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CISG CASE PRESENTATION

China 17 September 2003 CIETAC Arbitration proceeding (Australia cotton case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030917c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20030917 (17 September 2003)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2003/14

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Australia (claimant)

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

GOODS INVOLVED: Cotton


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade Arbitration
Commission (CIETAC) (now South China Branch) 17 September 2003 (Australia cotton case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/114],
CLOUT abstract no. 1122

Reproduced with permission of UNCITRAL

Abstract prepared by Zhe Zhang

In response to an offer made by an Australian seller, a Chinese buyer accepted to purchase Australian cotton. At the time of signing the contract, the buyer made changes to the number of shipments, the quantity of goods in each shipment and the time of loading contained in the sales confirmation faxed by the seller, and also deleted clauses regarding liability for breaching the contract. The seller expressed its acceptance verbally. Afterwards, being unable to obtain the required import quota and licence, the buyer wrote to the seller indicating that it could temporarily not honour the contract. Nor had the buyer drawn up a letter of credit as required by the contract. After fruitless discussions between the parties, the seller initiated arbitration proceedings, claiming that the buyer had breached the contract, and asked the Arbitration Tribunal to order the buyer to compensate for damages due to the difference from the market price, with interest, pay the cost of storage with interest, and cover the arbitration fees and the seller's legal fees. The buyer argued that its changes to the sales confirmation amounted to a new contract which had been accepted by the seller. The original contract between the buyer and the seller had never entered into force, and there was no issue of a breach of contract or a need for compensation.

Since the places of business of the parties were in States Parties to the CISG, the Tribunal ruled under article 1 CISG that the dispute should be governed by the Convention. The Tribunal held that, under article 14(1) and article 19 CISG, the changes made to the sales confirmation letter were not substantive amendments to the agreement with the seller and therefore had not become a new agreement. Since the seller had accepted verbally the changes made to the sales confirmation letter by the buyer, the contract was legally valid, and its content was the sales confirmation letter as revised by the buyer. The Tribunal also held that the problems with the import quota and licence were not grounds exempting the buyer from the responsibility for breach of contract (article 79 CISG). The Tribunal ruled that the buyer was responsible for breach of contract, and under article 74 of the Convention it should compensate the seller for the economic loss caused to it by the buyer's failure to perform the contract. At the same time, though, the seller had not performed its duty to mitigate the losses after learning that the buyer was likely to breach the contract [it had nevertheless purchased the goods to be shipped to the buyer] and the buyer could not foresee the seller's damage. The seller was thus responsible to a certain extent for the losses (article 77 CISG). The Tribunal therefore ruled, after assessing the responsibilities of both parties, that the buyer must compensate the seller for damages due to a reasonable difference from the market price, although not in the measure claimed by the seller. Furthermore, the buyer had to pay part of the storage costs and the related loss of interest. According to the Tribunal, however, the seller had to bear part of the storage fee. As a matter of fact, despite indications that the buyer might breach the contract, the seller had stored the goods that were supposed to be delivered, without further asking the buyer for the performance of the contract.

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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 19 ; 74 ; 77 ; 79 [Also cited: Articles 11 ; 12 ; 14(1) ; 18 ]

Classification of issues using UNCITRAL classification code numbers:

19B ; 19C ["Acceptance" of offer with immaterial modifications; Modifications that are material];

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

77A [Obligation to take reasonable measures to mitigate damages];

79B1 [Impediments excusing party from liability for damages: general elements for excusing]

Descriptors: Acceptance of offer ; Counter-offer ; Damages ; Mitigation of loss ; Exemptions or impediments

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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: Unavailable

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

Australia cotton case (17 September 2003)

Translation [*] by Meihua Xu [**]

Translation edited by William Zheng [***]

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

THE ARBITRATION PROCEDURE

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 No. 37010011 signed by Claimant [Seller], __ Cotton Group, and Respondent [Buyer], Henan __ Textile Joint-stock Company Ltd. (formerly known as Henan __ Textile Group Joint-stock Company Ltd.) on 14 February 2001; and
 
   -    The written arbitration application submitted by the [Seller] on 18 April 2002.

This case is qualified to use the Arbitration Rules of the Arbitration Commission (hereafter, the "Arbitration Rules"), which became effective on 1 October 2000.

The [Seller]'s name was indicated as __ Cotton Australia Pty Ltd. in the [Seller]'s written arbitration application submitted on 18 April 2002.

On 22 April 2002, the Secretariat of the Arbitration Commission sent the two parties the arbitration notice, and sent the [Seller]'s arbitration application material, the Arbitration Rules, and the arbitrator's name list to the [Buyer] via express mail.

The [Seller] appointed Mr. __ as its arbitrator, and the [Buyer] appointed Ms. __ as its arbitrator. Since the two parties failed to jointly appoint or ask the Chairman of the Arbitration Commission to appoint the Presiding Arbitrator, based on article 24 of the Arbitration Rules, the Chairman of the Arbitration Commission appointed Ms. __ as the Presiding Arbitrator. On 17 June 2002, the aforesaid three arbitrators formed the Arbitration Tribunal to hear this case.

On 27 August 2002, the [Buyer] submitted its arbitration defense, in which the [Buyer] raised objection to the [Seller]'s capacity of legal subject in this case and defended against the substantive issues of this case.

On 30 August 2002, the Arbitration Tribunal held the first court session in Beijing. Both the [Buyer] and the [Seller] sent their agents to this session. At the court session, the parties made statements and presented arguments on the [Seller]'s capacity of arbitratral subject and the facts and legal issues of this case, and answered the Arbitration Tribunal's questions.

As to the [Seller]'s capacity of arbitratral subject in this case, after the court session, the Arbitration Tribunal gave the two parties sufficient time and equal opportunities to submit opinions and evidence accordingly. Both parties submitted written statements and evidence, which was forwarded to the opposite party accordingly by the Secretariat of the Arbitration Commission.

Due to the complexity of the process of this case and in order to make further investigations on the formation of the contract and to obtain the parties' further opinions on the issue of capacity of subject of the case, the Arbitration Tribunal held a second court session in Beijing on 19 February 2003. Both parties sent arbitration agents to this session. They made statements on the formation of the contract in this case, presented opinions on the issue of capacity of arbitral subject, expressed their understandings on the arbitration clause in the contract in this case, and answered the Arbitration Tribunal's questions.

The [Seller] confirmed its name as "__ Cotton Australia Pty Ltd under the __ Cotton Group" in its "Opinions on the [Seller]'s capacity of subject and explanations on supplementary evidence" submitted after the second court session.

The Arbitration Tribunal reported the capacity of arbitral subject issue to the Arbitration Commission, and provided the two parties' entire written material to the Arbitration Commission. After a careful examination, the Arbitration Commission handed down its decision on 18 April 2003. It confirmed the [Seller]'s capacity of arbitral subject and dismissed the [Buyer]'s objection to this. The case was then processed further.

On 29 May 2002, the Arbitration Tribunal held a third court session in Beijing. This court session focused on the substantive issues. Both parties sent arbitration agents to the court session and presented opinions and arguments on these issues, verified the evidence and answered the Arbitration Tribunal's questions.

Due to the complexity of this case, the Arbitration Tribunal was unable to hand down its decision within the period stipulated in the Arbitration Rules. Based on article 52 of the Arbitration Rules, and with the approval of the Secretary of the Arbitration Commission, the deadline for handing down a decision was postponed to 17 September 2003.

This case has been concluded. The Arbitration Tribunal handed down this decision by consent.

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

FACTS

POSITION OF THE PARTIES

[Seller]'s position

The [Seller] alleges in its arbitration application that:

Based on the [Seller]'s offer, on 13 February 2001, the [Buyer] sent a letter to the [Seller]'s office in China, asking to purchase 2,000 tons of Australia cotton of 2001. On 14 February, the two parties signed a sales confirmation with the following terms:

   -    Goods: 2,000 tons of Australia cotton of 2001;
   -    Delivery: The [Seller] should deliver the entire goods by four installments in April, May, June and July, with 500 tons of goods in each delivery;
   -    Payment: The [Buyer] shall issue a ninety days forward L/C.

After the conclusion of the contract, the [Seller] started to prepare the goods immediately, such as purchasing goods from the New York option market and storing Australia cotton at a warehouse to be delivered later. In April 2001, the [Buyer] stated that it was unable to perform the contract and failed to issue the L/C in accordance with the contract. The [Buyer] refused to perform the contract afterwards even though the [Seller] agreed to postpone the shipping deadline.

Due to the [Buyer]'s contract violation, 2,000 tons of Australia cotton were stuck at the [Seller]'s place and were unable to be shipped. This caused severe economic loss to the [Seller]. The [Seller] was trying to settle this issue by repeatedly sending its CEO for the Far East Area to China for negotiation. However, the [Buyer] delayed by using different kinds of excuses, with the result, the dispute has not been settled up to now.

In order to protect the [Seller]'s legal rights, the [Seller] filed this arbitration application with the Arbitration Commission, seeking to have the Arbitration Tribunal accept the [Seller]'s arbitration claims.

In [Seller]'s "Explanation of the losses concerning to the [Seller] of the case: _Australia Pty Ltd" submitted on 28 April 2003, the [Seller] presented the following arbitration claims:

   1.  [Buyer] should compensate the [Seller]'s loss of market price difference of US $451,512.50;
 
   2.  [Buyer] should compensate the [Seller]'s loss of storage fee of US $85,016.50;
 
   3.  [Buyer] should bear the [Seller]'s loss of interest on the market price difference and storage fee, totaling US $10,729.51 (this amount is calculated until Dec 31 2001);
 
   4.  [Buyer] should bear the arbitration fee of US $16,100;
 
   5.  [Buyer] should bear the [Seller]'s attorneys' fee until 7 March 2003, i.e., US $27,380.

[Buyer]'s position

In its defense, [Buyer] stated:

1. [Seller] filed the arbitration application as a wrong subject, therefore, its arbitration claims should be dismissed;

2. [Seller]'s arbitration claims are beyond the scope of arbitration as agreed by the two parties;

3. The contract was not established in the first place; therefore, there was no issue of contract violation or compensation.

The sales confirmation in this case was signed by __ of the [Seller] and faxed to the [Buyer]. Later, the [Buyer] modified the shipping date of "500 April, 700 May, 800 June" to "500SM April, 500GM May, 500SM June, 500GM July" and deleted article 2 of the special clauses, the contract violation clause. Based on article 30 of the Contract Law of the PRC (hereafter, the "Contract Law"), the aforesaid modification and deletion should be considered as substantial modifications to the quantity, performance deadline, and contract violation liability. Therefore, the sales confirmation was a new offer, and the contract could not be established, not even to mention contract violation or compensation.

On the other hand, based on the transaction process described in the [Seller]'s website, the [Seller] clearly indicated that it would conduct business transactions only with buyers who have already had a quota. A sales confirmation was only a pre-process prior to the conclusion of the formal written contract, and only after signing a written formal contract could the two parties start normal business.

The [Seller] was aware that the contract should have been signed, and that it was not signed; therefore, there is no issue of contract performance or damage. Moreover, based on the sales confirmation signed on 14 February 2001, the two parties knew that the [Buyer] had not received any quota; therefore, the [Buyer] deleted the year of the performance of the contract, and the sales confirmation could not be performed.

4. The main evidential materials, especially the authorization provided by the [Seller] were forged. Mr. __ was American __ Company's Executive Representative in Beijing, and its Beijing Office was established on 6 June 2000 with an address of ___. On 19 June 2001, the office address was changed to __. The authorization letter issued by the [Seller] to Mr. __ was dated 1 January 2000 with the address of __. However, on 1 January 2000, the aforesaid office did not exist and its address could not be at __ Building; therefore, this authorization letter was forged.

5. The [Seller] is under suspicion for business fraud, and there was no damage to the [Seller] at all. If there was a forward business as stated by the [Seller], there should have been a forward business transaction document; if a storage fee has been incurred, there should have been a receipt. However, except for some internal documents, the [Seller] is unable to provide any direct evidence proving its damage. The reason for this is simple. Since no formal contract has been concluded in this case, the [Seller] did not start any transactional process; therefore, there were no damage.

Based on the above, it is the [Buyer]'s position that the [Seller] filed the arbitration application as a wrong subject and its arbitration claims are beyond the scope of arbitration as agreed by the two parties. Moreover, the [Seller] is under suspicion for forging evidence and using negotiation material to swindle money. The [Buyer] therefore asks the Arbitration Tribunal to dismiss the [Seller]'s arbitration application based on the facts of this case and the law to protect the [Buyer]'s legal rights and the equality and dignity of the law.

[Seller]'s counter argument

In its opinions on the substantive issues of this case submitted on 28 April 2003, the [Seller] counter argues that:

1. The sales confirmation signed by the [Buyer] and the [Seller] is legally effective.

      (1) The offer and acceptance process have been completed in the sales confirmation. After receiving the [Seller]'s sales confirmation, the [Buyer] added, modified, and deleted some terms, which constituted a counter-offer. After receiving this counter-offer, the [Seller] accepted and confirmed it. Later, the two parties signed and affixed seals on this sales confirmation; therefore, it is effective. Based on articles 13 to 23 of the Contract Law, it can be concluded that the two parties have completed the offer and acceptance process regarding the sales of cotton; pursuant to articles 14 to 18 of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, referred to as "CISG"), the two parties' sales relationship can be proved further.

At the third court session, the agent of the [Seller] made corrections on the confirmation process and method used on the counter-offer, i.e., the [Seller] orally accepted the [Buyer]'s counter-offer.

      (2) The sales confirmation has the general terms in a contract. The content of the sales confirmation was in accordance with article 12 of the Contract Law and the stipulations on general terms in a contract. Based on Chinese domestic law, this sales confirmation is a complete contract; according to the CISG, the sales confirmation conforms to the stipulations on formation and effectiveness of an international sales contract. It needs to be mentioned that sales confirmations are well established types of contracts that have been adopted in international trade usages and practices. The CISG not only accepts a sales confirmation as one type of contract, in addition, it does not stipulate that an international sales contract must be concluded by written document, but only sufficient evidence is enough, which is for the convenience of the high speed international business transactions and the flexibility of the conclusions of contracts.

2. A quota does not affect the effectiveness of the contact or exempt the [Buyer] from bearing liability. In the instant case, under the condition that the sales confirmation is effective without any violation of law, it is questionable whether the [Buyer] could refuse to perform the contract raising that it had no quota.

The [Seller] alleges that no matter whether based on Chinese domestic law or WTO rules, the [Buyer]'s performance and allegation are beyond the scope of exemption stipulated by law or regulations. Related provisions regarding the termination of rights and obligations in Contract Law are not applicable to the [Buyer]. Article 79 of the CISG states that a party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control. However, the precondition for this provision is that the non-performing party could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract.

In the instant case, a quota is obviously not beyond the scope of foreseeability. As a domestic buyer focusing on the cotton business, the [Buyer] should have reasonably foreseen the import quota. The sales confirmation was concluded under CNF terms. Whether or not the [Buyer] could obtain a quota only affected the [Buyer]'s receipt of import permission and customs entry. The [Buyer] bears this risk, and no law stipulates that it could be a reason to avoid the contract.

Thus, based on article 32 of the Contract Law and articles 14 to 18 of the CISG, the sales confirmation signed by the [Buyer] and the [Seller] is legally effective, and the situation alleged by the [Buyer] cannot be the reason to exempt the [Buyer] from bearing liability.

3. The applicable law. Based on article 1 of the CISG, this Convention applies to contracts of sale of goods between parties whose places of business are in different Contracting States. In the instant case, the two parties concluded an international sales contract. The [Seller]'s place of business is in Australia and the [Buyer]'s in China. Both China and Australia are Contracting States of the CISG; therefore, the CISG shall be the applicable law when the two parties failed to stipulate one in the contract.

Based on the above, the [Seller] alleges that the contract in this case is effective. The quota issue alleged by the [Buyer] could have been foreseen by the [Buyer] at the time of the conclusion of the contract. This is not a satisfactory reason for the [Buyer]'s non-performance of the contract. Meanwhile, the [Seller] has done nothing wrong during the conclusion of the contract. After the [Buyer] refused to perform the contract, the [Seller] took measures to mitigate the loss with no delay. The two parties had been negotiating to resolve the [Seller]'s damages issue for as long as one year (which further proves the effectiveness of the contract), within which the [Buyer] agreed to sign a new contract to recover the [Seller]'s related losses. During the entire process of negotiation, the [Seller] was very conscientious, and the [Seller]'s damage calculation was based on the actual losses incurred during the transaction.

Based on article 107 of the Contract Law and article 79(4), (5) of the CISG, the [Seller] asks the Arbitration Tribunal to accept its entire arbitration claims.

[Buyer]'s oral defense

At the third court session, the [Buyer] presented the following oral defenses:

1. Either Chinese law or international treaties should be chosen as the applicable law; Chinese law shall be applied to this case;

2. The [Seller] forged its essential evidence, including the authorization letter;

3. Mr. __'s agency act has violated article 225 of Criminal Law of the PRC, which was an illegal business performance. His agency act had no legal effect and is under the suspicion of crime of illegal business operation;

4. Even supposing Mr. __ had agency authorization, the sales confirmation in this case was a new offer, and the formal contract was not concluded; therefore, there was no issue of contract violation and compensation. Based on the fact that the [Seller] forged the evidence and that the [Seller] was unable to provide the original sales confirmation, the [Buyer] has reason to deem that the [Seller] concealed another sales confirmation which was not beneficial to the [Seller]. Since the [Seller] is unable to or is not willing to provide the new sales confirmation, and the sales confirmation provided by the [Seller] is not the original copy, the Arbitration Tribunal should dismiss the [Seller]'s arbitration claims;

5. The [Seller] did not perform the sales confirmation, therefore, it has not suffered any damage;

6. The economic loss of the two parties:

      (1) Even if the [Seller] suffered any losses, it should bear its losses by itself.

      -    As to the market price difference, it should be less than of the [Seller]'s calculation, i.e., less than US $112,878.125;
 
      -    As to the storage fee, it should not exceed US $3,000;
 
      -    For the [Seller]'s arbitration fee and attorneys' fee, since the [Seller] violated the law and regulations to conduct illegal business, it should bear the aforesaid expenses by itself;

      (2) The [Seller] should bear the losses of the [Buyer]. Because the [Seller] signed the sales confirmation illegally, the [Buyer] had to come to Beijing to engage a lawyer to participate in negotiation and arbitration, which has caused a RMB 567,370 loss to the [Buyer]. This should be borne by the [Seller] entirely.

OPINION OF THE ARBITRATION TRIBUNAL

1. Arbitration scope

The [Buyer] alleges that it was stipulated in the arbitration clause that only disputes on quality shall be settled by arbitration. The [Buyer] states that the [Seller] is claiming compensation, which has nothing to do with the quality of the goods; therefore, the [Seller]'s arbitration claims are beyond the scope of arbitration agreed by the two parties.

Based on (2003) No. __ Decision made on Subject Qualification issued by the Arbitration Commission, the arbitration clause in this case shall be interpreted as providing that for any dispute involving the quality of the cotton in this case, the Arbitration Tribunal shall settle it by applying the "China textile quality clause" in the contract.

Based on the above, the Arbitration Tribunal holds that the fact that the arbitration clause only stipulates the substantive rules applicable to quality disputes, does not mean that the scope of arbitration is limited to quality disputes. Any dispute arising from the contract in this case is within the scope of arbitration, and the [Seller]'s claim for compensation under the sales confirmation in this case is within the scope of arbitration in this case.

2. Applicable law

The two parties' places of business, Australia and China, are in Contracting States of the CISG, and the contract entered into by the two parties is an international sales contract. Based on article 1 of the CISG, the Arbitration Tribunal holds that the CISG shall be applied.

3. Whether the sales confirmation has been effectively established

The [Seller] alleges that the offer and acceptance process has been completed in the sales confirmation, and it has general content, and that therefore, the sales confirmation has legal effect. However, the [Buyer] alleges that the sales confirmation is a counter-offer, which has not been established, not even to mention contract violation or compensation. [Buyer] also alleges that signing a sales confirmation was a pre-process for the conclusion of a formal contract, and only after signing a written contract could a normal business transaction be started.

After investigation, it was discovered that:

   -    On 7 February 2001, the [Seller] faxed the newest quoted price for Australia cotton in 2001 to the [Buyer];
 
   -    On 13 February, the [Buyer] sent a letter to the [Seller], deciding to purchase 2,000 tons of Australia cotton of 2001;
 
   -    On 14 February, the two parties signed the sales confirmation in this case via fax;
 
   -    On 9 April, the [Buyer] sent a letter to the [Seller], alleging that "for the 2,000 tons of Australia cotton of 2001 that we have ordered, since the national quota and permission have not been issued, and the issuing date is unknown, therefore, it is difficult to perform the contract now."

The Arbitration Tribunal notes that the [Buyer]'s aforesaid allegation was based on the fact that the [Buyer] made modifications on the quantity, performance period, and contract violation liability in the sales confirmation, which constituted a counter-offer. Meanwhile, the Arbitration Tribunal notes that the [Buyer] affixed its seal after making modifications, and that the [Buyer] has never alleged that the sales confirmation has not been established prior to the arbitration or during the process of negotiation.

Based on articles 14(1), and 19(1) of the CISG, the [Seller]'s sending a sales confirmation with its signature has constituted an offer, and the [Buyer]'s making modification to the sales confirmation has constituted a counter-offer.

Article 19(2) of the CISG states that:

"... a reply to an offer which purports to be an acceptance but contains additional or different terms which do not materially alter the terms of the offer constituted an acceptance, unless the offeror, without undue delay, objects orally to the discrepancy or dispatches a notice to that effect. If he does not so object, the terms of the contract are the terms of the offer with the modifications contained in the acceptance."

Article 19(3) of the CISG states that:

"Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one parties liability to the other or the settlement of disputes are considered to alter the terms of the offer materially."

Based on the aforesaid stipulations in the CISG, unless the offeror expressly objects to it, it should be considered that the offeror accepts the modifications. Furthermore, at the court session, the [Seller] stated that it had orally accepted the modifications made to the sales confirmation. Therefore, the next essential issue is whether the [Buyer]'s aforesaid modifications have materially altered the terms of the offer.

The [Buyer] modified or deleted the following terms in three places of the sales confirmation. The [Buyer]:

      (1) Adjusted the quantity of the goods in each delivery; from three deliveries with 500 tons, 700 tons, and 800 tons in each delivery to four deliveries with 500 tons in each delivery;

      (2) Altered the shipping time from April, May, and June 2001 to April, May, June, and July, deleting "2001";

      (3) Deleted item 2 of special terms. The [Buyer] alleges that it was a term on liability for violation of the contract, and the [Seller] does not deny that.

The Arbitration Tribunal deems that the aforesaid modifications made by the [Buyer] can not be considered to materially alter the terms in the offer as stipulated in article 19(3) of the CISG, since based on the aforesaid modifications:

   -    The quantity of the goods was the same;
 
   -    The delivery time was still from April, and changing the delivery time from three deliveries to four deliveries does not necessarily mean a material alteration on the delivery time;
 
   -    The sales confirmation after modification had no "year of 2001". However, the [Buyer] was willing to purchase Australia cotton in the year of 2001; therefore, it should be reasonably understood as that the contract shall be performed within 2001; and
 
   -    The deletion of contract violation liability clause is not equal to an alteration to the extent of one party's liability to the other as stipulated in article 19(3) of the CISG.

In accordance with the conclusion and the performance of the contract and the negotiation and discussion conducted by the two parties, and based on the aforesaid stipulations in the CISG, good faith and equality principles, the Arbitration Tribunal holds that the sales confirmation in this case has been established, that its content is legal and effective, and that the two parties should perform the obligations in the sales confirmation.

As to the [Buyer]'s allegations that the sales confirmation was only a pre-process for the conclusion of a formal contract, that the [Seller] concealed another contract or sales confirmation, and that the [Seller]'s claims should be dismissed since the [Seller] was unable to provide the original sales confirmation, these allegations have no legal or factual basis. Therefore, the Arbitration Tribunal does not accept them.

4. The effect of the quota and import permission on this case

The [Seller] argues that the [Buyer] should bear the risk of the receiving quota, which has nothing to do with the effectiveness or the performance of the sales confirmation, and that the [Buyer] should not be exempted from bearing liability for the aforesaid reason. However, the [Buyer] counter argues that the [Seller] was aware that compliance with the quota was a precondition for the performance of the contract, and that the [Seller] expresses on its website that it only does business with parties with import quotas.

After hearing the case, the Arbitration Tribunal notes that for an international sales contract, unless it was clearly indicated that a quota and import permission can be one kind of force majeure, or that they are preconditions for the performance of the contract, generally, they cannot be the reason to exempt the non-performing party from bearing liability. The information on the [Seller]'s website that "the aforesaid process is applicable to Textile Companies with import quotas" indicates the requirement for companies willing to do business with the [Seller].

In the instant case, as a company specializing in textile business, the [Buyer] knew or ought to have known that importing Australia cotton is restricted by the Chinese international trade system, and that the [Buyer] needs to obtain quota and import permission. Whether the [Buyer] can obtain quota and import permission is the obligation and risk of the [Buyer], which has nothing to do with the [Seller].

Above all, the Arbitration Tribunal holds that neither the quota nor the import permission can constitute a precondition of performance of the sales confirmation or an excuse of exempting for liability of the [Buyer]'s non-performance.

5. Mr. __'s agent qualification

The [Buyer] alleges that the authorization letter issued by the [Seller] to Mr. __ was forged because of the discrepancies on the time, address, and name in it. After investigation, it was found that Mr. __'s real position was the Executive Representative of America __ Company's Beijing Office. The [Seller] authorized him as the agent of the [Seller] to sell cotton to Chinese clients, or to sign sales confirmations or contracts. Regarding the [Buyer]'s doubt on the reliability of the authorization letter, the [Seller] admitted that it was signed afterwards.

Upon investigation, it was discovered that the [Seller]'s authorization intention was true and clear, and its content was legal. The [Seller]'s seal and signature are real. The Arbitration Tribunal notes that even though the authorization letter was signed afterwards, its effectiveness cannot be denied. Moreover, a client is entitled to subsequently confirm an agent's act as an effective agency act. Therefore, the Arbitration Tribunal holds that Mr. __ has legal agency qualification under the sales confirmation and in this case.

In addition, the [Buyer] alleges that America __ Company Beijing Office is under the suspicion of illegally conducting business. The Arbitration Tribunal holds that Mr. __ was conducting related business as the agent of the [Seller] under his own name and position. Therefore, whether America __ Company is under the suspicions of conducting business illegally is beyond the scope and jurisdiction of this case.

6. Liability for damage in general

The [Seller] alleges that the [Buyer] should bear the damage incurred by the [Seller] due to [Buyer]'s breach of contract. However, the [Buyer] alleges that the sales confirmation in this case has not been established or performed at all, that there is no damage as alleged by the [Seller], and that even if there was damage, the [Seller] should bear it by itself and should bear the damage of the [Buyer] because the [Seller] signed the sales confirmation illegally.

The Arbitration Tribunal deems that based on the aforesaid analysis:

   -    The sales confirmation was formed legally.
 
   -    It is effective, and the two parties shall perform it strictly;
 
   -    The quota and import license issue is not a satisfactory reason for the [Buyer]'s non-performance of the contact.

Therefore, the Arbitration Tribunal holds that the [Buyer] shall be responsible for its failure to perform the sales confirmation, and that the [Buyer] shall compensate the damage incurred by the [Seller] due to its non-performance of the sales confirmation pursuant to article 74 of the CISG, which stipulates that:

"Damages for breach of contact 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. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract."

The [Buyer] alleges that it suffered damage caused by the [Seller]'s signing the sales confirmation illegally. However, since the Arbitration Tribunal has confirmed the effectiveness of the sales confirmation and Mr. __'s agent act, the Arbitration Tribunal does not accept the [Buyer]'s aforesaid allegation. The [Buyer] shall bear those expenses by itself.

7. [Seller]'s specific arbitration claims

      (1) The [Seller] asks the [Buyer] to pay its loss of price difference of US $451,512.50. The [Seller] alleges that due to the [Buyer]'s non-performance of the contract plus the price fluctuation on the international cotton market, the [Seller] has suffered severe losses due to price difference. Based on 2,000 tons, the [Seller] has alleged a loss of market price difference of US $451,512.50. The [Buyer], however, argues that if there was damage, it should not exceed of the [Seller]'s calculation, i.e., US $112,878.125.

The Arbitration Tribunal notes that the [Buyer]'s contract violation and the fluctuation of the price for Australia cotton must have caused a loss of price difference to the non-breaching party, the [Seller], when it disposed of the goods pending delivery. Therefore, the [Buyer] should make compensation to the [Seller]. However, the [Seller] is obligated to mitigate the loss. During the performance of the contract, on 9 April 2001, the [Buyer] sent a notice to the [Seller], informing that the contract is difficult to perform temporarily, and it was foreseeable that the [Buyer] might commit an anticipatory breach of contract. The [Seller] should have acted carefully to mitigate the loss.

After filing the arbitration application, the [Seller] provided evidence showing that it had purchased the entire 2,000 tons of goods for those four deliveries. However, it is unreasonable to calculate the loss based on 2,000 tons. The [Seller] failed to perform its obligation to mitigate the loss, and the damage suffered by the [Seller] was not foreseeable by the [Buyer].

Considering the formation and the performance of the contract in this case and the price fluctuation of Australia cotton in the world market, the Arbitration Tribunal deems that it is reasonable to have the [Buyer] compensate the [Seller]'s loss of market price difference of US $85,000.

      (2) The [Seller] asks the [Buyer] to pay its loss of storage fee of US $85,016.50. The [Seller] alleges that based on the stipulations in the contract, the [Seller] prepared the goods on time and stored them in the warehouse; however, the [Buyer] breached the contract, causing the [Seller]'s loss of storage fee. The [Seller] submitted supporting evidence issued by Australia Storage Company.

The Arbitration Tribunal holds that a reasonable storage fee should be borne by the contract breaching party. As stated above, on 9 April 2001, there was an indication that the [Buyer] might anticipatorily breach the contract, therefore, it is not understandable that the [Seller] still stored the entire goods that were supposed to be delivered from April to July without asking the [Buyer] further for the performance of the contract. Therefore, the [Seller] should bear the loss of storage fee accordingly. The Arbitration Tribunal deems that based on the reasonable time and quantity that the [Seller] should have stored the goods, it is reasonable to have the [Buyer] compensate US $8,500 to the [Seller].

      (3) The [Seller] asks the [Buyer] to pay interest on the aforesaid loss of price difference and loss of storage fee, totaling US $10,729.51. The Arbitration Tribunal holds that the [Buyer]'s severe contract violation caused the [Seller] to suffer the aforesaid loss of price difference and loss of storage fee, totaling US $93,500. If there had been no damage, the [Seller] would have been able to receive interest on US $93,500, therefore, the Arbitration Tribunal concludes that the [Buyer] shall compensate the [Seller]'s loss of interest and that US $4,000 is reasonable.

      (4) The [Seller] alleges that the [Buyer] shall bear the entire arbitration fee. The Arbitration Tribunal holds that based on the situation in this case, it is reasonable that the [Seller] shall bear 30% of the arbitration fee and the [Buyer] shall bear 70%;

      (5) The [Seller] also asks the [Buyer] to bear its attorneys' fee of US $27,380. Based on article 59 of the Arbitration Rules together with the facts in this case, the Arbitration Tribunal deems that the [Buyer] shall bear the [Seller]'s attorneys' fee of US $7,000.

THE AWARD

Based on the aforesaid analysis and confirmation, the Arbitration Tribunal rules that:

1. [Buyer] shall bear the [Seller]'s loss of market price difference of US $85,000;

2. [Buyer] shall bear the [Seller]'s loss of storage fee of US $8,500;

3. [Buyer] shall bear the [Seller]'s loss of interest on the aforesaid item 1 and 2, i.e., US $4,000;

4. [Buyer] shall bear the [Seller]'s attorneys' fee of US $7,000;

5. The arbitration fee in this case totals US $16,771; the [Seller] shall bear 30%, i.e., US $5,031.30 and the [Buyer] shall bear 70%, i.e., US $11,739.70. The [Seller] has paid US $16,771 in advance; therefore, the [Buyer] shall pay US $11,739.70 to the [Seller].

The [Buyer] shall pay a total of US $116,239.70 to the [Seller], which the [Buyer] shall pay within 45 days of the day of this award; otherwise, an annual interest of 6% shall be added.

This is the final award. It is effective from the date of this award.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Australia is referred to as [Seller] and 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 $]; 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.

*** 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, LL.P.

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