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CISG CASE PRESENTATION

China 3 December 2003 CIETAC Arbitration proceeding (False hair case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/031203c1.html]

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

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Case identification

DATE OF DECISION: 20031203 (3 December 2003)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2003/02

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: United States (respondent)

GOODS INVOLVED: False hair


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade Arbitration
Commission (CIETAC) (now South China Branch) 3 December 2003 (False hair case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/114],
CLOUT abstract no. 1121

Reproduced with permission of UNCITRAL

Abstract prepared by Shuo Peng

A Chinese seller and a United States buyer signed a contract for the sale of wigs. The buyer had not made the payment as agreed a long time after the goods had been delivered to it. The seller initiated arbitration proceedings in accordance with the arbitration agreement in the contract, and asked the Arbitration Tribunal to order the buyer to pay the sum for the goods, the penalty for breaching the contract and the arbitration fees.

Since the places of business of the parties were in States Parties to CISG, the Tribunal ruled under article 1(1)(a) CISG that the case should be governed by the Convention and that those matters for which the Convention did not provide would be governed by Chinese law following the principle of the closest connection.

Regarding the issue of the validity of the contract, the Tribunal held that, under article 4(a) CISG, the Convention did not cover such an issue. The Tribunal found that the contract was valid according to the contract law of the People's Republic of China, and was legally binding for both parties.

Regarding the disputed issue of the contract price, the Tribunal held that, under article 54 of the Convention, the buyer did not have due reasons to refuse to pay the sum for the goods. This was a breach of contract for which the buyer should bear responsibility. As the buyer did not provide any evidence of the contrary, the Tribunal upheld the request of the seller. As to the seller's claim that the buyer should pay a penalty for breach of contract, the Tribunal supported that demand as well, since it was based on the contract and was in line with legally binding provisions, moreover, the buyer had not disputed it.

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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 4 ; 54

Classification of issues using UNCITRAL classification code numbers:

4B1 [Issues covered and excluded (issues excluded): validity under domestic law];

54A [Buyer's obligation to pay price]

Descriptors: Validity ; Price

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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

False hair case (3 December 2003)

Translation [*] by Meihua Xu [**]

Translation edited by Zheng Xi [***]

The China International Economic and Trade Arbitration Commission Shenzhen Sub-Commission (hereafter, the "Shenzhen Commission") accepted the case on 23 June 2003 (Case number: SHEN G2003063) according to:

   -    The arbitration clause in Sales Contract No. ZT01092704 (hereafter, the "Contract") signed by Claimant [Seller], China __ Company, and Respondent [Buyer], America __ Company; and
 
   -    The written arbitration application submitted by [Seller].

The Arbitration Rules of China's International Economic and Trade Arbitration Commission [hereafter, the Arbitration Rules], which took effect on 1 October 2000, apply to this case.

On 30 June 2003, by express mail, the Secretariat of the Shenzhen Commission sent the arbitration notice, the [Seller]'s arbitration application and the attachment, the Arbitration Rules, and the arbitrators' list to the [Buyer]'s address provided by the [Seller] in its arbitration application. According to Article 13 of the Arbitration Rules, the arbitration process started on the aforesaid date.

The [Seller] asked the Chairman of the Arbitration Commission to appoint an arbitrator and the Chairman of the Arbitration Commission appointed Ms. Zeng as the [Seller]'s arbitrator; the [Buyer] failed to appoint or ask the Chairman of the Arbitration Commission to appoint an arbitrator within the stipulated time, so the Chairman of the Arbitration Commission appointed Mr. Chen as the [Buyer]'s arbitrator; the Chairman of the Arbitration Commission also appointed Mr. Huang as the Presiding Arbitrator, because the two parties failed to jointly appoint or ask the Chairman of the Arbitration Commission to appoint the Presiding Arbitrator within the stipulated time. On 6 August 2003, the aforesaid three arbitrators formed the Arbitration Tribunal to hear this case.

The Arbitration Tribunal held a court session in Shenzheng at 9 a.m. on 26 September 2003. The representative of the [Seller] attended the court session. The [Buyer] was absent without giving any explanation for its absence. Article 42(2) of the Arbitration Rules stipulates that:

"If one of the parties fails to attend the court session, the Arbitration Tribunal may process or make decision on the case by default."

According to this provision, at the court session, the Arbitration Tribunal processed this case by default. After the court session, as directed by the Arbitration Tribunal, the Secretariat of the Shenzhen Commission sent to the [Buyer] the statement of court session in order to give the [Buyer] an opportunity to respond.

The Arbitration Tribunal and the Secretariat of the Shenzhen Commission did not receive any response or written opinion from the [Buyer] within the stipulated time, and the [Buyer] did not raise any objection to the proceeding.

The entire legal documents and notices related to this case were sent to the parties by the Secretariat of the Shenzhen Commission in accordance with the Arbitration Rules.

This case was concluded. Based on the facts ascertained, the relevant law, and the stipulations in the Contract, the Arbitration Tribunal handed down this award.

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

I. FACTS

On 27 September 2001, the [Buyer] and the [Seller] signed a Contract with the following terms:

   -    Goods: 19,450 sets of false hair;
 
   -    Price: The total price is US $136,040.00 FOB China;
 
   -    Shipping: The goods shall be shipped by the end of October 2001; the departure port is Qingdao, China, and the destination port is New York, U.S.;
 
   -    Payment: D/A 90 days; the [Buyer] shall make payment within the stipulated time; otherwise, for breach of the contract, the [Buyer] shall pay to the [Seller] a fee of 5/10,000 of the total price/day;
 
   -    Arbitration: Any dispute arising from the performance of the Contract or in connection with the Contract shall be settled by friendly negotiation. If the negotiation fails, the dispute shall be submitted to the Shenzhen Commission for arbitration.

[Seller]'s position

The [Seller] alleges that on 27 September 2001, the [Buyer] and the [Seller] signed the Contract for the sale of false hair with the payment term of D/A 90 days. The [Buyer] should have made payment on 4 February 2002. The [Buyer] sent a fax on 12 August 2002, promising to make payment by installments, but it failed to make any payment. According to the Contract, the [Buyer] should pay a contract breach fee, and any dispute arising from this case may be submitted to the Shenzhen Commission for arbitration. The [Seller] asks the Arbitration Tribunal to rule that:

  1. [Buyer] shall pay the [Seller] the contract price of US $134,620 and the contract breach fee of US $13,462, totaling US $148,082;

  2. [Buyer] shall bear the arbitration fee.

To support its arbitration claims, the [Seller] submitted the Contract, the corresponding faxes between China __ Bank and Liberty Bank of New York, the customs application, invoices, and the B/L as evidence.

The [Buyer] did not submit any defense material in response to [Seller]'s arbitration claims, statement, and evidence.

II. OPINION OF THE ARBITRATION TRIBUNAL

(1) Applicable law

This case involves a dispute arising from an international sales contract. The [Seller]'s place of business is in China, and the [Buyer]'s place of business is in the United States. Both countries are Contracting States of the CISG. Article 1 of the CISG states,

"(1) This Convention applies to contracts of sales of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when the rules of private international law lead to the application of the law of a Contracting State."

The Arbitration Tribunal therefore holds that the CISG applies to this case.. Because the [Seller]'s place of business, the place of loading, and the place of arbitration are all in China, pursuant to the proximate connection principle set forth in international private law, Chinese law shall be applied when there is no stipulation in the CISG.

(2) The validity of the Contract

Article 4 of the CISG states,

"This Convention governs only the formation of the contract of sale and the rights and obligations of the seller and the buyer arising from such a contract. In particular, except as otherwise expressly provided in this Convention, it is not concerned with: (a) the validity of the contract or of any of its provisions or of any usage; ..."

According to the aforesaid stipulation, the Arbitration Tribunal holds that the CISG does not govern the validity of the contract. Therefore, the validity of the Contract in this case shall be determined by Chinese law.

Article 9 of the Contract Law of the People's Republic of China (hereafter, "Contract Law of the PRC") stipulates that:

"In entering into a contract, the parties shall have the appropriate capacities for civil rights and civil acts. A party may appoint an agent to enter into a contract on its behalf under the law."

Article 32 of the Contract Law of the PRC stipulates that:

"Where the parties enter into a contract by a memorandum of contract, the contract is formed when it is signed or sealed by the parties."

And Article 44 of the same law states that:

"A lawfully formed contract becomes effective upon its formation."

The Contract in this case was signed by the [Buyer] and the [Seller], and which reflects the true minds of the two parties. Both parties have the capacities of civil rights and civil acts, and there is no fact in this case that satisfies the requirement for a contract to be invalid as stipulated in Article 52 of the Contract Law of the PRC. Therefore, the Arbitration Tribunal holds that the Contract in this case was legally formed and effective, and is binding on the parties.

(3) The arbitration claims for payment in arrears and contract breach fee

1. Payment in arrears

After the conclusion of the Contract, the [Seller] provided 19,250 sets of false hair with the total value of US $134,620.00. This is evidenced by the export goods customs application form of China Customs with a seal of Qingdao Customs, China, an invoice, and a B/L issued by Chengyi Shipping (China) Company.

On 22 November 2001, Liberty Bank of New York replied to China Merchant Bank, stating that the documents for a total of US $134,620.00 of goods had been received by the [Buyer] with the payment deadline of 4 February 2002. This fact indicates that the [Seller] performed its obligations to deliver the goods and to provide the documents.

The [Seller] alleges that the [Buyer] failed to make payment in accordance with the Contract. The [Buyer] neither made any defense on whether it has made the entire or part of the payment, nor provided any evidence showing that it made the entire or part of the payment. Thus, the Arbitration Tribunal holds that the [Seller]'s allegation that the [Buyer] failed to pay for the price of US $134,620.00 for the goods is supported.

Article 54 of the CISG stipulates that the [Buyer] shall make payment and take delivery of the goods as required by the contract and the Convention. Based on the facts ascertained by the Arbitration Tribunal, the [Buyer] delayed in making payment and refused to pay without proper reasons. This constitutes a contract breach, and the [Buyer] shall bear the liability accordingly. Thus, the Arbitration Tribunal supports the [Seller]'s claim for the contract price, i.e., US $134,620.00.

2. Contract breach fee

Article 4 of the Contract states that:

"As to payment by D/P, the [Buyer] shall make payment within the stipulated time; otherwise, for breach of the contract, the [Buyer] shall pay to the [Seller] a fee of 5/10,000 of the contract price/day."

The [Buyer] failed to make payment. Therefore, it should pay the contract breach fee. On 22 November 2001, Liberty Bank of New York replied to China Merchant Bank, stating that the documents for the total of US $134,620.00 of goods had been received by the [Buyer] with a payment deadline of 4 February 2002. The [Seller] alleges that the contract breach fee should be calculated from the day on which the [Buyer] should have made payment, i.e., 5 February 2001, i.e., 200 days, and the amount is US $13,462. There is a contractual basis for the [Seller] to request the [Buyer] to pay the contract breach fee of 5/10,000 of the contract price per day, and this stipulation does not violate any law or regulations. Moreover, the [Buyer] raised no objection. Therefore, this claim of the [Seller] shall be sustained.

Based on the above analysis, the Arbitration Tribunal sustains the [Seller]'s claim for the contract breach fee of US $13,462 [US $134,620.00 0.0005 200 days = US $13,462].

(3) Arbitration fee

Considering that all of the [Seller]'s arbitration claims are sustained and the [Buyer]'s breach caused this arbitration, the Arbitration Tribunal holds that the entire arbitration fee, i.e., renminbi [RMB] 50,653, shall be borne by the [Buyer].

III. THE AWARD

The Arbitration Tribunal rules that:

      (1) [Buyer] shall pay the price in arrears of US $134,620.00 and the contract breach fee of US $13,462 within 30 days of this award;

      (2) [Buyer] shall bear the entire arbitration fee.

This is the final award.

Presiding Arbitrator:

Arbitrator:

3 December 2003 in Shenzhen


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 the United States of America is referred to as [Buyer]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

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

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

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