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CISG CASE PRESENTATION

China 24 February 2005 CIETAC Arbitration proceeding [Contract No. FR-WE2003-06] (Second pork case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050224c2.html]

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

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Case identification

DATE OF DECISION: 20050224 (24 February 2005)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2005/08

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 7 ; 25 ; 63 ; 64 ; 71 ; 74 ; 77 ; 78 [Also cited: Article 61 ]

Classification of issues using UNCITRAL classification code numbers:

7A3 [Observance of good faith];

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

63B [Seller's notice fixing additional final period for performance: seller's remedies during period];

64A [Seller's right to avoid contract: grounds for avoidance];

71A ; 71B ; 71C [Suspension of performance: apparent that a party will not perform substantial part of obligations; Grounds for seller's stoppage of goods in transit; Obligations of party suspending performance: immediately notify other party];

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

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

78A [Interest on delay in receiving price or any other sum in arrears]

Descriptors: Good faith ; Fundamental breach ; Avoidance ; Nachfrist ; Suspension of performance ; Damages ; Mitigation of loss ; Interest

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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

Second pork case (24 February 2005)
[Contract No. FR-WE2003-06]

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) in Contract No. FR-WE2003-06 (hereafter, the "Contract") for the sale of pork entered into by Claimant [Buyer], Wusuli ___, and Respondent [Seller], Anhui Company Ltd., on 15 April 2003; and
 
   -  The written arbitration application submitted by the [Buyer] on 13 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. 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 its response and completed the relevant procedure. The Arbitration Tribunal heard the arbitration claims and counterclaims together.

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

On 18 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. FR-WE2003-06. In the Contract, the parties agreed on the follow terms and conditions:

Goods: The [Buyer] shall purchase and the [Seller] shall sell 1,140 MT of pork.
Unit price: US $1,187.72 FOB Qingdao [China]; Total price: US $1,354,000.80;
Loading period: Before 10 May 2003;
Shipment: Shipping by installments 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; Port of discharge: Chongjin [North Korea];
Payment: Settlement with spot foreign exchange;
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 prevented or avoided 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 25). The contract price is US $1,354,000.80. The loading period is before 10 May 2003.

Article 26 of the Measures for 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 the 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 the appropriate contract or agreement, invoice, original customs declaration form, registration form."

The [Seller] should provide the customs declaration form and pro forma invoice to the [Buyer] or its agent; however, the [Seller] failed to do so. Even though the conditions to pay foreign currency were not satisfied, the [Buyer] still tried its best to make three payments to the [Seller], i.e., US $150,000, US $700,000 and US $20,000 on 30 April, 9 May and 30 June, 2003, respectively, plus US $10,700 which was previously deposited to the [Seller]'s account, totaling US $880,700.

At the [Buyer]'s repeating requests, the [Seller] promised to deliver documents, especially the bill of lading, as soon as possible. Thereafter, the [Buyer]'s agent voluntarily promised to pay the remainder of the contract price, i.e., US $473,300.60 before 31 July 2003, to which the [Seller] did not object. Based on the parties' agreement, on 4 July 2003, the [Seller] and the [Buyer]'s agent signed a mortgage agreement stipulating that if the [Buyer]'s agent failed to pay the contract price before 31 July 2003, the ownership of two vehicles would be transferred to the [Seller] to set-off the remaining amount of the contract price, i.e., US $107,984.17, and completed mortgage registration. This was the final agreement on the time of payment.

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 1,140 tons. On 13 May 2003, the Vessel ___ for the [Buyer] left the port of loading in Quingdao [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 SARS period 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 (Jiangsu Group Company, Ltd.) acting as the [Seller]'s representative sent a delegation to Russia to discuss with the [Buyer] on how to perform the Contract when the Vessel was separated in public sea. In order to show the [Buyer]'s intent to perform the Contract, as the [Seller]'s representative's requested, the [Buyer] promised that whenever the Vessel was discharged from separation, the [Buyer] would pay US $100,000 under the Contract before 17 July 2003 and pay off the remainder of the contract price before 31 July 2003.

On 9 July 2003, the [Seller]'s representative and the Freight Forwarder and the Carrier, Russian ___ Company, met for negotiation. On July 10, the [Seller]'s representative sent a fax to the Carrier unilaterally instructing the Carrier to ship the goods back to Qingdao Port without negotiating with the [Buyer] or the other two suppliers, Linyin ___ Company and Henan ___ Company. The [Seller] promised to pay all expenses and charges including freight, demurrage and other relevant service charges, and to be responsible for any risk and damages. Thereafter, the [Seller]'s representative and the Carrier signed a charter party. On July 11, the Vessel ___ was discharged from separation. On July 12 (Saturday), the Vessel sailed to Qingdao, China. The Carrier did not inform the [Buyer] of this. On July 14 (Monday), when the [Buyer] went through customs declaration procedure, the Russian Customs informed the [Buyer] that the Vessel had already sailed back to Qingdao. On 21 July 2003, the Vessel arrived at Qingdao; thereafter, the goods were discharged under the [Seller]'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 1,140 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 $ 164,391.93.

The [Seller] did not provide any documents including the bill of lading to the [Buyer] according to the Contract, so that the [Buyer] could not control the goods. Meanwhile, the [Seller] got back the 1,140 tons of pork under the Contract. The [Seller] refused to perform the Contract without any justified reason, and also rejected the refund of the contract price of US $759,702.01 which the [Buyer] paid under the Contract. Because of the [Seller]'s unilateral breach of the Contract, the [Buyer] suffered severe economic loss; therefore, the [Buyer] applied for arbitration.

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

   (1)   The [Seller] should immediately refund the contract price of US $759,702.01 to the [Buyer] (the [Buyer] had paid US $880,700 to the [Seller], and the [Seller] had already refunded RMB 1,000,000 on 11 February 2004).
 
   (2)   The [Seller] should compensate the [Buyer] for its economic loss of US $536,140.03 including:

  1. Bank charges of US $880.70 (calculated at 1/100 of the remitted amount) incurred when the [Buyer] remitted the contract price;
  2. Freight of US $142,867.40 incurred when the goods were shipped from Qingdao [China] to Nakhodka [Russia];
  3. Liquidated damages of US $164,391.93 which the [Buyer] paid to its customers;
  4. Reasonable profits of US $228,000 (US $200/ton x 1,140 tons.)
     
       (3)   The [Seller] should pay the [Buyer] interest on the contract price of US $880,700, bank charges of US $880.70 incurred for remitting the contract price, and freight of US $142,867.40, totaling US $1,024,448.10, i.e., RMB 537,293.92.
     
       (4)   The [Seller] should bear the entire arbitration fee.

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

          On 15 April 2003, the [Buyer] and the [Seller] signed Contract No. FR-WE2003-06 for the sale of 1,140 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 $1,391,100; the [Buyer] shall pay off the entire contract price within 24 hours after its agent receives a copy of the export customs declaration form via fax (stipulated in the first contract and agreement).

    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 "Payment: Settlement with spot foreign exchange; Total price: US $1,354,000.80." 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. FR-WE2003-06 and would take effect at the same time as the Contract, and that the original text of Contract No. FR-WE2003-06 would cease to be valid. However, the [Buyer] did not advance 10% of the contract price, i.e., US $135,400, 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 the Contract No. SZ-WE2003-01 between the [Buyer] and another subsidiary of the [Seller]'s parent company. After signing the two contracts, the [Buyer] made three payments in all:

       -   The first payment of US $150,000 was made on 7 May 2003, which was 10 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 $700,000 was made on 14 May 2003;
     
       -   The third payment of US $20,000 was made on 21 October 2003.

    The total amount of these three payments was US $870,000. However, the payment dates in the Arbitration Application submitted by the [Buyer] are different from the actual payment dates, and the difference between some dates is as much as four months. Meanwhile, the [Buyer] has no pre-paid contract price deposited with the [Seller].

    The [Seller] shipped the goods to Qingdao Port according to the Contract and completed the delivery procedure with the Carrier appointed by the [Buyer] and faxed a copy of the export customs declaration form to the [Buyer]'s agent; the Carrier 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 did not obtained any instruction from the Carrier. Thereafter, the [Seller] went to the Carrier. The Carrier said it did not receive 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.

    The [Buyer] alleged that the [Seller] did not deliver any documents, including the bill of lading, according to the Contract. As to this, the [Seller] alleged that the [Buyer] did not instruct the Carrier to issue the bill of lading before 19 June 2003, and the [Buyer] did not request the [Seller] to provide the bill of lading; it was the [Buyer] who caused the [Seller] to be unable to obtain the bill of lading, and the [Seller] voluntarily provided photocopies of the bill of lading to the [Buyer] after obtaining them. The [Buyer] severely violated the provision of the CISG providing that Buyer shall pay the contract price, and thereby breached the Contract again.

    At the same time, when the [Buyer] fundamentally breached the Contract, the [Seller] from many sources knew that, under the [Buyer]'s instruction, the Vessel did not sail to Chongjin [North Korea], the stipulated destination, but arrived at Nakhodka, Russia.

    During the performance of the Contract, the [Buyer] breached the Contract many times. In addition, during the performance of Contract No. SZ-WE2003-01, which is related to the Contract in this case, the [Buyer] also breached that contract many times. Therefore, the [Seller] had to claim the contract price under the Contract in this case as well as under Contract No. SZ-WE2003-01.

    The [Buyer] sent a letter dated 27 June 2003 to the [Seller] which states that "the [Buyer] still owes the contract price of US $493,300.80 to the [Seller]; the [Buyer] will take full liability." The [Buyer] expressed many times that it had the duty and responsibility to pay the contract price plus interest on the overdue amount to the [Seller] as soon as possible; the [Buyer] requested the [Seller] to prolong the payment period to the end of July.

    On 24 July 2003, the [Buyer] sent a letter to the [Seller] informing that it had made three payments totaling US $870,000 and promised to pay off the contract price at 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 [Buyer]. The [Buyer]'s remittance slips and correspondence dated 24 July, 14 August, 5, 17 and 27 September, 10 and 26 November 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.

    On 31 July 2003, the [Buyer]'s agent sent a fax to the [Seller] voluntarily offering to provide two vehicles as security, which proves that it was the [Buyer] who breached the Contract.

    When the [Buyer] fundamentally breached the Contract, according to 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 a 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 $164,391.93.

    As to this allegation, the [Seller] responded as follows:

          First, the destination port stipulated in the Contract is Chongjin, North Korea, and the [Buyer] is the claimant in this case; the second buyer should be a person close to Chongjin. However, the evidence, Supplying Contract No. 19, submitted by the [Buyer] shows that the second buyer 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 that the [Seller] refund the contract price in the amount of US $870,000, and also mentioned, "[W]e 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 not alleged that it really wanted to buy the goods, which shows that the [Buyer] did not really sell 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 had 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 this case, the [Seller]'s direct economic loss was RMB 4,902,999.20 (including part of the direct economic loss incurred under Contract No. SZ-WE-2003-01, which was not claimed in the response in the arbitration regarding Contract No. SZ-WE-2003-01), plus interest of RMB 260,190 (calculated at the 'lending interest rate of 5.31% then prevailing from June 2003 to the end of June 2004).

    According to Article 113 of the Contract Law of the People's Republic of China, the [Buyer] shall compensate the [Seller] for its direct and indirect damages; indirect damages are anticipated profits had the Contract been performed. The total contract price under the Contract in this case and in the case involving Contract No. SZ-WE2003-01 is US $2,121,402.

       -    According to Article 3 of the Contract, the [Buyer] should advance US $212,140, i.e., 10% of the contract price as deposit within five business days after the contracts were signed, i.e., before 22 April 2003. However, the [Buyer] only paid US $150,000 on 7 May 2003, which was US $62,140 less and 15 days later.
     
       -    According to Article 3 of the Contract, the [Buyer] should pay off the contract price after receiving a copy of the export customs declaration form, so the [Buyer] should pay US $1,909,402 before 14 May 2003, but it only paid US $700,000 on 14 May 2003.

    The total amount of the above two payments is US $850,000, so the [Buyer] owes US $1,271,402 equal to RMB 10,445,000 according to the foreign exchange rate at that time; the damages were calculated for five months from May 14 to October 14 when the goods were resold out. According to the Annual Statistics Report of 2002, the average annual investment return rate is 17.168%; therefore, the [Seller]'s anticipated profits were RMB 747,134.70 (the first overdue and short payment was offset by the third payment of US $20,000). The total amount of the above damages is RMB 5,910,323.90.

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

          The [Buyer] should compensate the [Seller] for its economic loss of RMB 5,910,323.90 including:

             a.   Direct economic loss of RMB 4,902,999.20;
             b.   Interest on the direct economic loss totaling RMB 260,190 (calculated at lending interest rate of 5.31% then prevailing from June 2003 to the end of June 2004);
             c.   Indirect economic loss of RMB 747,134.70.

    The [Buyer] made the following defense to this counterclaim:

          (1) Two texts of Contract No. FR-WE2003-06

          There are two texts of the Contract. The payment term was changed, and the Contract is related to Contract No. SZ-WE2003-01. The parties spent eight days 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 the 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 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 provision is invalid. Therefore, the fact that the [Buyer] did not advanced 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 on such date on the sample confirmation form sent by the [Seller] on the same day.

    The shipping time stipulated in the Contract is before 10 May 2003. The date of the bill of lading confirmed by the [Buyer] is June 13; the bill of lading submitted by the [Seller] to the Arbitration Tribunal were dated 13 May 2003, which was neither consistent with the Contract nor complying with the confirmation; therefore, the [Seller] breached the Contract.

    The [Buyer] also claimed that the [Seller]'s allegation that it had faxed a copy of the export customs declaration form to the [Buyer]'s agent was not true.

          (4) The total amount of US $880,700 paid by the [Buyer]

          The total price under the Contract in this case is US $1,354,000.80. The [Buyer] paid US $880,700 before 30 June 2003. In the Mortgage Agreement drafted by the [Seller] on 4 July 2003, Article 1 states, "The remaining amount of the contract price under Contract FR-WE2003-06, which the [Buyer] owes the [Seller], is US $473, 300.80." The remaining amount was clearly specified, and "US $1,354,000.80 - US $880,700 = US $473,300.80". The Mortgage Agreement was sealed by the [Seller].

          (5) The three invoices of freight and demurrage, i.e., Evidence item 7 submitted by the [Seller] in the response and issued by Carrier to ___ Jiangsu Ltd., were forged.

          (6) 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 the foreign exchange rate between the US dollar and the ruble changes. 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], should jointly pay US $767,730.

    The [Seller] suspended its performance of the Contract without any justified reason, so it breached the Contract and caused the [Buyer] to suffer economic loss.

    3. The parties' supplemental allegations

    The [Buyer] further alleged that:

          Regarding the issue of the deposit under Contract No. SZ-WE2008-01, 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 SZ-WE2003-01, 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. 01.

    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]. This proves that the [Seller] fundamentally breached the Contract.

    The [Seller] alleged that:

          Regarding refund of the contract price, because the [Buyer] shall be liable for its breach of the Contract, if the [Seller] refunds the contract price to the [Buyer], the [Buyer] shall compensate the [Seller] for its economic loss.

    Regarding compensation of economic loss, the [Seller] alleged that the total amount the [Buyer] remitted was not US $880,070 but US $870,000. The [Buyer] admitted this in the faxes sent to the [Seller] many times. In addition, because the [Buyer] breached the Contract, it should pay the bank charges for remitting the contract price.

    Because the [Buyer] did not ship the goods to the destination stipulated in the Contract, it should pay the freight for transporting the goods to Nahodak, Russia

    The [Seller] alleged that the evidence which the [Buyer] submitted to prove it had paid liquidated damages to its customer was inconsistent.

    Regarding interest on the contract price which the [Buyer] had already paid, the [Seller] should not pay any interest on contract price, bank charges on remitting the money, or freight, etc., so the interest schedule submitted by the [Buyer] should not be admitted.

    III. OPINION OF THE ARBITRATION TRIBUNAL

    1. The applicable law

    The Contract does not stipulate the applicable law. The Arbitration Tribunal holds that this is a contract for the international sales of goods with the parties having their places of business 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. When there is any conflict between CISG and the Contract Law of the People's Republic of China, CISG shall prevail.

    2. The scope of this arbitration

    Both parties mentioned contracts No. SZ-WE2003-01 and FR-WE2003-06 (the Contract in this case) in their statements. In this case, because the [Buyer] applied for arbitration based on the arbitration clause in Contract No. FR-WE2003-06 (the one in this case), the Arbitration Tribunal only heard the disputes occurred under this Contract. The other contract, Contract No. SZ-WE2003-01, 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. FR-WE2003-06 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 decides that the second text of the Contract is deemed to revise the first one and to reflect 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. The [Buyer]'s performance and breach of its duty to make payment

          a. Payment of the contract price in the amount of US $870,000

          The [Buyer] alleged that after signing the Contract, it made three payments, i.e., US $150,000, US $700,000 and US $20,000 on 30 April, 9 May and 30 June 2003, respectively, totaling US $870,000. As to this, the [Buyer] submitted remittance slips issued by Bank of China as evidence. The [Seller] confirmed this fact. Therefore, the Arbitration Tribunal confirmed this fact.

          b. Payment of the deposit in the amount of US $10,700

          The [Buyer] alleged that during the performance of the Contract, it not only paid the contract price in the amount of US $870,000 but also advanced US $10,700 as deposit; therefore, the [Buyer] totally paid the [Seller] US $880,700. However, the [Seller] alleged that in the correspondence, the [Buyer] did not mention US $880,700 but only US $870,000. The [Seller] stated that the [Buyer]'s allegation that it had advance US $10,700 as deposit to the [Seller]'s account should not be sustained.

    After reviewing the documents, the Arbitration Tribunal found that the [Buyer] did not submit any proof that it advanced US $10,700 to the [Seller]'s account as deposit, but in the Mortgage Agreement signed by the [Buyer]'s agent and the [Seller] on 4 July 2003 regarding the unpaid contract price, it was specified that the [Buyer] owed the [Seller] the contract price of US $473,300.80, which was just the difference between the total contract price of US $1,354,000.80 and the amount of US $880,700. The [Seller] did not dispute the authenticity of the Mortgage Agreement. Therefore, the Arbitration Tribunal sustained the [Buyer]'s allegation that it advanced US $10,700 to the [Seller]'s account as deposit.

    Based on the above item (a) and (b), the Arbitration Tribunal confirmed that the [Buyer] had already paid the [Seller] US $880,700 toward the contract price.

          c. The [Buyer]'s liability for breach

          The Contract in this case stipulates US $1,345,000.80 as the total contract price. In addition, based on the above confirmed fact, the Arbitration Tribunal holds that the [Buyer] still owes that [Seller] US $473,300 under the Contract. As to the fact that the [Buyer] did not fully perform its duty to make payment, the [Buyer] admitted, but insisted that it did not pay the remaining amount of the contract price because the [Seller] did not provide the customs declaration form according to the Contract. Therefore, because the [Seller] did not comply with the relevant regulation on foreign currency administration in bonded area, the [Buyer] could not continue to make payment and did not breach the Contract. The [Seller] disputed this allegation of the [Buyer]. The [Seller] alleged that it had already provided the export declaration form to the [Buyer], and that the [Buyer] breached the Contract because it failed to pay the remainder of the contract price.

    The Arbitration Tribunal notes that the agreement signed by the [Seller] and the [Buyer]'s agent, Dalian Bonded Area ___ International Trade Company, on 15 April 2003 stipulates that to provide the export customs declaration form to the [Buyer] is the precondition for the [Buyer] to pay the remaining contract price. This agreement stipulates that Dalian Bonded Area ___ International Trade Company is the [Buyer]'s agent and is responsible for any conduct under the Contract; the [Seller] agreed that Dalian Bonded Area ___ International Trade Company would make payment and relevant expenses according to the Contract, and pay the remaining contract price on behalf of the [Buyer]; Within five business days after the Contract is signed, Dalian Bonded Area ___ International Trade Company shall advance 10% of the contract price to the [Seller]; when Dalian Bonded Area ___ International Trade Company receives export customs declaration form, it shall pay the remaining contract price. This agreement also specifies, "This agreement is an indivisible part of Contract No. FR-WE2003-06."

    The Arbitration Tribunal holds that the above agreement is an arrangement for payment under the Contract in this case by the parties. However, although the agreement stipulates that Dalian Bonded Area ___ International Trade Company shall pay the relevant price and expenses under the Contract on behalf of the [Buyer], the [Buyer]'s duty to pay the contract price is not exempted or released when the [Buyer]'s agent fails to make payment. Both parties to the Contract shall actively perform the Contract in good faith. In this case, even if the [Seller] failed to provide the export customs declaration form, the [Buyer] and its agent had the duty to demand and urge the [Seller] to deliver the export customs declaration form in order to avoid enlarging damages.

    After reviewing the evidence, the Arbitration Tribunal did not find any evidence showing whether the [Seller] had already provided the [Buyer] or its agent the export customs declaration form, or any evidence showing that the [Buyer] or its agent had requested the [Seller] to provide the export customs declaration form when the [Seller] failed to do so. Therefore, the Arbitration Tribunal holds that the [Buyer]'s duty to pay the remaining contract price shall not be exempted. Because of lack of evidence, the Arbitration Tribunal does not sustain the [Seller]s allegation that it had already provided the export customs declaration form to the [Buyer].

    5. The issue on the [Seller]'s duty to deliver and breach of 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. It is important to decide whether the [Seller]'s conduct was appropriate or breached the 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.

    The [Seller] alleged that the [Buyer] failed to pay off the contract price, so the [Buyer] breached the Contract first, and that the [Seller] exercised its right to avoid the Contract and ship the goods back. Moreover, the [Seller] alleged that, before shipping 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 [Russia] to Qingdao Port [China] was dated 12 July 2003, and the arrival date was 21 July 2003. Neither party disputed this.

    The Arbitration Tribunal also found that in the correspondence, the parties negotiated on payment of the remaining contract price many times; especially in the Mortgage Agreement discussed above, the parties stipulated that the [Buyer]'s agent promised to pay the remaining contract price, i.e., 473,300.80, before 31 July 2003. Obviously, the parities revised the payment deadline and reached a new agreement. Therefore, 31 July 2003 is deemed to be the deadline for the [Buyer] to pay off the contract price the [Seller]. According to Article 63(2) of the CISG:

    "Unless the seller has received notice from the buyer that he will not perform within the period so fixed, the seller may not, during that priod, resort to any remedy for breach of contract. However, the seller is not deprived thereby of any right he may have to claim damages for delay in performance."

    See also Article 96 of the Contract Law of the People's Republic of China. 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 before 31 July 2003, 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

          (1) The claim for refund of US $759,702.01 the [Buyer] had already paid

          When making this claim, the [Buyer] explained that it had already paid US $880,700, and that the [Seller] had refunded to the [Buyer] RMB 1,000,000 equal to US $120,997.99 (at the foreign exchange rate of 1 US $ : 8.2646 RMB) on 11 February 2004, which shall be deducted.

    After verifying the facts in this case, the Arbitration Tribunal holds that it is impossible for the parties to continue performance of the Contract and the Contract has been avoided in fact. According to Article 97 of the Contract Law of the People's Republic of China:

    "Upon termination of a contract, a performance which has not been rendered is discharged; if a performance has been rendered, a party may, in light of the degree of performance and the nature of the contract, require the other party to make restitution or otherwise remedy the situation, and is entitled to claim damages."

    The [Buyer] is entitled to refund of the contract price which it had already paid when not receiving the goods from the [Seller]. Therefore, the Arbitration Tribunal sustains this claim of the [Buyer], and the [Seller] shall immediately refund the contract price of US $759,702.01 the [Buyer] had paid.

          (2) Claim for economic loss of US $536,140.03

    The Arbitration Tribunal notes that this claim consists of four parts as follows:

                a. Bank charges for remitting the contract price calculated at 1 of the remitted amount, i.e., US $880.70. Because the [Buyer] did not submit evidence proving that these charges were really incurred, the Arbitration Tribunal does not sustain this claim.

                b. Freight for shipping the goods from Qingdao to Nahodak, i.e., US $142,867.40. The [Buyer] submitted the invoice dated 14 May 2003 showing that it had already paid this freight, but the Arbitration Tribunal notes that the Quantity section in this invoice was recorded as 2,597.5890 NMT/CBM which is not consistent with the amount of 1,140 MT stipulated in the Contract; the To Order section in this invoice was recorded as "To: Landox Ltd, Tortola, BVI," and the Contract number was not stated in this invoice. The prima facie evidence does not show any relationship between this invoice and the Contract in this case; the [Buyer] did not provide any further evidence, so the Arbitration Tribunal does not sustain this claim.

                c. Liquidated damages of US $164,391.93 paid to the [Buyer]'s customer. The [Buyer] submitted Supplying Contract No. 19 as evidence, but the Arbitration Tribunal holds that it cannot prove the claimed damages were really incurred, so it does not sustain this claim.

                d. Reasonable profits of US $228,000 (US $200 x 1,114 tons). The Arbitration Tribunal holds that the [Buyer] did not provide sufficient evidence proving the calculation standard of the damages, so it does not sustain this claim.

          (3) Claim for interest of RMB 537,293.92

          The Arbitration Tribunal notes that the interest the [Buyer] claimed was based on the total amount of US $1,024,448.10 including the contract price of US $880,700 already paid, bank charges of US $880.70 and freight of US $142,867.40, but based on the above opinions, the Arbitration Tribunal holds that it shall be adjusted, and the bank charges of US $880.70, freight of US $142,867.40 and refund of US $120,997.99 which the [Seller] refunded to the [Buyer] on 11 February 2004 shall be deducted from the total amount of US $1,024,448.10. Therefore, the Arbitration Tribunal only sustains interest on the contract price of US $759,702.01.

    Regarding the Interest Schedule submitted by the [Buyer], the Arbitration Tribunal holds that because the [Seller] shipped the goods back to the loading port, according to the principle of fairness, the value date shall be adjusted accordingly; the actual value date shall be the day when the [Seller] shipped the goods back, i.e., 12 July 2003. In addition, the Arbitration Tribunal sustains the [Buyer]'s allegation that the foreign exchange rate shall be 1 US $ : 8.2646 RMB, and the interest rate shall be the bank's one year lending rate, i.e., 5.31%; the maturity date shall be 31 August 2004. Therefore, the [Seller] shall compensate the [Buyer]'s loss of interest as US $759,702.01 x 8.2646 x 5.31% x (1 year + 50 days/365days) = RMB 38,007.08.

    7. The [Seller]'s counterclaim

    Regarding the direct economic damages in the amount of RMB 5,910,323.90, 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

    Considering the situation in this case, the Arbitration Tribunal holds that the [Buyer] shall pay 40% of the arbitration fee for its claim, and the [Seller] shall pay 60%; regarding the counterclaim, the [Seller] shall pay the entire arbitration fee.

    IV. AWARD

       1.   The [Seller] shall immediately refund the contract price of US $759,702.01 the [Buyer] paid plus interest of RMB 38,007.08;
     
       2.   The [Buyer]'s other claims are dismissed;
     
       3.   The [Seller]'s counterclaim is dismissed;
     
       4.   The arbitration fee for the [Buyer]'s claim is RMB 227,555, of which the [Buyer] shall pay 40%, i.e., RMB 91,022, and the [Seller] shall pay 60%, i.e., RMB 136,533. The [Buyer] has prepaid the entire fee above, so the [Seller] shall pay the [Buyer] RMB 136, 533 within 30 days of this award.

    The arbitration fee for the [Seller]'s counterclaim is RMB 148,655, which the [Seller] shall pay. The [Seller] has prepaid the entire fee.

    This is the 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].

    Note by translator: 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, this is not definitely stated in the opinion.

    ** 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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