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CISG CASE PRESENTATION

China 21 February 2005 CIETAC Arbitration proceeding (Equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050221c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20050221 (21 February 2005)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2005/14

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Singapore (claimant)

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

GOODS INVOLVED: Equipment


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 9 [Also cited: Articles 4 ; 53 ; 54 ; 58 ]

Classification of issues using UNCITRAL classification code numbers:

9C [Practices established by parties]

Descriptors: Usages and practices

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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

Equipment case [21 February 2005]

Translation [*] by Zheng Xie [**]

Edited by William Zheng, Raymond Tan and Cheryl Chen [***]

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

   -    The arbitration clauses in thirty-one (31) contracts. They are Contracts No.

01SG111DF54140824,   01SG111DF54140825,   01SG111DF54140827,
01SG111DF54140831,   01SG111DF54017740,   01SG111DF54017742,
01SG111DF54017743,   01SG111DF54017744,   01SG111DF54017748,
01SG111DF54017749,   01SG111DF54017755,   01SG111DF54017753,
01SG111DF54017754,   01SG111DF54017757,   01SG111DF54017758,
01SG111DF54017759,   01SG111DF54017760,   01SG111DF54017761,
01SG111DF54017762,   01SG111DF54017763,   01SG111DF54017765,
01SG111DF54017766,   01SG111DF54017768,   01SG111DF54017769,
01SG111DF54017771,   01SG111DF54017773,   01SG111DF54017775,
01SG111DF54017776,   01SG111DF54017780,   01SG111DF54017782,
01SG111DF54017784

(hereafter, the Contracts) signed by Claimant ___ Asia [Seller] [of Singapore] and Respondent ___ Import and Export Company [Buyer] [of the People's Republic of China] from April 2001 to December 2001; and
 

- The written arbitration application submitted by the [Seller] on 13 August 2004.

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

On 6 September 2004, the Secretariat of the Arbitration Commission sent the Notice of Arbitration, the Arbitration Rules and the Arbitrators List to the [Seller] and the [Buyer] by express mail, and also sent the [Seller]'s arbitration application with attachment to the [Buyer] and requested the [Buyer] to submit a response and appoint an arbitrator within the period provided in the notice.

The [Seller] appointed Mr. ___ as its arbitrator; the [Buyer] appointed Mr. ___ as its arbitrator. Because the parties neither jointly appointed nor authorized the Chairman of the Arbitration Commission to appoint a chief arbitrator, according to Article 24 of the Arbitration Rules, the Chairman appointed Mr.___ as the chief arbitrator. The aforementioned three arbitrators formed the Arbitration Tribunal on 9 October 2004.

On 6 January 2005, the Arbitration Tribunal opened the court session in Beijing. Both parties sent their legal representatives and arbitration agents to attend the court session. At the court session, both parties presented the facts and statements, cross-examined the evidence, and answered the Arbitration Tribunal's questions. After the court session, both parties submitted supplementary material.

This case is completed. Based on the written material submitted by the parties and the facts verified at the court session, the Arbitration Tribunal handed down the award by consent. The following are the facts, the Arbitration Tribunal's opinion and award.

POSITION OF THE PARTIES

The [Seller]'s position

From April 2001 to December 2001, the parties signed thirty-one (31) contracts. They are Contracts No.

01SG111DF54140824,   01SG111DF54140825,   01SG111DF54140827,
01SG111DF54140831,   01SG111DF54017740,   01SG111DF54017742,
01SG111DF54017743,   01SG111DF54017744,   01SG111DF54017748,
01SG111DF54017749,   01SG111DF54017755,   01SG111DF54017753,
01SG111DF54017754,   01SG111DF54017757,   01SG111DF54017758,
01SG111DF54017759,   01SG111DF54017760,   01SG111DF54017761,
01SG111DF54017762,   01SG111DF54017763,   01SG111DF54017765,
01SG111DF54017766,   01SG111DF54017768,   01SG111DF54017769,
01SG111DF54017771,   01SG111DF54017773,   01SG111DF54017775,
01SG111DF54017776,   01SG111DF54017780,   01SG111DF54017782,
01SG111DF54017784.

These Contracts obligated the [Buyer] to purchase imported equipment from the [Seller]. Articles 9 of the Contracts stipulate that the [Buyer] shall make the payment by T/T after receiving the equal value of renminbi [RMB] from the final user and within seven business days after receiving the shipping documents stipulated in Articles 10.

The [Seller] delivered all of the equipment and the shipping documents under the Contracts, but the [Buyer] did not pay the contact price, alleging that the final user, ___ Company, refused to perform its duty to pay the contract price. The overdue amount which the [Buyer] owed to the [Seller] is US $900,700.

The [Seller] alleged that, although the Contracts stipulate that the [Buyer] shall pay the contract price after receiving the payment from the final user, this only applies when the parties perform the duties complying with the Contracts. About three years have passed since the [Buyer] accepted the goods delivered by the [Seller], and the [Buyer] should have timely and fully performed its duty to pay the contract price to the [Seller]. The end user referred to in Articles 9 of the Contracts is obviously not ___ Company, but those companies which finally used the equipment. The end users' names were recorded in the tax invoices filed by the [Buyer] with the government agency. Based on information and belief, at least some of the end users had made payments to ___ Company. Six end users including ___ City Water Supplying Group provided receipts to the [Seller] showing that they had already paid RMB 2,672,363.40 to ___ Company.

The [Seller] alleged that the [Buyer] failed to perform its duty to make the payment under the Contracts, which constituted a fundamental breach; therefore, the [Buyer] should bear liabilities for its breach. Accordingly, the [Seller] filed the following claims:

     1. The [Buyer] should pay to the [Seller] the outstanding contract price of US $900,700;

     2. The [Buyer] should pay the interest on the outstanding contact price (from 1 October 2002 to the date when the payment is made; the interest rate shall be 0.021% provided by the law for breach of contract. The total amount of interest is US $126, 540 at the end of July 2004);

     3. The [Buyer] should bear the [Seller]'s attorneys' fee in the amount of US $17,000;

     4. The [Buyer] should pay the arbitration fee.

The [Buyer]'s position

In its response submitted on 12 November 2004, the [Buyer] alleged:

     1. The [Buyer] is not a party to Contracts No. 01SG111DF54140824, 01SG111DF54140825 and 01SG111DF54140827; therefore, these three Contracts are not within the scope of this arbitration.

After reviewing the [Seller]'s evidence, the [Buyer] found that the contracting party in Contracts No. 01SG111DF54140824, 01SG111DF54140825 and 01SG111DF54140827 is not the [Buyer], but ___ Import & Export Co., i.e., ___ Technology Import and Export Company. Therefore, the contract price under these three Contracts should be deducted from the total disputed amount of US $900,700 claimed by the [Seller].

     2. The [Seller] should file claim against ___Company; the Contracts between the [Seller] and the [Buyer] are binding on ___Company.

The [Buyer] asserted that it signed the Contracts with the [Seller] only as an agent, but it was not the actual buyer; when signing the Contracts, the [Seller] knew that the actual buyer was ___ Company. Therefore, the [Seller] should file its claim against ___ Company; the [Buyer] is not obligated to pay the contract price.

          (1) When signing the Contracts in this case, the [Seller] knew of the import agency relationship between the [Buyer] and ___ Company.

                a. ___ Company is the [Seller]'s excusive distributor in China. On 23 August 1999, the [Seller] and ___ Company signed a Distribution Agreement. For many years, ___ Company as the exclusive distributor had been reselling the equipment made by the [Seller]. In China, there is no distributor other than ___ Company reselling the [Seller]'s equipment.

                b. The [Seller] clearly knew that the [Buyer] was the agent of ___ Company to purchase the equipment under the Contracts. All of the equipment the [Buyer] purchased from the [Seller] under the Contracts was the same as the equipment listed in Attachment A of the Distribution Agreement between the [Seller] and ___ Company. The [Seller] clearly knew the foreign trade agency system in China, and also knew that the [Buyer] as a foreign trade agent purchased the equipment not for its own use. All of the equipment under the Contracts is used for special purposes and is rarely required in China; the [Buyer] would normally not purchase such equipment except that the [Buyer] was authorized by the [Seller]'s exclusive distributor to do so.

                c. When signing the Contracts, the [Seller] was aware of the agency relationship between the [Buyer] and ___ Company. When the [Seller] and the [Buyer] signed the Contracts, the [Seller]'s authorized person was Mr.___, who is also the legal representative of ___ Company and also signed the Agency Agreement on behalf of ___ Company with the [Buyer]. Mr. ___ is both the [Seller]'s representative and ___ Company's legal representative, and signed the Contracts with the [Seller]'s authorization. This shows that the [Seller] knew of the agency relationship between the [Buyer] and ___ Company. After the Contracts were signed, the [Seller] fully performed its duties, which shows that the [Seller] confirmed the validity of the Contracts.

The [Seller] and ___ Company have had a long-term cooperation. Because of the foreign trade agency system, ___ Company has to import the equipment from the [Seller] through a foreign trade agent. From 1999 to 2001, the [Buyer], on behalf of ___ Company, had signed more than 100 contracts with the [Seller], including the Contracts in this case. All of these contracts were contracts in the same standard form. Except for the Contracts in this case, all other contracts had been fully performed. The business practice among the [Seller], the [Buyer] and ___ Company is formalized; all three parties knew that the [Buyer] signed the Contracts only for the purposes of satisfying procedural requirements and complying with laws and regulations related to China's foreign trade agency system.

          (2) Article 492 of the Contract Law of the People's Republic of China provides,

"Where the agent, acting within the scope of authority granted by the principal, enters into a contract in its own name with a third person who was aware of the agency relationship between the principal and agent, the contract is directly binding upon the principal and such third person, except where there is conclusive evidence establishing that the contract is only binding upon the agent and such third person."

Accordingly, the [Seller] alleged that the Contracts in this case were directly binding on the [Seller] and ___ Company. Therefore, the [Seller] should not file claims under the Contracts against the [Buyer].

     3. The end user stipulated in the Contracts is ___ Company.

          (1) The Contracts do not provide a definition of the end user.

          (2) The Import Agency Agreement between the [Buyer] and ___ Company specifies that ___ Company is the end user of the Contracts in this case.

The Import Agency Agreement between the [Buyer] and ___ Company stipulates that ___ Company fully authorized the [Buyer] to import the equipment; and that ___ Company shall wire all customs duties, value added duties (the amount actually charged by the customs) and customs clearance charges to the [Buyer]'s account three (3) days before the goods are shipped, and shall pay the [Buyer] 100% of the contract price, the agency fee and the bank charges seven (7) days before the [Buyer] pays the [Seller]. The above facts show that ___ Company is the recipient of the equipment under the Contracts, and bears the obligation to pay the contract price; therefore, ___ Company is the end user of the Contracts.

          (3) The tax invoice the [Seller] submitted to ___ Government should not be admitted as proof to decide the end user. The tax invoice the [Seller] submitted to ___ Government is for the purposes of filing tax, and cannot be admitted as a proof to decide the end user. The [Seller] did not provide any relevant invoice as evidence.

     4. The issue whether the condition for payment was satisfied. The [Buyer] alleged that the [Buyer] need not perform the obligation to pay the contract price, because the condition for payment was not satisfied for the following reasons:

          (1) The [Buyer] did not receive any payment from the end user.

According to Articles 9 of the Contracts, the [Buyer] shall make the payment by T/T after receiving the equal value of RMB from the final user and within seven (7) business days after receiving shipping documents stipulated in Articles 10. This is a conditional payment term. In fact, the [Buyer] did not receive any payment from the end user, ___ Company. Therefore, the condition of payment stipulated in Articles 9 of the Contract was not satisfied, and the [Buyer] need not perform the obligation to pay the contract price.

          (2) ___ Company had notified the [Buyer] in writing that it need not pay the contract price to the [Seller]. On 15 October 2004, ___ Company sent to the [Buyer] the Statement Regarding ___ Company Need Not Pay the Contract Price to ___ Asia (hereafter, the "Statement") informing that all of the debts between ___ Company and the [Seller] had been cleared, and that ___ Company did not need to make any other payments through the [Buyer] to the [Seller] anymore. Accordingly, the [Buyer] alleged that its duty to make the payment under the Contracts was exempted.

     5. The issue whether some of the end users have made the payments. The [Seller] alleged that "at least some of the end users have made payments to ___ Company." The [Buyer] asserted that this is not related to the arbitration.

     6. Interest on the unpaid contract price and the attorneys' fee. The [Seller] requested the Arbitration Tribunal to rule that the [Buyer] shall pay interest on the unpaid contract price. The [Buyer] asserted that the parties did not agree on liquidated damages and method of calculation. The [Seller]'s claim lacks both contractual and legal basis. The [Seller] also requested the Arbitration Tribunal to rule that the [Buyer] should pay the [Seller]'s attorneys' fee. The [Buyer] stated that the parties neither stipulated that the losing party should bear the prevailing party's attorneys' fee, nor agreed that the [Buyer] should bear the [Seller]'s attorneys' fee. The [Seller]'s claim lacks any basis.

[Seller]'s response

On 23 December 2004, the [Seller] submitted its response alleging:

1. The Contracts are binding on the [Buyer].

Under the thirty-one (31) Contracts to which the [Seller] and the [Buyer] are parties, ___ Company did not sign the Contracts. The thirty-one (31) Contracts repeatedly set forth the [Buyer]'s rights and obligations; they do not mentioned ___ Company's. The party who bears the obligation of payment is the [Buyer] other than ___ Company. Meanwhile, all the relevant invoices, packing lists and airway bills of lading were issued to the [Buyer].

___ Company is not a party to the Contracts, so it should not be the Respondent in this case. The [Buyer] enjoyed the rights stipulated in the Contracts, but refused to perform the obligation to make the payments to the [Seller] under the Contracts. The [Buyer]'s conduct does not comply with the principle of fairness stipulated in the Contract Law of the People's Republic of China.

2. The Distribution Agreement between the [Seller] and ___ Company does not affect the binding power of the Contracts on the [Buyer].

___ Company is not the [Seller]'s exclusive distributor in China. According to the Distribution Agreement between the [Seller] and ___ Company, the [Seller] reserves the right to sell equipment directly to other companies in China. The [Seller] has the right to sell the equipment directly to the [Buyer]. The [Seller] and ___ Companies have directly signed a large number of contracts according to the Distribution Agreement; the [Buyer]'s allegation that all the sales contracts between the [Seller] and ___ Company were signed though the [Buyer] is not true.

3. Even if an agency relationship existed between the [Buyer] and ___ Company, the [Buyer] should be liable for the [Seller]'s damages because it failed to demand that ___ Company pay the contract price.

Article 19 of the Temporary Rules on Foreign Trade Agency System provides:

"If the agent fails to comply with the agency agreement resulting in the non-performance, incomplete, delayed or non-complying performance of the contract, the agent shall compensate the principal for any damages thereof incurred, and shall be liable for the other party to the contract."

The [Buyer] should have timely known from ___ Company the payment status of the end users; once knowing the end users made the payments, the [Buyer] should have immediately requested ___ Company in writing to make the payment, so that the [Buyer] could pay the [Seller] within seven business days. If ___ Company failed to make payments after receiving the written request, the [Buyer] should request ___ Company in writing to pay the contract price and the liquidated damages according to the Import Agency Agreement. If after a reasonable period, ___ Company still failed to pay the overdue contract price and the liquidated damages, the [Buyer] should immediately file a legal action against ___ Company claming the contract price. If the end user the [Buyer] referred to is ___ Company, the [Buyer] should request ___ Company to make payment immediately after receiving the goods. If ___ Company failed to make payment after a reasonable period, the [Buyer] should file a lawsuit against ___ Company.

It has been three years since the goods under the Contracts were delivered. From September 2002 to July 2004, the [Seller] had sent numerous demand letters to the [Buyer] requesting it to pay the overdue contract price, but the [Buyer] failed to demand that ___ Company make payments. The [Buyer] refused to pay the [Seller] by alleging the Statement issued by ___ Company on 15 October 2004, but this Statement is not consistent with the Reconciliation between the [Seller] and ___ Company signed in April 2004.

4. Even if an agency relationship existed between the [Buyer] and ___ Company, Article 402 of Chapter Twenty-One of the Commission Contracts shall not apply, but Chapter Twenty-Two of the Contracts of Commission Agency of the Contract Law of the People's Republic of China shall apply.

Article 414 of the Contract Law provides:

"A contract of commission agency is a contract whereby the commission agent conducts trading activities in its own name for the principal, and the principal pays the remuneration."

Article 421 provides:

"Where the commission agent enters into a contract with a third party, it directly enjoys the rights and assumes the obligations thereunder."

Article 423 provides:

"Matters not prescribed in this Chapter shall be governed by the relevant provision on commission contracts. "

The import agency agreement between the [Buyer] and ___ Company is a contract of commission agency, and the [Buyer] is obligated to make payments directly to the [Seller].

5. "End user" means factories, hospitals, schools, etc. which actually use the equipment, and does not refer to ___ Company. According to the Statement provided by six companies including ___ City Water Supplying Group, etc., ___ Company resold the equipment under the Contracts to these six companies. The end users recorded in the [Seller]'s tax invoice are not ___ Company.

6. Since September 2002, the [Seller] has been sending numerous demand letters to the [Buyer] requesting it to pay the contract price. The [Buyer] should pay the loss of interest accrued from 1 October 2002 to the date on which the payment is made. According to Article 59 of the Arbitration Rules, the [Seller] is entitled the attorneys' fee and other expenses not exceeding 10% of the amount awarded.

7. The [Buyer]'s allegation that Contracts No. 01SG111DF54140824, 01SG111DF54140825 and 01SG111DF54140824 are not within the scope of this arbitration is not established.

Except that the buyer is not ___ Company, but ___ Technology Import & Export Co., the other terms and conditions including the signatory and the buyer's contact information are the same as those stipulated in the other twenty-eight (28) contracts. In the "___ Company's Account Balance" provided by the [Buyer] to the [Seller] and other correspondence, the [Buyer] confirmed that the payments under these three contracts were outstanding. The [Buyer] did not ever allege that a third party other than the [Buyer] was subject to these three Contracts or that it should not pay the contract price.

[Buyer]'s second response

On 6 January 2005, the [Buyer] submitted its second response alleging:

1. Before the parties signed the Contracts, ___ Company had already negotiated and placed an order with the [Seller] on these transactions. After the [Buyer] and the [Seller] signed the Contracts on behalf of ___ Company, it was ___ Company that directly contacted the [Seller] regarding other matters via e-mail to the e-mail address provided by the [Seller]. After all relevant matters were settled, it was ___ Company that instructed the [Seller] to ship the goods. After receiving the shipping instruction from ___ Company, the [Seller] shipped the goods to the [Buyer] and completed customs procedures. If the [Buyer] was the real buyer, according to commercial custom, the Contracts would not stipulate such payment terms.

2. The [Seller] and ___ Company signed the Distribution Agreement, and the provisions in this Distribution Agreement do not deny the fact that ___ Company is the exclusive distributor of the [Seller] in China. As a matter of fact, the [Seller] dose not have any other distributor except for ___ Company.

3. The [Buyer] had tried its best to resolve the disputes among all the parties. In the letter regarding payment of the contract price sent by the [Buyer] to the [Seller], the [Buyer] stated:

"Since the beginning of March/April of 2003, we have contacted ___ Company many times requesting it to pay the contract price; we were advised that ___ Company is negotiating this matter with you; we kept contacting the [Buyer] until the end of April; however, because of SARS, we did not reach an agreement on payment with ___ Company."

4. When signing the Contracts, the [Seller] knew of the agency relationship between the [Buyer] and ___ Company. Therefore, the agency relationship between the [Buyer] and ___ Company is a semi-hidden agency, but not a commission agency relationship. The Agency Agreement between the [Buyer] and ___ Company is an Agency Contract, but not a contract of commission agency.

Under China's foreign trade agency system, in many transactions, a foreign trade company signs an import contract at its own name. If the foreign trade company is recognized as a commission agent, it shall have the relevant rights and bear obligations under the import contract. It is neither fair nor reasonable for a foreign trade company which is only earning a little amount of commission.

5. The [Buyer] signed the Agency Agreement with ___ Company, and the [Buyer] could only request ___ Company to make the payment under the Agency Agreement and thereafter pay the [Seller]. If those users which finally used the equipment were treated as end users, the [Buyer] could not legally request them to make payments.

The end user referred to in the Distribution Agreement between the [Seller] and ___ Company is not the same as the end users under the Contracts in this case. In the [Seller]'s direct sale, ___ Company is not the end user. In this case, if the end user is that alleged by the [Seller], the [Buyer] would face severe hardship to make payment to the [Seller].

[Seller]'s second response

On 24 January 2005, the [Seller] submitted its second response alleging that:

1. The [Buyer] and the [Seller] have a sales contract relationship;

2. The payment condition under the Contracts has been satisfied.

Concurrently, the [Seller] submitted its supplementary claims requesting the [Buyer] to bear the [Seller]'s traveling expenses of RMB 1,684.71.

[Buyer]'s supplementary opinions

On 26 January 2005, the [Buyer] submitted supplementary opinions alleging:

1. Mr. ___, as ___ Company's legal representative, is the key person of the transaction under the Contracts and bears the burden to prove through the [Buyer] the performance of the Contracts.

2. ___ Company authorized the [Buyer] to sign the Contracts with the [Seller]. The [Seller] authorized Mr. ___, the legal representative of ___ Company, to sign the Contracts with the [Buyer] on behalf of the [Seller]. Therefore, the [Seller] clearly knew of the agency relationship between ___ Company and the [Buyer], and knew that the actual buyer and payer under the Contract is ___ Company. The [Seller] should claim the contract price directly from ___ Company, and is not entitled to claim from the [Buyer].

3. The Contracts stipulate the same payment terms, i.e., the [Buyer] shall pay the [Seller] after receiving the payment from the end user for the equal value of RMB. Because of the long-term cooperation with ___ Company, the [Seller] clearly knew that the end user under the Contracts was ___ Company, and fully trusted in Mr. ___'s and ___ Company's reputation and capability of performance, and also acknowledged the risk when it voluntarily bore the obligation to make payments; therefore, the Contracts stipulate the above payment terms. The ___ Company did not pay the remaining contract price to the [Buyer], and the condition of payment is not satisfied. Therefore, it lacks any contractual basis for the [Seller] to request the [Buyer] to make payment.

4. The Contracts do not stipulate that the [Buyer] shall demand ___ Company to make payment. The [Seller]'s allegation that the [Buyer] should compensate the [Seller] for damages because the [Buyer] failed to demand ___ Company to make payment lacks factual and legal basis.

THE ARBITRATION TRIBUNAL'S OPINON

1. The applicable law

The parties did not stipulate the applicable law in the Contracts for contract conclusion or when dispute arose. Since the [Seller]'s place of business is in Singapore and the [Buyer]'s place of business is in China, and both Singapore and China are Contracting States of the United Nations Convention on Contracts for International Sales of Goods (CISG), according to Article 1 and Article 4 of the CISG, the Arbitration Tribunal holds that the CISG shall apply to the establishment of the Contracts and the dispute of the parties' rights and obligations under the Contracts. And since both parties cited the Chinese laws to support their allegations, therefore, Chinese laws shall apply to other issues of this case.

2. The scope of the arbitration

The [Seller]'s claims are related to thirty-one (31) contracts. The [Buyer] alleged that the buyer of Contracts No. 01SG111DF54140824, 01SG111DF54140825 and 01SG111DF54140827 is not ___ Company, but ___ Import & Export Technology Co. Therefore the contract price under these three Contracts should be deducted from the total disputed amount of US $900,700 claimed by the [Seller]. As to the [Buyer]'s response, the [Seller] alleged that except that the [Buyer] is not ___ Company, but is ___ Technology Import & Export Co., the other terms and conditions including the signatory and the buyer's contact information are the same as those stipulated in the other twenty-eight (28) contracts; therefore, the [Buyer] should bear liabilities.

The Arbitration Tribunal finds that the buyer in Contracts No. 01SG111DF54140824, 01SG111DF54140825 and 01SG111DF54140827 is ___ Import & Export Technology Co; and that this company and the [Buyer] are both legal persons registered in China and subsidiaries of the same holding group; therefore, the Chinese laws shall apply regarding the civil capacity of the [Buyer] and ___ Import & Export Technology Co.. According to Section Two, Chapter Three of the General Rules of Civil Law of the People's Republic of China, a legal entity shall independently bear civil liabilities by its own property. In this case, although the signatory, who represented the [Buyer] signed the Contracts, also signed the above three Contracts on behalf of ___ Technology Import & Export Co., the [Seller] should have known that the buyer in these three Contracts and the [Buyer] are two independent legal entities. Therefore, the [Seller]'s claims under the above three Contracts are not related to the [Buyer], so they are not within the scope of this arbitration.

3. The [Seller]'s arbitration claims

The [Seller] asked the Arbitration Tribunal to require the [Buyer] to pay the outstanding contract price by alleging that the [Buyer] rejected to perform its contractual duty to make payment. In its Response, the [Buyer] alleged that it was not obligated to pay the outstanding contract price to the [Seller], and that the [Seller] should claim the payment directly from ___Company.

In this case, the [Buyer] admitted that it had received the goods under twenty-eight (28) contracts and did not object to the quality of the goods. The issue is whether the [Buyer] breached the duty to make payment under the Contracts after receiving the goods. Since the above twenty-eight (28) Contracts were standard contracts, the duty regarding payment is the same. According to the Contracts, the [Buyer]'s duty of payment is "Payment shall be effected by Telegraphic transfer to the Seller within seven working days after receipt from the end user of the equivalent RMB amount and from the Seller of the shipping documents specified in Clause 10 hereof." The Arbitration Tribunal holds that according to the stipulation regarding the [Buyer]'s duty to make payments under the Contracts, the [Buyer]'s duty of payment is based on two conditions; first, the [Buyer] has received the equal value of RMB of the contract price from the end user; second, the [Buyer] has received the shipping documents delivered from the [Seller]. Based on evidence verified at the court session, the [Seller] had delivered the shipping documents to the [Buyer], but the [Buyer] did not receive any contract price from the end user.

As to the issue of who is the end user, the parties held different opinions. The Arbitration Tribunal noted that there is no definition of "end user" in the Contracts. Based on the purposes of the stipulation in the Contracts, the end user should be the one (the legal entity) that received the goods and intended and/or was originally scheduled to pay the contract price in RMB. If this is the rule, ___ Company, which entrusted the [Buyer] as a trade agent, factually accepted the goods, and signed the Distribution Agreement with the [Seller], is the end user. The facts in this case show that the [Seller] and the [Buyer] signed a large number of sales contracts including those in this case; and that all of these contracts stipulate the same payment term and were performed by ___ Company as the distributor of the [Seller] in China; ___ Company accepted the goods and paid the [Buyer] the contract price in RMB; thereafter, the [Buyer] paid US dollars or other currency to the [Seller]. The [Seller], the [Buyer] and ___ Company had already formed a fixed trade practice. According to Articles 53 and 54 of CISG, the buyer shall pay the contract price and receive the goods according to the contract; the buyer's duty of payment shall be performed according to the contract and the relevant law. In this case, one pre-condition (receiving the payment from the end user) for the [Buyer]'s duty of payment is not satisfied; in addition, the [Seller] cannot prove that it was because of the [Buyer] that the condition is not satisfied. According to the Contracts, the [Buyer] is not obligated to make payment to the [Seller] when one condition is not satisfied. Meanwhile, according to Article 9 of CISG, the usual practice formed during the parties' long-term business relationship shall be followed. The Arbitration Tribunal confirms that the [Buyer] did not breach the Contracts, and the [Seller] should have anticipated that the end user might reject to make payment, and should have foreseen the risk and loss caused by the end user's non payment. The [Seller]'s claim should not be sustained.

In view of the above, the Arbitration Tribunal does not sustain the [Seller]'s claim for interest on damages, attorneys' fees and traveling expenses.

4. The arbitration fee and other expenses

The Arbitration Tribunal holds that the [Seller] should bear the entire arbitration fee. The [Seller] had advanced RMB 8,000 for its arbitrator. The Arbitration Tribunal held that this amount should be borne by the [Seller] itself.

AWARD

   (1)   The [Seller]'s arbitration claims are dismissed;
 
   (2)   The [Seller] shall bear the entire arbitration fee of US $24,097. The [Seller] has already prepaid this amount, which shall be offset by the arbitration fee;
 
   (3)   Arbitrator ___'s expenses are RMB 8,000, which shall be borne by the [Seller]. The [Seller] has prepaid this amount, which shall be offset by the expenses.

This is the final award and takes effect when entered.


FOOTNOTES

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

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

*** William Zheng is a graduate of the Pace University School of Law. He is Special Counsel with the Shanghai office of Sheppard Mullin Richter & Hampton, LLP. Raymond Tan and Cheryl Chen are Associates with this law firm.

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Pace Law School Institute of International Commercial Law - Last updated October 31, 2008
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