or used favorable position to force the [Seller] to reduce the price as the [Seller] alleged.

In fact, it is the [Buyer] who is the party suffering damages. The [Buyer] not only encountered the problems of defective goods and shortage, but also was fined by the environmental protection supervision bureau in China because of the goods which the [Seller] delivered violated relevant environmental protection regulations in China.

Regarding these problems including defects and shortage, etc., the [Buyer] and its end users raised objection and filed claims with the [Seller] on time. However, the [Seller] neither responded nor tried to resolve the problems at all. The memorandum signed by the parties shows the [Buyer] insisted that the [Seller] resolve the problems related to the quality of the goods, but the problems had not been resolved. The [Seller]'s allegation that it reduced the price because of the [Buyer]'s financial difficulty is not consistent with the facts; the [Seller] alleged that the [Buyer] request the [Seller] to reduce the price due to the price volatility in the international market; this allegation is an excuse for the [Seller] to avoid its liability due to non-conforming goods. The fact is that because the goods are not conforming to the Contracts, the [Seller] agreed to reduce the contract price. Then, because he [Seller] failed to resolve the quality problems of other goods, and ignored the [Buyer]'s claims for damages, the [Buyer] could not accept the remaining goods.

      (2) The [Seller]'s claim for the loss of US $145,775.90 lacks factual basis. Therefore, it should not be sustained.

The [Seller]'s allegation that the [Buyer] resold the goods and forfeited the payment of US $145,775.90, which the third party paid to the [Seller] lacks any factual basis because of the following reasons: first, the [Seller] unilaterally alleged that it delivered all goods under the Contracts to the [Buyer], but could not submit any relevant and legally valid evidence including invoices, packing lists, etc., to prove it either performed the duty of delivery or delivered all goods under the Contracts; second, as stated above, under the circumstances that the quantity and quality of goods delivered by the [Seller] were not complying with the Contracts, the [Buyer] as the import agent and the end-users which the [Buyer] represented raised objections and claimed for damages with the [Seller] on time. Because the [Seller] neither responded nor tried to resolve the problems, the [Buyer] could not accept the last seventeen containers of goods. Thus, the [Seller] voluntarily resold the seventeen containers of goods at reduced price to B __ International Inc. (hereafter, the third party). Obviously, it was the [Seller]'s decision to resell the goods to the third party, and has nothing to do with the [Buyer]. Regarding the so-called relevant material which the [Seller] submitted and alleged was issued by the third party to calculate the loss, the [Buyer] alleged that this evidence lacks formality to be admitted, because this material was not signed or sealed, and is inconsistent with the facts, and therefore it should not be admitted as basis to determine the facts. Although the [Seller] alleged that it incurred the loss of demurrage and customs storage charges due to the [Buyer]'s reasons, it did not submit any valid evidence to prove the alleged loss actually incurred, nor did [Seller] provide any sufficient, legitimate and valid evidence to prove the alleged loss of US $145,775.90.

In sum, the [Buyer] requests the Arbitration Tribunal to dismiss all of the [Seller]'s arbitration claims, and to rule that the [Seller] shall pay the arbitration fee and the [Buyer]'s attorneys' fee for this arbitration.

[Seller]'s response

Regarding the [Buyer]'s response, the [Seller] submitted supplementary evidence and made the following statements:

1. The issue on quality of the goods

The [Seller] alleged that some goods had defects, but the parties had solved the problems, and the goods disputed in the arbitration do not include these goods. The Appendixes I-V of the response submitted by the [Buyer] show that the evidence can only prove that some goods in one or two containers (No. HDMU2945939, etc.) have some defects which are not within the scope of this arbitration have some defects. As to this part of goods, the parties had solved the problems in the memorandum. In addition, Article 13 of the Contracts stipulates:

"The [Buyer] has the right to claim for damages with the [Seller] with the inspection certificates issued by the Import and Export Commodity Inspection Bureau of the People's Republic of China/ China Import and Export Commodity Inspection Corporation within 90 days after the goods are unloaded at the destination port."

Except for the quality problems of goods which are not within the scope of this arbitration, the [Buyer] had never raised any quality problems related to the goods disputed in this arbitration. Currently, it is more than one year after the goods arrived at the destination port, so the [Buyer] lost its right to claim for damages; in addition, the [Buyer] did not submit any evidence to prove the goods disputed in this arbitration have any quality problems.

2. It is the [Buyer] who requested reducing the price

According to the supplementary evidence submitted by the [Seller], it is the [Buyer] who requested reducing the price by alleging the price volatility in the international market ("But since '9/11 attack' we feel also met a disaster especially on scrap metals business. The market price went down sharply and tremendously" -- as stated in the fax which the [Buyer] sent to the [Seller] on 5 November 2001). The [Seller] was forced to accept this request, and had never suggested to reduce the price.

3. The issue on the loss of US $145,775.90 which the [Seller] claimed

According to the Bills of Lading and the Contracts, etc., the total original price of the goods disputed in this arbitration is US $471,587.75 (this does not include other goods for which there were problems that the parties had resolved).

The total price of honey copper is US $312,401.45 which is described as follows:

Contract No. 1GXBHQB20020US
Total weight: 39,558LBS (17.9432MT) + 38,859LBS (17.4242MT) + 39,570LBS (17.9487MT),
Unit price: US $ 1,240.00/PMT;
Total contract price: US $22,249.57 + 20,798.92 + 21,197.47;
Nos. of the Bills of Lading: E144061803, SEAD00716100, VCNX1403208.

Contract No. 1GXBHQB20021US
Total weight: 41,712LBS (18.9203MT) + 42,048LBS (19.0817M) + 43,534LBS (19.7447MT) + 39,089LBS (17.7305MT) + 42,409LBS (19.2344MT) + 41,738LBS (18.9321MT) + 41,950LBS (19.0282MT) + 42,008LBS (19.0545MT) + 80,902LBS (34.4944MT);
Unit price: US $1,210.00/PMT;
Total contract price: US $22,893.54 + 23,088.84 + 23,893.51 + 21,453.91 + 23,274.04 + 22,907.84 + 23,024.12 + 23,055.95 + 44,402.89;
Nos. of Bills of Lading: W120065551, W120065755, W120066527, W120066000, W120066064, CHIH49631, CHIH49540, CHIH50229, CLED44318.

Contract No. 1GXBHQB20022US
Total weight: 37,380LBS;
Unit price: US $1,190.00/PMT;
Total contract price: US $20,174.81,
No. of Bill of Lading: SEAD00716100 (the [Seller] mistakenly typed: the correct No is E144062657).

The total price of 2# copper is US $159,186.30, which is described as

Contract No. 1GXBHQB3000lUS
Total weight: 34,034LBS (14.3448MT) + 42,141LBS (19.1149MT) + 44,192LBS (20.0452MT) + 43,405LBS (19.4882MT) + 83,911LBS (38.0414MT) + 4,200LBS (1.905lMT);
Unit price: US $1,400.00/PMT;
Total contract price: 22,882.72 + 24,740.84 + 28,043.28 + 27,543.48 + 53,915.94;
Nos. of Bills of Lading: W120065544, W120065543, W12O065522, CHIH50698, OAKXIN5001401.

Under the [Buyer]'s duress and exploitation of the [Seller]'s unfavorable position, the [Seller] was forced to reach an unreasonable agreement to reduce the price of honey copper by 2 cents, and that of 2# by 3 cents. Thus, the total price for the goods under the Contracts is US $452,681.72 (i.e., the total contract price of honey copper, US $300,985.91, and the total contract price of 2# copper, US $151,695.81). Then, the [Buyer] accepted the goods without making the payments, and resold the goods at the total price of US $371,088.55 to the third party. However, the [Seller] did not receive any payment from the [Buyer], and only received the price of US $225,312.65 from the third party.

In conclusion, the [Seller] alleged that as to the contract price only, it incurred the loss of proximate US $250,000. However, the [Seller] only requests the [Buyer] to compensate for US $145,775.90, part of the loss.

4. The goods were resold by the [Buyer] to the third party

The [Seller] alleged that the goods were resold by the [Buyer] to the third party, but not by the [Seller]. The evidence shows that the [Buyer] received the Bills of Lading of the goods, and arranged the reselling. The [Seller] did not deliver the goods to the third party.

[Buyer]'s further response

As to the [Seller]'s supplementary evidence, the [Buyer] made the following supplementary statements:

1. Appendix I of the Supplementary Evidence submitted by the [Seller] is not true, and cannot prove that the goods were resold by the [Buyer] to the third party. The [Buyer] alleged that, first, the evidentiary material is not true. Appendix I consists of four documents. As to the first document, the [Buyer] had neither seen nor sent it to the [Seller], and the [Seller] did not submit any evidence to prove that the [Buyer] had ever sent this document. The second document lacks the formality to be admitted as evidence because it had not been signed by any party, and it cannot be verified whether it was sent. The [Buyer] reasonably believed the second document was created by the the [Seller]. Regarding the third and fourth documents, the [Seller] did not submit any evidence to prove that the [Buyer] sent these documents to the [Seller]. Second, these documents cannot prove the [Seller]'s allegation that the goods were resold by the [Buyer] to the third party. The fact is that because the goods had severe defects and did not conform to the Contracts, so they had to be resold at the reduced price. However, the [Seller] neither solved the quality problems nor responded to the [Buyer]'s claims, so that the [Buyer] could not accept the remaining goods. The [Seller] voluntarily resold the goods to the third party at the reduced price, which had nothing to do with the [Buyer].

2. The expenses showed in Appendix II of the Supplementary Evidence submitted by the [Seller] have nothing to do with this arbitration, so they should not be sustained. The [Buyer] alleged that this Appendix includes three parts. The first two parts describe the expenses incurred during the [Seller]'s first two visits to China; the third part describes the expenses incurred during the [Seller]'s third visit to China. The fact is that the expenses incurred during the [Seller]'s first two visits to China have nothing to do with this arbitration, and the [Seller] did not submit any sufficient, legitimate and valid evidence to prove that these expenses are related to this arbitration. In fact, these expenses were incurred because the [Seller] came to China for business negotiation and also to deal with the problems of the goods delivered as per the [Buyer]'s many requests; it is unreasonable for the [Seller] to relate these expenses to this arbitration; these expenses were incurred because the goods which the [Seller] delivered were not complying with the Contracts, and the [Seller] had to come to China to solve the problems as the [Buyer] requested. Thus, it is unfair to request the [Buyer] to pay these expenses. As to the expenses incurred during the third visit, they should not be paid by the [Buyer] either, because the [Seller] had to come to China to solve the quality problem of the non-conforming goods through the arbitration procedure; thus, the [Seller] should bear the expenses.

OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The parties did not stipulate the applicable law in the Contracts. The [Seller]'s place of business is in the U.S., and the [Buyer]'s place of business is in China. Both China and the U.S. are Contracting States of the United Nations Convention on Contracts for International Sales of Goods (CISG). According to Article 1(1)(a) CISG, the CISG applies to contracts signed by the parties whose places of business are in Contracting States. Therefore, the CISG applies to this case; when the CISG lacks relevant stipulation, international customs apply.

2. The relevant stipulations in the memorandum signed on 14 November 2001

During the performance of the Contracts, the parties signed a memorandum on 14 November 2001. In the memorandum, the parties reached agreement on the disposal of defective goods and the reduced price of the entire goods arriving at the port. The [Seller] request the Arbitration Tribunal to rule that the stipulation that the price of honey copper is reduced by 2 cents, and 2# copper is reduced by 3 cents, is void. As to this request, the Arbitration Tribunal notes that first, the parties signed the memorandum based on the friendly cooperation in order to resolve the payment and quality problems; second, in the international sales of goods transaction, one party requests to change the price due to the price volatility in the market, the other party usually agrees to increase or reduce the price for the long term cooperation. During the performance of the Contracts, the prices of honey copper and 2# copper in the international market were dropping, and the [Buyer] requested the [Seller] to reduce the price, and the [Seller] agreed to reduce the prices by 2-3 cents in accordance with transaction customs; third, Article 29 of CISG stipulates, "A contract may be modified or terminated by the mere agreement of the parties." Based on the above, the Arbitration Tribunal holds that the parties signed the memorandum based on their agreement, so the Arbitration Tribunal neither sustains the [Seller]'s allegation that it was forced to reduce the price nor accepts [Seller]'s request to avoid the stipulation. The contract price should be determined by the stipulations in the memorandum.

3. The issue on the goods involved in this arbitration

According to the [Seller]'s statements and evidence, the Arbitration Tribunal notes that the [Seller]'s claims are related to 256.4905 tons of honey copper which arrived at the destination port.

   -    Contract No. 1GXBHQB20020US, Bills of Lading No. E144061803, SEAD00716100, and VCNX1403208;
 
   -    Contract No. 1GXBHQB20021US, Bills of Lading W120065551, W120065755, W120066527, W120066000, W120066064, CHIH49631, CHIH49540, CHIH50229, CLED44318, total weight 186.2208 tons;
 
   -    Contract No. 1GXBHQB20022US, Bill of Lading E144062657, the weight 16.9536 tons); and
 
   -    Contract No. 1GXBHQB3000lUS, Bills of Lading W120065544, W120065543, W12O065522, CHIH50698, OAKXIN5001401, the weight 112.9436 tons of 2# copper.

The [Buyer] did not submit any evidence to prove that it had raised any objection to the quality of the goods under the above Bills of Lading. The parties signed the memorandum and determined the total price of the above goods were US $452,681.72 including the total price of honey copper, US $300,985.91 and the total price of 2# copper, US $151,695.81.

4. The liability for breach

The Contracts in this case are contracts for sales of goods. The Claimant is the seller in the Contracts and the Respondent is the buyer in the Contracts. The delivery terms under the Contracts are CIF. According to international trade customs, after the goods arrived at the destination port, the [Buyer] should inspect the quality and quantity of the goods and make the payments.

The Arbitration Tribunal notes that according to the Bills of Lading listed in the above Item (3), the [Buyer] did not submit any evidence to prove that it had raise any objection to the quality of the goods under these Bills of Lading. In the court session, the Arbitration Tribunal notes that regarding the goods delivered to Ningbo, the [Buyer] did not provide the inspection certificate stipulated in the Contracts. When reviewing the relevant evidence submitted at the court session, the Arbitration Tribunal notes that the [Buyer] did not submit the inspection certificate stipulated in the Contracts regarding the goods which arrived in Ningbo. The only inspection certificate regarding the goods which arrived in Xingang shows that the shipper is Jenyick International Limited, but not the [Seller], and it is not the certificate for the goods under the Contracts in this case. Article 38 of CISG stipulates, "The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances." The Inspection and Claim Clauses in the Contracts stipulate:

"When the goods are unloaded at the destination port, the [Buyer] has the right to apply to the People's Republic of China Import and Export Commodity Inspection Bureau/ China Import and Export Commodity Inspection Corporation to inspect the goods. If any conformity of the quality and/or quantity and/or weight with the Contracts, invoices or quality certificate is found, except for the liability of insurance company and/or shipping company, the [Buyer] has the right to claim for damages with the [Seller] within 90 days after the goods are unloaded with the inspection certificate issued by the People's Republic of China Import and Export Commodity Inspection Bureau/ China Import and Export Commodity Inspection Corporation."

There is no evidence to show that the [Buyer] applied to the relevant inspection agency to inspect goods within 90 days after the goods were unloaded at the destination port. The [Buyer] could not determine the goods had defects without any inspection certificate, so the [Buyer]'s allegation that it refused to take delivery of the goods and make payment because of the defects of the goods is not consistent with CISG and the Contracts.

5. The [Seller]'s loss of price difference

The [Buyer] obtained the ownership and the disposal right of the goods after receiving the relevant documents. After delivering the relevant documents, the [Seller] lost the right to dispose of the goods. Thus, Arbitration Tribunal does not sustain the [Buyer]'s allegation that the goods were resold by the [Seller].

According to the memorandum, the total price of the goods in this case is US $452,681.72, and the [Seller] actually received US $225,312.65 from the third party. Therefore, the [Seller] suffered the loss of price difference, totaling proximate US $250,000. 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..." In this arbitration, the [Seller] request the [Buyer] to compensate for the loss of price difference, totaling US $145,775.90. The Arbitration Tribunal holds that this loss was caused by the [Buyer]'s breach, so the [Buyer] shall compensate.

6. The loss of the attorneys' fee and the traveling expenses

The [Seller] requests the [Buyer] to compensate for the attorneys' fee of US $7,600 for this arbitration and submitted the relevant evidence. The Arbitration Tribunal sustains this claim.

The [Seller] requests the [Buyer] to compensate for the traveling expenses incurred for this arbitration, totaling US $28,422.85, and submitted the relevant evidence, but it did not prove the above expenses incurred were directly related to this case. Considering this arbitration was caused by the [Buyer]'s breach, the [Seller] must have incurred some traveling expenses in order to get compensated for the loss. Thus, according to the principle of fairness and reasonableness, the Arbitration Tribunal holds that the [Buyer] shall compensate the [Seller] for the relevant traveling expenses.

Article 58 of the Arbitration Rules stipulates:

"The arbitration tribunal has the power to decide in the arbitral award that the losing party shall pay the winning party as compensation a proportion of the expenses reasonably incurred by the winning party in dealing with the case. The amount of such compensation shall not in any case exceed 10% of the total amount awarded to the winning party."

Accordingly, the Arbitration Tribunal holds that it is reasonable for the [Buyer] to compensate the [Seller] for the attorneys' fee and the traveling expenses, totaling US $14,500.

7. The arbitration fee

The [Buyer] shall bear the entire arbitration fee.

AWARD

Based on the above opinion, the Arbitration Tribunal handed down the following award:

   (1)    The [Buyer] shall compensate the [Seller] for the loss of contract price, totaling US $145,775.90;
 
   (2)    The [Buyer] shall compensate the [Seller] for the attorneys' fee and the traveling expenses, totaling US $14,500;
 
   (3)    The arbitration fee is US $5,485, which the [Buyer] shall bear. The [Seller] has already paid the above arbitration fee in advance, so the [Buyer] shall compensate the [Seller] for US $5,485.
 
   (4)    As to the above amounts determined in the above Items 1-3, the [Buyer] shall make the payment within 30 days at the date of this award, otherwise, an annual interest shall be added due to the delay in payment.

This award is final.


FOOTNOTES

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

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

*** William Zheng is a graduate of the Pace University School of Law. He is Special Counsel with the Shanghai office of Sheppard Mullin Richter & Hampton, LLP.

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Pace Law School Institute of International Commercial Law - Last updated January 18, 2012
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