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CISG CASE PRESENTATION

China 6 November 2003 CIETAC Arbitration proceeding (Fiberglass mesh case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/031106c1.html]

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

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Case identification

DATE OF DECISION: 20031106 (6 November 2003)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2003/25

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Germany (respondent)

GOODS INVOLVED: Fiberglass mesh


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission (CIETAC) 6 November 2003 (Fibreglass mesh case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/98],
CLOUT abstract no. 975

Reproduced with permission of UNCITRAL

Abstract prepared by Keisha Williams

This case deals primarily with a buyer's responsibility to provide proof of an alleged lack of conformity of goods.

The Chinese seller entered into a contract with the German buyer for the sale of fibreglass mesh in several [installments] . After taking delivery of the first and second containers, the buyer claimed defects in the goods and refused to pay the remaining 50 per cent of their price. The buyer also refused to take delivery of the third [installment]. In order to mitigate the loss, the seller took back the goods in the third [installment], incurring shipping fees for the round-trip transportation of the goods.

The seller commenced arbitration in which the buyer failed to participate without giving a reason. In lack of a choice of law by the parties, the arbitral tribunal applied the CISG under article 1(1)(a) of the Convention. The tribunal held that the parties had entered into an effective and binding contract and that the seller had performed its obligations under the contract. However, because the buyer failed to provide any evidence of the alleged quality defects, the tribunal was unable to conclude that the goods delivered to the buyer had quality problems. Therefore, the buyer's refusal to pay and take delivery of the goods constituted a breach of the buyer's duties under the CISG.

Accordingly, the arbitral tribunal ordered the buyer to pay the outstanding portion of the purchase price regarding the first two [installments], and to pay interest on that sum under article 78 CISG. The buyer was also ordered to bear the expense of the round-trip transportation fee of the third [installment].

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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 35 ; 74 ; 77 ; 78

Classification of issues using UNCITRAL classification code numbers:

35A [Conformity of goods to contract: quality, quantity and description required by contract];

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

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

78A [Interest on delay in receiving price or any other sum in arrears]

Descriptors: Conformity of goods ; Damages ; Mitigation of loss ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC (PRC) Arbitration Award

Fiberglass mesh case (6 November 2003)

Translation [*] by Meihua Xu [**]

Edited by Zheng Xie [***]

-   Particulars of the proceeding
-   Facts and position of the parties
-   Opinion of the Arbitration Tribunal
-   Award

PARTICULARS OF THE PROCEEDING

The China International Economic and Trade Arbitration Commission (hereafter, the "Arbitration Commission") accepted the case (Case Number: G ...) according to:

   -    The arbitration clause in the sales contract signed by Claimant [Seller], __ China Dalian __ Fiberglass Mesh Company, and Respondent [Buyer], __ GmbH, of Germany on 20 April 2002; and
 
   -  The written arbitration application submitted by the [Seller] on 25 December 2002.

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

Because the disputed amount is less than renminbi [RMB] 500,000, according to Article 64 of the Arbitration Rules, Section Three, the Summary Procedure applies to this case.

On 21 January 2003, the Secretariat of the Arbitration Commission sent to the parties the arbitration notice, the Arbitration Rules, and the name list of arbitrators and forwarded the [Seller]'s arbitration application and attachment to the [Buyer]. Pursuant to the arbitration notice, the parties were required to appoint a sole arbitrator within the stipulated time, and the [Buyer] was asked to submit its response within the stipulated time. On 3 February 2003, the [Buyer] received the aforesaid documents.

Since the parties failed to jointly appoint or ask the Chairman of the Arbitration Commission to appoint a sole arbitrator, according to Article 65 of the Arbitration Rules, on 24 March 2003, the Chairman of the Arbitration Commission appointed __ as the sole arbitrator forming the Arbitration Tribunal to hear this case.

On that same day, the Secretariat of the Arbitration Commission sent to the [Buyer] the Arbitration Tribunal formation notice by both fax and express mail. However, the post office sent a notice later, stating that the addressee had moved and that the new address was unknown. As requested by the Secretariat of the Arbitration Commission, the aforesaid notice was retained at the aforesaid address.

On 11 April 2003, the Secretariat of the Arbitration Commission issued a (2003) Mao Zhong Zi __ Notice, asking the [Seller] to provide the new address of the [Buyer]; however, the [Seller] failed to do so. On 18 August 2003, the [Seller] sent a fax to the Arbitration Commission, alleging that "the address provided by the [Seller] was the last known address of the [Buyer]; therefore, in accordance with Article 87 of the Arbitration Rules, the [Seller] asks the Arbitration Commission to continue the arbitration process based on the aforesaid address of the [Buyer]."

Based on the above, except for the arbitration notice, the remaining documents were sent to the [Buyer] at the aforesaid address.

The [Buyer] failed to provide a response. The Arbitration Tribunal revewed the [Seller]'s written arbitration application and the evidence, and held a court session in Beijing on 23 September 2003. The [Seller] sent its agent to the court session. However, the [Buyer] neither sent any representative or agent to the court session, nor did the [Buyer] explain the reason for its absence. According to Article 42 of the Arbitration Rules, the Arbitration Tribunal heard this case by default. The agent of the [Seller] made a statement on this case and answered the Arbitration Tribunal's questions.

After the court session, the Secretariat of the Arbitration Commission sent a (2003) Mao Zhong Zi __ letter, informing the [Buyer] of the court session, and soliciting the two parties' supplementary material by 15 October 2002. The [Seller] submitted supplementary material after the court session; however, the [Buyer] failed to provide any document.

Due to the difficulties in dispatching arbitration documents, the hearing time for this case was prolonged. With the Arbitration Tribunal's request, on 23 June 2003 and 9 September 2003, respectively, the Secretariat of the Arbitration Commission postponed the deadline for handing down a decision on this case to 7 November 2003. The Secretariat of the Arbitration Commission informed the parties of the aforesaid decision.

This case has been concluded. According to Article 42 of the Arbitration Rules, the Arbitration Tribunal handed down its decision based on the existing written material and the facts ascertained at the court session.

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

FACTS AND POSITION OF THE PARTIES

[Seller]'s position

The evidence provided by the [Seller] shows that:

On 20 April 2002, the [Buyer] and the [Seller] signed Sales Contract DNP-200 (hereafter, the "Contract"), with the following terms:

   -  Goods 1: White fiberglass mesh 44mm 160g/m;
   - Quantity: 192,000 m;
   - Unit price: 0.312 EUR CNF Hamburg.
   - Goods 2 : Yellow fiberglass mesh 44mm 160g/m;
   - Quantity: 9,600 m;
   - Unit price: 0.317 EUR CNF Hamburg.
   - Total price: 83,695.85 EUR, CNF Hamburg;
   - Shipping period: By 26 May 2002 with the destination port of Hamburg;
   -    Payment: 50% by D/P 50% seven days after the container arrives in the [Buyer]'s warehouse;
   -    Quality/quantity objection: Article 12 of the contract stipulates that the [Buyer] shall raise objection on the quality of the goods within three months of the arrival of the goods and shall raise quantity objection within fifteen days after the arrival of the goods.

In its arbitration application, the [Seller] alleges that:

On 10 April 2002, the [Seller] sent sample goods to the [Buyer], which were confirmed by the [Buyer]. On 20 April 2002, the [Buyer] and the [Seller] signed the Contract in this case.

On 17 May, 31 May, and 14 June 2003, respectively, the [Seller] shipped to the [Buyer] containers of the goods which were exactly the same as the sample goods confirmed by the [Buyer]. On 19 June 2002, the [Buyer] received the first container of the goods, and on the same day, the [Buyer] informed the [Seller] that due to defects of the goods, the [Buyer] refused to pay the remaining 50% of the price for the goods in the first container, i.e., 14,754.30 EUR, and refused to take delivery of the second and the third containers.

On 26 June 2002, the [Seller] sent representatives to Germany to negotiate with the [Buyer]; however, the [Buyer] neither permitted the [Seller]'s representatives to check the goods in the warehouse, nor did the [Buyer] provide any inspection report or proving evidence to the [Seller]. The [Buyer] discussed with the [Seller]'s representatives at Frankfurt Airport for a short time, rejecting the [Seller]'s proposal to jointly inspect the goods and informing the [Seller] that it refused to pay the remaining price for the goods in the first container and to take delivery of the goods in the second and the third containers.

However, on 11 July 2002, the [Buyer] took delivery of the goods in the second container, paid 50% of the price for the goods, and alleged that it was not going to pay the remaining 50% of the price. In order to mitigate the loss, the [Seller] took back the goods for the third delivery to Dalian, suffering losses of shipping fee for taking the goods back to China in the amount of US $1,173.70 and the shipping fee of US $1,630 from Dalian to Hamburg which should have been borne by the [Buyer].

The [Seller] alleged that the [Buyer] repeatedly took deliveries of the goods by paying the first 50% of the price for the goods, and then refused to pay the remaining price by alleging quality defects, which showed that the [Buyer] had no true intention to perform the Contract and that the [Buyer] lacked basic business ethics. In order to protect its legal rights, the [Seller] filed this arbitration application.

The following are the [Seller]'s arbitration claims:

   (1)   [Buyer] should pay the remaining price for the goods in the first container of 14, 754.30 EUR and 14,754.30 EUR for the price of the goods in the second container, totaling 29,508.60 EUR;
 
   (2)   [Buyer] should bear the interest on the payment in arrears, i.e., 68.90 EUR (based on 14,754.30 EUR at the annual interest rate of 0.6875 for a checking account of Bank of China, calculated from 26 June 2002 and 18 July 2002 to the day of actual payment);
 
   (3)   [Buyer] should bear the shipping fee for delivery and taking back the goods in the third container, totaling US $2,803.70;
 
   (4)   [Buyer] should bear the entire arbitration fee.

After the court session, the [Seller] supplemented its presentation as follows:

1. Installment delivery

Prior to the conclusion of the Contract, the [Buyer] and the [Seller] had negotiated the method for delivery of the goods, agreeing on delivery by three installments. There was no stipulation on the delivery method in the Contract. However, after the conclusion of the Contract, the [Seller] contacted the [Buyer] for the issue of delivery, and the [Buyer] agreed again on delivery by three installments. Therefore, the installment shipments were agreed to by both parties.

2. Delay in delivery

After the conclusion of the Contract, the [Seller] notified the [Buyer] that the actual loading time would be 17 May, 31 May, and 14 June 2002, respectively. This was accepted by the [Buyer]. After loading the goods, the [Buyer] has never raised objection to the shipping time. On the contrary, the [Buyer] took deliveries of the goods of the first two containers. The [Buyer]'s acceptance of the actual loading time has constituted a modification of the Contract.

3. The price for the goods

The two parties had a dispute during a business transaction conducted in 2001, and the [Seller] agreed to make certain compensation to the [Buyer] during the performance of the Contract in this case. Therefore, the price in the actual performance of this Contract was lower than that stipulated in the Contract and the quantity of the goods actually loaded was more than that stipulated in the Contract.

Before each delivery, the [Seller] informed the [Buyer] of the actual quantity and price for the installment and the [Buyer] accepted this. During the performance of the Contract, the [Buyer] paid 50% of the price of the goods based on the price and quantity for the actual deliveries, and the [Buyer] was going to pay the remaining 50% of the price for the goods of the first and the second containers based on the price of actual performance of the Contract.

4. Calculation on interest

According to the payment term stipulated in the Contract, the [Buyer] was obligated to pay the remaining 50% of the price for the goods within seven days after the goods arrived at the warehouse. The first container of the goods arrived at the [Buyer]'s warehouse on 19 June 2002, and the [Buyer] took delivery of the goods of the second container on 9 July 2002 and notified the [Seller] on 11 July that it had already received the goods of the second container. Therefore, the goods of the second container arrived at the [Buyer]'s warehouse on 11 July. The interest on the aforesaid payments in arrears should be calculated from 27 June 2002 and 19 July 2002, respectively, based on the annual interest rate of 2.0625%, EUR savings account of Bank of China.

5. Shipping fee

The Contract was concluded under CNF terms, with the price of the goods included the shipping fee and for the [Seller] to ship the goods to the destination port. Because the [Buyer] refused to make payment for the price of the goods of the third container, the [Seller] had to take back the goods, suffering losses of shipping fees for the round-trip transportation. This was caused by the [Buyer]'s breach. Therefore, the [Buyer] should make compensation to the [Seller].

Regarding the [Seller]'s aforesaid statement, the [Buyer] did not submit any written response or evidence.

OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The two parties failed to stipulate the applicable law in the Contract or after the dispute arose. Because the [Seller]'s place of business is in China and the [Buyer]'s is in Germany, and both China and Germany are Contracting States of the CISG, according to Article 1(1)(a) of the CISG, the Arbitration Tribunal holds that the CISG applies to this case.

2. The effectiveness of the Contract

The Contract was entered into by and between the [Buyer] and the [Seller] on an equal and voluntary basis. It reflected the true intention of the parties and was in accord with the requirements for the effectiveness of a contract stipulated in the CISG. Therefore, the Contract is effective and is binding on the two parties.

3. The performance of the Contract

1. Delivery time and place

It was stipulated in the Contract that the goods shall be delivered by 26 May 2002. The invoice, packing list, and B/L (see evidence attached to the application) indicate that the [Seller] delivered containers of the goods on 17 May, 31 May, and 14 June 2002, respectively.

The Arbitration Tribunal notes that even though the delivery time and method were not consistent with the requirements in the Contract, the [Seller] sent a fax to the [Buyer] on 3 April 2002, stating:

"Considering the busy sales season has started, we suggest to ship the 340' in 140 containers in a week This means that we will ship a container immediately just after we finish it (if you agree, we can ship one container first in one week). And other 240' will be shipped in an additional two weeks. Please confirm that you agree on this plan, so that we can arrange production for your order."

The [Buyer] expressly agreed to this in a fax sent to the [Seller] on 5 April 2002, stating that "for the order of the goods, we agree on the way you suggest." Therefore, the two parties reached an agreement on the installment shipments and delivery time.

2. The quantity and the price of the goods

The goods under the Contract were:

   -    Goods 1: White fiberglass mesh 44mm 160g/m;
   -    Quantity: 192,000 m;
   -    Unit price: 0.312 EUR CNF Hamburg; and
 
   -    Goods 2: Yellow fiberglass mesh 44mm 160g/m;
   -    Quantity: 9,600 m;
   -    Unit price: 0.317 EUR CNF Hamburg.

The invoice, B/L and packing list provided by the [Seller] show that the [Seller] delivered 102,000m of 44 160g 150m white fiberglass mesh of the first and the second container with a unit price of 0.2894 EUR, totaling 29,508.60 EUR and delivered 102,000m of 44 160g 150m yellow fiberglass mesh with a unit price of 0.2953 EUR. Therefore, the quantity and the price for the goods in the actual deliveries were inconsistent with the stipulations in the Contract.

The [Seller] alleged that prior to each delivery, the [Seller] informed the [Buyer] of the actual delivery time and quantity, and the [Buyer] had never raised any objection, but only paid 50% of the price for the goods of the first two containers. For this, the [Seller] provided payment notices issued by Agriculture Bank of China Dalian Branch on 10 June 2002 and 11 July 2002, respectively. The aforesaid payment notices indicate that the [Buyer] made two payments with 14,754.3 EUR in each payment.

The [Buyer] did not raise objection to the [Seller]'s aforesaid allegation. Thus, the Arbitration Tribunal concludes that, during the performance of the Contract in this case, the parties have actually altered the quantity and price of the goods. The delivery time, quantity of the goods, and the method for making delivery were in accordance with the altered terms agreed by the two parties. Therefore, the [Seller] has performed its duties under the Contract.

3. Quality of the goods

The Arbitration Tribunal notes that there was no stipulation on the quality of the goods in the Contract. In its arbitration application the [Seller] alleged that prior to the conclusion of the Contract in this case, the [Seller] had mailed sample goods to the [Buyer], and the goods delivered later were in accordance with the sample goods. At the court session, the [Seller] stated orally that the deliveries were made based on sample goods.

The Arbitration Tribunal notes that for a contract based on sample goods, the parties shall seal up the samples and stipulate definitely in the contract. However, in this case, the parties neither sealed up samples, nor did they stipulate in the Contract on the issue of delivery based on samples. On 19 June 2002, the [Buyer] sent a fax to the [Seller], raising objection based on defects in the goods, but not on inconsistencies between the goods actual delivered and the sample goods. Therefore, the Arbitration Tribunal holds that the [Seller]'s mailing of sample goods to the [Buyer] was to promote its products, that the parties failed to reach any agreement on delivery based on samples, and that the quality of the goods should be determined based on general quality standards of the same goods.

The faxes sent by the [Buyer] to the [Seller] dated 19 June 2002 and 11 July 2002 indicate that the [Buyer] took deliveries of the goods of the first two containers, but only paid 50% of the price, and that the [Buyer] failed to pay the remaining 50% of the price by raising quality defects of the goods, and refused to take delivery of the third container of the goods.

The Arbitration Tribunal notes that even though the [Buyer] alleged quality defects in its fax, it failed to provide any evidence showing the defects of the goods. Moreover, the [Seller] does not agree with the [Buyer]'s description of the quality of the goods. Therefore, the Arbitration Tribunal cannot conclude that the goods delivered by the [Seller] had quality problems.

Based on the above, the Arbitration Tribunal holds that the [Seller] has performed its obligation to deliver the goods, that the [Buyer]'s refusal to make the payments and take the delivery of the goods constitutes a beach of the duties stipulated in the CISG; therefore, the [Buyer] shall be held liable accordingly.

4. [Seller]'s arbitration claims

      (1) [Seller]'s request for the [Buyer] to pay 50% of the price for the goods of the first two containers.

      Based on the aforesaid analysis, the Arbitration Tribunal is of the opinion that the [Buyer] should pay the price for the goods which it has accepted. Therefore, the Arbitration Tribunal sustains this claim of the [Seller].

Based on the invoice provided by the [Seller], the total price for the goods of the first two containers is 59,017.20 EUR. The [Buyer] has paid 50% of the aforesaid price. Therefore, the [Buyer] shall pay the remaining 50%, i.e., 29,508.60 EUR.

      (2) [Seller]'s request for the [Buyer] to pay interest on the payment in arrears

      The Arbitration Tribunal holds that, according to Artcle 78 of the CISG, this claim of the [Seller] is reasonable, and the [Buyer] shall pay the aforesaid interest.

However, regarding the interest calculation, the Arbitration Tribunal notes that the [Seller]'s calculations during the arbitration process were inconsistent. In its arbitration application, the [Seller] claims:

"[Buyer] shall bear the interest on the payment in arrears, i.e., 68.90 EUR (based on 14,754.30 EUR at the annual interest rate of 0.6875 for a checking account of Bank of China, calculated from 26 June 2002 and 18 July 2002 to the day of actual payment)."

However, in its supplementary statement dated 10 October 2003, the [Seller] alleged:

"After investigation conducted after the court session, it was found that the annual interest rate for a EUR saving account of Bank of China was 2.0625%; therefore, the [Seller] claims for interest based on the aforesaid rate."

Based on the [Seller]'s aforesaid allegation and the actual time that the [Buyer] received the goods, the Arbitration Tribunal holds that the [Buyer] shall pay the interest on the payment in arrears for the goods of the first two containers based on the following calculation:

"Based on EUR 14,754.30 and an annual interest rate of 2.0625%, calculated from 6 June 2002 and 18 July 2002, respectively, to the day of actual payment."

      (3) [Seller]'s claim for round-trip transportation fee of US $2,803.70 for the third container

      The Arbitration Tribunal notes that it was the [Buyer]'s duty to accept the goods under the Contract. The [Buyer] refused to accept the goods without providing any evidence showing that there were defects of the goods, which caused the occurrence of the round-trip transpiration fee for the third container. Therefore, the [Buyer] shall bear the aforesaid expense.

5. Arbitration fee

The [Buyer] shall bear the entire arbitration fee.

THE AWARD

The Arbitration Tribunal rules that:

   (1)   [Buyer] shall make payment in arrears of 29,508.60 EUR to the [Seller];
 
   (2)   [Buyer] shall bear the interest on the payment in arrears for the first two containers based on the following calculation:

"Based on EUR 14,754.30 and an annual interest rate of 2.0625%, calculated from 6 June 2002 and 18 July 2002, respectively to the day of actual payment."
 

   (3)   [Buyer] shall bear the round-trip transportation fee for the third container of US $2,803.70;
 
   (4)   The arbitration fee for this case is renminbi [RMB] 20,000, which shall be borne by the [Buyer] entirely. The [Seller] has paid the aforesaid amount in advance, so the [Buyer] shall pay RMB 20,000 to the [Seller].

This is the final award. It shall take effect from the day of this award.

SOLE ARBITRATOR: ____

6 November 2003 in Beijing


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the People's Republic of China is referred to as [Seller] and Respondent of Germany 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]; amounts in the currency of Europe (Euro) are indicated as [EUR].

** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of a Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.

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

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