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CISG CASE PRESENTATION

China 23 July 2003 CIETAC Arbitration proceeding (Telephone machine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030723c1.html]

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

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Case identification

DATE OF DECISION: 20030723 (23 July 2003)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2003/06

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: People's Republic of China

BUYER'S COUNTRY: Albania (claimant)

GOODS INVOLVED: Telephone machines


Classification of issues present

APPLICATION OF CISG: No. The sole reference to the CISG is in the pleadings of the Claimant Buyer who stated that "No matter whether based on the CISG, or trade usage, or Chinese domestic law, the Respondent should take the responsibility to guarantee that the goods conform to the contract and are fit for the purpose which the goods would ordinarily be used" and the Claimant Buyer's citation of Article 40 CISG with respect to late notice and the allegation that "Respondent was aware of our could not have been unaware of the aforesaid problems with the goods." However, the Tribunal did comment on these allegations, resolving the case instead by reference to PRC laws and a ruling on an agency issue that is outside the scope of the CISG.

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 40

Classification of issues using UNCITRAL classification code numbers:

Unavailable

Descriptors: Unavailable

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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): 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

Telephone machine case (23 July 2003)

Translation [*] by Meihua Xu [**]

Edited by Zheng Xie [***]

-   Particulars of the proceeding
-   Alleged 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 Number: G...) according to:

   -    The arbitration clause in Sales Contract 2001KM-05 signed by Claimant [Buyer], __ International Co. Ltd. of Albania, and Respondent , __ Import & Export Company of the People's Republic of China on 10 September 2001; and
 
   -    The written arbitration application submitted by the [Buyer] on 20 January 2003.

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

On 22 January 2003, the Secretariat of the Arbitration Commission sent to the Respondent the arbitration notice, the [Buyer]'s arbitration application and the attachment, the Arbitration Rules and the arbitrators name list via express mail. After receiving the aforesaid documents, the Respondent submitted to the Arbitration Commission its response dated 27 February 2003 with supporting evidence. The Secretariat of the Arbitration Commission forwarded the aforesaid documents to the [Buyer].

Pursuant to Article 65 of the Arbitration Rules, because the parties failed to jointly appoint or ask the Chairman of the Arbitration Commission to appoint a sole arbitrator, on 11 March 2003 the Chairman of the Arbitration Commission appointed __ as the sole arbitrator forming the Arbitration Tribunal to hear this case.

After a discussion with the Arbitration Commission, the Arbitration Tribunal decided to hold a court session in Beijing on 9 May 2003. However, due to the SARS epidemic in Beijing, the court session was postponed to 27 June 2003.

To prepare for the process of the court session and to give an opportunity to the parties to verify the evidence, on 20 March 2003 the Secretariat of the Arbitration Commission sent notices to the two parties, soliciting supplementary material. The [Buyer] submitted its first statement dated 19 March 2003 and supplementary evidence, and the Respondent submitted supplementary evidence as well. The Secretariat of the Arbitration Commission forwarded the aforesaid documents to the parties accordingly.

On 27 June 2003, the court session was held in Beijing. Both the [Buyer] and the Respondent sent agents to attend this session. At the court session, the [Buyer] made further statements on the formation and the performance of the sales contract in this case and presented arguments with the Respondent on the conclusion and the nature of the co-export agreement and its connection with the sales contract in this case. The Respondent, however, emphasized that it did not know much about the actual supplier, Shenzhen __ Company (the "[Manufacturer]"), or the contract goods in this case. The contract goods were confirmed by Mr. Tao [of the Buyer], and the co-export agreement was signed in order to avoid risks, so it has a connection with the Contract in this case.

At the court session, the [Buyer] alleged that the export commodity clearance form was not true, for example, the export country was recorded as ___ and the quantity was described as 3,760 (it should be 3,680). However, the Respondent argued that the goods and the price for the goods (US $6,848) described in the import customs clearance form cannot prove that the goods were the goods delivered by the Respondent, and that this is weak evidence.

After the court session, the [Buyer] submitted a second statement within the period stipulated by the Arbitration Tribunal, and the Respondent submitted its statement as well.

This case has been concluded. The Arbitration Tribunal handed down this award by consent based on the written materials submitted by the [Buyer] and the Respondent and the material developed at the court session.

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

ALLEGED FACTS: POSITION OF THE PARTIES

[Buyer]'s position

The [Buyer] alleged that:

On 10 September 2001, the [Buyer] and the Respondent signed Sales Contract 2001KM-05 (hereafter, the "Contract"), by which the Respondent was to export telephone machines to the [Buyer] on the following terms:

   -    Total price: US $21,277;
   -    Shipping period: By 10 October 2001;
   -    Loading port: Shenzhen, China;
   -    Payment: By T/T;

On 14 September 2001, the [Buyer] paid US $21,277 to the Respondent. On 21 November 2001, the goods arrived in Albania, and the [Buyer] applied for customs clearance. After the goods were delivered by the Respondent, they were inspected by a commodity inspection agency in Albania. Severe defects in appearance and quality were discovered. It has been about one year from the arrival and inspection of the goods to the present. The [Buyer] had been asking the Respondent to settle the problem; however, the Respondent has not taken any action. As the supplier of the goods, the Respondent should guarantee the complying quality of the goods. However, the fact is that the Respondent severely violated the principle of good faith by delivering defective goods and used goods as conforming goods and new goods. Therefore, the [Buyer] asks the Arbitration Tribunal to rule that:

1. The Respondent shall refund the price, i.e., US $21,277, which has been paid by the [Buyer] for the goods;

2. The Respondent shall compensate the [Buyer] for the shipping fee of renminbi [RMB] 8,568, transshipment fee of US $1,600, insurance fee of US $117, customs tax of US $8,905, storage fee of US $4,500, inspection fee of US $352, express mail fee of RMB 390, totaling US $15,474 and RMB 8,958;

3. The Respondent shall bear the entire arbitration fee.

Respondent's position

The Respondent presented the following response to the [Buyer]'s arbitration claims.

1. The evidence material provided by the [Buyer] is not complete; it lacks essential documents. On 10 September 2001, the [Buyer] and the Respondent signed a co-export agreement regarding the contract goods in this case. Article 3 of this agreement states:

"[Buyer]'s responsibility: the [Buyer] is responsible for supply of the goods ... meanwhile, the [Buyer] shall guarantee that the quantity of the goods should conform to the Contract and that the goods should be delivered on time. The [Buyer] is liable for any consequences caused by failing to perform the aforesaid obligations."

"The [Respondent] is not liable for any damages resulting from problems of quality, quantity, or delivery time of the goods".

The promise made by the [Buyer] regarding its liability and obligations reflected the true intention of the [Buyer], and it was a true agreement with the Respondent. The [Buyer] should have performed in accordance with the terms in this agreement. It was also stipulated in the agreement that the agreement was an attachment to the Sales Contract in this case, which shows that this agreement is a part of the Sales Contract.

For the formation of the Sales Contract, the Respondent signed the above agreement with the [Buyer] first, and then signed the Sales Contract based on the [Buyer]'s intention. In addition, on 7 September 2001, Mr. Tao, on behalf of the [Buyer], sent a letter to Mr. Huang of the Respondent, informing him of the manufacturer's full name, and the name, quantity, and price of the goods, and Mr. Tao signed the Sales Contract. This shows that the [Buyer] decided upon and confirmed the selection of the manufacturer, the quality of the goods, transportation, and customs entry application. Therefore, the [Buyer] should bear the risks on the quality and delivery of the goods. The [Buyer] is now asking the Respondent to compensate for its economic losses, which lacks legal and factual basis.

2. The evidence provided by the [Buyer] regarding the quality of the goods is not complete; it lacks essential documents. Based on the Commodity Inspection Law of the PRC and the Administrative Regulations on Import and Export Trade of the PRC, the contract goods in this case are commodities which shall be inspected by law, and the customs will permit the export by reviewing the inspection certificate issued by the inspection agency and reject the export of non-conforming goods.

The Shekou Customs of the PRC signed the export commodity customs application form and affixed its seal, which indicated that the goods exported by the Respondent had been inspected. It is the Respondent's position that the goods conformed to the mandatory quality standard of the PRC at the time of export, and there was no evidence to prove that the Respondent delivered used and non-conforming goods as new and conforming goods.

The [Buyer] received the goods on 21 November 2001. However, it was not until 9 May 2002 that the [Buyer] inspected the appearance of the goods. This was half a year later. Therefore, there is a possibility that the [Buyer] had distributed the goods after they arrived in Albania and that the appearance of the goods might have been damaged due to improper storage.

In the letter sent to Shenzhen __ Communication Technology Company on 18 May 2002, Mr. Tao stated that the goods were returned to the [Buyer] by [Buyer]'s customers after a large quantity had been sold. After the goods had been returned, the [Buyer] asked the inspection agency in Albania to inspect the appearance of the goods.

In accordance with international trade practice, the [Buyer] should have inspected the appearance, quantity, and the specifications of the goods after receiving them or the [Buyer] should have inspected them before resale. This is both the right and the obligation of the [Buyer] upon resale. If the [Buyer] resold the goods without inspection, it would be deemed that the [Buyer] had accepted the appearance and the quality of the goods Therefore, the inspection certificate submitted by the [Buyer] cannot be admitted as evidence.

3. The contract submitted by the [Buyer] is not consistent with the one submitted by the Respondent. The copy of the contract submitted by the [Buyer] contains a different seal than the one in the contract signed by the Respondent on 10 October 2001. The [Buyer] should submit the original contract;

4. During the shipment of the goods, the carrier and the quantity of the goods had obviously been changed. In the import customs application form provided by the [Buyer], the consignor was not indicated as the Respondent but as Beijing __ International Economic and Trade Company with a total price of the goods of US $6,848. This import customs application does not conform to the Sales Contract between the [Buyer] and the Respondent in terms of price and quantity of the goods, and there is no indication that Respondent was the seller. Thus, the goods claimed by the [Buyer] were not those delivered by the Respondent, and the goods in dispute in this case have nothing to do with the Respondent.

[Buyer]'s counter argument

The [Buyer] made the following counter argument:

1. The co-export agreement mentioned by the Respondent is beyond the scope of this arbitration. It has nothing to do with this case because:

      (1) The [Buyer]'s arbitration claims are based on the arbitration clause in Sales Contract 2001KM-05 entered into between the [Buyer] and the Respondent. The dispute which the Arbitration Tribunal should hear and resolve is that arising from the sale of the goods under the Sales Contract. The parties have a sales relationship, and both the [Buyer] and the Respondent have properly or improperly executed their rights and performed their obligations;

      (2) The co-export agreement mentioned by the Respondent is a typical agency relationship in terms of its content. It is a contract that is independent of the Sales Contract. The co-export agreement and the Sales Contract reflect two completely different legal relationships. The two parties did not include an arbitration clause in the co-export agreement. Therefore, it is beyond the scope of this arbitration.

      (3) Mr. Tao's action on behalf of the [Buyer] in giving instruction on the contract goods was to make sure that the Sales Contract in this case could be performed smoothly and to protect the [Buyer]'s legal rights so that they would not be infringed. The [Buyer]'s concern over the goods purchased was a necessary, proper, and reasonable action taken by the [Buyer], corresponding to the [Buyer]'s position. In other words, its performance was based on the Sales Contract and has nothing to do with the co-export agreement.

In virtue of the above, the co-export agreement and the Sales Contract in this case are two completely independent contracts. The one, which the two parties have performed and, based on which the [Buyer] filed the arbitration claims, was the Sales Contract. The co-export agreement is beyond the scope of this arbitration and has nothing to do with this case. Therefore, the Respondent's allegation that the [Buyer]'s evidence lacks essential documents has no basis;

2. The Respondent delivered used and defective goods as conforming and new goods. Therefore, the Respondent should be held liable. The reasons are as follows:

      (1) No matter whether based on the stipulations on a buyer's rights in the CISG or trade practice, the [Buyer] is entitled to conduct a final inspection and to raise objection to the goods.

      (2) Albania Inspection Company is the only national inspection agency that is authorized by SGS. Its inspection result clearly shows that:

      -    The telephone machines have been used;
      -    The liquid crystal display, body, and the back of the machines have severe damages;
      -   Colors on some handles, lines have faded.

This is sufficient to prove that the telephone machines are used or returned for repair. The inspection result has been notarized by the Albania Government and authenticated by the Chinese Embassy in Albania;

      (3) The actual supplier, Shenzhen Wandelai Telecommunication Technology Company, the [Manufacturer], has admitted in writing that the goods have been mixed with used and defective goods.

      (4) The Respondent's allegation that Shekou Customs has accepted and affixed its seal on the export commodity customs application and that therefore the goods are conforming, cannot be established. The affixing of the seal has no necessary connection with the inspection result. Moreover, the final destination indicated in the customs application was Albania. Therefore, the [Buyer] asks the Respondent to provide the original inspection certificate. The inspection report issued by the Albania Inspection Company and the written confirmation provided by the actual supplier are sufficient to prove that the goods delivered by the Respondent were mixed with used and defective goods, and that the export customs application cannot prove anything.

3. The Respondent alleged that the [Buyer]'s improper storage caused the damages to the appearance of the goods and that it is not sure that the goods in dispute are the goods delivered by the Respondent, which shows that the Respondent is trying to avoid its liability. The facts are as follows:

      (1) According to the Contract, the goods should have been delivered before 10 October 2001; however, the goods were actually delivered on 20 October. The goods had been stored in the warehouse after they arrived in Albania. After discovering the defects in the appearance of the goods, the [Buyer] stopped retail and distribution. Later, the Albania Inspection Company inspected the goods that had not been distributed. Therefore, it is impossible that the defects in the appearance of the goods was caused by improper storage during the distribution. In addition, by common sense, the defects in the appearance of the goods described in the inspection certificate could not be possibly be caused by improper storage, such as the scratches on the display, faded color, stain on the handles and aging. Thus, the Respondent's allegation that the defects were caused by improper storage cannot be established. The reasons for the defects of the goods are that they are used and returned goods.

      (2) The defective goods in this case were delivered by the Respondent. First, according to the Sales Contract entered into between the Respondent and the [Manufacturer], the Respondent should have delivered 3,760 items of goods; however, in the letter sent to the Respondent on 3 November 2001, the [Manufacturer] admitted that it had delivered 80 items less, i.e., it had delivered 3,680 items of goods. In addition, in the Respondent's customs application form, the quantity of the goods was described as "3,080 items plus 600 items", totaling 3,680 items. Therefore, the [Buyer] received the same quantity of the goods that had been delivered by the Respondent. Moreover, the container number indicated in the inspection certificate issued by the Albania Inspection Company was TPHU8003871, and those indicated in the [Buyer]'s B/L and import customs entry application were the same. In addition, the inspection certificate clearly described the packaging of the goods, such as the mark number was ___, and the trade mark was ___. Therefore, there is sufficient evidence to show that the goods received and inspected were those delivered by the Respondent.

[Buyer]'s supplementary statement

In its second statement, the [Buyer] summarized the aforesaid opinions and added supplementary comments. The [Buyer] alleged that:

1. The [Buyer] and the [Respondent] have a sales relationship. The basis for this is:

      (1) The [Buyer] filed the arbitration application based on Contract 2001KM-05, and the arbitration application was accepted based on the arbitration clause in that Contract;

      (2) The co-export agreement shows an agency relationship, which has a different nature than that of Contract No. 2001KM-05. It contains no arbitration clause, so it is beyond the scope of this arbitration. Based on its contents, the co-export agreement reflects the two parties' agency relationship. The [Buyer] is the principal and the Respondent is the agent, which is completely different from the two parties' relationship under the Sales Contract in this case. Moreover, the co-export agreement violated the regulations on agency system in international trade and did not conform to the actual performance. This agreement could not be performed because, based on the aforesaid regulations, the principal should be a domestic entity, which means as a principal the domestic entity entrusts the agent to conduct import or export activities. However, in the instant case, the principal is a foreign entity, which violated this regulation. In addition, exporting goods as an agent of a foreign entity neither conformed to the provisions on agency system, nor complied with the actual situation, which was unable to be performed. Why was the co-export agreement necessary? As stated by the Respondent at the court session, it was a formality requirement to work as an agent of domestic companies for the conduct of import or export business, which means if the Respondent is entrusted to do export business, a co-export agreement should be signed to avoid any liability. However, when signing the co-export agreement, the Respondent ignored that the [Buyer] was not a domestic company, so it was unable to entrust the Respondent; therefore, even though the co-export agreement was signed, it was just a matter of formality, which neither had any actual meaning, nor does it determine the two parties' relationship either.

      (3) The sales contract between the Respondent and the [Manufacturer] is related to the Contract between the [Buyer] and the Respondent. There are three parties and two sales relationships. The three parties have performed their obligations based on their sales contracts. To sum up, the co-export agreement has a different nature with that of the Sales Contract, and they cannot be combined together. Therefore, it is improper to modify, limit, or even deny the terms in one agreement by those stipulated in the other. Moreover, it was stipulated in the Sales Contract that any dispute shall be settled by arbitration. However, the co-export agreement stipulates that disputes shall be settled by litigation, but not arbitration. Thus, due to the independent nature of the two contracts, the co-export agreement is beyond the scope of this arbitration. More importantly, if the co-export agreement determines the rights and obligations of the two parties, it is not in accordance with the actual situation, and is extremely unfair to the [Buyer].

2. The Respondent should take responsibility for the goods, because:

      (1) No matter whether according to the CISG, or trade practice, or Chinese domestic law, the Respondent should guarantee that the goods conform to the Contract and fit the ordinary purpose of the same goods.

      (2) The Respondent's mixing of used and defective goods with new and conforming goods constitutes a fraud. Almost all of the goods delivered by the Respondent were used or returned goods. Except for 420 items of goods that have been sold at a lower price, among 3,260 items of goods which have been inspected, 3041 items of goods, as high as 93.28%, had problems. The [Buyer]'s anticipated profit was not realized and the [Buyer] has suffered direct economic loss. The worst thing is that the reputation for Chinese commodities in Albania has been severely damaged.

      (3) The Respondent was aware of or could not have been unaware of the aforesaid problems with the goods.

      (4) The export permit was only a certificate that allows the goods to be exported. Neither it is a certificate proving the conformities of the appearance and the quality of the goods, nor does it show that the goods have no defect.

      (5) Regarding the Respondent's fraud, the [Buyer] can avoid the contract and ask for compensation at any time. After discovering the aforesaid defects on the goods during the resale after the arrival of the goods, the [Buyer] raised objection to the Respondent immediately. However, the Respondent denied its liability and later asked the [Buyer] to inspect the goods. The [Buyer] had to have the goods inspected. However, the Respondent denied again, with the result that the [Buyer] had to file this arbitration claim. When the [Buyer] was unable to realize its purpose for concluding this contract due to the Respondent's breach (fraud), the [Buyer]'s avoidance of the contract and request for compensation are in accordance with Article 94(4) and Article 97 of the Contract Law of the PRC. Meanwhile, for the Respondent's fraud, the [Buyer]'s claim for compensation based on Article 40 of the CISG is not banned by any time limitation.

3. The Respondent's breach caused the [Buyer] to be unable to realize the anticipated profit of US $20,620.00 (it was claimed as US $20,62.00 in the original text), but to suffer an economic loss of renminbi [RMB] 313,991.30.

Respondent's counter argument

The Respondent counter argued that:

1. The [Buyer]'s allegation that the co-export agreement has nothing to do with the sales Contract in this case cannot be established due to the following reasons:

      (1) The Sales Contract is an indivisible part of co-export agreement between the [Buyer] and the Respondent. The two parties agreed that the Sales Contract was an attachment to the co-export agreement. Since it is an attachment, the Sales Contract should be an indivisible part of the co-export agreement. The [Buyer] expressed clearly that it would take the responsibility for the supply of the goods, and for the quality, quantity, and delivery of the goods. This is the true intention of the [Buyer] for its responsibility on the contract goods in this case. Based on the [Buyer]'s promise, the Respondent signed its sales contract with the [Manufacturer], which was contacted and found by the [Buyer] itself. Therefore, the co-export agreement and the Sales Contract are not two independent contracts, and their connection is undeniable.

      (2) The [Buyer] selected and confirmed the manufacturer, the quality of the goods and the transportation of the goods. According to Evidence no. 2, a letter sent by Mr. Tao of the [Buyer] to Mr. Huang of the Respondent, the [Buyer] clearly described the full name of the manufacturer, the specification, quantity, and price of the goods, which shows that the [Buyer] was performing its responsibilities and obligations as it had promised in the co-export agreement.

      (3) The Sales Contract was concluded after the co-export agreement because it was signed on the condition that the [Buyer] shall promise and guarantee that it will take the responsibility for the supply of the goods and that it will take the responsibility for the quality, quantity, and delivery of the goods.

      (4) The two parties' intentions to have the Sales Contract as an attachment to the co-export agreement indicated in the co-export agreement were true, and the stipulations on the liabilities, including quality problem of the Sales Contract with the total value of US $21,277 were true. This agreement proves that at the conclusion of the Sales Contract, the two parties clarified the responsibilities with respect to quality problems with the goods.

2. The [Buyer] has lost its right to rely on the non-conformity of the goods because it was stipulated in Article 10 of the Sales Contract that the compensation claim period was within thirty days, and the [Buyer] has presented no reason or evidence to show why it was unable to perform a visual inspection of the goods within thirty days.

3. The contract goods in this case are in accordance with the law and regulations on export commodities of China, and they are conforming.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. Applicable law

The two parties did not stipulate the applicable law in the Contract. According to the Contract Law of the PRC and the Civil Law of the PRC, the law of the country which has the proximate connection with the contract shall be applied if the parties under an international sales contract fail to stipulate the applicable law. In addition, according to the Legal Explanations on the Proximate Connection Principle issued by the Supreme Court of the PRC, generally, the law of the seller's business place shall be applied. Therefore, the Arbitration Tribunal concludes that Chinese law, shall be the applicable law.

2. The effectiveness of the contract

According to the provisions on the formation and effectiveness of a contract in the Contract Law of the PRC, the Arbitration Tribunal holds that:

On 10 September 2001, the [Buyer] and the Respondent signed Sales Contract 2001KM-05, which was legitimate and valid. According to relevant provisions of the Contract Law of the PRC, a contract, which has been legally concluded has binding effect on the parties, and the parties shall perform their obligations in accordance with the contract. The Contract in this case has been actually performed, and the two parties had a dispute on the quality of the goods during the performance of the contract. At the court session, the [Buyer] made statements on the conclusion of the Contract and the reason why the [Buyer] chose the Contract in this case from three contracts signed by the [Buyer] and the Respondent. The Respondent did not raise objection to the seal in the Contract in this case.

3. The co-export agreement

As to the co-export agreement, the [Buyer] alleged that:

   -    It is beyond the scope of this arbitration because it shows an agency relationship, which is independent of the Sales Contract in this case;
 
   -    The Sales Contract and the co-export agreement reflect two completely different legal relationships; and that
 
   -    The two parties did not stipulate an arbitration clause in the co-export agreement, so it is beyond the scope of arbitration.

However, at the court session, the [Buyer] indicated clearly that the co-export agreement was concluded based on its true intention, and the [Buyer] has never denied the existence of that agreement, which is consistent with the Respondent's response. The Respondent alleged that the co-export agreement reflects the true intention of the [Buyer] and that the two parties agreed that the Sales Contract is an attachment to the co-export agreement.

The Sales Contract was signed after the co-export agreement. Based on above facts, the Arbitration Tribunal holds that the co-export agreement shall not be separated from the Sales Contract. The co-export agreement was the basis and the precondition of conclusion of the Sales Contract, and it directly and effectively proves the fact that prior to the conclusion of the Sales Contract in this case, the [Buyer] and the Respondent had signed the co-export agreement.

The agreement shows that the [Buyer] and the Respondent have an agency relationship; the [Buyer] is the principal and the Respondent is the agent, who exports telephone machines with the value of US $21,277 as the agent of the [Buyer]; meanwhile, the agreement determines the rights and obligations of the two parties. It was specially stipulated that the Respondent shall not be liable for the quality, quantity, and delivery period of the contract goods. This fact shows that it is not true that the co-export agreement was signed only to satisfy formality requirement and had no practical meaning as alleged by the [Buyer]. On the contrary, this fact proves that the Respondent signed the sales Contract with the [Buyer] on the condition that the [Buyer] promised not to ask the Respondent to take responsibility for the quality of the goods. The aforesaid fact cannot be denied because it was inconsistent with the regulations on agency system in international trade.

4. [Buyer]'s arbitration claims

Based on the aforesaid facts ascertained by the Arbitration Tribunal, the Arbitration Tribunal holds that items No. 1 and No. 2 of the [Buyer]'s claims are not acceptable for the following reasons:

      (1) As stated above, according to the co-export agreement and the [Buyer]'s promises in that agreement, the Respondent is not liable for the damaged caused by the quality, quantity, and delivery period of the goods or the inconsistency between the account document and the regulations (details see Article 3(3) of the co-export agreement). The Respondent is exempt from liability based on the promises made by the [Buyer].

      (2) It would be obviously unfair to hold the Respondent liable for the [Buyer]'s damages of US $21,277 and RMB 313,991.30 after receiving the commission of only RMB 2,000. Disproportional rights and obligations do not comply with the equality principle set forth in the Contract Law of the PRC.

      (3) The evidence shows that the contract goods were secured by the [Buyer] and the [Buyer] signed the domestic sales contract. In fact, the [Buyer] did research and confirmed the actual supplier, the [Manufacturer]. For the fact that the [Manufacturer] failed to perform in accord with the contact and mixed used and defective goods with new and conforming goods, the [Buyer] failed to provide any evidence showing that the Respondent conspired with [Manufacturer] to deliver defective goods. Moreover, the Arbitration Tribunal notes that the [Buyer] should bear certain undeniable liability as well. Therefore, the quality problem occurred during the performance of the Contract cannot be easily concluded as "due to the Respondent's fraud".

      (4) In the instant case, the [Buyer] neither considered the background and the process of the conclusion of the Contract, nor considered the promise made by the [Buyer] to exempt the Respondent from liability for the quality of the goods, but emphasized that the Respondent should bear the entire liability according to the Contract in this case. This violates the good faith principle stipulated in Chinese law;

      (5) It violated the relevant stipulations in Chinese law that the [Buyer] asks the Respondent to refund the entire price for the goods without asking to avoid the Contract. In fact, the [Buyer] has sold part of the goods and the remaining part of the goods could not possibly be sold at a discounted price as alleged by the [Buyer], and the [Buyer] failed to provide evidence to support its allegation. The direct losses alleged by the [Buyer] in its second arbitration claim are all common business expenses. Because the basis for the [Buyer]'s arbitration claims cannot be established, the Arbitration Tribunal does not support them either.

Based on the aforesaid facts, it has no practical meaning for the Arbitration Tribunal to determine whether there are quality problems on the goods or whether the [Buyer]'s arbitration claims were raised beyond the compensation claim period, so the Arbitration Tribunal will not comment on the aforesaid two issues.

5. The arbitration fee

The Arbitration Tribunal deems that the [Buyer] shall bear the entire arbitration fee.

III. THE AWARD

The Arbitration Tribunal rules that:

   (1)    The [Buyer]'s entire arbitration claims are dismissed;
 
   (2)    The [Buyer] shall bear the entire arbitration fee of US $2,529, which has been paid by the [Buyer] in advance.

This is the final award.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Albania is referred to as [Buyer] and Respondent of the People's Republic of China is referred to as Respondent. 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].

** 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 a 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.

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

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Pace Law School Institute of International Commercial Law - Last updated December 18, 2007
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