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CISG CASE PRESENTATION

China 24 December 2004 CIETAC Arbitration proceeding (Medical equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/041224c1.html]

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

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Case identification

DATE OF DECISION: 20041221 (24 December 2004)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2004/06

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Japan (claimant)

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

GOODS INVOLVED: Medical equipment


Classification of issues present

APPLICATION OF CISG: No [Article 1(1)(b) / Article 95]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 95

Classification of issues using UNCITRAL classification code numbers:

1B22 [Reservation under Art. 95 to exclude Art. 1(1)(b)]]

Descriptors: Declaration, Art. 95

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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

Medical equipment case [24 December 2004]

Translation [*] by Jing Li [**]

Edited by Zheng Xie [***]

The China International Economic and Trade Arbitration Commission (hereinafter, "CIETAC"), accepted the case (Case number: M____) according to:

   -    The arbitration clause in the Prime Contract signed by Claimant [Seller], ___ Corporation [of Japan] (originally named XXX Corporation of Japan), and Respondent [Buyer], Guangdong ___ Corporation [of the People's Republic of China], on 21 October 1997;
 
- The arbitration clause in Purchase Contract No. 971029 signed by the [Seller] and the [Buyer] on 29 October 1997; and
 
   -    The written Application for Arbitration submitted by the [Seller] on 22 March 2004.

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

ARBITRATION PROCEEDINGS

The Secretariat of CIETAC sent the Notice of Arbitration, the Arbitration Rules, and the Panel of Arbitrators to both parties, respectively, by express mail on 20 April 2004. Meanwhile, the Secretariat sent the Application for Arbitration and the evidence submitted by the [Seller] to the [Buyer]. The receipt of the express mail company shows that the above materials sent to the [Buyer] were successfully received on 22 April 2004. However, the [Buyer] did not appoint an arbitrator or submit a Response as provided by the Arbitration Rules.

On 31 May 2004, the Presiding Arbitrator ___ (appointed by the Chairman of CIETAC according to the Arbitration Rules), Arbitrator ___ (appointed by the [Seller]), and the third arbitrator, Arbitrator ___ (appointed by the Chairman, in accordance with Article 26 of the Arbitration Rules) formed the Arbitral Tribunal (hereinafter the "Tribunal") to hear this dispute.

The Tribunal decided that the court session should be held on 8 July 2004 in Beijing, China.

On 1 June 2004, the Secretariat of CIETAC sent the Notice of Formation of the Tribunal and the Notice of Commencement of Arbitration by express mail to both parties, respectively. The receipt of the express mail company shows that the above materials sent to the [Buyer] were successfully received on 3 June 2004.

On 8 July 2004, the Tribunal held the court session in Beijing as scheduled. The [Seller] appointed attorneys to attend; however, despite notice from CIETAC, the [Buyer] failed to appear at the hearing nor did [Buyer] provide information on the causes thereof. In accordance with Article 24 of the Arbitration Rules, the Tribunal heard this case by default. At the arbitral hearing, the attorneys for the [Seller] made oral statements on the facts, presented relevant evidence, and answered questions raised by the Tribunal.

After the court session, the [Seller] submitted an Explanation on the Calculation of Interest on the Overdue Amount, supplementary evidence, and relevant materials on the modification of its corporation name. On 28 July 2004, the Secretariat of CIETAC sent a letter on this subject (letter (2004) CIETAC Beijing No. ___) to the [Buyer]. The Secretariat enclosed the above additional materials provided by the [Seller], reported the oral hearing, and invited the [Buyer] to submit in writing (five copies) before 10 August 2004 its opinions or objections thereon, or its request for another hearing; advising that, otherwise, the Tribunal would no longer accept any material in writing after the period provided, and would hand down its award based on the materials available.

The receipt of the express mail company shows that the above materials sent to the [Buyer] were successfully served on 29 July 2004.

On 10 August 2004, the [Buyer] submitted a Response, and requested the Tribunal to hold another court session. The [Seller] submitted a supplementary explanation and the attachment thereof on the same day. The Secretariat exchanged the above materials with both parties.

On 11 August 2004, the Secretariat decided that the second court session should be held in Beijing on 19 August 2004. However, taking into account the situations of the present case, the Tribunal postponed this court session to 20 September 2004.

The Tribunal held the second court session on 20 September 2004 as scheduled. Both parties appointed attorneys to attend. Attorneys at the court session presented oral statements, made arguments, cross-examined the evidence, and answered the questions raised by the Tribunal. The [Seller] submitted supplementary evidence before this court session.

At the court session, both the [Seller] and the [Buyer] submitted supplementary evidence in writing. The Secretariat exchanged the above materials with both parties.

This case is completed. The Tribunal entered the award after discussion by the members of the Tribunal, based on the facts verified, the evidence provided by both parties, and the relevant laws.

The followings are the facts, opinion of the Tribunal, and the award.

FACTS

On 21 October 1997, the [Seller] and the [Buyer] concluded a Prime Contract. This Contract includes the following basic clauses:

Article 1 (PRIME CONTRACT) Items under this contract, within the valid period thereof, are applicable to all individual contracts of purchase and sale of goods (hereinafter, "Foreign Trade Contract(s)") signed by both [Seller] and [Buyer]. However, in case of inconsistent stipulations between the Foreign Trade Contracts and this contract, those provided in the Foreign Trade Contracts prevail.

Article 2 (PURCHASE AND SALE OF GOODS) [Seller] shall persistently sell the following goods to [Buyer] by signing a foreign trade contract; [Buyer] shall purchase the corresponding goods according to every foreign trade contract. The category of goods is "medical equipment and goods salable in China produced by the [Seller]" (hereinafter, the "Goods").

Article 3 (CONCLUSION OF THE FOREIGN TRADE CONTRACTS) Except as otherwise stipulated in this contract, the name, quantity, unit price, manner of packing, terms of delivery, terms of payment, and other necessary sales conditions of the Goods sold by [Seller] to [Buyer], shall be stipulated in the Foreign Trade Contracts. However, the value of each Foreign Trade Contract (hereinafter, "Sales Amount") shall be more than US $100,000. Foreign Trade Contracts shall come into effect on the same day as the conclusion thereof. However, if [Buyer] fails to make timely down payment of 10% of the contract price stipulated in Article 4(1), this Foreign Trade Contract is deemed to be invalid from the day of the conclusion thereof.

Article 4 (TIME OF PAYMENT AND INTEREST)

(1) Within 30 days of the conclusion of a Foreign Trade Contract, [Buyer] shall make a down payment of 10% of the total contract price to [Seller]. The remaining contract price shall be paid by eight installments. [Buyer] shall make payment of these installments plus the interest provided in Clause 2 of this Article, to [Seller] on the 90th, 180th, 270th, 360th, 450th, 540th, 630th, and 720th day after the delivery date (or if paid evenly by four installments, on the 180th, 360th, 540th, and 720th day).

(2) During the period from the day of shipment to the day when the last installment is paid, [Buyer] shall pay interest to [Seller] on the remaining contract price, on every stipulated day of payment, at the annual interest rate agreed by both parties at the conclusion of the Foreign Trade Contract.

(3) If, not due to [Seller]'s misconduct, [Buyer] fails to make payment or interest timely (hereinafter, "deferred payment"), [Buyer] shall make deferred payment to [Seller], by telegraphic transfer (i.e., T/T), along with the interest thereof, calculated as from the following day of the stipulated payment day to the day when the last installment is paid at the rate of the annual interest rate agreed by the parties stipulated in the previous Clause plus an additional rate of 3%.

Article 6 (TAXES AND EXPENSES) Upon the conclusion of this contract, [Buyer] shall bear the cost of storage incurred in China, the bank charges in connection with the payment of the contract price or interest, taxes related to this contract or other Foreign Trade Contracts, and all other expenses.

Article 10 (LOSS OF EXPECTED INTEREST) If [Buyer] fails to perform the entire or part of this contract or the Foreign Trade Contracts, [Buyer] automatically loses the expected interest on the outstanding amount to [Seller], and shall immediately pay the total outstanding amount in cash

On 29 October 1997, the [Seller] concluded Purchase Contract No. 971029 with the [Buyer]. This Contract states:

Price. The [Seller] agrees to sell a set of Goods to the [Buyer] at the price of US $199,500.00;
Delivery. CIF Haikou (China);
Terms of payment. By T/T as per Attachment Three;
Port of shipment. Japan;
Port of destination. Haikou, China;
Time of shipment. Within 3.5 months after [Seller]'s receipt of down payment.

In performing the above contract, a dispute arose over the payment of the contract price. Since the parties failed to reach an agareement, the [Seller] applied for arbitration.

POSITIONS AND REQUESTS BY THE PARTIES

[Seller]'s requests

The [Seller]'s claims are as follows:

1.    The [Buyer] shall compensate the [Seller] for the contract price in the amount of US $69,014.53;
 
2.    The [Buyer] shall compensate the [Seller] the interest on the deferred payment at the annual interest rate of 8% as of 31 January 2004 in the amount of US $26,425.89; as well as the interest thereon at the annual interest rate of 8% until the day when the contract price is paid;
 
3.    The [Buyer] shall bear the [Seller]'s attorneys' fee of US $10,000; and
 
4.    The [Buyer] shall bear the arbitration fee incurred from this dispute.

[Seller]'s position

The [Seller]'s requests were based on the facts and reasons as follows:

      (1) The arrearage

      After the conclusion of the contract, the [Seller] fulfilled all of its obligations under the contract to deliver the Goods. However, the [Buyer] did not fulfill all of its obligations to pay the contract price. On 24 February 2000, the [Buyer] expressly promised to pay the arrearage of US $69,014.53 before 30 May 2000. Heretofore, the [Buyer] had not paid this arrearage. The [Seller] had negotiated several times with the [Buyer] on this issue. The [Buyer], on the other hand, had failed to respond to [Seller]'s proposals. The [Seller] had sent to the [Buyer] attorneys' letters on 8 February 2001, 22 June 2001, 28 November 2001, 8 May 2002, 25 June 2003, and 24 February 2004, respectively, requesting the [Buyer] to pay all the arrearage. However, the [Buyer] neither replied nor performed its obligation.

      (2) Interest on the deferred payment

      In its Explanation on the Calculation of Interest on Overdue Amount (as of 27 July 2004), the [Seller] explained the calculation on the interest on the overdue amount as follows:

      1. The [Seller] and the [Buyer] agreed on the payment by installments stipulated in Attachment Three of the Sales Contract;

      2. The time for payment reckons from the date of the bill of lading as agreed in Attachment Three of the Sales Contract. The date of the bill of lading in the present case is 12 December 1997;

      3. The annual interest rate as agreed in Attachment Three of the Purchase Contract is 5%. On top of this, the interest rate on the deferred payment shall be with an additional rate of 3% according to Article 4(3) of the Prime Contract. Therefore, the annual interest rate on the deferred payment is 8%.

      4. The [Seller]'s second claim of US $26,425.89 as the interest on the deferred payment until 31 January 2004 was wrongly calculated. Therefore, the [Seller] requests that the correct interest on the deferred payment until 31 January 2004 shall be US $25,579.82.

In view of the above, the arrearage is US $69,014.53, and the interest on the deferred payment until 31 January 2004 is US $25,579.8, as shown in the following table:

US $
Installment Agreed amount of payment Agreed date of payment Date of actual payment Actual amount paid Number of days delayed Interest on the deferred payment
1 24,688.13 98/03/11 98/04/10 - 30 164.59
2 24,407.58 98/06/09 98/06/05 - - -
3 24,127.03 98/09/07 98/09/14 - 7 37.53
4 23,846.48 98/12/06 98/12/15 - 9 47.69
5 23,565.94 99/03/06 99/07/02 - 118 617.95
6 23,285.39 99/06/04 - 23,285.39 1702 8.807.05
7 23,004.84 99/09/02 - 23,004.84 1612 8,240.84
8 22,724.30 99/12/01 - 22,724.30 1522 7,685.86
Total 189,650.00 - - 69,014.53 - 25,579.82

      (3) Change of corporation name

      The [Seller] made the following supplementary explanations on the change of its corporation name:

      1. ___ Corporation of Japan took over XXX Corporation of Japan on 1 April 2004, and XXX Corporation of Japan had been dissolved;

      2. ___ Corporation of Japan succeeded all rights and obligations of XXX Corporation of Japan;

      3. The Certificate on Closure submitted by the [Seller] was a certificate to demonstrate that XXX Corporation of Japan was taken over by ___ Corporation of Japan. On Page 18 under "On the Certificate", it was noted that on 1 April 2004, XXX Corporation of Japan was taken over, and therefore, was merged by ___ Corporation of Japan located at No. ___, ___ Bannti ___ Tyoume in the city of Osaka. This Certificate was also a certificate of the legitimate existence of ___ Corporation of Japan, which was equivalent to the business license in China.

Therefore, the name of the [Seller] had to be changed from XXX Corporation of Japan to ___ Corporation of Japan.

[Buyer]'s response

1. Unauthorized agency in concluding the Prime Contract

The fact that ___ concluded the Prime Contract with the [Seller] representing the [Buyer] was an unauthorized agency, and this Prime Contract was invalid.

      (1) Lack of authority of ___

      Article 38 of the General Principles of the Civil Law of the People's Republic of China (hereinafter, "General Principles of the Civil Law") provides:

"In accordance with the law or the articles of association of the legal person, the responsible person who acts on behalf of the legal person in exercising its functions and powers shall be its legal representative."

In the present case, the [Buyer]'s legal representative was General Manager XXX. ___who was neither the legal representative of the [Buyer] nor was authorized by the [Buyer], and therefore, had no power to conclude contracts on behalf of the [Buyer].

      (2) The nature of ___'s agency

      ___ had no power of agency. However, ___ concluded the Prime Contract with the [Seller] on behalf of the [Buyer]. Therefore, this was an unauthorized agency. Article 66 of the General Principles of the Civil Law provides:

"The principal shall bear civil liability for an act performed by a person with no power of agency, beyond the scope of his power of agency or after his power of agency has expired, only if he ratifies the act retroactively. If the act is not so ratified, the person shall bear civil liability for it."

Since the [Buyer] knew nothing about this case, and did not ratify ___'s act retroactively, the person with no power of agency, i.e., ___, shall bear the civil liability. Therefore, even if the Prime Contract was signed in the name of the [Buyer], this Contract merely had ___'s signature, but was not stamped with the [Buyer]'s official seal or its stamp for contracts. ___ had never been authorized by the [Buyer]. The [Buyer] did not know about this transaction at all, nor did it retroactively ratify ____'s act. Therefore, the [Buyer] should not be held responsible for the obligations under the Prime Contract.

      (3) The [Seller]'s gross negligence in concluding the Prime Contract

      The [Seller] should have known the lack of power of agency of ___. However, due to the [Seller]'s negligence, the [Seller] nevertheless concluded the Prime Contract with ___. Therefore, the [Seller] should be responsible for this unauthorized agency, and should not be protected by the law. Before the conclusion of the Contract, the [Seller] did not examine whether ___ possessed a power of attorney issued by the [Buyer], nor did it ask for and verify the business certificate of the [Buyer].

2. Unauthorized agency in concluding the Purchase Contract

___ concluding the Purchase Contract with the [Seller] purporting to represent the [Buyer] was an unauthorized agent as well, and this Purchase Contract is not binding on the [Buyer].

      (1) Lack of authority of ___

      ___ was not the legal representative of the [Buyer], and was not legitimately authorized by the [Buyer]. ___ did not have the power of agency. ___ 's concluding the Purchase Contract in the name of the [Buyer] with the [Seller] was an unauthorized agency according to Chinese laws. The [Buyer] did not ratify this act. Therefore, this Contract was not binding on the [Buyer].

      (2) The nature of ___'s agency

      The Purchase Contract merely had ___'s signature and [Buyer]'s stamp for business, but not [Buyer]'s official stamp or stamp for contract registered with the Administrative Authority for Industry and Commerce by the [Buyer]. ___ was fully aware that that stamp for business was only for internal use, not external use. However, ___ still utilized the stamp for business without any reference to his/her title. Therefore, this was ___'s individual conduct. Further, the [Buyer] knew nothing about this conduct. Therefore, this conduct was not binding on the [Buyer].

      (3) Shipment of destination of the equipment

      The agreed of port of discharge stipulated in the Purchase Contract was Haikou, China, not the [Buyer]'s place of business. The [Buyer] had never received the equipment mentioned in the Prime Contract and the Purchase Contract, nor did the [Buyer] make any payment according to these contracts. Moreover, it was clearly stated in the Commitment Letter of Repayment issued by ___ in the name of the [Buyer] submitted by the [Seller] that this "was equipment for ___ Corporation of Hainan province." This demonstrates that the [Seller] knew of ___'s lack power of agency. If the [Seller] still concluded contracts with ___, knowing that ___ was acting without the [Buyer]'s authorization, the [Seller] should not be protected by the law. In accordance with Article 66 of the General Principles of the Civil Law, the [Seller] should also bear legal liability for its conduct towards the [Buyer].

3. Objections to other claims by the [Seller]

      (1) Shipping documents and proofs of payment

      The [Buyer] was unaware of the unauthorized agency in the present case, and therefore, it was impossible for the [Buyer] to make the down payments accordingly. The [Buyer] did not make such down payment. There was no such payment shown in the financial statement either. Even according to the provisions of the Prime Contract, the [Seller] was not entitled to request performance by the [Buyer], because the Prime Contract was void ab initio. Consequently, the [Buyer] requested the [Seller] to provide all proofs of payment, including receipts, invoices, and stubs, in order to clarify the responsibilities of both parties.

      (2) Commitment of payment

      It was completely incorrect for the [Seller] to claim that the [Buyer] had committed on 24 February 2000 to pay the arrearage of US $69,014.53 before 30 May 2000. This can be proved by the Attachment Three provided by the [Seller]. This evidence was issued by ___ in the name of the [Buyer]. It did not contain the [Seller]'s official stamp. It was an individual conduct by ___, and the [Buyer] was not aware thereof. It was without factual and legal basis for the [Seller] to seek to impose the responsibilities of this Commitment on the [Buyer] merely due to the fact that this document was named "Commitment".

In conclusion, the Tribunal should reject the [Seller]'s requests.

The Explanation of Situations submitted by the [Buyer] on 28 October 2004 alleged:

The scope of business of the [Buyer] did not include import and export. The [Buyer] had no foreign trade authority and had never concluded any foreign trade contracts with foreign businessmen. All payments made by the [Buyer] were in RMB. The [Buyer] had never opened any foreign exchange account in any banks, and hence, had no capacity to make payment in foreign currency, such as US dollars and Euro.

[Seller]'s supplementary claims

In response to the [Buyer]'s allegations, the [Seller] submitted its Attorneys' Statement and supplementary Attorneys' Statement at the second court session. The major points were as follows:

1.   The [Buyer]'s Deputy General Manager ___ signed the Prime Contract and the Purchase Contract on behalf of the [Buyer], and stamped the Purchase Contract with the [Buyer]'s official seal. Moreover, on 24 February 2000, the [Buyer] promised in writing to pay the arrearage of US $69,014.53 before 30 May 2000. The [Seller] did not object to these facts.

2.   The [Buyer]'s argument that the Contracts in the present dispute and the Commitment Letter of Repayment signed by its Deputy General Manager ___ were not binding on the [Buyer] was unfounded because it lacks factual and legal basis. The reasons were as follows:

      (1) In the course of negotiation, the participants included the [Buyer]'s Deputy General Manager ___, as well as other members of the staff of the [Buyer]. At the conclusion of the Contracts, ___ as the person in charge representing the [Buyer] signed the Contracts, and stamped them with the [Buyer]'s official seal. Although there were no laws providing that an official stamp was the prerequisite of the establishment of a contract, i.e., the Contracts came into effect when [Buyer]'s Deputy General Manager signed the Contracts. The official stamps on the Contracts could further demonstrate that the conclusion of the Contracts in dispute was the [Buyer]'s conduct as a legal person, in lieu of an individual conduct of ___. The [Buyer] also argued that the stamp on the Purchase Contract was merely a stamp for business, not the stamp for contracts. However, it was only the [Buyer]'s internal regulation of various purposes of its official stamps. It was impossible for external persons to know of this regulation and, therefore, to distinguish the different purposes of those stamps. Besides, the [Seller] as a foreign enterprise could not have known of the existence of a stamp for contracts, and could not have known of the differences between stamps for business and stamps for contracts. Even if the [Buyer] possessed several official stamps for reasons of its own, these internal reasons of the [Buyer] should not constitute a defense against a third person in good faith.

      (2) The [Buyer] did not submit any evidence demonstrating that the conduct of signing the Contacts in dispute was the individual conduct of ___. On the other hand, the [Seller] provided to the Tribunal proof of down payments made by the [Buyer] issued by the bank, as well as the bills of lading with the [Buyer] named as the consignee. This evidence further demonstrated that the [Buyer], as a party to the Contracts, partially performed the payment obligation under the Contracts in dispute, and took delivery of the Goods. The [Buyer] had been performing the obligations under the Contracts right from the start.

      (3) As for the arrearage in dispute, the [Seller] had sent to the [Buyer] attorneys' letters on 8 February 2001, 22 June 2001, 28 November 2001, 8 May 2002, 25 June 2003, and 24 February 2004, respectively, requesting the [Buyer] to pay all the arrearage. Meanwhile, ___ served as the [Buyer]'s Deputy General Manager. At the court session, the attorneys representing the [Buyer] expressly indicated that the [Buyer] had received the above mentioned attorneys' letters. Moreover, the [Buyer] had never objected thereto, i.e., the [Buyer] had, therefore, implicitly admitted the debts.

      (4) To avoid its payment obligation, the [Buyer] argued that the Contracts in dispute were not binding, which was not the truth. However, in accordance with Article 49 of the Contract Law of the People's Republic of China (hereinafter, Chinese Contract Law), the [Buyer] still needs to perform its payment obligation as agreed in the Contracts. The Deputy General Manager, as the person in charge of the company, had the daily duties of representing the company to engage in external business activities. The Contracts in dispute not only contained the signature of ___, but also were stamped with the official stamps of the [Buyer]. It was reasonable for the [Seller] to believe that ___ had the power to represent the [Buyer] to engage in external business activities. Moreover, the [Seller] had agreed that the prerequisite for the commencement of performing the single contract was to make the down payment. In light of the transaction per se, the [Seller] had fulfilled its duty of care. Therefore, in the present case, the [Seller] was in good faith, and not at fault. According to Article 49 of the Chinese Contract Law, the Contracts in dispute were still binding on the [Buyer], and the [Buyer] should make payment of the arrearage.

3.   The statements made by the [Buyer] in its Explanation of Situations were unilateral. The [Seller] did not agree with the facts.

4.   The Administrative Rules on the Use of Stamps submitted by the [Buyer] was merely an internal regulation, and it did not constitute a defense against a third person. Further, according to these Administrative Rules, the stamp for business used in the present case could "only be stamped with signatures by the officer and the chief manager in charge of a department." Thus, the conduct of stamping on the Contracts could not be completed merely by ___. These Administrative Rules, therefore, further demonstrate that the conduct of concluding the Contracts was the company's conduct.

[Buyer]'s Supplementary Defense

The [Buyer] submitted a Supplementary Defense at the court session. The major points were as follows:

1.   There was sufficient evidence that the conduct of ___ was an individual conduct, not a conduct of the company by the [Buyer].

      (1) The [Buyer] was not authorized with the power to import and export and, therefore, did not have the authority to conclude and perform foreign trade contracts by itself. The [Buyer] had never signed any foreign trade contracts, nor had it authorized any member of its staff to sign foreign trade contracts in the name of the [Buyer]. The claim by the [Seller] that ___ represented the [Buyer] and signed the Foreign Trade Contracts on behalf of the [Buyer] was unfounded.

      (2) In accordance with the Administrative Rules on the Use of Stamps submitted by the [Buyer], the stamp for business was merely for the purpose of verification of the exchange of property and delivery of goods between departments, and this stamp could not be used for other purposes. For the purpose of concluding contracts, the stamp for contracts shall be used. ___ as a member of the staff of the [Buyer] could not have been unaware of these rules. According to the relevant laws, only the legal representative of a company possessed the power to engage in external business activities.

2.   The [Buyer] had never paid the down payment, nor had it received any goods. The [Buyer] should not bear the responsibility for the payment of the arrearage.

      (1) Since the [Buyer] did not have the authority to import and export, the goods could not be imported based on the Contracts in dispute. The [Buyer] had requested the [Seller] several times to submit proof of receipt of the goods signed by the [Buyer]. However, the [Seller] had failed to provide these documents. The bill of lading provided by the [Seller] could only demonstrate the delivery of the goods, in lieu of the actual acceptance of the goods by the [Buyer]. The [Buyer] had never received the goods under the Contracts.

      (2) Because of the foreign exchange control in China, the [Buyer] had never been able to open a foreign exchange account. It was impossible for the [Buyer] to make payment in US dollars. The [Buyer] did not authorize a third party to make such payment either. However, the [Seller] submitted the so-called proof of down payments in US dollars made by the [Buyer] issued by the bank. Since the [Buyer] could not make payment in US dollars, the proof of down payment per se was unable to prove that the payer was the [Buyer]. This document submitted by the [Seller] should have no evidential effect. Therefore, the Contracts in dispute were not valid in the event that the [Buyer] had no capacity of paying the down payment.

3.   The [Seller] was not in good faith, and therefore, Article 49 of the Chinese Contract Law should not be applicable

The [Seller] is a famous international trade corporation. It is experienced in doing international trade in China. It should be fully aware of the control of foreign trade and foreign exchange in China before 1996, as well as how a foreign trade contract was concluded. It should also be fully aware of the rule that contracts shall be concluded by the person with power of agency authorized by the company. However, in concluding the Contracts in dispute, the [Seller] had no concern for these matters. It ignored the significant defects of the Contracts and the regulative obstacles. The [Seller] did not act in good faith and was negligent. Therefore, Article 49 of Chinese Contract Law should not be applicable in the present case.

4.   The [Buyer] objected to the evidence on the attorneys' fee provided by the [Seller].

5.   The evidence submitted by the [Seller] was not sufficient to support its claims, and the [Buyer] was not responsible for the payment obligation under the Contracts in dispute.

THE OPINION OF THE TRIBUNAL

1. Applicable law

The parties did not stipulate the applicable law, and the country where the place of business of the [Seller] is located is not a Contracting Party to the United Nations Convention on Contracts for the International Sale of Goods (1980). Further, the place of conclusion of the Contracts in the present case as well as the place of performance thereof were in and had connections with China. The place of arbitration is also in China. Both parties cited Chinese laws in their Statements and Defenses. Therefore, the Tribunal finds that the applicable laws of the present dispute are the laws of the People's Republic of China.

2. Parties to the arbitration

After investigation, the Contracts in the present case were signed by XXX Corporation of Japan as the [seller] and by the [Buyer], and the application of arbitration was filed by XXX Corporation of Japan (Claimant). However, in the court session, the attorneys for the [Seller] alleged that XXX Corporation of Japan was taken over by ___ Corporation of Japan. The Tribunal requested the attorneys to provide evidence thereon. The attorneys, therefore, submitted the documents of both XXX Corporation's and ___ Corporation's registration in Japan, demonstrating that ___ Corporation of Japan had taken over XXX Corporation of Japan. Consequently, the Tribunal finds that ___ Corporation of Japan is able to take over the rights and obligations of XXX Corporation of Japan under the Contracts in dispute.

3. The validity of the contracts

After hearing this case, the Tribunal found that the Prime Contract was signed by ___ representing the [Buyer]. The Purchase Contract was signed by ___ representing the [Buyer], and was stamped with the [Buyer]'s stamp for business. ___ was the Deputy General Manager of the [Buyer] in charge of business. Therefore, the [Buyer]'s claim that ___ had no power of agency, and that the Contracts signed were not binding was unfounded. As for [Buyer]'s claim that it has no authority to import and export, the Tribunal finds that taking into account the fact that the [Seller] has delivered the goods, and the [Buyer] has made part of the payment, the [Buyer] shall not base its argument of not paying the arrearage on the invalidity of the Contracts.

4. Liability for breach of Contracts

Based on the Prime Contact, both parties concluded the Purchase Contract. According to the latter, the [Seller] has provided the [Buyer] with Goods at the price of US $199,500.00. The [Buyer] has received the Goods, and has paid most of the installments as agreed. The remaining three installments totaling US $69,014.53 had not been paid by the [Buyer] even after [Seller]'s attorneys demanded payments several times. The [Buyer] is in breach of the major obligation as a purchaser according to the law, i.e., the obligation to pay the contract price. The [Buyer] shall assume liability for its severe breach of contract. The [Buyer] shall compensate the [Seller] for the arrearage, as well as the interest thereon.

5. The calculation of interest

As for the [Seller]'s loss of interest, the [Seller]'s request of US $26,425.89 as the interest on the deferred payment until 31 January 2004 was wrongly calculated. The correct interest on the deferred payment until 31 January 2004 should be US $25,579.82. The Tribunal finds that the annual interest rate 8% claimed by the [Seller] was slightly higher than normal, but it was agreed to by both parties, and that the decision on the interest rate shall be honored by the freedom of the parties. Therefore, the Tribunal supports the corrected interest because it was calculated reasonably. At the same time, the [Buyer] requested for payment of interest on the arrearage of $69,014.53 from 1 February 2004 to the date when payment is made at the rate of 8%. The Tribunal also supports this claim.

6. The attorneys' fee of the [Seller]

The [Seller] requested for compensation for its attorneys' fee of US $10,000 incurred for this case. The Tribunal finds that the amount of the arrearage and the interest thereon is less than US $100,000. Therefore, according to Article 59 of the Arbitration Rules, the [Seller] shall not be compensated for the entire amount of its attorneys' fee. Instead, the [Buyer] shall bear part of the [Seller]'s attorneys' fee in the amount of US $8,000.

7. The arbitration fee

Since the [Seller]'s claims are substantially supported by the Tribunal, the arbitration fee incurred from this case shall be borne by the [Buyer].

AWARD

The Tribunal hands down the following award according to the aforementioned:

1.   The [Buyer] shall make the down payment to the [Seller] of US $69,014.53.
 
2.   The [Buyer] shall compensate the [Seller] for the interest on the deferred payment until 31 January 2004 in the amount of US $25,579.82; the [Buyer] shall also compensate the [Seller] for the interest on the deferred payment at the annual interest rate of 8% from 1 February 2004 to the day when this deferred payment is paid.
 
3.   The [Buyer] shall compensate the [Seller] for its attorneys' fee of US $8,000.00 incurred from this case.
 
4.   The arbitration fee of this dispute is US $4,895. The [Buyer] bears the entire amount. The [Seller] has prepaid this arbitration fee, and therefore, the [Buyer] shall pay the [Seller] US $4,895.

The abovementioned payments by the [Buyer] to the [Seller] shall be made within 30 days after this award is handed down.

This is a final award. This award comes into effect on the day when it is handed down.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of ___ Corporation [of Japan] (originally named XXX Corporation of Japan) is referred to as [Seller], and Respondent of Guangdong ___ Corporation [of the People's Republic of China] is referred to as [Buyer]. Amounts in the currency of the United States (dollars) are indicated as [US $].

** Jing Li, LL.M., University of Texas at Austin, School of Law; Master of Law, Sun Yat-Sen University School of Law, China; LL.B., Sun Yat-Sen University School of Law, China.

*** 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 August 29, 2008
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