Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography

CISG CASE PRESENTATION

China 31 December 2003 CIETAC Arbitration proceeding (Clothes case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/031231c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20031231 (31 December 2003)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2003/03

CASE NAME: Unavailable

CASE HISTORY: For related proceeding, see CIETAC Arbitration proceeding of 3 June 2003 (Clothes case)

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

BUYER'S COUNTRY: Australia (respondent)

GOODS INVOLVED: Clothes


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 81(2) ; 82

Classification of issues using UNCITRAL classification code numbers:

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

81C1 [Effect of avoidance on obligations: restitution by each part of benefits received (return of defective goods)];

84B2 [Buyer must account to seller for benefits received from goods: when impossible to return goods in same condition]

Descriptors: Damages ; Restitution

Go to Case Table of Contents

Editorial remarks

Go to Case Table of Contents

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

Go to Case Table of Contents
Case text (English translation)

Queen Mary Case Translation Programme

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

Clothes case (31 December 2003)

Translation [*] by Meihua Xu [**]

Translation edited by Zheng Xie [***]

The China International Economic and Trade Arbitration Commission Sub-Shenzhen Commission (hereafter, the "Shenzhen Commission") accepted the case on 28 July 2003 (case number: SHEN G2003072) according to:

   -    The arbitration clause in Sales Contract No. HL0001 (hereafter, the "Contract") signed by Claimant [Seller], China __ Company, and Respondent [Buyer] Australia __ 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 effective on 1 October, 2000, apply to this case.

On 1 August 2003, the Secretariat of the Shenzhen Commission sent the arbitration notice, the [Seller]'s arbitration application and the attachment, the Arbitration Rules and the Arbitration Fee Schedule, and the Arbitrators List to the [Buyer] by express mail. The corresponding documents were sent to the [Seller] at the same time.

The [Seller] has filed a property preservation application, and the Secretariat of the Shenzhen Commission has forwarded this application to the Intermediate People's Court of Shaoxing City, Zhejiang Province on 1 August 2003.

The [Seller] appointed Mr. Weng as its arbitrator; the [Buyer] asked the Chairman of the Arbitration Commission to appoint Ms. Wang as its arbitrator; and the Chairman of the Arbitration Commission appointed Mr. Xu as the Presiding Arbitrator because the two parties failed to jointly appoint or authorize the Chairman of the Arbitration Commission to appoint the Presiding Arbitrator. On 26 September 2003, these three arbitrators formed the Arbitration Tribunal to hear this case.

The Secretariat of the Shenzhen Commission scheduled a court session on 14 November 2003. The representatives of the [Buyer] and the [Seller] attended. The Arbitration Tribunal heard the parties' statements, cross examination of the evidence and arguments, and made investigations on relevant facts of this case. After the court session, the parties submitted written statements. The Secretariat of the Shenzhen Commission has mailed the aforesaid documents to the two parties.

This case has been concluded, and the Arbitration Tribunal handed down this award by consent.

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

I. FACTS

On 23 May 2000, the [Buyer] and the [Seller] signed the Contract for the sale of 13,722 pieces of clothes by different designs, totaling US $27,102.40. The Contract included the following terms:

  1. Packing: See manufacturing list (i.e., manufacturing and processing list: note by the Arbitration Tribunal);
  2. Loading marks: See manufacturing list (same note as above);
  3. Loading date: 20 June 2000;
  4. Shipping port: China
  5. Destination port: Sydney, Australia;
  6. Insurance: [Buyer] shall purchase the insurance itself;
  7. Payment: 30% shall be paid as a deposit and 70% shall be paid when the goods are shipped;
  8. Quality guarantee: Based on clients' confirmation;
  9. Loading notice: After loading, the [Seller] shall inform the [Buyer] of the contract number, item number, name of the goods, quantity, name of the ship, and shipping date; if the [Seller] fails to perform the aforesaid obligations, it shall compensate for reasonable losses and damages incurred thereby;
  10. Arbitration: Any dispute arising from this Contract shall be settled by negotiation by the parties. If the negotiation fails, the dispute shall be submitted to the Arbitration Commission to be settled according to the Arbitration Rules. The decision of the Arbitration Commission shall be final and binding on the parties. The arbitration fee shall be borne by the losing party;
  11. Supplementary clause: There are two original copies of the contract. Each party keeps one as evidence.

After the conclusion of the Contract, the [Buyer] paid the total contract price and the transportation expenses, totaling US $31,438.28. The [Seller] delivered the goods; however, the [Seller] delivered the goods by air on 20 July, 2000, one month later than the date specified in the Contract.

[The former arbitration]

After delivery, on 28 July 2002, the [Buyer] filed an arbitration application according to the arbitration clause in the contract for a dispute on defects of the clothes. That case number is SHEN G2002051 [see Clothes case of 3 June 2003] (hereafter, the "former case"). The [Buyer] asked the Arbitration Tribunal in that case to rule that the [Seller] (the Respondent in that case) shall:

  1. Compensate for the contract price, transportation expenses, and loss of profits, totaling US $66,556.00; and
  2. Bear the arbitration fee.

After hearing that case on 3 June 2003, the Arbitration Tribunal that presided over the former case handed down its (2003) CIETAC No. 32 award (hereafter, "Award No. 32 "). It provided that the [Seller] shall compensate the [Buyer] for the loss of US $37,725.94 and bear 80% of the arbitration fee.

[Proceeding after Award No. 32 became effective]

After Award No. 32 took effect, the [Seller] filed a petition in the People's Court of Shaoxing City, Zhejiang Province to enforce the award. On 19 June 2003, the [Seller] sent a fax to the [Buyer], requiring the [Buyer] to return the goods and inform the [Seller] of the location and the quantity of the goods. However, the [Buyer] replied on 25 June 2003, requiring the [Seller] to first perform in accordance with Award No. 32. It was [Buyer]'s position that "we should discuss the issue of returning the goods after you fulfill the obligations stipulated in Award No. 32." Thereafter, the parties discussed the order of executing Award No. 32 and returning the goods, but failed to reach any agreement. Therefore, the [Seller] filed this arbitration application with Shenzhen Commission.

[This arbitration application]

In this arbitration application, the [Seller] asks this Arbitration Tribunal to rule that:

  1. The [Buyer] shall immediately inform the [Seller] of the location and the quantity of the goods under Award No. 32 and cooperate with the [Seller] in the inspection and return of the goods;
  2. The [Buyer] shall compensate for the loss of the [Seller] of US $37,725.94 in the event it fails to return the entire goods or only returns part of the goods;
  3. The [Buyer] shall bear the entire arbitration fee and the [Seller]'s expenses incurred for this case according to Article 59 of the Arbitration Rules.

POSITION OF THE PARTIES

In the arbitration application, the response, the statements and arguments at the court session and the written documents submitted after the court session, the parties took the following positions:

(I) The basis for the acceptance of this case by the Tribunal

-  [Buyer]'s position

      The [Buyer] alleges that the Shenzhen Commission's acceptance of this case violates the law for the following reasons:

     1. Article 4 of the Arbitration Law of the People's Republic of China stipulates,

"The parties adopting arbitration for dispute settlement shall agree on an arbitration agreement on a mutually voluntary basis. An arbitration commission shall not accept an application for arbitration submitted by one of the parties in the absence of an arbitration agreement"; and

     Article 3 of the Arbitration Rules states:

"The Arbitration Commission will, upon the written application by one of the parties, accept a case in accordance with the arbitration agreement concluded between the parties, either before or after the occurrence of the dispute, in which it is provided that disputes are submitted to the Arbitration Commission for arbitration."

However, when the [Seller] filed this arbitration application on 28 July 2003, it only submitted a written arbitration application without providing any arbitration agreement, and no arbitration agreement has been found in evidence items 1~6 of the evidence list submitted by the [Seller] to the Shenzhen Commission.

     2. On 9 October 2003, two month after the Shenzhen Commission had accepted this case on 1 August 2003, the [Seller] submitted a copy of the Contract, which includes an arbitration clause. However, the [Seller] still failed to satisfy the requirements of arbitration for the following reasons:

          (1) The Contract submitted by the [Seller] was a photocopy made by Australia __ Company for the former case, but not the original Contract. The former case has been concluded. Therefore, the evidence used in that case cannot be used in this case, and the arbitration clause submitted in the former case cannot be used as the basis for the arbitration claim in this case;

          (2) The [Seller] stated in its arbitration application,

"On 3 June 2003, the Shenzhen Commission handed down Award No. 32 on the dispute on the Contract between the [Buyer] and the [Seller]. According to Award 32, the [Seller] should compensate the [Buyer] for the loss of US $37,725.94 as the goods lack merchantability. The [Seller] may require the return of the goods at its own expense."

According to the above statement, the [Seller] acknowledges that the dispute over the Contract has been settled, and that the amount of compensation has been determined. Because the dispute on the Contract has been settled by the Shenzhen Commission, it violates the relevant law that the [Seller] filed the arbitration application again based on the arbitration clause in the Contract.

          (3) The [Seller] filed the following claims in the arbitration application:

               First, the [Seller] asks the Tribunal to require the [Buyer] to inform the [Seller] of the quantity and the location of the goods. The Contract is for the sale of clothes. The [Seller] has received the payment for the goods and delivered the goods to the [Buyer], therefore, the [Seller] has no right to require the [Buyer] to inform of the quantity and the location of the goods.

               Second, the [Seller] asks the Tribunal to require the [Buyer] to return the goods; and to rule that if the [Buyer] does not return the goods, the [Buyer] should pay the [Seller] for the loss, $ 37,725, which is higher than the contract price, $27,102.40. The Contract Law does not stipulate that Seller has the right to require Buyer to return the goods.

               Third, the [Seller] asks the Tribunal to require the [Buyer] to bear the arbitration fee.

The above three claims show that the [Seller] did not file the arbitration application for the dispute over the Contract. Therefore, the Contract is not directly related to this case, so the [Seller] did not submit the Contract as evidence in this case. The Shenzhen Commission mistakenly accepted the [Seller]'s requests to return the goods and inform of the quantity and place as a dispute arising out of the Contract.

          (4) The [Seller] mentions in the arbitration application that the Arbitration Tribunal has concluded that the goods were not merchantable, and that the [Seller] has the right to require the [Buyer] return the goods. The [Seller] wishes to have the [Buyer] return the goods. The [Seller] also alleges that after the arbitration award for the former case was handed down, the ownership of the goods has been transferred to the [Seller]. Therefore, there is no restriction on the [Seller]'s right to request the [Buyer] to return the goods.

From the [Seller]'s aforesaid opinions in the arbitration application, it should be regarded that the [Seller] filed the arbitration claim based on Award No. 32. Therefore, the dispute in this case is not arising out of the Contract, but out of Award No. 32 The arbitration clause, therefore, cannot be used as the basis for this arbitration.

     3. A second arbitration application is not allowed in the event that there is an objection to or dispute over Award No. 32 for the following reasons:

        (1) Both the Arbitration Law of the PRC and the Arbitration Rules stipulate that an arbitration commission can accept a case only when one party submits both a written arbitration application and an arbitration agreement. However, there was no arbitration clause in Award No. 32 and the two parties did not reach an arbitration agreement afterwards. Therefore, neither of the parties has the right to file an arbitration application.

        (2) Article 60 of the Arbitration Rules states that: "The arbitration award is final and binding upon both disputing parties. Neither party may bring a suit before a law court or make a request to any other organization to revise the arbitral award."

Based on the above reasons, it is the [Buyer]'s position that the [Seller] has violated the law by filing the second arbitration claim based on Award No. 32 of the former case.

-  [Seller]'s counter argument

     The [Seller], however, counter argues that:

The [Seller]'s arbitration claim filed in July 2003 with the Shenzhen Commission does not violate the relevant stipulations in the Arbitration Rules. The [Seller] filed the current arbitration claims based neither on the rights and obligations described in the Contract, nor on the objection to Award No.32. The claims are based on the rights and duties described in Award No.32 and are based on the extension of the contract. Therefore, based on the stipulations in the Contract, the dispute in this case should also be settled by arbitration. Thus, the Shenzhen Commission's acceptance of this case is in accordance with the stipulations in the Arbitration Rules without any violation.

(II) Whether the [Seller] has the right to ask for the return of the goods

-  [Seller]'s position

     The [Seller] argues that Award No. 32 provides that the [Seller] shall compensate the [Buyer] for the contract price. However, according to United Nations Convention on Contracts for the International Sale of Goods (1980), such award should be made only when the contract is declared avoided. This means that the [Seller] has the ownership of the goods. Award No. 32 also provides that the [Seller] has the right to request the [Buyer] to return the goods, which means that the ownership of the goods was transferred to the [Seller] when the arbitration award was handed down.

The [Seller] exercised its right by authorizing its attorney to request the [Buyer] to provide the relevant information about the goods. However, the [Buyer] failed to provide information and made no response even when urged by the [Seller]. This is an infringement on the [Seller]'s legal rights and a challenge to Award No. 32 and the law of the PRC. This violation directly caused the dispute in this case; therefore, the [Buyer] should bear legal liability.

[The Tribunal in the former case stated: "Because the goods are not merchantable, return of the goods would only increase the expenses to the parties return of the goods has no practical meaning, and if the [Seller] requests the return of the goods, it should bear the entire expenses incurred thereof."]

The [Seller] alleges that:

   -    The former arbitration award states that the goods were not merchantable and that the return of the goods had no practical meaning, but this statement cannot be the reason to conclude that the [Seller] has lost its ownership of the goods.
 
   -    The use of the word "if" in Award No. 32 and the fact that there was no stipulation on the return of the goods in the main content of the award cannot deny the [Seller]'s ownership of the goods.
 
   -    The [Seller]'s right to the goods was confirmed, and the [Buyer] infringed the [Seller]'s legal right.

-  [Buyer]'s counter argument

    The [Buyer], however, counter argues that it does not agree with the [Seller]'s aforesaid opinions for the following reasons:

The [Seller] alleges that Award No. 32 in the former case correctly confirmed the [Buyer] and the [Seller]'s legal relationship. However, this award only confirmed that the [Seller] should compensate the [Buyer] for the loss of US $37,725.94 and the interest on the delayed payment, and that the two parties should jointly pay for the arbitration fee and other actual expenses incurred in the arbitration. This award neither mentioned the [Seller]'s right to request the [Buyer] to return the goods nor mentioned the [Buyer]'s obligations to return the goods or to inform the [Seller]. If Award No. 32 specified the [Seller]'s right to the goods and to require the [Buyer] to return the goods, the [Seller] could have requested the court which has jurisdiction over this case to enforce the award. Why did the [Seller] instead file an arbitration application again?

1. The [Buyer] also refers to the paragraph on page 16 of Award No. 32. It states:

"Because the goods are not merchantable, returning the goods would increase the expenses of the parties. The Arbitration Tribunal holds that the return of the goods has no practical meaning. If the [Seller] requests the [Buyer] return the goods, it should bear the entire related expenses incurred thereof."

The [Buyer] alleges that this statement shows the Arbitration Tribunal's opinion that returning the goods with low value would only increase the losses of the parties and that the goods should not be returned. If the [Seller] requests return of the goods, it is only the [Seller]'s own decision. However, there is no specific description of the quantity, place and expenses related to the returning of the goods. Award No. 32 did not rule on the issue of return of the goods. Therefore, the [Seller] has no right to request returning of the goods and the [Buyer] has no obligation to return the goods.

After Award No.32 was handed down, the [Seller] decided to request return of the goods. Within 30 days after receiving Award No. 32, the [Seller] could have filed application to the Arbitration Tribunal and asked the Arbitration Tribunal to make a supplementary award on the undecided issue according to Article 62 of the Arbitration Rules. However, the [Seller] did not file an application for a supplementary award within the stipulated period, so the [Seller] lost the right. The [Buyer] is not liable.

2. Even though Award No. 32 of the former case confirms the [Seller]'s right to request return of the goods, the [Buyer] alleges that the [Seller] still has no right to the goods.

-  Article 71 of the General Principles of the Civil Law of the People's Republic of China states that: "Property ownership" means the owner's rights to lawfully possess, utilize, profit from and dispose of his property."

-  Article 72(2) of the Civil Law of the PRC states that: "Unless the law stipulates otherwise or the parties concerned have agreed on other arrangements, the ownership of property obtained by contract or by other lawful means shall be transferred simultaneously with the property itself."

The Contract in this case is a sales contract signed by the [Seller] and the [Buyer]. The [Buyer] has the property ownership after making payment of the contract price and taking delivery of the goods. The [Buyer] still has the ownership over the goods which are not disposed. Supposing that the [Buyer] was obligated to return the goods, the [Buyer] still has the ownership before receiving the refund for the contract price and before the goods are actually returned. The [Seller]'s allegation that it had the ownership over the goods from the day when Award No. 32 was handed down is based on a misunderstanding of the law.

The [Buyer] has replied to the [Seller] and stated that they should negotiate the return of the goods after the [Seller] has performed the obligations that are stipulated in Award No. 32:

   -    First, Award No. 32 specified the exact amount that the [Seller] should compensate the [Buyer] and the time when the [Seller] should make the payment, so the [Seller] should perform that duty accordingly.
 
   -    Second, although Award No. 32 mentioned the issue of returning the goods, the quantity, time and cost of returning is not specified. More importantly, the Arbitration Tribunal for the former case did not make a decision on the issue whether the goods should be returned. Therefore, all issues concerning return of the goods shall be negotiated by the parties. In addition, the [Seller] did not return the contract price. Therefore, the [Seller] has no right to request the [Buyer] to return the goods.

In sum, Award No. 32 specified the damages, but did not decide on the issue of returning the goods, so the parties need to further negotiate this issue.

(III) The dispute on the disposal of the goods

-  [Buyer]'s position

    The [Buyer] makes the following statement in its response regarding the condition of the goods:

After receiving Award No. 32, the [Buyer] acknowledged that there were only two main provisions. They were related to the compensation and the payment of the arbitration fee. In order to avoid paying the storage charges (US $100/week) for the goods under the Contract, the [Buyer] decided to dispose of the goods which were not merchantable. At that time, a Melbourne company wanted to buy the goods and resell in some poor areas. The Melbourne company bought 5,050 pieces of the clothing at a very low price, i.e., 0.79 Australia dollars [AUD]/piece, totaling US $3,989.50 AUD. On 19 June 2003, after receiving the fax sent by the [Seller]'s attorney, the [Buyer] stopped making disposal of the goods.

-  [Seller]'s response

    The [Seller] argues that there is no legal basis to support the [Buyer]'s statement that it did not violate any law by disposing of the goods in order to mitigate the loss for the following reasons:

   -    First, the [Buyer]'s statement is inconsistent with the facts in this case. The [Seller] received Award No. 32 on 10 June 2003, and the [Buyer] received it at about the same time. The [Seller]'s attorney sent a fax on 17 June 2003 to the [Buyer]'s Quanzhou Office, requesting return of the goods. There were only seven days between the above two events. The goods have been stored for three years. If the [Seller] wanted to mitigate the loss, it should have taken reasonable measures to resell the goods at a reduced price three years earlier.
 
   -    Second, when filing the former arbitration application, the [Buyer] alleged that the goods were not merchantable; therefore, a reasonable person would not assume that the [Buyer] would try to resell the goods at any price within such a short period of time after receiving Award No. 32. In fact, the [Buyer] sold the goods immediately after receiving Award No. 32 and made some profits. That fact proves that the goods do not lack merchantability, and are very marketable at a reduced price; once the information on the goods was released, the goods were sold. That fact also shows that when filing the former arbitration application, the [Buyer] provided false evidence and made a false statement The [Buyer]'s conduct did not comply with the basic moral principle for businessmen and the basic legal requirements.
 
   -    Third, the [Seller] finds that the [Buyer] sold the goods not after receiving Award No. 32, but before filing the former arbitration application. After receiving Award No. 32, the [Seller] requested the [Buyer] to return the goods; meanwhile the [Seller] asked its friends in Australia to do some investigating which showed that the [Buyer] sold the goods two years before, but did not sell well. 
   -    Fourth, in the fax sent by the [Buyer] to the [Seller]'s attorney, the [Buyer] never mentioned that it had resold the goods. Therefore, the [Seller] had no reason to believe that the [Buyer] resold the goods. Moreover, based on the [Buyer]'s statement, the [Buyer] was trying to resell the goods, but no client wanted to buy them. How could the [Buyer] sell the goods within seven days? The only evidence provided to show that the [Buyer] resold the goods within that short period was an invoice. However, this invoice is not legally admissible, because it was issued by the [Buyer] unilaterally and no third party can prove it The [Buyer] changed the invoice number to a telephone number, alleging that the invoice can be verified by calling that number. However, the invoice is not admissible, because the law prohibits revising the invoice without authorization.

Even though the [Seller] made the aforesaid statement on the return of the goods, at the court session the [Seller] clearly indicated that because the [Buyer] was unable to return the entire goods, it would relinquish its first claim.

(IV) The dispute on compensation

-  [Seller]'s position

     The [Seller] alleges that the damages caused by the fact that the [Buyer] cannot return the goods are much more than the contract price, i.e., 0.79 AUD/piece as alleged by the [Buyer]. The [Seller] has sufficient reason to believe that in order to receive business profits the [Buyer] provided false evidence and made false statements to the former Arbitration Tribunal, so the [Buyer]'s conduct does not comply with any law or moral principle. No laws or regulations support such conduct.

Based on the entire evidence of this case and analysis of the evidence, it can be inferred that in order to receive business profit the [Buyer] took advantage of the fact that the [Seller] was unable to go to Australia to get evidence and realized its illegal purpose by legal method. The [Buyer]'s ill intention is obvious.

Because the [Buyer] admitted that it had resold part of the goods after the [Seller] filed the arbitration claim, the [Seller] will not request the [Buyer] to return the remaining part of the goods. Accordingly to Article 82 of United Nations Convention on Contracts for the International Sale of Goods, the [Buyer] lost the right to declare the contract avoided because it could not return the goods substantially in the condition in which the [Buyer] received them. Under this circumstance, it is not practical to ask the [Buyer] to return the remaining goods. However, the [Buyer] still made profits when it had no right to declare the contract avoided. Thus, the [Buyer]'s profits are the damages suffered by the [Seller]. Accordingly, the damages suffered by the [Seller] should include the amount which the [Seller] should pay according to Award No. 32, and the expenses the [Seller] paid for this case.

-  [Buyer]'s counter argument

     The [Buyer], however, counter argues that the [Seller]'s second arbitration claim is irrational for the following reasons:

     (1) The [Seller]'s request that the [Buyer] compensate for its damages is based on the condition that the [Buyer] has the obligation to return the goods, but is unable to do so. Only under this circumstance, if the [Seller] suffered losses, is the [Buyer] liable for compensation.

     (2) The [Buyer] stated clearly that it could return the remaining goods, but the [Seller] should pay the transportation expenses and part of the storage fee in advance. However, the [Seller] relinquished its request to return the goods. Therefore, the [Seller] should bear the losses by itself if any damages occurred; the [Buyer] should not make any compensation. The [Seller]'s claim for compensation has no basis.

     (3) Award No. 32 correctly specifies, "The goods are not merchantable; returning the goods would only increase the expenses of the parties." The [Seller]'s relinquishment of the request for return of the goods in order to mitigate the loss proves that Award No. 32 was in accordance with the actual situation.

(V) Other issues in dispute

      1. Arbitration fee and other actual expenses

      The [Seller] alleges that after receiving Award No. 32, the [Seller] fulfilled its obligation to notify the [Buyer] and took necessary measures to protect its own legal rights. The dispute in this case arose due to the [Buyer]'s fault, so the [Buyer] should compensate the [Seller] for the loss and pay for the arbitration fee and other reasonable expenses related to this case which the [Seller] spent, i.e., renminbi (RMB) 10,000.

The [Buyer] counter argues that the [Seller] filed the arbitration claim again for the same Contract, so the [Buyer] could not make disposal of the remaining goods and had to pay for the storage fee continuously. The [Seller]'s arbitration application also caused the [Buyer] to suffer a loss of RMB 25,000 (including agency fee, traveling expenses for the [Buyer]'s representative from Sydney to China twice, expenses for food, postage and copying), which the [Seller] should pay for.

      2. The dispute on preservation of the property

-  [Buyer]'s position

      The [Buyer] argues that:

      When filing the arbitration application, the [Seller] also submitted to the Shenzhen Commission a petition for preservation of property, asking the People's Court of Shaoxing City, Zhejiang Province to freeze US $37,725.94 of the [Buyer]'s execution fee in that court. The Shenzhen Commission submitted the [Seller]'s petition to the People's Court of Shaoxing City, Zhejiang Province, which froze the [Buyer]'s US $37,725.94. Thus, freezing the execution fee was directly caused by this case and the [Buyer]'s damages were caused by the [Seller]'s petition for property preservation. Article 94 of the Civil Procedure Law of the PRC stipulates:

"Property preservation shall be limited to the scope of the claims or to the property relevant to the case; property preservation shall be effected by sealing up, distraining, freezing or other methods as prescribed by the law."

Article 96 of the same law states,

"If an application for property preservation is wrongfully made, the applicant shall compensate the person against whom the application is made for any loss incurred from property preservation."

Since there are stipulations in the law, the [Seller] should make compensation for its wrongful property preservation petition. The Arbitration Tribunal should make its decision according to the law, and the [Buyer] does not need to file a counterclaim separately.

Item 1 of the arbitration award for the former case states,

"[Seller] shall pay the [Buyer] for the damages of US $37,725.94 within 30 days of this award (3 June 2003); otherwise, interest at the annual interest rate of 7% shall be added."

It is in total 102 days from the date when the court froze $37,725.94 (4 August 2003) to the date when the arbitration tribunal held the court session (14 November 2003). Therefore, the [Seller] should compensate the [Buyer] for the loss during the aforesaid period, which is US $738.8 (US $37,725.94 0.000192/102).

- [Seller]'s position

The [Seller] argues that the [Buyer]'s claim for the losses incurred by the [Seller]'s wrongful property preservation petition is not within the scope of the arbitration; the court which executes the property preservation should decide whether the petition was right and whether any damages were incurred.

II. OPINION OF THE ARBITRATION TRIBUNAL

(1) Applicable law

The Arbitration Tribunal finds that the [Seller]'s place of business is in China, and the [Buyer]'s is in Australia. Both China and Australia are Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG), and the parties did not exclude the application of the CISG. Therefore, according to Article 1 of the CISG, the CISG shall be applied to this case. According to the proximate connection principle, when there is no stipulation in the CISG, the law of the PRC shall apply.

(2) The acceptance of this case by the Tribunal

The [Buyer] has objected to the acceptance of this case by the Arbitration Tribunal for the following reasons:

     First, on 28 July 2003, when filing the arbitration application with the Shenzhen Commission, the [Seller] did not submit any arbitration agreement. Therefore, the Shenzhen Commission's acceptance of this case violates the Arbitration Law.

     Second, the Arbitration Tribunal for the former case has made the final award on the dispute over the Contract. Therefore, the [Seller]'s filing an arbitration application again based on the arbitration award violates the law.

The Arbitration Tribunal holds that these objections of the [Buyer] cannot be sustained for the following reasons:

     First, the Shenzhen Commission accepted this case based on the arbitration clause in the Contract. In the arbitration notice sent on 1 August 2003, the Shenzhen Commission described this basis. As alleged by the [Buyer], Article 4 of the Arbitration Law stipulates that the arbitration agreement between the parties is a precondition for the arbitration commission to accept a case, and the arbitration commission cannot accept a party's arbitration application without an arbitration agreement. However, this Article does not require that when one party files an arbitration application, it must provide the original arbitration agreement to prove the existence of the arbitration agreement.

In the instant case:

The [Seller] provided Award No. 32. In that arbitration, it was confirmed that the parties included the arbitration clause in the Contract. If the facts have been confirmed in the former arbitration award, a party can provide an arbitration award as evidence and need not provide other evidence This method of proof is a generally accepted theory of evidence and has been described in Article 9 of the Evidence Rules in Civil Litigation issued by the Supreme Court.

The [Seller] filed the arbitration application based on the fact that there was an arbitration clause in the Contract, which was ascertained in Award No. 32. This indirectly proves the existence of the arbitration clause, which does not violate the Arbitration Law. Therefore, it is not improper that the Shenzhen Commission accepted this case based on the arbitration clause in the Contract. Moreover, after the [Buyer] raised the objection in its arbitration defense, the [Seller] submitted a photocopy of the Contract. The [Seller] provided not only indirect evidence but also direct evidence to prove the existence of the arbitration clause, which is the basis of this arbitration.

     Second, an arbitration agreement is not like a disposable commodity; as long as it does not violate the principle of "non bis in idem", the parties may file an arbitration application for any dispute under the arbitration agreement.

For example, a buyer and a seller signed a contract with an arbitration clause. When the seller fails to deliver the goods within the stipulated time, the buyer has the right to file an arbitration application to require the seller deliver the goods. After the arbitration award becomes effective, the seller delivers the goods in accordance with the award; however, the buyer discovers some defects with the goods delivered by the seller. Under this circumstance, the buyer still has the right to file an arbitration application based on the arbitration clause in the contract, requesting the seller to compensate for the damages suffered by the buyer due to the quality defect, and does not need to reach another arbitration agreement with the seller.

In the instant case, the [Seller] filed three arbitration claims; the first two claims are related to the return of the goods and the compensation the [Seller] seeks from the [Buyer] for failure to return the goods. Compared with the arbitration claims for compensation on quality defects filed by the [Buyer] in the former case, the [Seller]'s arbitration claims in this case are totally different in terms of content, basis, and reasons. In addition, in Award No. 32, the Arbitration Tribunal analyzed the facts on returning the goods in the opinion part. However, no decision was made on the return of the goods in the main context of Award No. 32. The theory of "bis in idem" is not violated. Therefore, the Arbitration Tribunal did not violate the law by accepting this case.

(3) The [Seller]'s first arbitration claim

At the court session, the [Buyer] explained that after receiving Award No. 32 , it sold 5,084 pieces of goods out of the 13,722 pieces delivered by the [Seller] and submitted the invoice as evidence. The [Seller] had doubts on this fact. However, at the court session, the [Seller] stated that because the [Buyer] was unable to return the entire goods, it would relinquish its first arbitration claim.

The Arbitration Tribunal rules that the [Seller]'s relinquishment of the first claim is its right and does not violate any law. Therefore, the Arbitration Tribunal will not make any analysis or judgment on the [Seller]'s first arbitration claim.

(4) [Seller]'s claim for compensation

Under the circumstance that the [Buyer] was unable to return the entire goods, even though the [Seller] has relinquished its first arbitration claim, it still requires the [Buyer] compensate for the damages, i.e., US $37,725.94.

The Arbitration Tribunal finds that the following two questions must be answered before making any decision on whether to support this claim of the [Seller]:

     The first question is whether the [Seller] has the right to claim for compensation. In order to answer this question, the other question must be answered first, which is whether the [Seller] has the right to require return of the goods.

The Arbitration Tribunal finds that in the former case, the [Buyer] required the [Seller] to compensate for the contract price, transportation expenses, and loss of profits, totaling US $66,556, because the goods were not resalable. In the part of the "Opinion of the Arbitration Tribunal" in the award handed down by the Arbitration Tribunal for the former case, the Tribunal stated that the goods were not merchantable, and supported the [Buyer]'s claim for the contract price and the transportation expenses, totaling US $31,438.28. However, the Arbitration Tribunal adjusted the loss of profits to 20% of the contract price and the transportation expenses, reasoning that they were foreseeable losses.

According to Award No. 32, the [Buyer]'s requests were claims for compensation after the avoidance of the contract. The Arbitration Tribunal that handled the former case accepted the [Buyer]'s aforesaid arbitration claims, and confirmed that the Contract should be avoided. After the avoidance of a Contract, Article 81(2) of the CISG, provides:

"A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently."

Therefore, the [Buyer] has the right to require refund of the contract price, and the [Seller] has the right to require return of the goods The Arbitration Tribunal for the former case mentioned the issue of the return of the goods in the last paragraph of page 16 of the opinion of the Arbitration Tribunal. The following is the original text:

"In addition, because the goods are not merchantable, returning the goods would only increase the expenses of the parties. Therefore, the Arbitration Tribunal holds that returning the goods has no practical meaning. If the [Seller] requires the [Buyer] to return the goods, it shall bear the entire expenses incurred thereof."

Each party cited the aforesaid paragraph to support its own allegation. The Arbitration Tribunal rules that the aforesaid paragraph did not deny the [Seller]'s right to require returning the goods, but only mentioned that if the [Seller] requires return of the goods, it must bear the expenses incurred thereof. Thus, after the avoidance of the Contract, the [Seller] has the right to require return of the goods.

After receiving Award No. 32, the [Buyer] disposed part of the goods arbitrarily without the [Seller]'s agreement, so the [Buyer] was unable to return the entire goods. The [Buyer]'s conducts infringed the [Seller]'s right. Under this circumstance, the [Seller] has the right either:

     (1) To require the [Buyer] to return the remaining goods or claim for compensation for the part of the goods which were unable to be returned; or

     (2) To claim for compensation for the entire goods if it does not require return of the remaining goods.

In the instant case, the [Seller] chose the latter approach, item (2). This decision is rational and should be supported.

     The second question has to do with the amount of damages suffered by the [Seller] due to the [Buyer]'s non-return of the entire goods.

The [Seller] claims directly for compensation of the US $37,725.94 which was determined in Award No. 32. This amount is obviously improper, because the US $37,725.94 in the former award included the contract price, transportation expenses, and the loss of profits. When the [Buyer] was unable to return the entire goods, the loss of the [Seller] shall be the value of the entire goods. Therefore, the transportation expenses and the loss of profits are beyond the scope of damages. The value of the entire goods is not equal to the contract price, because the contract price was determined for conforming goods. However, the Arbitration Tribunal for the former case ruled that the goods under the Contract were not merchantable. Therefore, the value of the goods is not equal to the contract price.

The Arbitration Tribunal finds that the [Buyer] disposed of 5,084 pieces of clothes for the price of 0.79 AUD/piece. This price is much lower than the unit price stipulated in the Contract. However, the [Seller] failed to prove the actual value of the goods by providing any contrary evidence. Furthermore, the [Seller] would pay for transportation expenses and other related expenses if the goods were returned. Thus, the Arbitration Tribunal holds that the loss of the [Seller] incurred by the [Buyer]'s non-return of the entire goods shall be based on the unit price of 0.79 AUD/piece and the foreign exchange rate between Australia dollars and US dollars, i.e., 1: 0.735, so the damages are US $7,967.68 (0.79 AUD/piece 13,722 pieces 0.73)

Based on the above analysis, the Arbitration Tribunal holds that the second claim of the [Seller] shall be supported partially, so the [Buyer] should pay to the [Seller] US $7,967.68 for the damages caused by the [Buyer]'s non-return of the entire goods.

(5) Other claims

Based on the aforesaid analysis, the Arbitration Tribunal rules that the [Seller] and the [Buyer] shall bear the arbitration fee by a ratio of 8:2. As to the traveling fee incurred for processing this case, each party shall bear its own expenses.

The Arbitration Tribunal finds that in its response and statement, the [Buyer] claims for damages caused by the [Seller]'s wrongfully made property preservation, and asserted that it was not necessary for [Buyer] to file a counterclaim separately, and that the Arbitration Tribunal should make its decision according to the law.

The Arbitration Tribunal finds that Article 96 of the Civil Procedure Law of the People's Republic of China stipulates that the [Buyer] is entitled to compensation for the damages caused by the wrongfully made property preservation. However, neither the Civil Procedure Law nor the Arbitration Rules stipulates that the party claiming for damages caused by wrongfully made property preservation may claim for compensation without filing a counterclaim. Therefore, because the [Buyer] failed to file a counterclaim, the Arbitration Tribunal will not process this claim of the [Buyer].

III. THE AWARD

Based on the aforesaid facts and the opinion of the Arbitration Tribunal, the Tribunal rules that:

     (1)  [Buyer] shall pay US $7,967.68 to the [Seller] due to the non-return of the entire goods;

     (2)  [Seller]'s claim for the expenses incurred by processing this case is dismissed;

     (3)  [Buyer] and [Seller] shall bear the arbitration fee jointly;

The [Buyer] shall pay item (1) and (3) to the [Seller] within 30 days of this award. This is the final award. It becomes effective on the day when the award is handed down.

Presiding Arbitrator:

Arbitrator:

31 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 [Buyer] and Respondent of Australia 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]; amounts in the currency of Australia (dollars) are indicated as [AUD].

** 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.

Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated August 9, 2007
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography