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CISG CASE PRESENTATION

China 6 October 2003 CIETAC Arbitration proceeding (Cutting machine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/031006c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20031006 (6 October 2003)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2003/11

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Japan (respondent)

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

GOODS INVOLVED: Cutting machine


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 80

Classification of issues using UNCITRAL classification code numbers:

8C [Intent of party making statement or engaging in conduct: interpretation in light of surrounding circumstances];

80A [Failure of performance caused by oher party (party causing non-performance): loss of rights]

Descriptors: Intent ; Failure of performance, other party

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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

Cutting machine case (6 October 2003)

Translation [*] by Zheng Xie [**]

Translation edited by William Zheng [***]

  1. The arbitration procedure
  2. Facts
    Position of the parties
  3. Opinion of the Arbitration Tribunal
  4. Award

I. THE ARBITRATION PROCEDURE

The China International Economic and Trade Arbitration Commission (hereafter, the "Arbitration Commission") accepted the case (Case no. M...) according to:

   -    The arbitration clause in Contract No. DHSHA/AC99010 (hereafter, the "Contract") signed by Claimant [Buyer], Zhejiang __ Electronic Ltd., and Respondent [Seller], A... N... Ltd (hereafter, the "Japan Company") on 25 November 1999 (successor in interest: A __ Japan, a merger of the Japan Company and Charmilles Japan on 4 January 2000);
 
   -    The written arbitration application submitted by the [Buyer] dated in November 2001.

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

On 17 December 2001, the Secretariat of the Arbitration Commission sent the Arbitration Notice, the Arbitration Rules and the Arbitrators List to the [Buyer] and the [Seller] by express mail; meanwhile, the Secretariat sent the [Buyer]'s arbitration application and Appendix to the [Seller].The post office's acknowledgement showed that the [Seller] signed and received the above documents on 7 January 2002.

On 7 March 2002, the [Seller] submitted its response and a counterclaim, and completed the procedure of filing the counterclaim. Then, during the arbitration procedure, both the [Buyer] and the [Seller] clarified their claims for attorneys' fee. The [Buyer] completed the related arbitration procedure, however, after clarifying the claim for the attorneys' fee, the [Seller] did not complete the relevant arbitration procedure.

The [Buyer] appointed Lu __ as arbitrator. The [Seller] appointed Mu __ as arbitrator. Because the parties neither jointly appointed nor authorized the Chairman of the Arbitration Commission to appoint the Presiding Arbitrator, the Chairman appointed Chen __ as the Presiding Arbitrator according to article 24 of the Arbitration Rules. The above three arbitrators formed the Arbitration Tribunal on 6 February 2002.

On 20 March 2002, the Arbitration Tribunal held the first court session in Beijing. Both parties sent their representatives to attend the court session. The parties made statements, arguments, and cross-examination, and answered the Arbitration Tribunal's questions. After the court session, the parties submitted supplementary material.

On 6 August 2002, the Arbitration Tribunal sent a CIETAC letter (2002) No. __ stating that the [Seller] requested an examination of the machines that were the subject of the dispute. After reviewing the request, the Arbitration Tribunal held that it was necessary to examine the machines in order to verify the facts. The Arbitration Tribunal, therefore, accepted the [Seller]'s request, and through the Secretariat contacted the Machines Industry Electric Equipment Quality Supervision and Inspection Center, located in Suzhou, to arrange the examination. However, because this center was being reviewed and inspected by the General Administration of Supervision, Inspection and Quarantine of the People's Republic of China, it could not accept the request to conduct the examination. This center later replied that it had passed the inspection. Considering that this center is an inspection organization with a high professional standard, the Arbitration Tribunal kept contact with this center for several months. In addition, this center had knowledge of this case, and had passed the inspection of the General Administration of Supervision, Inspection and Quarantine of the People's Republic of China. The Arbitration Tribunal decided to entrust this center to do the inspection. However, the [Buyer] submitted material alleging that the machines in this case should not be re-inspected, and stated that, according to Article 14 of the Contract, any inspection should be conducted by the Import and Export Commodity Inspection and Quarantine Bureau. The [Seller] alleged that before the re-inspection, the machines should be repaired and maintained. After reviewing the requests, on 26 August 2002, the Arbitration Tribunal issued CIETAC letter (2002) No. __ stating that the claims and counterclaims filed by the parties were based on the issue whether the two machines were in compliance with the requirements of the Contract, and the parties had different opinions on this issue. According to Article 39 of the Arbitration Rules, the Arbitration Tribunal held it was reasonable and necessary to inspect the two machines. The Arbitration Tribunal ruled that the [Seller] should repair and maintain the machines on site as soon as possible, and that the [Buyer] should cooperate and assist. After repairing and maintaining the machines, the parties should inform the Arbitration Tribunal immediately, so the Arbitration Tribunal could arrange the inspection of the machines.

On 2 September 2002, the [Buyer] sent a fax alleging that to repair and maintain the machines would damage the current condition of the machines, and it objected to the re-inspection of the machines.

Based on the above situation, the Arbitration Tribunal decided to hold a second court session; the Secretariat sent the written notice to the parties.

On 8 November 2002, the Arbitration Tribunal held the court session in Beijing. Both parties sent representatives to attend. The parties made further oral statements, arguments and cross-examination, and answered the Arbitration Tribunal's questions. During the court session, the [Buyer] submitted new evidentiary material, on which the parties made initial arguments. After the court session, the parties submitted supplementary material.

On 11 December 2002, the Arbitration Tribunal issued CIETAC letter (2002) No. __ stating that, according to the material submitted by the [Buyer] in the second court session and the material submitted by the parties after the court session, the Arbitration Tribunal decided to suspend ordering the repairing, maintaining and inspecting of the machines. The parties then submitted their supplementary material.

On 22 January 2003, the Arbitration Tribunal issued CIETAC letter (2003) No. __stating that the Arbitration Tribunal had reviewed all material submitted by the parties, exchanged the material between the parties, and gave the parties sufficient and fair opportunities to make statements and arguments. Following the hearings at the two court sessions and after reviewing all material submitted by the parties, the Arbitration Tribunal decided to stop repairing, maintaining and inspecting the machines, and advised that it would make comments and explanation on the reason and result at the proper time. Meanwhile, the Arbitration Tribunal decided that 31 January 2003 would be the deadline for the parties to submit supplementary material. The [Buyer] did not submit any more supplementary material. However, on 30 January 2003, the [Seller] submitted a supplementary statement, and evidence regarding the attorneys' fee, and also raised a request to change the arbitrator Lu __ based on the reason that arbitrator Lu __ and the [Buyer]'s attorney left together for five minutes during the second court session, and they have a special relationship. On 14 February 2003, the Arbitration Tribunal sent CIETAC letter (2003) No. __ giving the parties a period of time to submit opinions and evidence regarding whether arbitrator Lu __ should withdraw.

On 20 February 2003, the Arbitration Tribunal sent CIETAC letter (2003) No. __ explaining why it made the decision to inspect the machines and then later decided to stop the inspection.

As to the [Seller]'s request that arbitrator Lu __ withdraw, the parties submitted supplementary evidence and statements several times. On 23 April 2003, the Chairman of the Arbitration Commission issued CIETAC (2003) Decision No. __, ruling that arbitrator Lu __ should withdraw; although Lu __was the [Buyer]'s attorney's teacher from 1995 to 1996, the teacher-student relationship was not a sufficient reason to request Lu __ to withdraw; however, in the second court session, arbitrator Lu __ and attorney Jin __ left the arbitration room, and went back after a few minutes, which caused the [Seller] to doubt the fairness and independence of arbitrator Lu __; accordingly, arbitrator Lu __ should withdraw, the [Buyer] should appoint another arbitrator and send a written notice to the Arbitration Commission within 20 days.

According to the above decision, the [Buyer] appointed Cao __ as arbitrator. On 6 May 2003, arbitrator Cao __ with Presiding Arbitrator Chen __, and arbitrator Mu __ appointed by the [Seller], continued to hear this case. The arbitration procedure continued.

On 15 May 2003, the [Seller] requested that arbitrator Cao __ withdraw, alleging that arbitrator Cao __, and arbitrator Lu __ are partners in Beijing __ Law Firm, and they had a close working relationship. The parties then submitted supplementary material. On 26 May 2003, the Chairman of the Arbitration Commission handed down CIETAC Decision (2003) No. __, ruling that arbitrator Cao __ need not withdraw, because arbitrator Cao __ and the relieved arbitrator Lu __ have only a "close working relationship" as the [Seller] alleged and the [Seller] did not submit any specific facts or evidence to prove that the two arbitrators have an uncommon or illegally close relationship, especially an uncommon or illegal relationship in this case. The Commission ruled that arbitrator Cao __ need not withdraw, and that the arbitration procedure should continue.

After reviewing the case, the Arbitration Tribunal decided that it was necessary to hold another court session. After soliciting the parties' opinion, the Arbitration Tribunal decided to hold this court session in Shanghai. On 1 July 2003, the third court session was held in Shanghai. Both parties sent their representatives to attend. They made further oral statements, arguments and cross-examination, and answered the Arbitration Tribunal's questions. In the court session, with the parties' agreement, the Arbitration Tribunal sought to arrange a conciliation. After the court session, with the parties' agreement, the Arbitration Tribunal urged the parties to negotiate and settle the case, and inform the Arbitration Tribunal by written notice whether the settlement was made before 10 July 2003.

According to the parties' request, the Arbitration Tribunal agreed to extend the deadline when the parties should submit the settlement agreement to 31 July 2003. On 29 July 2003, the [Seller] sent a fax to the Arbitration Commission requesting to postpone the settlement, and applied to the Arbitration Tribunal to investigate the machines. With the parties' agreement, the Arbitration Tribunal held the conciliation meeting in Hangzhou.

On 13 August 2003, the conciliation meeting was held in Hangzhou. All members of the Arbitration Tribunal and both parties' representatives attended the meeting. However, the parties did not reach any agreement. After soliciting the parties' opinions, the Arbitration Tribunal decided that the parties should directly negotiate after the meeting, and inform the Arbitration Tribunal of the result in writing before 18 August 2003. Then, according to the parties' request, the Arbitration Tribunal agreed to extend the deadline for conciliation a number of times; the final deadline was 30 September 2003; if the parties did not reach any agreement before the deadline, the Arbitration Tribunal would make an award. On 29 September 2003, the [Seller] sent a fax stating that the parties did not reach any agreement.

On 26 August 2003, the [Seller] submitted an application for attachment with appendix requesting that the machines be sealed up. The Secretariat forwarded this application and the appendix by express mail to Jiaxing Intermediate People's Court. On 5 September 2002, the court made the award of attachment and informed the Arbitration Commission.

According to the Arbitration Rules, the Arbitration Tribunal shall make the award before 6 November 2002; however, because this case was complicated and an arbitrator withdrew and the parties spent some time negotiating, pursuant to the Arbitration Tribunal's request, the Secretariat extended the deadline for the award by the Arbitration Tribunal five times to 28 September 2002, 23 January 2003, 3 March 2003, 23 April 2003, 4 August 2003, respectively; the final deadline was 6 October 2003. The Secretariat sent the above notices to the parties in writing.

The case is completed. Based on the facts confirmed in the court sessions, and the evidence and statements submitted by the parties, the Arbitration Tribunal made the award by consent.

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

II. FACTS

POSITION OF THE PARTIES

[Buyer]'s position

1. On 25 November 1999, the [Buyer] signed Contract No. DHSHA/AC9910 with the [Seller], Japan __ Company, through Japan __ Company's Shanghai office. The Contract includes the following stipulations:

Goods: The [Buyer] purchases one A...TRON Mondo Star 20 (i.e., the electric discharge machine) and one A...CUT Class 2 (i.e., the linear cutting machine);

Price: The contract price is US $86,416 and US $128,560, respectively, totaling US $214,976;

Guarantee: The [Seller] guarantees the machines comply with the quality, specification and function stipulated in the Contract; the warranty period is within 12 months after the user finally accepts the testing;

Damages: The linear cutting machine is made in Switzerland, and the electric discharge machine is made in the U.S.; if a machine does not comply with the Contract, the [Seller] shall compensate for damages of equal value;

Claims: Within 12 months after the user accepts the goods, if a machine causes any damages due to non-compliance or low quality of material, the [Buyer] should inform the [Seller] by written notice, and claim for damages with the inspection certificate issued by the Commodity Inspection Bureau in China; the inspection certificate shall be the basis to claim for damages. According to the [Buyer]'s claim, the [Seller] shall immediately take measures to mitigate the damages, and replace the machine or reduce the price; if the [Seller] does not make any response within one month after receiving the [Buyer]'s claim, it is deemed that the [Seller] accepts the claim;

The seven appendixes to the Contract take effect at the same time as the Contract takes effect.

2. After the Contract was concluded, the [Buyer] issued the L/C according to the Contract, and paid 90% of the contract price, i.e., US $193,478 (In the arbitration application, the [Buyer] alleged it had paid US $193,478.40 --- Note by the Arbitration Tribunal). The [Seller] delivered the two machines under the Contract on 2 March 2000 and 5 March 2000, respectively. However, during the installation and debugging, the machines did not work well and faults occurred continuously. The [Buyer] did not accept the testing and applied to Jiaxing Export and Import Inspection and Quarantine Bureau to inspect the machines. Jiaxing Export and Import Inspection and Quarantine Bureau issued Inspection Certificates No. 330400/2003040 and No. 330400/2003042 confirming that after the linear cutting machine started running, the function of automatic wire feed is hard to implement, wire break rate is high during the processing, the production efficiency was low and the maximum production rate was 200 10-6 m2 per minute; perfection of the products made by the electric discharge machine was not in compliance with the requirements of the Contract (i.e., Ra shall be less than or equal to 0.6 x 0.001 mm); and the production rate was low. The [Seller] should be liable for the above quality defects.

3. On 30 September 2000, the [Buyer] sent a written notice to the [Seller]'s Shanghai office requesting to return the machines and claiming for damages; the [Seller]'s Shanghai office sealed the notice confirming its receipt.

4. The Contract stipulates that the production rate of the linear cutting machine should be at least 300 10-6 m2 per minute when the cut material is less than 0.33 mm; the perfection of the products cut by the electric discharge machine should be less than 0.6 x 0.001 mm. However, the maximum production rate of the linear cutting machine delivered by the [Seller] is 200 10-6 m2 per minute; and cannot implement the function of automatic wire feed, the perfection of the products cut by the electric discharge machine is not less than 0.6 x 0.001 mm. The machines delivered by the [Seller] did not meet the requirements stipulated in the Contract, and the [Buyer]'s purpose in signing this Contract could not be realized. Therefore, the [Seller] fundamentally breached the Contract, and should pay the liquidated damages, i.e., US $214,976, stipulated in the Contract. In addition, the [Seller] did not make any response within one month after receiving the notice to return the goods and claim for damages. According to Article 14 of the Contract, it is deemed that the [Seller] accepted the [Buyer]'s request. After sending the [Seller] the notice requesting to return the goods and claiming for damages at the end of September 2000, the [Buyer] repurchased a linear cutting machine and an electric discharge machine in March and April 2001, respectively; the machines delivered by the [Seller] could not be used for production; the [Seller] did not take any remedial measure.

5. The [Buyer] has in addition claimed for attorneys' fees. The final claims are as follows:

      (1) The Contract should be cancelled. The [Buyer] should return the two machines and the [Seller] should refund the contract price of US $193,478.40 and compensate the [Buyer] for any expenses and indirect damages incurred due to the return of machines.

      (2) The [Seller] should pay the [Buyer] the interest on US $193,478.40 at the monthly interest rate of 0.4875%. The interest should be calculated from the date when the payment was made to the date when the amount is refunded.

      (3) The [Seller] should pay the [Buyer] the liquidated damage of US $214,976.

      (4) The [Seller] should pay the [Buyer] the expenses (including the duty, the fee for issuing the L/C, the transportation expenses, and the customs supervision charges) incurred due to accepting the machines under the Contract, totaling renminbi [RMB] 354,440.84.

      (5) The [Seller] should pay the arbitration fee and the [Buyer]'s attorneys' fee, totaling RMB 20,000.

6. In the arbitration application, the [Buyer] made the following explanation as to the [Seller]'s identity:

On 4 January 2000, Charmilles Japan merged with Japan __ Company, and changed its name to A __ Japan, which is the [Seller] in this case; the Japan __ Company was closed due to this merger. According to Article 103 and Article 416 of the Japanese Commercial Law, "The surviving company or the new established company after a merger shall assume the liability of the company which is closed due to the merger." Thus, the merged company has assumed Japan __ Company's rights and duties under the Contract, and should take the relevant responsibility. In addition, the B/L for the machines under this Contract was issued in February 2000; the merged company issued the invoice on 24 February 2000, when the Japan __Company had been closed; the Contract in this case should be performed by the merged company; accordingly, from the factual and legal perspectives, the merged company replaced the Japan __ Company as a party to the Contract [and, along with the Japan __ Company, is henceforth, from time to time, referred to as "[Seller]"].

[Seller]'s position

As to the [Buyer]'s above allegation, the [Seller] submitted its response, a counterclaim, and evidentiary material objecting to the [Buyer]'s position. Its opinions are as follows:

1. On 25 November 1999, the Japan __ Company and the [Buyer] signed the Contract in this case; on 4 January 2000, the Japan __ Company was merged with Charmellie Japan, and changed its name to A __ Japan. According to Japanese law, the merged company assumes the Japan __ Company [Seller]'s rights and duties, and has the right to file the response and counterclaim.

2. The [Seller] did not breach the Contract, and the [Buyer]'s request to revoke the Contract has no basis.

      (1) When the machines were delivered, the [Buyer] did not make any objection to the quality of the machines. After the two machines were delivered to the [Buyer]'s factory, the parties jointly made the adjustment testing in April 2000, and the [Buyer] did not raise any objection.

      (2) The quality of the machines complies with the Contract. On 24 July 2000, the [Buyer] sent a letter to the [Seller] stating that the linear cutting machine had passed the inspection; the after-sales service reports signed by both parties on 26 July and 6 October 2000, respectively, show that the cutting machine worked properly and that the electric discharge machine is in compliance with the Contract.

      (3) The [Buyer]'s improper operation caused the machine not to work normally. In the after-sales service report signed by the parties on 26 July 2000, the [Buyer] admitted that because of its improper operation, the cutting machine could not run normally. The after-sales service report recorded the problems, such as the DA-320 alarming, the high conductivity, etc., which were caused by the fact that the [Buyer] did not replace the material on time, and were not caused by the quality of the machines.

On 4 and 6 October 2000, as to the problems with the machines alleged by the [Buyer], the [Seller] repaired the machines again. The [Buyer] signed the repair memorandum and agreed with the [Seller]'s analysis on the reason why the machines could not run normally:

   -    The problem of the cutting machine was caused by the fact that the [Buyer] did not replace the material on time, which was caused by the [Buyer]'s improper operation. After the [Seller] adjusted the machine, the cutting machine ran normally.
 
   -    The electric discharge machine could not run normally, because the [Buyer] did not use the material, i.e., Carbide, stipulated in the Contract, but used Cr12; because the non-complying material which the [Buyer] used caused the perfection could not meet the requirements stipulated in the Contract.

On 28 and 29 November 2000, the [Seller] repaired the machines once again, and confirmed that the problems were caused by the [Buyer]'s improper operation.

      (4) The [Buyer] unilaterally applied to have Jiaxing Import and Export Inspection and Quarantine Bureau inspect the machines. This lacks a reasonable basis; the inspection certificate cannot be used as evidence stipulated in the Contract.

First, Article 14 of the Contract provides:

"If the damages are caused by non-compliance of the machine or low quality of material, the [Buyer] should inform the [Seller] by written notice, and claim for damages with the inspection certificate issued by the China Commodity Inspection Bureau ..."

On 31 August 2000, the [Buyer] applied to inspect the machines, and the inspection was not within the inspection scope stipulated in the Contract. Article 14 of the Contract does not stipulate which inspection agency and in which way the machines shall be inspected if the disputes are not related to quality issue. The dispute in this case is related to the special machines; according to commercial customs, the inspection should be conducted by an independent and fair inspection authority which the parties agreed on by friendly negotiation. However, the [Buyer] applied to Jiaxing Inspection and Quarantine Bureau without the [Seller]'s agreement and involvement, so the inspection lacks basis.

Second, the inspection and comments about the quality and function of the machines delivered by the [Seller] are related to a series of professional knowledge and strict procedure; it is doubted whether Jiaxing Bureau has the technicians with the professional knowledge, and technical equipments and facility.

Third, according to the Memorandum signed by the parties on 6 October 2000, the linear cutting machine crashed before 4 October 2000, which was caused by the [Buyer]'s improper operation. The [Buyer]'s statements made in the court session show that the crash occurred before the inspection; the inspection result is not fair because it was conducted after the machine crashed.

      (5) The [Buyer] mistakenly explained the quality standard alleging that "the production rate of the linear cutting machine should be at least 300 10-6 m2 per minute when the cut material is less than 0.33 mm," which is a mis-construction of the Contract. The correct explanation shall be "the production rate of the linear cutting machine should be at least 300 10-6 m2 per minute when the linear is CCS wire of 0.33 mm." The [Buyer] alleged that the perfection of the product cut by the linear cutting machine should be less than or equal to 1 X 0.001mm, and the maximum speed should be at least 300 10-6 m2 per minute, and the above standards should be met at one time. The [Buyer]'s allegation does not comply with the international and China industry standard; according to the international and China industry standards, it is impossible to satisfy the above two standards at the same time.

Due to the same reason, the [Buyer] mis-explained the quality standard of the electric discharge machine; to require the perfection and the production rate be met at the same time is not in compliance with the international and China industry standards.

3. After receiving the [Buyer]'s request to return the machines and claim for damages, the [Seller] responded by its conduct. The Contract does not require that the response to a claim for damages be made in writing. According to Article 56 of the General Principles of Civil Law of the People's Republic of China, "Civil legal activity can be conducted in writing, oral or in another way." After receiving the [Buyer]'s request to return the goods and claim for damages on 29 September 2000, the [Seller] went to repair and maintain the machines on 4 and 6 October, and on 28 and 29 November 2000. In the after-sales service document signed when the machines were repaired, the [Seller] analyzed the content and reason described in the inspection certificate issued by Jiaxing Inspection and Quarantine Bureau; thus, the [Seller] responded by its conduct, and raised objection to the [Buyer]'s request to return the machines and claim for damages.

4. Article 13 of the Contract stipulates:

"The linear cutting machine is made in Switzerland, and the electric discharge machine was made in the U.S.; if a machine does not comply with the Contract, the [Seller] should compensate for damages of equal value."

The manufacturing place and the assembling place of the machines comply with the Contract, so the [Seller] should not pay the liquidated damages.

5. The machines in this case should be re-inspected for the following reasons:

   -    The machine had crashed and was not in normal condition, when Jiaxing Import and Export Inspection and Quarantine Bureau inspected the machine; the description in the inspection certificate issued by Jiaxing Import and Export Inspection and Quarantine Bureau is not clear and lacks specific data;
 
   -    The inspection certificate determines the party liable without analyzing the reason which caused the problems, and it does not comply with scientific methods; the inspection certificate neither describes any inspection basis and condition, nor analyzes the conclusion; so the truthfulness and reliability of the inspection result is doubted.
 
   -    The machines in this case are perfection machines. Therefore, the inspection should be conducted under proper technical and environmental conditions; however, the inspection certificate does not mention a word on the conditions.
 
   -    The perfection of the machines meets top international standards and only persons with professional training could understand the instruction and data of the instruction, and operate the machine; Jiaxing Import and Export Inspection and Quarantine's capability to inspect the machines should be doubted; the inspection certificate states that "the machine cannot reach the requirement of no more than 300mm2/min," but only a few enterprises in the world could satisfy such a requirement. The inspection certificate issued by Jiaxing Import and Export Inspection and Quarantine Bureau should not be admitted, and another inspection should be conducted.

The [Seller] requests that the machines be re-inspected by the National Special Production Machine Standardization Commission which has the professional capacity in this industry or by an organization appointed by this Commission, and the parties should be present during the inspection.

6. As to its counterclaim, the [Seller] alleges that after the [Seller] delivered the machines on time, the [Buyer] delayed performing the duty of acceptance and paying the remaining 10% of the contract price; in addition, the [Buyer]'s improper operation caused the problems; thus, the [Seller] requests the [Buyer] to pay the expenses incurred due to two repairs in October and November, and other related expenses. The [Seller] has also raised a claim for the attorneys' fee. The [Seller]'s counterclaims are as follows:

      (1) The [Buyer] should pay the [Seller] the remaining contract price, i.e., US $21,497.60.

      (2) The [Buyer] should pay the [Seller] the interest on the remaining contract price of US $21,497.60. The interest should be calculated at the daily interest rate of 2.1/10000 from the date when the price should have been paid (i.e., 24 January 2000) to the date when the price is actually paid;

      (3) The [Buyer] should pay the [Seller] the expenses incurred due to repairing the machines, totaling US $11,613.60.

      (4) The [Buyer] should bear the arbitration fee and the [Seller]'s attorneys' fee. The [Seller] has submitted evidence twice on the attorneys' fee; the amounts are RMB 108,217.14 and RMB 72,225.50, respectively.

However, the [Seller] did not go through the relevant arbitration procedure for its claim for the attorneys' fee.

[Buyer]'s response

As to the [Seller]'s response and counterclaim, the [Buyer]'s response and objections are as follows:

1. The [Buyer] has never accepted the two machines. The defects of the two machines were caused by non-complying quality, not by the [Buyer]'s improper operation or non-maintenance. When the [Seller] delivered the machines, the [Buyer] only received the machines, but did not conduct adjustment testing, so the [Buyer] could not give any opinion on the quality of the machines. The [Seller]'s statement that in the letter, the [Buyer] stated that "the machines passed the testing", is a mis-construction. The [Buyer] expressed, in the letter that, after "the machines passed the testing", it was shown on the monitor that the machine could not start. In the after-sales service reports dated 26 July, 6 October, 29 November 2000, respectively, the [Seller] admitted the reasons the [Buyer] gave for why the machines could not run normally. The [Buyer] described its own opinions in each of the above three reports, and also expressed that it did not agree with the [Seller]'s analysis. The [Seller] did not submit any evidence to prove that the defects of the machines were caused by the [Buyer]'s improper operation.

2. The issue on the quality standard of the machines: The linear cutting machine should comply with the Contract. In the appendix to the Contract, the quality standard is described as, "300 10-6 m2 per minute," but not "the maximum speed is 300 10-6 m2 per minute," as the [Seller] alleged. The inspection certificate issued by Jiaxing Import and Export Inspection Quarantine Bureau shows that the maximum speed only reached "200 10-6 m2 per minute", which is not in compliance with the requirement in the Contract, and cannot satisfy the [Buyer]'s actual need.

3. It is unreasonable for the [Seller] to allege that the machines crashed before Jiaxing Import and Export Inspection and Quarantine Bureau inspected the machines. It is only the [Seller]'s assumption, but the [Seller] did not submit any evidence.

4. The machines should not be re-inspected.

      (1) The inspection conducted by Jiaxing Import and Export Inspection and Quarantine Bureau complies with the stipulation in the Contract, and the inspection certificate is the final evidence to prove the quality of the machines. According to Article 14 of the Contract, China Import and Export Inspection and Quarantine Bureau is the only inspection agency which the parties agreed on. In order to let the [Seller] know the result of the inspection, on 21 August 2000, the [Buyer] informed the [Seller] of the inspection result; on 31 August 2000, the [Buyer] once again requested the [Seller] to participate the inspection, but the [Seller] did not participate.

      (2) It lacks basis for the [Seller] to doubt the capability of Jiaxing Import and Export Inspection and Quarantine Bureau and the reliability of the inspection certificate. The inspection certificate is a conclusive and standardized document; it does not record the entire inspection procedure or the analysis, but this does not mean the inspection bureau has not recorded that the inspection conducted did not comply with scientific methods. The [Seller] can review the detailed record at the Jiaxing Import and Export Inspection and Quarantine Bureau.

5. After receiving the [Buyer]'s request to return the machines and the claim for damages, the [Seller] did not make any response; the [Seller]'s repairing the machines should not be deemed as a response.

A response should be clear and specific. The [Buyer] sent an official letter to the [Seller] requesting to return the machines and claim for damages, but the [Seller] neither gave any written response, nor sent any person to negotiate with the [Buyer]. The [Seller]'s technician repaired the machines on 4 and 6 October, and 28 and 29 November 2000, respectively, which was the continuation of the pre-work; the [Seller] did not authorize its representatives to deal with the claim for damages, so the conduct should not be deemed as a response to the [Buyer]'s request.

6. In its counterclaims, the [Seller] alleged that the [Buyer] did not perform the duty to accept the testing. However, the fact is, within the reasonable time period during the installing and adjusting the machines, the [Buyer] applied to inspect the machines and also invited the [Seller] to participate. Because the machines delivered by the [Seller] have severe quality defects, the [Buyer] could not accept the machines, not that it deliberately refused to accept the machines. According to the Contract, the acceptance is the pre-condition for the [Buyer] to pay the remaining contract price; since the machines have severe defects, and the [Buyer] did not accept the machines, the [Seller] was not entitled to the remaining contract price.

In and after the second court session, the [Buyer] submitted the following new evidence:

1. The attorney letters sent to Japan __ Company and Japan __ Company Shanghai Office by airmail and fax, respectively, on June 2001;

2. The response letter sent by attorney Tang __ of the Shanghai Hai Da Law Office on 11 June 2001;

3. The minutes recorded by the [Buyer] unilaterally for the parties' attorneys' meeting on 19 June 2001;

4. Notice of Moving & Renaming of the A __ Shanghai Office;

5. The attorney's letter from the [Buyer] to Japan __ Company;

In addition, the [Buyer] submitted the following opinions:

1. The [Seller] is not entitled to request re-inspection of the machines. After receiving the [Buyer]'s claims for damages and the inspection certificate, the [Seller] did not raise any objection; the [Seller]'s repairing the machines does not constitute an objection to the [Buyer]'s claims or the inspection certificate; the [Buyer]'s acceptance of the adjustment testing does not mean it gave up the claim for damages. From December 2000 to June 2001 when the [Buyer] claimed for damages, the [Seller] did not object to the inspection certificate; in addition, in order to avoid the [Seller]'s liability, in the meeting on 19 June 2001, the [Seller]'s attorney, Tang __, cheated by alleging that the [Seller] was revoked and had no successor, and rejected the [Buyer]'s claim for damages, which means the [Seller] gave up the right to object to the inspection certificate; thus, the [Seller] should be held liable for the result caused by cheating the [Buyer], which means the [Seller] is not entitled to request re-inspection of the machines in the arbitration procedure.

2. The [Buyer] insists on returning the two machines. In terms of technical standards, the two machines could not meet the requirements stipulated in the Contract; the defects could not be fixed within a reasonable time; the defects existed when the machines were manufactured, and could not be fixed. The facts show that from the time when the machines were delivered to the date when the arbitration application was filed, the [Buyer] gave the [Seller] sufficient time to adjust and maintain the machines, but the machines could not be fixed, and also the [Seller] wanted to avoid its liability; thus, the [Seller] should not be given any more opportunity to adjust or repair the machines.

According to the Contract, because the machines have not been accepted, the [Buyer]'s claims were filed within the period stipulated in the Contract.

[Seller]'s response

As to the [Buyer]'s evidence and the questions asked by the Arbitration Tribunal in the court session, the [Seller] submitted the following supplementary response:

1. The Contract in this case was signed by the [Seller] and the [Buyer]. When signing the Contract, the [Seller] had a Shanghai office, i.e., Japan __ Company Shanghai Office.

On 4 January 2000, Japan __ Company was merged with Charmilles Japan. After the merger, Japan __ Company moved to a new place --Yokohama; the telephone number and fax number were accordingly changed.

On 4 August 2000, __ Charmellis (Shanghai) Electric Machine Ltd. received its business license; On the same day, it sent a Notice of Moving & Renaming to the [Buyer] stating that Japan __ Company Shanghai Office became a department of __ Charmellis (Shanghai) Electric Machine Ltd, and moved from Huaihai Road to Pudong.

2. From January 2001 to January 2002, the [Seller] did not receive any of the [Buyer]'s attorney letters.

The attorney letters, which the [Buyer] submitted on 6 and 14 June 2001, respectively, were sent to the former address of Japan __ Company and the address of __ Shanghai Charmellis Company. Because of the [Seller]'s move to the new address after January 2000, the letters sent to the [Seller] in 2001 were returned, which can be proved by the return record of the post office submitted by the [Buyer] in the court session. The [Buyer]'s attorney letters were also sent to the former address of Japan __ Company on 26 June 2001, and the [Seller] neither received the letters at all, nor knew of the [Buyer]'s claim for damages. As to the letters sent to __ Charmellis (Shanghai) Electric Ltd., because this company and the [Seller] are two different legal entities in two different companies, the letters sent to Shangai __ Charmellis Company were not sent to the [Seller]. According to the Notice of Moving & Renaming, the [Buyer] should have known that Japan__ Company Shanghai Office has not been affiliated with Japan __ Company since 30 October 2000, but has been a department of __ Charmellis (Shanghai) Electric Ltd. The [Buyer] knew that the [Seller]'s Shanghai Office had changed, but sent the notice to another legal entity, __ Charmellis (Shanghai) Electric Ltd; thus, the [Seller] could not know of the [Buyer]'s claim for damages at all.

In addition, even if the letters claiming for damages were sent to the [Seller], because the [Seller] had already objected to the [Buyer]'s claims for damages and the inspection certificate in October 2000, it lacks basis to claim for damages based on the same inspection certificate.

3. Attorney Tang __ of the Shanghai Hai Da Law Office did not represent __ Japan Company. __ Japan Company has never entrusted or authorized attorney Tang __ to represent the [Seller] in this case; which can be proved by the letter drafted by attorney Tang __ to explain the situation. Attorney Tang __ only represented __ Charmellis (Shanghai) Electric Ltd, and the adjustment testing which he alleged, was conducted to protect __'s reputation, but did not reflect __ Japan Company's opinion.

The minutes for the meeting on 19 June 2001 were recorded by the [Buyer] unilaterally, and were not signed by the [Seller]; the content of the minutes is completely different from attorney Tang __'s statements, so it ought to have no legal effect.

Attorney Tang __'s response letter on 11 June 2001, which the [Buyer] submitted, did not specify that attorney Tang __ was the [Seller]'s attorney.

4. The claims for damages in the [Buyer]'s attorney letters sent on 6, 14 and 26 June 2001, respectively, were still based on the inspection certificate. As to the content and liability described in the inspection certificate, the [Seller] expressed its opinions by its conduct on 4 and 6 October 2000, and answered the questions regarding the problems of the two machines; the linear cutting discharge machine crashed because of the [Buyer]'s improper operation; the defect of perfection of the electric machine was caused by the fact that the [Buyer] did not use the material stipulated in the Contract. After jointly signing the report, the parties agreed to continue the performance of the Contract. Thus, the [Seller] denied the content of the inspection certificate; accordingly, the [Buyer]'s claim for damages based on the inspection certificate lacks legal and factual basis so that it is not qualified to claim for damages.

[Buyer]'s further response

As to the [Seller]'s above opinion, the [Buyer] alleges:

1. The [Seller]'s Shanghai Office was the representative office to sign the Contract and provide the after-sales service; if the Shanghai Officer disappeared, the [Seller] should have informed the [Buyer]. In addition, the [Seller] only informed that its Shanghai Office was renamed, and the [Seller]'s understanding was that the Shanghai Office only changed the name, and remained the same entity. Because the [Seller] only informed that the Shanghai Office was renamed, the [Buyer] thought the receiver of the correspondence was correct. The [Seller] should be liable for its improper notice when its Shanghai Office was closed.

2. When the quality problems of the machines remained unsolved, the [Seller] should have informed the [Buyer] of its Japan headquarters' address change; it was not improper for the [Buyer] to send the letters to its former address. Therefore, the [Seller] should be liable for the consequence of the [Buyer]'s claim for damages. The [Seller] should be deemed to have received the [Buyer]'s letter claiming for damages.

3. The [Seller] alleged that attorney Tang __ did not represent Japan __ Company, but the [Seller] and __ Charmellis (Shanghai) Electric Ltd. are affiliated companies. Although the [Seller]'s Shanghai Office was closed, its employees moved to __ Charmellis (Shanghai) Electric Ltd. The employees' responsibility to perform the Contract in this case remains unchanged. Thus, the [Seller] should be liable for attorney Tang __'s conduct.

4. As to the [Seller]'s allegation that the material used for testing was not in compliance with the material stipulated in the Contract, the [Buyer] alleges that the testing was under the supervision of the [Seller]'s technician, who did not raise any objection to the material used.

As to the [Seller]'s allegation that the defects were caused by the crash of the machine, the [Buyer] alleged that the [Seller] did not submit any evidence, and the machine had never passed the acceptance testing; the operation of the machine had been under the supervision of the [Seller]'s instruction, so even if the crash occurred, the [Seller] should be liable.

5. The attorneys' fee invoice submitted by the [Seller] had no payee's seal, so the invoice is invalid. The [Seller]'s attorney is from a foreign law firm's Shanghai representative office; according to the Regulation of Foreign Law firms' Representative Office in China, the attorney working in the Representative Office may not represent clients or provide any opinion or comments on issues related to Chinese laws. In this case, the legality of the [Seller]'s attorney's representation is doubted.

III. OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The Contract does not stipulate the applicable law. Because the countries where the parties' business places are located are Contracting States of the United Nation Convention on Contracts for International Sales of Goods (CISG), the Arbitration Tribunal holds that the CISG applies to this case.

2. The letters the [Buyer] sent to the [Seller] claiming damages

The [Buyer] claimed damages from the [Seller] on 29 September 2000 and in June 2001. In the letter to A __ Ltd, the [Buyer] alleged:

"The linear cutting machine Classic 2 was imported on 2 March 2000. After adjustment testing many times, the standard stipulated in the Contract could not be reached. In addition, you did not provide any solution to solve the problems. We claim for damages and request to return the machines according to the inspection certificate issued by Jiaxing Import and Export Inspection and Quarantine Bureau on 31 August 2000."

On 4 and 6 October 2000, the [Seller] sent its technicians to repair the two machines, and the parties signed the Memorandum which recorded the repairing and testing of the machines, stating:

"After the linear cutting machine Classic 2 was repaired, the guide roller and wash-down guide roller were replaced, and the height was adjusted, and the related parts are cleaned, the machine is working normally and feeding wire successfully."

After the machine cut four products for testing, it was concluded:

"Based on the testing result of the four cut samples mentioned above and the factor of the upper machine head's wash-down guide roller, the production standard can reach the standard of A __ Company."

As to the electric discharge machine Mondo Star 20, after the testing, it was concluded:

"This machine can reach A __ Company's standard. Because of the material Cr 12 provided by __, the products do not meet the mirror processing requirements."

The memorandum signed by the parties recorded Claimant [Buyer] Zhejiang __ Company's opinion as:

"As to the sample produced by A __ Company, the perfection of linear cutting is acceptable; the size is described in other records; however, it is doubted whether the production rate can meet the requirements; because the speed in the testing is far different from the stipulation in the Contract, A __ Company should arrange a testing cut under the conditions stipulated in the Contract. The conclusion of the electric discharge machine Mondo Star 20 should be drawn according to the testing result."

The Arbitration Tribunal carefully reviewed the [Buyer]'s claims for damages and request to return the goods filed on 29 September 2000, and the memorandum signed by the parties after the [Seller]'s technicians repaired the machines on 4 and 6 October 2000, and the issues which the parties disputed in this arbitration. The [Seller] did not accept the [Buyer]'s allegation that the machines had defects, and alleged that its conduct in sending the technicians to repair the machines at the beginning of October 2000 constitutes [Seller]'s response to the [Buyer]'s claims. However, the [Buyer] alleged that the [Seller]'s repair does not constitute a response to the [Buyer]'s claims. The [Buyer] alleged that the response should be clear and specific; the repair was conducted after the installing and adjusting of the machine, and was a continuation of former work. The [Seller] did not authorize its technician to deal with the claims for damages, so, according to the [Buyer], the technician's conduct did not constitute a response.

According to the above facts and the material submitted by the parties, the Arbitration Tribunal holds that:

      (1) The [Buyer] requested to return the machines and claimed damages on 29 September 2000. The [Seller] received the [Buyer]'s request and claim on 30 September 2000, and sent the technician to repair the machines on 4 and 6 October 2000.

      (2) The fact that the [Seller] sent its technician to repair the machines, and the [Buyer] signed the Memorandum, does not constitute the [Seller]'s implied acceptance of the [Buyer]'s request to return the goods.

      (3) After this repair, the parties signed the Memorandum recording the parties' joint opinion on the quality of the machines and the [Buyer]'s specific requirements, which reflect the parties' actual intent.

      (4) According to the [Buyer]'s opinions and requirements recorded in the appendix, the [Seller] sent its technician to the [Buyer]'s factory to test the maximum speed of the linear cutting machine, and wrote the after-sales service report and "Acceptance Certificate" of the electric discharge machine, but the [Buyer] neither signed them nor raised any objection.

      (5) In sum, the Arbitration Tribunal holds that it does not sustain the [Buyer]'s allegation that the [Seller] accepted the [Buyer]'s request to return the goods and claims for damages because the [Seller] did not reply within one month after receiving the notice.

On 6 June 2001, the [Buyer] sent another letter to the [Seller] claiming damages. The claim in this letter was still based on the request to return the goods and claim for damages on 29 September 2000, and the [Buyer] did not express an opinion on the Memorandum signed by the parties on 6 October 2000. Moreover, the [Buyer] did not provide any further evidence to support its request to return the goods and claim damages; thus, the Arbitration Tribunal does not sustain the [Buyer]'s claim.

3. The [Buyer]'s claims and the [Seller]'s counterclaims

The [Buyer] filed five arbitration claims, and the [Seller] filed four counterclaims. The parties made statements on the claims and the counterclaims, submitted evidence, and objected to the counterpart's claims.

The [Buyer] alleged that because the machines had been adjusted many times, but the standard stipulated in the Contract could not be reached, and the [Seller] did not provide any solution, the [Buyer] claimed damages.

The [Seller] alleged that the after-sales service reports signed by the parties on 26 July, 6 October, and 29 November 2000 state:

"The defects of the linear cutting machine and the electric discharge machine were caused by the [Buyer]'s improper operation and non-replacement of the material on time. After the [Seller] repaired and replaced the material, the machines ran normally. The quality of the two machines complies with the Contract."

The [Seller] requested the [Buyer] pay the remainder of the contract price.

In the first court session, the [Seller] requested the Arbitration Tribunal to appoint an organization to do technical authentication on the machine, and after the court session, the [Seller] submit a written request for the technical authentication. The [Buyer] strongly objected to the [Seller]'s request for a technical authentication. Before the Arbitration Tribunal decided to do the technical authentication and contact an agency for the authentication, the parties submitted considerable supplementary material to the Arbitration Tribunal; the parties had many disputes over this request. In addition, the [Buyer] did not allow the [Seller] to go to its factory to repair the machines in order to request for the technical authentication. Thus, the Arbitration Tribunal decided to hold the second court session before the technical authentication.

In the second court session, the [Buyer] submitted new evidentiary material proving that on 6 June, 2001, the [Buyer] sent the letter claiming damages from the [Seller] and the [Seller]'s Shanghai Office, and insisted on its claim for damages. Although the parties made statements and arguments in this court session, the Arbitration Tribunal held that one party submitted the new evidentiary material in the court session, and the parties should be given sufficient opportunities and time to express opinions and clarify the facts. Thus, the Arbitration Tribunal gave both parties sufficient opportunities and time to submit supplementary material after the court session. On 22 January 2003, the Arbitration Tribunal sent to the parties CIETAC letter (2003) No. __ stating that the Arbitration Tribunal received and reviewed the material submitted by the parties, and exchanged the material between the parties, and gave the parties sufficient time and opportunities to make statements and arguments. This letter informed the parties that after hearing the case in the two court sessions and reviewing all material submitted by the parties, the Arbitration Tribunal decided to stop the repairing, maintaining and authenticating the machines in this case. The Arbitration Tribunal holds that after hearing the case in the second court session and reviewing all material submitted by the parties, the Arbitration Tribunal found that the parties' disputes were focused on the liability of performing the Contract. Then, the Arbitration Tribunal gave the parties time and opportunities to make statements and opinions on the decision to stop inspecting and authenticating the machines, and the [Seller] submitted supplementary material and opinions.

The Arbitration Tribunal found that after signing the Memorandum on 6 October 2000, the parties stopped performing the Contract. The [Buyer] alleged:

"After the last adjustment testing in November 2000, the [Seller] did not send any technician to the [Buyer]'s factory, and the [Buyer] did not know its clear position; the [Seller] wanted to avoid its liability;

"The [Buyer] gave the [Seller] sufficient time and opportunity to repair and adjust the machines, but the facts show that the machines cannot be fixed; thus, the [Seller] should not be given any further opportunities to repair the machines;"

"According to the Contract, the [Buyer] did not accept the machines, and the [Buyer]'s claims were filed within the time period stipulated in the Contract."

The [Seller] alleged that the machines under the Contract were in compliance with the Contract. The [Buyer] did not raise any objection during the installment and adjustment; in addition, the [Buyer] was trained and delivered the repairing and maintaining record. The after-sales service reports on 26 July, 6 October, and 29 November 2000, show that the reason why the linear cutting machine and the electric discharge machine could not run normally is that the [Buyer] neither operated the machines properly nor replaced the material on time; after they were repaired by the [Seller]'s technician, the machines could work properly; so the machines are in compliance with the Contract. Thus, the [Seller] alleged:

"Because the [Buyer]'s improper operation caused the defects of the machines, the [Buyer] should compensate the [Seller] for the expenses incurred for repairing the machines."

And the [Seller] filed a counterclaim against the [Buyer]'s refusal to pay the remaining contract price and deliberately delaying issuing the agreement to negotiate the payment.

The Arbitration Tribunal understood each party's statements and position, and reviewed the evidentiary material submitted by the parties. The Arbitration Tribunal holds:

      (1) The manufacturers of the two machines issued "Quality Certificates" which complied with the Contract. After the machines were shipped to the [Buyer]'s factory, the parties jointly installed and adjusted the machines from 24-30 April 2000, and the parties had no disputes on the quality of the machines. The after-sales service report issued by the [Seller] on 26 July 2000 stated:

"The high conductivity of the linear cutting machine Classic 2 caused the alarm ringing, and the some parts did not work; after the [Seller] adjusted the machine, and replaced material, the machines can work normally."

      (2) The [Buyer]'s claim for damages on 29 September 2000 based on the Inspection Certificate issued by Jiaxing Import and Export Inspection and Quarantine Bureau on 31 August 2000, and the Memorandum signed by the parties after the [Seller]'s technician repaired the machines on 4 and 6 October 2000, are the parties' true expressions on the quality and data of the machines.

The Arbitration Tribunal holds that the [Buyer]'s allegation that the machines have quality defects, so the machines should be returned, and the [Seller] should refund the contract price, lacks technical, contractual and legal basis. The [Seller] submitted the National Special Production Machine Standardization Commission's reply letter dated 20 February 2002. This letter was in response to the [Seller]'s question, "whether the lowest perfection and the maximum production rate of the linear cutting machine and the electric discharge machine shall be measured at the same time or separately," and contains the following contents:

"Charmellis (Shanghai) Electric Ltd:

Your letter dated 5 February 2002 was received. We respond to your question, 'whether the lowest perfection and the maximum production rate of the linear cutting machine and the electric discharge machine shall be measured at the same time or separately' as follows:

1. The maximum speed (the maximum production rate) of the electric discharge machine and the linear cutting machine is related to the rough production; the lowest perfection is related to perfect production. Thus, when the machine is used for rough production, the lowest perfection cannot be reached; however, when the machine is used for perfect production, the maximum speed cannot be reached. Accordingly, the maximum speed and the lowest perfection are two individual factors, and should be separately measured.

1. If the machine is used for rough, middle level, and perfect production, the speed needs to be comprehensively considered, i.e., the average speed.

2. There are no national and international standards regarding the maximum speed of the electric discharge machine and the linear cutting machine. The industry standard JB/T5543-1991 has the standard for the lowest perfection of an electric machine. If the manufacture promises the maximum speed and the lowest perfection when signing the contract with the user, the production condition and the measurement method stipulated by the manufacturer should be considered."

The [Buyer] neither objected to nor expressed any opinion on the above letter submitted by the [Seller]. The Arbitration Tribunal holds that the Standardization Commission gave a clear and specific explanation, which should be admitted; the stipulation in the Contract should be considered to decide the perfection and speed; thus, the Arbitration Tribunal holds that the [Buyer] and the [Seller] had negligence and delay when performing the duty of adjusting and testing the machines.

   -    As to the linear cutting machine Classic 2, in the Memorandum dated on 6 October 2000, the parties stated that after the [Seller]'s technician repaired the machines, replaced the material, and adjusted the height, the machine worked normally;
 
   -    As to the electric discharge machine Mondo Star, in the Memorandum dated 6 October 2000, the parties stated that the material used for testing was Cr 12, but not Carbide stipulated in the Contract; the conclusion is "the material Cr 12 provided by the [Buyer] did not reach the requirements."

According to the above Memorandum, the Arbitration Tribunal holds:

      (1) When the linear cutting machine was working properly, the [Seller] requested to conduct acceptance testing, but the [Buyer] ignored this request; so the acceptance testing did not proceed. Thus, the [Buyer] should be liable for the consequence caused by its delaying the acceptance testing.

      (2) As to the electric discharge machine, the work piece materials stipulated in the Contract are 60X60X15 mm Carbide, but the materials which the [Seller] used in the testing were Cr12, which was not in compliance with the stipulation in the Contract. The testing result did not meet the [Buyer]'s requirements, and the testing results were not clarified. Thus, the [Seller] should be liable for its negligence and delay.

      (3) The parties did not contact to perform the Contract from 6 October 2000 for the [Buyer], and from 29 November 2000 for the [Seller] to 6 June 2001 when the [Buyer] sent the letter claiming damages. The [Buyer] alleged that the letter claiming damages was sent on 6 June 2001 after the letter claiming damages on 29 September 2000, which shows continuity. However, the [Seller] alleged that its firm was merged, and the name and address were changed, and that it did not receive the [Buyer]'s letters. The Arbitration Tribunal holds that after the [Seller] sent the technician to repair the machines on 4 and 6 October 2000 and signed the Memorandum, and the [Seller] sent the technician once again to repair the machines on 28 and 29 November 2000, and issued the after-sales service report, and the [Seller] provided the "Acceptance Testing Report" on 29 November 2000, the [Buyer] did not make any response, which constitutes delay of performance. Thus, the [Buyer] shall be held secondarily liable for the delay of performance. Because the [Seller] did not inform the [Buyer] of the change of name and address on time, especially when the parties neither completed the performance nor completed the acceptance procedure, the [Seller] should be held primarily liable for the delay of the performance.

      (4) In sum, the Arbitration Tribunal holds that the [Buyer] did not provide sufficient evidence to prove that the problems of the machines were completely caused by the [Seller]'s negligence or quality defects, so the parties shall continue the performance of the Contract, and the [Seller] shall go to the [Buyer]'s place to conduct acceptance testing. Meanwhile, the [Buyer]'s other claims and the [Seller]'s counterclaims are dismissed.

3. The qualification of the [Seller]'s attorney

The Arbitration Tribunal found that the power of attorney which the [Seller] entrusted its arbitration agent states, "... The entrusted: Ms. Li __ from __ Law Firm Shanghai Representative Office ... entrusts the above to represent us in the dispute with Zhejiang __ Electronic Ltd as our arbitration agent ..." The Arbitration Tribunal holds that although the [Seller]'s arbitration agent Li __ was working with the __ Law Firm Shanghai Representative Office, she worked as an arbitration agent, but not as an attorney or a foreign lawyer. In addition, she had valid authorization from the [Seller], so the Arbitration Tribunal confirmed her position.

4. The arbitration fee and other expenses

The arbitration fee for the [Buyer]'s claims and the [Seller]'s counterclaims should be paid by the parties equally.

The expenses the Arbitration Tribunal incurred when the third court session was held in Shanghai, and when the conciliation meeting was held in Hangzhou, should be paid by the parties equally.

IV. AWARD

1. All of the [Buyer]'s claims are dismissed;

2. All of the [Seller]'s counterclaims are dismissed;

3. The arbitration fee is RMB 119,204, which should be paid by the [Buyer] and the [Seller] equally, i.e., RMB 59,602 for each party; the arbitration fee for the counterclaims is RMB 10,000, which should be paid by the [Buyer] and the [Seller] equally, i.e., RMB 5,000 by each party. The above amount should be offset by the payment of RMB 119,204 which was made by the [Buyer] and the payment of RMB 10,000 which was made by the [Seller]; so the [Seller] should pay the [Buyer] RMB 53,602.

4. The expenses incurred by the Arbitration Tribunal to go to Shanghai for the court session and go to Hangzhou for the conciliation meeting, i.e., RMB 34,000, should be paid equally by the parties, i.e., RMB 17,000 for each party.

The amount which the [Buyer] should pay shall be offset by the amount which the [Buyer] paid in advance. The [Seller] paid the fee for technical authentication, i.e., RMB 30,000; because the technical authentication was not conducted, the [Seller] shall pay RMB 17,000, and the remaining amount is RMB 13,000, which the Arbitration Commission shall refund to the [Seller].

The award is final and takes effect when it is made.


FOOTNOTES

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

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

*** 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 September 15, 2008
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