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CISG CASE PRESENTATION

China 24 February 2005 CIETAC Arbitration award [Contract No. SZ-WE2003-01] (Pork case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050224c1.html]

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Case identification

DATE OF DECISION: 20050224 (24 February 2005)

JURISDICTION: Arbitration ; P.R. China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2005/07

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: People's Republic of China [?] (respondent)

BUYER'S COUNTRY: Russian Federation [?] (claimant)

GOODS INVOLVED: Pork


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 26 ; 67 ; 71 ; 74 ; 77 ; 80 [Also cited: Article 61 ]

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

26A1 [Effective declaration of avoidance: notice to the other party required];

64A1 [Seller's right to avoid contract (grounds for avoidance): fundamental breach of contract];

71A [Suspension of performance: apparent that a party will not perform substantial part of obligations];

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

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

80A [Failure of performance caused by other party (party causing non-performance): loss of rights]

Descriptors: Avoidance ; Fundamental breach ; Suspension of performance ; Damages ; Mitigation of loss ; Failure of performance, other party

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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

Pork case (24 February 2005)
[Contract No. SZ-WE2003-01]

Translation [*] by Zheng Xie [**]

Edited by John W. Zhu [***]

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

   -    Article 17 (Arbitration) under Contract No. SZ-WE2003-01 (hereafter, the "Contract") for the sale of pork entered into by Claimant [Buyer], Suzhou ___ Food, Ltd., and Respondent [Seller] on 15 April 2003; and
 
   -   The written arbitration application submitted by the [Buyer] on 14 April 2004.

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

I. ARBITRATION PROCEDURE

On 28 April 2004, the Secretariat of the Arbitration Commission sent the Arbitration Notice, Arbitration Rules and Arbitrators List by express mail to the [Buyer] and the [Seller], and also sent the [Buyer]'s Arbitration Application and Appendix to the [Seller].

The tracking record of the EMS Beijing shows that the documents above were delivered to the [Buyer] on 30 April 2004.

The [Buyer] appointed Mr. ___ as its arbitrator and the [Seller] appointed Ms. ___ as its arbitrator. Because the parties did not jointly appoint or authorize the Chairman of the Arbitration Commission to appoint a presiding arbitrator within the period provided by the Arbitration Rules, the Chairman appointed Mr. ___ as the presiding arbitrator according to Article 24 of the Arbitration Rules. The aforesaid three arbitrators formed the Arbitration Tribunal on 24 June 2004 to hear this case.

On 26 June 2004, the [Seller] submitted its response dated 10 June 2004 and relevant evidence. The [Seller] raised a counterclaim in the response and completed the relevant procedure. The Arbitration Tribunal heard the arbitration claims and counterclaim together.

The [Buyer] submitted a response to the [Seller]'s counterclaim and relevant evidence on 30 July 2004.

On 17 August 2004, the Arbitration Tribunal held a court session in Beijing to hear this case. Both parties sent their agents for the arbitration to the court session. The Arbitration Tribunal heard the [Buyer]'s claim and the [Seller]'s counterclaim together. In the court session, the parties presented the facts and legal issues based on the claims and counterclaims, and explained the evidence they submitted. The parties cross-examined the evidence, answered the Arbitration Tribunal's questions, and presented arguments and statements.

After the court session, both parties submitted supplementary evidence. Neither party requested another court session.

During the arbitration process, all material submitted by the parties was exchanged between the parties by the Secretariat of the Arbitration Commission.

This case has been completed. The Arbitration Tribunal handed down the award based on the facts verified at the court session and the material submitted by the parties.

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

II. FACTS

On 15 April 2003, the [Buyer] and the [Seller] signed Contract No. SZ-WE2003-01. In the Contract, the parties agreed on the follow terms and conditions:

Goods: The [Buyer] shall purchase and the [Seller] shall sell 590 tons of pork;
Unit price: US $1,300.68 FOB Qingdao [China]; Total price: US $767,401.20;
Loading period: Before 10 May 2003;
Shipment: Shipping by installment permissible;
Demurrage: Except for force majeure stipulated in Article 15, the [Seller] shall pay carrier US $2,500 per day for demurrage if loading is delayed;
Port of loading: Qingdao [China]; Port of discharge: Jeddah [*];
Payment: 45 days usance L/C;
Documents: The [Seller] shall provide clean on-board B/L, invoice, packing list, quality certificate, quantity/weight certificate, veterinary certificate (Chinese/English);
Force majeure: If force majeure (such as war, riot, blockage, earthquake, fire, flooding, etc.) and any other accident which the parties cannot foresee and the effects of which cannot be avoided or prevented by the parties, occurs and makes the Contract unable to be performed, the party to whom the accident occurs shall, within thirty days after the end of the accident, provide to the other party proof issued by a domestic authority; such proof can prove exemption of the party's liability; the parties shall negotiate to decide to suspend or continue performing the contract.

In addition, the Contract also stipulates packaging, country of origin, standard, more or less, damages and claims, arbitration, etc.

POSITION OF THE PARTIES

The parties' allegations and claims are as follows:

1. The [Buyer]'s claim and [Seller]'s response

The [Buyer] alleged:

      The parties signed the Contract on 15 April 2003 (the actual execution date is April 30). The Contract stipulates that the goods shall be delivered before 10 May 2003. After signing the Contract, the [Buyer] issued L/C No. ___ ILC ___ in the amount of US $806,000 on 7 May 2003 in accordance with the Contract; the L/C would expire on 1 August 2003 in China. On 19 June 2003, the [Seller] unreasonably requested the [Buyer]'s agent, Dalian Bonded Area ___ International Trade Company to confirm the date of the bill of lading, which is not consistent with trade custom; the [Buyer]'s agent had to confirm that the date of bill of lading was 13 June 2003, and also notified the Carrier Russian ___ Company, Freight Forwarder Qingdao ___Trade Company, and issuing bank Russian Bank. The [Seller] presented documents to the negotiation bank at the end of June 2006., but the bill of lading submitted was dated 13 May 2003, which was not consistent with that confirmed by the [Buyer]'s agent. The issuing bank refused to make payment and requested the [Seller] to correct the error in the documents within the validity period of the L/C. However, the [Seller] neither corrected the error nor presented documents any more.

The [Buyer] signed five contracts with three Chinese companies with the total weight of 2,499.124 tons and gross weight of 2,597.589 tons, among which the goods supplied by the [Seller] were 590 tons. On 13 May 2003, the Vessel ___ for the [Buyer] left the port of loading in Qingdao [China] with the goods on board, and arrived at Nakhodka [Russia] on 21 May 2003. On May 23 when the [Buyer] went through import procedure, it was found that two crew members had fever. Because it was during the period of the SARS epidemic in China, the Nakhodka National Health Center decided that the Vessel ___ should sail to public sea for mandatory separation, and also instructed other agencies to revoke the procedure of customs declaration and arrival of the Vessel.

In the middle and end of June 2003, the price of pork in China surged. On July 8, the [Seller]'s parent company, as the [Seller]'s representative, sent a delegation to Russia and to discuss with the [Buyer] on how to perform the Contract when the Vessel was separated in public sea. The [Buyer] requested the [Seller] to negotiate the documents after correcting the error of date of bill of lading. On July 9, the [Seller]'s representative, the Freight Forwarder and the Carrier, Russian ___ Company, met for negotiation. On July 10, the [Seller] sent a fax to the Carrier without discussing with the [Buyer] or its agent or the other two shippers, Linyi ___ Company and Henan ___ Company, unilaterally instructing the Carrier to return the goods on the Vessel ___ to Qingdao Port, China. The [Seller] promised to pay all expenses and charges including freight, demurrage and other service charges, and to bear all risk and damages. Thereafter, the [Seller] signed a charter party with International Transportation Company. On July 11, the Vessel ___ was discharged from separation. On July 12 (Saturday), the Vessel sailed to Qingdao Port, China, but the Carrier did not inform the [Buyer]. On July 14 (Monday), when going through import procedure with Russian Customs, the [Buyer] was informed that the Vessel ___ sailed to Qingdao Port, China. The Vessel arrived at Qingdao Port on 21 July 2003; thereafter, the goods were unloaded under the [Seller]'s and its representative's control.

During the performance of the Contract, the [Seller] and its representative did not discuss with the [Buyer] or its agent, but conspired with the Carrier, Russian ___ Company, to ship the goods back to Qingdao and get the 590 tons of pork back. The [Seller] did not perform its duty of delivery and expressed that it would not re-deliver the goods and rejected performance of the Contract.

After the Vessel ___ left Qingdao Port on May 13, the [Buyer] had resold most of the goods. Because the [Seller] did not deliver the goods to the [Buyer], the [Buyer] could not deliver the goods to its customers, so the [Buyer] breached its contracts and had to pay damages in the amount of US $363,779.45 to its customers, of which the [Seller] should bear US $87,270.69.

After the issuing bank refused to make the payment because of inconsistence of the documents, the [Seller] did not take any measure to correct the error in the bill of lading but took the 590 tons of pork back. The [Seller] failed to perform the Contract without any justified reason and unilaterally breached the Contract; and the [Buyer] incurred economic loss because of the [Seller]'s breach.

In virtue of the above, the [Buyer] submitted the following claims:

The [Seller] should compensate the [Buyer] for its economic loss of US $205,270.69 including US $87,270.69, which the [Buyer] paid its customers for damages, and US $118,000 as the [Buyer]'s reasonable profits (US $200/ton X 590 tons).

The [Seller] responded as follows to the [Buyer]'s claims:

      On 15 April 2003, the [Buyer] and the [Seller] signed Contract No. SZ-WE2003-01 for the sale of 590 tons of pork. The Contract stipulates that the delivery time is before 10 May 2003, the delivery term is FOB, the destination port is Chongjin, North Korea, the total contract price is US $730,300; the [Buyer] shall pay off the entire contract price within 24 hours after its agent receives the goods (stipulated in the Contract, letter of agreement, appendix of the Contract, Appendix II of the Contract).

After signing the Contract, the [Buyer] proposed to sign an agreement (the Agreement) with the same contract no., quantity, etc, and change some terms as

"Destination port: Jeddah, Saudi Arabia; Payment: 45 days usance L/C;
Total price: US $767,401.20."

In the Agreement, the parties stipulated that the [Buyer] should advance 10% of the contract price within five business days after signing the Contract, and also stipulated that this Agreement is an indivisible part of Contract No. SZ-WE2003-01 and would take effect at the same time as that Contract, and that the original text of the Contract would cease to be valid. However, the [Buyer] did not advance 10% of the contract price, i.e., US $7,674, within five business days after the Contract was executed, i.e., before 22 April 2003. This was the [Buyer]'s first breach of the Contract.

The [Buyer] signed two contracts. One is the Contract in this case and the other one is Contract No. FR-WE2003-06 between the [Buyer] and another subsidiary of the [Seller]'s parent company. After signing the two Contracts, the [Buyer] made three payments to the [Seller]: the first payment of US $ 150,000 was made on 7 May 2003, which was ten days later than the stipulated time (before April 22) and US $62,140 less than the stipulated amount, i.e., US $ 62,140; the second payment of US $70,000 was made on 14 May 2003; the third payment of US $20,000 was made on 21 October 2003; the total amount of the aforesaid three payments is US $870,000.

The [Seller] shipped the goods to Qingdao Port according to the Contract and completed the delivery procedure with the Carrier appointed by the [Buyer]; the Consignee also issued the mate's receipt. However, when the [Seller] requested the Freight Forwarder, Qingdao___Logistics Company, to deliver the bill of lading, the Freight Forwarder asked the [Seller] to request the NVOCC, Qingdao___Company, to provide the bill of lading; when the [Seller] went to the NVOCC, the NVOCC said that it had not obtained any instruction from the Carrier; thereafter, the [Seller] went to the Carrier, the Carrier said it did not get any instruction from the [Buyer]. When the [Seller] went to the [Buyer] for the bill of lading, the [Buyer] asked the [Seller] to wait for a couple of days. After many parties' efforts, the [Seller] finally obtained the bill of lading and presented a full set of documents including the bill of lading and L/C, etc. to the Bank of China ___ Province Branch. On 30 June 2003, the full set of documents was sent to the issuing bank, but the issuing bank neither made any payment nor responded. On 22 July 2003, the [Seller] had to request the issuing bank to return the full set of documents. On 19 August 2003, the Bank of China ___ Province Branch received the returned documents excluding the bill of lading from the issuing bank. The fact is that the [Buyer] conspired with the issuing bank to take delivery of the goods without making payments. The [Buyer] severely violated the provision providing that Buyer shall make payment of the contract price in accordance with the United Nations Convention on Contracts of International Sales of Goods (CISG). This was an intentional breach of the Contract on the side of the [Buyer].

The [Buyer] alleged that on 19 June 2003, it had to confirm that the date of the bill of lading is 13 June 2003, and notified the Carrier, Freight Forwarder and issuing bank via fax. However, the Freight Forwarder proved that it did not receive any notice that the bill of lading was dated 13 June 2003. Therefore, the [Buyer]'s allegation is not true. Meanwhile, on 10 June 2003, the [Seller] knew from many sources that, under the [Buyer]'s instruction, the Vessel carrying the goods did not sail to the stipulated destination, Jeddah, but to Nakhodak, Russia.

On 24 July 2003, the [Buyer] sent a letter to the [Seller] informing that it had made three payments totaling US $870,000 and promising to pay off the contract price by the end of July. On 31 July 2003, the [Buyer] sent a letter via fax to the [Seller] informing that it would secure the payment of the remaining amount by mortgaging two vehicles to the [Seller]. The [Buyer]'s remittance slips and correspondence dated July 24, August 14, September 5, 9, 17 and 27, November 10 and 26, 2003 show that:

  1. The [Buyer] did not pay the advance payment according to the Contract, so it breached the Contract first;
  2. The [Buyer] did not pay the remaining amount in compliance with the Contract, so it breached the Contract again;
  3. The [Buyer]'s allegations that "the advance payment has been made" and that "the [Buyer] had paid US $880,700," are not true.

When the [Buyer] fundamentally breached the Contract, in accordance with Article 68 of the Contract Law of the People's Republic of China and Article 71 of the CISG, the [Seller] informed the [Buyer] that it intended to suspend the Contract and get the goods back in order to mitigate damages. After the [Seller] informed the [Buyer] of this, the [Buyer] neither recovered the capacity to perform the Contract nor did the [Buyer] provide any security for the performance within reasonable time; therefore, in accordance with Articles 69 and 94 of the Contract Law of the People's Republic of China, the [Seller] had to declare the Contract avoided and get the goods returned.

The [Buyer] alleged that after the Vessel ___ sailed from Qingdao Port on 13 May 2003, the [Buyer] had resold most of the goods and that, because the [Seller] did not deliver the goods to the [Buyer], the [Buyer] could not deliver to the goods to its customers; therefore, the [Buyer] had to pay its customer liquidated damages in the amount of US $363,779.45, and the [Seller] should bear US $87,270.69. As to this allegation, the [Seller] responded as follows:

      First, the destination port stipulated in the Contract is Jeddah, Saudi Arabia, and the [Buyer] is the claimant in this case; the second buyer should be a person close to Jeddah, Saudi Arabia. However, the evidence, Supplying Contract No. 19, submitted by the [Buyer], shows that the second purchaser is a person in Moscow; this is obviously not complying with the facts.

      Second, the amounts of deposit are not consistent. Article 2.1 of Supplying Contract No. 19 stipulates that the buyer shall advance 25% of the contract price to the supplier's account, totaling 3,200,000 rubles, i.e., US $105,000, which is not consistent with the amount of US $110,000 stated in the fax sent by the [Buyer]'s agent on 14 August 2003 alleging to receive from its Russian customer.

      Since 20 August 2003, the [Buyer]'s agent had sent faxes to the [Seller] every couple of days requesting the [Seller] to refund the contract price, but had never mentioned that it had sold the goods to others or paid its customers liquidated damages. For example, in the fax dated 5 September 2003, the [Buyer] only requested the [Seller] to refund the contract price in the amount of US $870,000, and also mentioned, "We still intend to buy the 1,730 tons of pork which were shipped back to Qingdao Port." In this fax, the [Buyer] only stated, "still intend to buy," but did not allege that it really wanted to buy the goods, which shows that the [Buyer] did not really resell the goods to any second customer.

In sum, the [Seller] alleged that the Contract could not be performed because of the [Buyer]'s intentional breach; therefore, it is the [Buyer] who was at fault, so the [Seller] should not be liable for the loss of anticipated profits alleged by the [Buyer].

2. The [Seller]'s counterclaim

The [Seller] made the following allegations:

      The [Buyer] intentionally breached the Contract several times, so it is not entitled to any anticipated profits. In addition, the [Buyer] should compensate the [Seller] for its economic loss according to Article 107 and 119(2) of the Contract Law of the People's Republic of China and Articles 61 to 64, 74 to 77 of the CISG.

In virtue of the above, the [Seller] counterclaimed as follows:

      The [Buyer] should compensate the [Seller] for its direct economic loss of RMB 724,339.43 plus interest (calculated at the lending interest rate then prevailing to the date of the arbitration award).

As to the [Seller]'s above counterclaim, the [Buyer] submitted the following defense:

      (1) The two texts of Contract No. SZ-WE2003-01

      There are two texts of the Contract. The payment term was changed, and the Contract is related to Contract No. FR-WE2003-06. The parties spent half a month negotiating and decided and executed the second text of the Contract. Therefore, the [Buyer]'s allegation that the two texts of the Contract were executed on the same day is not true. The Contract number was filed with relevant Russian agency and could not be changed. The first text of the Contract was void, so it could not be admitted as evidence.

It was the parties' intent to enter into the Contract. The second text of the Contract which the [Buyer] submitted for this arbitration is the one the parties agreed to perform.

      (2) The deposit

      In the Contract, the parties stipulated that within five business days after the Contract was executed, the [Buyer] shall advance 10% of the contract price as a deposit. Article 26 of the Measures on the Administration of Foreign Exchange in Bonded Area (No. Huifa [2002] 74), promulgated by the State Administration of Foreign Exchange and taking effect on 25 July 2002, provides:

"Where a company in bonded area buys goods from a company not in the area, the buyer shall not pay the price by purchasing foreign currency, but shall wire money from its own foreign exchange account by presenting contract or agreement, invoice, original customs declaration form, registration form."

However, when the [Buyer] was to advance the deposit according to the Contract, the original export customs declaration form had not been issued. According to Article 52(5) of the Contract Law of the People's Republic of China, such a provision is invalid. Therefore, the fact that the [Buyer] did not advance 10% of the contract price was not a breach of the Contract. The [Seller]'s allegation that the [Buyer] breached the Contract first was not established.

      (3) The bill of lading

      The confirmation of the bill of lading (i.e., Appendix IV of the [Seller]'s response) submitted by the [Seller] was forged. The [Buyer] only sent a fax on 19 June 2003 to confirm that the date of the bill of lading is June 13 by adding a statement of such date on the sample confirmation form sent by the [Seller] on the same day.

The [Seller] requested the [Buyer] to confirm the bill of lading on 13 June 2003 and also faxed a sample of confirmation on June 19 requesting the [Buyer] to confirm port of discharge; in the sample of confirmation, the destination is Jeddah; the [Buyer] only copied the sample and sent back to the [Seller]. The [Seller] did not provide any other documents or material, especially not providing the mate's receipt; the [Seller]'s request for confirmation was 73 days later than the time stipulated in the L/C and the Contract; this was extremely abnormal. The [Seller] forged the bill of lading in order to obtain the contract price, and meanwhile, sent the goods back to Qingdao within the effective period of L/C; this is the [Seller]'s intentional breach of the Contract.

      (4) The Supplying Contract between the [Buyer] and its customer

      As to the [Seller]'s suspicion of the Supplying Contract submitted by the [Buyer], the [Buyer] alleged that it does international trade, so its customers are all over the world; the deposits were not consistent because of the foreign exchange rate between US dollars and Russian rubles. Supplying Contract No. 19 was executed on 13 May 2003; at that time the foreign exchange rate between the ruble and the US dollar was 30.4965:1, so 3,200,000,000 rubles was equal to US $1,049,300; at the beginning of August 2003, the foreign exchange rate between the ruble and US dollar was (29.2-29.3):1, so 3,200,000,000 rubles was equal to US $1,097,770. As to the amount of liquidated damages in the invoice, it is US $363,779.45 including US $112,116.83 which Linyi ___ shall bear. The fax dated 14 August 2003 specified that if double refund is required, the [Seller] and the other company, subsidiary of the same parent company as the [Seller], shall jointly pay US $767,730.

      (5) The [Seller] suspended its performance of the Contract without any justified reason; it thereby breached the Contract and caused the [Buyer] to suffer economic loss

3. The parties' supplemental allegations

The [Buyer] further alleged:

      In June 2003, when the [Seller] presented the documents to the negotiation bank, the date of the bill of lading was 13 May 2003, which was not consistent with the date confirmed by the [Buyer]'s agent, so the issuing bank refused to make payment. The [Seller] could have corrected the error in the bill of lading within the effective period of the L/C, but it failed to do so; nor did the [Seller] negotiate the documents. The [Seller] unilaterally suspended its performance of the Contract, which constituted a fundamental breach of the Contract.

Regarding the issue of the deposit under the Contract, the [Buyer] issued to the [Seller] a 45 days usance L/C in the amount of US $806,000. The [Seller] did not object to this. In addition, in the Contract the [Seller] specified that "this amount shall be deducted from the payment under Contract No. FR-WE2003-06." Further, in Contract FR-WE2003-06, it was stated that "the deposit under Contract No. SZ-WE2003-01 shall be wired to A's bank account first on behalf of the [Seller]." When performing Contract No. 06, the [Buyer] had already paid the contract price in the amount of US $880,700, which includes the deposit under the above Contract No. 1.

The [Buyer] alleged that the [Seller] did not deliver the bill of lading to the [Buyer] as stipulated, but shipped the goods back to Qingdao without negotiating with the [Buyer] and that this proves that the [Seller] fundamentally breached the Contract.

The [Seller] alleged that:

      With respect to the deposit, it was the [Buyer] who intentionally breached the Contract; the [Buyer] did not advance 10% of the contract price within five business days after the Contract was signed.

Regarding the issue that the Vessel carrying the goods sailed back to Qingdao, it was agreed by the [Buyer], the [Seller] and the Carrier. The [Buyer] had no financial capacity to pay the contract price, nor could it pay the 50 days demurrage incurred in Russia; the Carrier did not get compensation from the [Buyer], so it had to follow the instruction of the party who made the payment. On 10 July 2003, the [Seller]'s representative informed the Carrier, "We are trying our best to solve the relevant payment issue; we hope we could make an agreement with the [Buyer] and the Carrier." This proves that the [Seller] was negotiating with the [Buyer] on the Vessel's sailing back, and reached a final agreement.

In its Arbitration Agent's Opinion dated 24 August 2004, the [Seller] claimed the following economic loss:

      a. Under Case No. G___, the direct economic loss is RMB 724,339.43 plus interest of RMB 47,790 (the interest period is 15 months from May 2003 to present).

      b. Under Case No. G___, the direct economic loss is RMB 4,902,999.20 plus interest of RMB 260,190.

      c. The indirect loss under the two cases (i.e., the [Seller]'s anticipated profits if the Contract was performed) is RMB 747,134.70 -- even according to the Supreme People's Court's Response to Standards of Calculating Liquidated Damages on Overdue Payment, the [Buyer] shall bear 2.1/10000 of the contract price as liquidated damages on overdue payment, i.e., US $2,121,402 of the total contract price of the two contracts - US $870,000 which the [Buyer] had already paid = US $1,271,402. equal to RMB 10,445,000 at that time. So the [Buyer] shall pay at least RMB 3,290,175 as liquidated damages.

The total amount of the [Seller]'s above damages is RMB 6,682,453.33.

III. OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The Contract does not stipulate the applicable law. The Arbitration Tribunal holds that it is a contract for the international sale of goods and that both parties' places of business are in Contracting States of the CISG. The Arbitration Tribunal also notes that both parties cited the CISG and the Contract Law of the People's Republic of China in their statements and allegations. Therefore, the Arbitration Tribunal holds that the CISG and the Contract Law of the People's Republic of China shall apply to this case and that when there is any conflict between the CISG and the Contract Law of the People's Republic of China, the CISG shall prevail.

2. The scope of this arbitration

Both parties mentioned Contract No. SZ-WE2003-01 (the one in this case) and Contract No. FR-WE2003-06 in their statements. In this case, because the [Buyer] applied for arbitration based on the arbitration clause in Contract No. SZ-WE2003-01 (the one in this case), the Arbitration Tribunal only heard the disputes occurred under this Contract. The other contract, Contract No. FR-WE2003-06, is not within the scope of this arbitration.

Because the [Seller] raised a counterclaim, the Arbitration Tribunal heard the [Buyer]'s claim and the [Seller]'s counterclaim together.

3. The validity of the Contract

The Arbitration Tribunal notes that although the parties had executed two texts of Contract No. SZ-WE2003-01 as the parties alleged, the parties did not object to the execution, performance and validity of the Contract (the second text) submitted by the [Buyer] when filing the application. Further, there is no contrary evidence showing that when signing the Contract, any party was under duress or had severe mistake. The Arbitration Tribunal holds that the second text of the Contract is deemed to revise the first one. It reflects the parties' true intent, and complies with the relevant law, so the second text of the Contract is valid and should be performed by the parties.

4. Liability for inconsistence between the documents and the bill of lading

The Arbitration Tribunal notes that after signing the Contract, the [Buyer] issued L/C No. 0___ILC___ to the [Seller] according to the Contract and performed its duty of making payment under the Contract. On 13 May 2003, the [Seller] delivered the goods for shipment in order to perform its duty to deliver the goods. However, because the date of the bill of lading was not consistent with the provision of the L/C, the issuing bank refused to make payment. As to this fact, neither party objected. Therefore, the Arbitration Tribunal confirmed this fact.

The issue disputed between the parties is who shall be liable for the inconsistence between the documents and the bill of lading. As to this, the Arbitration Tribunal holds that:

      The [Buyer] alleged that after issuing the L/C, the [Buyer] sent a confirmation to the [Seller] as the [Seller] requested and informed the [Seller] that the date of the bill of lading was 13 June 2003. However, the bill of lading which the [Seller] held was dated 13 May 2003. The [Buyer] alleged that although the inconsistence between the documents and the bill of lading existed, the [Seller] could have revised the bill of lading and negotiated for payment successfully.

The [Seller] alleged that it had never received the [Buyer]'s confirmation regarding the date of the bill of lading, and the issuance of the bill of lading was under the [Buyer]'s control; therefore, the [Seller] could not revise the bill of lading at all.

After reviewing the Contract, the Arbitration Tribunal notes that Article 14 of the Contract stipulates, "the [Seller] shall provide clean on-board B/L, invoice, packing list, quality certificate, quantity/weight certificate, veterinary certificate," so the Arbitration Tribunal holds that it is the [Seller]'s duty to deliver documents including the bill of lading, and the [Seller]'s allegation that it could not revise the bill of lading has no legal or factual basis, so the Arbitration Tribunal does not sustain this allegation of the [Seller].

The Arbitration Tribunal notes that the [Buyer]'s agent sent a fax on 24 July 2003 to Jiangsu ___ Food Industry Group, Ltd. (i.e., the [Seller]'s parent company) alleging that:

"The contract price under Contract No. SZ-WE2003-01 is US $730,300; the L/C in the amount of US $806,000 was issued to you. The issuing bank found two points of inconsistence between the documents and the bill of lading, so there is a problem for negotiation. It should not be hard to solve the problem."

The facts show that when the issuing bank refused to make payment because of the inconsistence between the documents and the bill of lading, the [Seller] did not timely notify the [Buyer]. Meanwhile, after the [Buyer] knew this, the parties did not negotiate to resolve this matter in a timely manner. The Arbitration Tribunal also notes that when the [Buyer] sent the above fax, the [Seller] had already instructed to ship the goods back to Qingdao on 12 July 2003 (the Arbitration Tribunal will discuss this issue in the following section). Obviously, the [Seller] did not take any reasonable remedial measure when failing to negotiate the documents. At the same time, the [Buyer] did not perform its duty to assist the [Seller] to obtain payment. Therefore, the Arbitration Tribunal holds that both parties had fault regarding the fact that the documents could not be negotiated because of the inconsistence between the documents and the bill of lading.

5. The issue on the [Seller]'s duty to deliver and breach of the Contract

After signing the Contract, the [Seller] delivered the goods to the Vessel ___ at Qingdao Port, China, and completed its duty of delivery of the goods under the Contract. Neither party objected to this fact. However, after the Vessel arrived at Nahodak Port, Russia, the [Seller] instructed the Vessel to carry the goods back to Qingdao [China]. It is important to decide whether the [Seller]'s conduct was appropriate or a breach of contract.

      The [Buyer] alleged that the [Seller] conspired with the Carrier to sail the vessel back to Qingdao Port without the [Buyer]'s agreement, which constituted a fundamental breach of contract.

      The [Seller] alleged that because of the inconsistence of the documents and the bill of lading, the [Buyer] failed to pay off the contract price, so the [Buyer] breached the Contract first. The [Seller] excised its right to avoid the Contract and ship the goods back. Moreover, the [Seller] alleged that, before it shipped the goods back, the [Seller] informed the [Buyer] of this.

      The Arbitration Tribunal found that the bill of lading for the goods shipped back from Nahodak to Qingdao Port was dated 12 July 2003, and the arrival date was 21 July 2003. Neither party disputed this.

According to Article 96 of the Contract Law of the People's Republic of China, the party who avoided the contract shall inform the other party. The [Seller] neither submitted any evidence proving that it had informed the [Buyer] or its agent or obtained their express agreement before shipping the goods back, nor provided any evidence proving that it received the [Buyer]'s or its agent's notice that it would not pay the contract price. In addition, as discussed in the above Item 4, the [Seller] also had fault as to the fact that it could not negotiate the documents and the bill of lading. Therefore, the Arbitration Tribunal holds that it was inappropriate for the [Seller] to ship the goods back and avoid the Contract, so the [Seller] shall be held liable for breach.

6. The [Buyer]'s claims

As to the [Buyer]'s claim for its economic loss in the amount of US $205,270.69, the Arbitration Tribunal notes that this claim consists of two parts as follows:

      a. Regarding the claim for liquidated damages in the amount of US $87,270.69 which the [Buyer] paid to its customer, the [Buyer] submitted Supplying Contract No. 19 as evidence, but the Arbitration Tribunal holds that this evidence cannot prove that the liquidated damages of US $87,270.69 were really incurred, so this claim shall not be sustained.

      b. Regarding the claim for the [Buyer]'s reasonable profits in the amount of US $118,000 (US $200 X 590 tons), the Arbitration Tribunal holds that there is not sufficient evidence to prove this claim, so the Arbitration Tribunal does not sustain it.

7. The [Seller]'s counterclaim

Regarding the direct economic damages in the amount of RMB 724,339.43 plus interest of RMB 47,790 (calculated for 15 months from May 2003 to present), according to the opinion in above Item 5, the Arbitration Tribunal holds that because the [Seller] unilaterally shipped the goods back, it shall bear most of the liability. In addition, there is no sufficient evidence to prove the [Seller]'s calculation of economic loss, so the Arbitration Tribunal does not sustain this counterclaim.

8. The arbitration fee

Because neither the [Buyer]'s claims nor the [Seller]'s counterclaim were sustained, the [Buyer] shall pay the arbitration fee for its claims, and the [Seller] shall pay that for its counterclaim.

IV. AWARD

   1.    The [Buyer]'s claims are dismissed;
 
   2.    The [Seller]'s counterclaim is dismissed;
 
   3.    The [Buyer] shall pay the arbitration fee of RMB 62,594 for its claims; it has prepaid this fee The [Seller] shall pay the arbitration fee of RMB25, 352 for its counterclaim; this fee has been prepaid by the [Seller].
   This is final award. It takes effect when it is handed down.

FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant is referred to as [Buyer]; Respondent 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].

Translator's note 1: The opinion reports that the contracting parties are from different Contracting States. It appears as though the Seller is from the People's Republic of China and the Buyer is from the Russian Federation. However, that is not definitely stated in the opinion.

Translator's note 2: The reference to "Jeddah, Saudi Arabia" in the opinion as the Port of discharge of the shipment of pork that is designated in the contract appears peculiar as the import of pork into that country is prohibited. However, that is the way the opinion reads.

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

*** John W. Zhu, LL.M. China University of Political Science and Law (National Graduate Scholarship); Bachelor of Law, Southwest University of Political Science and Law; Double Degree, English Literature, Sichuan International Studies University, Chongqing, China. Focus: International Economic Law.

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Pace Law School Institute of International Commercial Law - Last updated December 9, 2008
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