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CISG CASE PRESENTATION

China 18 March 2005 Beijing High People's Court [Appellate Court] (Beijing Chen Guang Hui Long Electronic Technology Development Ltd. v. Thales (France) Co.) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050318c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20050318 (18 March 2005)

JURISDICTION: People's Republic of China

TRIBUNAL: Beijing High People's Court [Appellate Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: (2006) Gao Min Zhong Zi Di No. 576

CASE NAME: Beijing Chen Guang Hui Long Electronic Technology Development Ltd. v. Thales (France) Co.

CASE HISTORY: Unavailable

SELLER'S COUNTRY: France (defendant)

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

GOODS INVOLVED: Radio surveillance equipment


Classification of issues present

APPLICATION OF CISG: The Court did not apply the CISG. The Court had the following to say on the governing law:

      "The [Buyer] asserts that Chinese law and the CISG apply to the present dispute. The [Seller] asserts that only Chinese law applies to this dispute, and denied the application of the CISG in the first instance. This Court finds that the parties do not object to the application of Chinese law. The key is whether the CISG is applicable. Article 142 of the General Principles provides,

'If any international treaty concluded or acceded to by the People's Republic of China contains provisions differing from those in the civil laws of the People's Republic of China, the provisions of the international treaty shall apply, unless the provisions are ones on which the People's Republic of China has announced reservations.'

      "If businesspersons from two Contracting States of the CISG do not exclude the application of the CISG, the CISG shall automatically and preemptively be the law applicable to their transactions. However, the [Seller] in the present case expressly stated that the Chinese domestic law applied to the dispute, which does not include the CISG. Moreover, the [Buyer] did not submit that the Chinese law and the CISG have different provisions. On the other hand, the [Buyer] claimed that under the relevant provisions on 'offer' and 'acceptance' of either Chinese law or the CISG, the contract between the [Buyer] and the [Seller] was sufficiently concluded. Consequently, this Court does not support the [Buyer]'s claim on appeal that the Court of First Instance erred in not applying the CISG. This Court upholds the Court of First Instance's application of Chinese law to the present case."

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 6

Classification of issues using UNCITRAL classification code numbers:

6B [Agreements to apply Convention: selection of law of a Contracting State]

Descriptors: Autonomy of parties

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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): Click here for Chinese text of case; see also CISG-China database <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=100>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Beijing High People's Court

Beijing Chen Guang Hui Long Electronic
Technology Development Co. Ltd. v. Thales (France) Co.

18 March 2005

Translation [*] by Jing Li [**]

Appellant (hereinafter the "[Buyer]"), Beijing Chen Guang Hui Long Electronic Technology Development Co. Ltd. [of the People's Republic of China] refused to accept the Civil Judgment by the Beijing Second Intermediate People's Court's (2003) Er Zhong Min Chu Zi No. 07936 on the dispute arising out of the sales contract with the Appellee, Thales (France) Co. (hereinafter the "[Seller]"), and appealed to this Court.

On 8 April 2004, this Court accepted the case and a collegial bench was formed according to the relevant law. A public court session was held on 17 June 2004. All parties and their respective representatives were present at the court session. At court, both parties agreed to conciliation by this Court. At conciliation, both parties compromised, with the [Seller] compromisg more. However, the parties failed to settle the dispute via conciliation. The case proceeded to trial and is now closed.

POSITIONS OF THE PARTIES IN THE FIRST INSTANCE

[Buyer]'s position

In the first instance, the [Buyer] alleged that:

      On 7 November 2002, Shandong He De Tendering Co. Ltd. was delegated by the Shandong Provincial Government Procurement Center to issue Bidding Document No. SDGP2002-47 (hereinafter, the "Bidding Document") for the purchase of a radio monitoring and direction-finding device by the Shandong Province Radio Management Office (hereinafter, the "Management Office").

To participate in this public bidding, the [Buyer] contacted the [Seller] several times informing the latter of the situation and the bidding plan and invited the latter to bid on providing the antenna for the device. After negotiation, the [Seller] promised to provide the antenna for this public bidding. The chronology of events was:

   -    On 15 November 2002, the [Seller] handed over a Letter of Attorney to the [Buyer], in which the [Seller] promised to provide the relevant device and technical support to the [Buyer] according to the requirements indicated in the Bidding Document and expressly stated that the [Seller] was bound by this promise. Thereafter, the parties negotiated on matters of the price of the antenna device and the technical support.
 
   -    On 26 November, Chengwei Huang, Project Manager of the [Seller]'s Spectral Detective Department sent a letter to the [Buyer] confirming the price and delivery date of the antenna device and promising to provide technical support for the normal operations of this antenna device.
 
   -    On 28 November 2002, the [Buyer] was awarded the contract for the above-mentioned project. On the same day, Chengwei Huang was notified of this award. On 3 March 2003, the [Buyer] and the Management Office signed a Shandong Provincial Government Procurement Contract No. SDGP2002-47-A (hereinafter, the "Procurement Contract"), agreeing therein that the [Buyer] would provide the radio monitoring and direction-finding device within three months.

However, when the [Buyer] required the [Seller] to deliver the antenna device as agreed, the [Seller] refused to perform the delivery claiming that Chengwei Huang, Project Manager of the [Seller]'s Spectral Detective Department was not authorized, and refused to sign the annexes with clauses such as non-disclosure of technology and after-sale service. To avoid overdue delivery resulting from the [Seller]'s breach, the [Buyer] sent a letter to the Management Office on 1 April 2003 explaining to the latter the situation with the [Seller] and suggesting that it substitute the [Seller]'s products with products from other companies. After discussion, the Management Office rejected this suggestion and requested the [Buyer] to deliver the entire device according to the annexes of the Procurement Contract that [Buyer] had executed with the Management Office

However, due to the fact that the [Seller] refused to deliver the antenna device, the [Buyer] was not able to deliver the entire device as required by the Management Office. The [Buyer] alleged that the [Seller]'s breach, i.e., not delivering the relevant antenna device, led to the [Buyer]'s severe economic loss. The correspondence and the Bidding Document indicated that the parties had agreed on the subject matter, price, and quantity of a sales contract, and this intention to agree was genuine. Pursuant to the relevant provisions of the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereinafter, the "CISG") and the Contract Law of the People's Republic of China (hereinafter, "Chinese Contract Law), the Procurement Contract between the parties was valid and the parties were bound by this contract. The [Seller]'s refusal to perform its obligation to deliver the goods constituted a breach of the sales contract. The [Seller] should be required to deliver the relevant antenna device and all the necessary technical information to operate this device. Moreover, the [Seller] should be required to compensate the [Buyer]'s loss.

The [Buyer] requested the Court of First Instance to:

1)    Find that the [Seller] is in breach of the sales contract between them;
2)    Require the [Seller] to compensate the [Buyer]'s loss, including
  a)  The damages the [Buyer] must pay to the Management Office due to the overdue delivery (calculated from 3 June 2003 to the date on which the entire device is delivered; the damages are RMB 322,522 up to 18 July 2003);
  b)  The re-evaluation fee for the substitute device that the [Buyer] had to pay for;
  c)  The exchange losses the [Buyer] encountered in the amount of RMB 304;
  d)  The fee for warranty extension paid by the [Buyer] to the relevant device providers in the amount of RMB 28,084.10;
3)    Require the [Seller] to pay for the [Buyer]'s attorneys' fee in the amount of RMB 70,000;
4)    Require the [Seller] to pay for the litigation fee.

[Seller]'s position

The [Seller]'s position was that it had not concluded any contract with the [Buyer]. The [Seller] alleged:

      First, even if Chengwei Huang of the [Seller]'s representative office had sent the [Buyer] the Letter of Attorney and a quotation sheet, these documents should not be considered a contract or an offer with the intention to be bound upon acceptance, because the Letter of Attorney was not in the basic form of a contract nor did it contain the necessary content of a contract, and the quotation sheet could not be implemented, although it contained part of the detailed content required by a sales contract. For instance, with regard to the subject matter, the [Buyer] was merely in need of Model ANT194A, while the quotation sheet included Model ANT194A and Model ANT184A. It was impossible to determine from the quotation sheet which Model was the subject matter, or whether both of them were the subject matter. As for the price, the quotation sheet stated that the price may be EUR 54,600 CIF. It was unclear which model this price was for, or whether this price was for both models. The [Buyer] actually wanted two sets of Model ANT194A. It was unclear whether this price was the unit price of one set of Model ANT194A or both sets. The factory price of the [Seller]'s Model ANT194A was EUR 105,000 excluding delivery fee and technical support expense. However, it was unclear which port the CIF price terms referred to.

Moreover, even if the quotation sheet was considered a written offer, a contract would not be concluded without the other party's written acceptance. In actuality, the [Buyer] also agreed on the fact that neither the Letter of Attorney nor the quotation sheet was considered a contract. The [Buyer] sent three letters to the [Seller] on 10 March, 25 March, and 31 March of 2003, respectively, requesting the latter to sign a contract. This indicated that the [Buyer] believed that neither the Letter of Attorney nor the quotation sheet constituted a contract between the parties. Otherwise, there was no need for the parties to sign a contract.

      Second, Chengwei Huang's conduct was illegal and was unauthorized. On the one hand, it was stipulated by the Chinese government that the representative office of a foreign enterprise was merely allowed to engage in various indirect business activities within its business scope, such as liaison, product introduction, market research, and technical exchange. However, the Letter of Attorney and the quotation sheet issued by Chengwei Huang were direct business activities. Such conduct was illegal and invalid.

Also, as a staff member, Chengwei Huang could not issue official documents that formed legal relationships on behalf of the [Seller] without any authorization. He is only responsible for his own conduct. The [Seller] was not responsible for the legal consequences resulted from Chengwei Huang's unauthorized conduct. The [Buyer] is responsible for its own loss since the [Buyer] was partly at fault as well. The [Buyer] was aware of the fact that Chengwei Huang was merely a staff member responsible for technical support. It was unreasonable for the [Buyer] to rely on the promises Chengwei Huang made on behalf of the [Seller]. The Letter of Attorney issued by Chengwei Huang to the [Buyer] should have been an important official document, where both Chinese and French texts should have been available and the [Seller] should have sealed the document. However, this document merely consisted of Chengwei Huang's signature as a project manager. On 21 February 2003, at the meeting between the [Buyer] and the representative from the Contract Department of the [Seller]'s firm, the [Seller] already stated that Chengwei Huang was grossly negligent in issuing the Letter of Attorney and the quotation sheet without authorization by the [Seller], and was fired by the [Seller].

However, the [Buyer] insisted on signing the Procurement Contract with the Management Office on 3 March with the [Seller]'s products as part of the subject matter. Although Chengwei Huang issued two documents to the [Buyer] without the [Seller]'s authorization, the alleged sales contract between the parties was not validly concluded. Chengwei Huang's conduct was illegal and invalid, and he could not represent the [Seller]. The situation the [Buyer] was in and the economic loss arising out of the situation were not caused by the [Seller]. They resulted from the [Buyer]'s own fault. Therefore, the [Seller] asserted that the [Buyer]'s claim requesting the [Seller] to bear the liability for breach of contract was factually and legally unfounded.

RULING OF THE COURT OF FIRST INSTANCE

The Court of First Instance found that:

      [1] The parties did not agree on the law applicable to the case. At court, the [Buyer] wished to choose Chinese law and the CISG as the applicable law, while the [Seller] wished to choose the Chinese law. Due to the fact that both parties chose Chinese law, pursuant to the principle of autonomy and the nature of the present dispute, the Court of First Instance found that the law applicable to the case should be Chinese law.

      [2] Chengwei Huang, as the Project Manager of the [Seller]'s Spectral Detective Department, represented the [Seller] to engage in the spectral detective business within the territory of the People's Republic of China. He issued the Letter of Attorney promising to provide the [Buyer] with a device relevant to a spectral detective manufactured by the [Seller] for the [Buyer]'s bid. His conduct was within the limits of his functions and powers, and thus, the [Seller] was responsible for Chengwei Huang's conduct.

      [3] Weidong Wang, Chen Guang Brothers Corporation's employee received an e-mail concerning the price, length of warranty, and delivery date of the relevant antenna. The sender's e-mail address of this e-mail was identical to the e-mail address shown on the business card presented by Chengwei Huang to the [Buyer]. Moreover, the download of this e-mail was notarized by Chang'an Public Notary Office. The [Seller] raised no objection to this notarization. Therefore, the Court of First Instance verified that this e-mail was sent from Chengwei Huang's e-mail address. Chen Guang Brothers Corporation was a shareholder of the [Buyer]'s. They were affiliate companies. In addition, the above-mentioned e-mail was addressed to Xiaobing Zhu, General Manager of the [Buyer]'s firm. Therefore, the Court of First Instance verified that this e-mail was sent to the [Buyer]. It was unfounded that the [Seller] claimed that this e-mail was sent to Chen Guang Brothers Corporation instead of to the [Buyer].

      [4] The Letter of Attorney and the e-mail concerning the price, length of warranty, and the delivery date of the relevant antenna sent from Chengwei Huang demonstrated that the [Seller] was willing to provide the relevant device for the [Buyer] to participate in the bidding and was willing to be bound by the role of being a bidding partner. Relying on the [Seller]'s conduct, the [Buyer] participated in the bid and the device for bidding included the antenna manufactured by the [Seller] as promised by the [Seller]. The above-mentioned conduct could not manifest the conclusion of a sales contract between the parties. Therefore, the Court of First Instance did not support the [Buyer]'s request to rule that the [Seller] was in breach of the contract because such request was not legally founded. However, after the [Buyer] was awarded the Procurement Contract, the [Seller] refused to sign a sales contract with the [Buyer] as promised. The [Seller] violated the principle of honesty and good faith in the course of negotiating a contract. The [Seller] was responsible for compensating the loss the [Buyer] encountered due to the [Seller]'s violation. Since the loss claimed by the [Buyer] was uncertain and had not yet happened, the Court of First Instance did not support this claim. The [Buyer] may file another lawsuit should such loss occur. Because the Court of First Instance did not support the [Buyer]'s claim for the loss compensation, the [Buyer]'s claim for the [Seller] to pay for the attorneys' fee and litigation fee was not supported by the Court of First Instance, either.

Pursuant to Article 43 of the General Principles of the Civil Law of the People's Republic of China (hereinafter, "General Principles"), and Article 42(3) of the Chinese Contract Law, the Court of First Instance ruled to dismiss the [Buyer]'s claims.

POSITION OF THE PARTIES ON APPEAL

Neither the [Buyer] nor the [Seller] accepted the judgment of the Court of First Instance. They both appealed to this Court.

[Buyer]'s position

In support of its appeal, the [Buyer] claimed that:

1. The Court of First Instance violated the provisions of the Chinese law and judicial construction. Therefore, the Court of First Instance erred in applying the law.

2. The Court of First Instance found that a sales contract was not concluded between the [Buyer] and the [Seller] without any reasoning although the [Seller] had made promises and the necessary terms for a contract were fulfilled. It was the [Buyer]'s position that the Court of First Instance violated the law and the principle of logical reasoning.

3. The Court of First Instance found that the loss claimed by the [Buyer] was "uncertain and had not yet happened." The [Buyer] alleged that this was factually and legally unfounded.

4. The Court of First Instance did not exercise its powers of inquiry in a timely manner, which led to the [Buyer]'s inability to submit evidence to demonstrate the [Buyer]'s reliance loss arising out of the [Seller]'s negligence in contracting.

The [Buyer] requested this Court to:

1)    Overrule the original judgment;
2)    Require the [Seller] to compensate the [Buyer]'s loss of RMB 1,931,460.21, i.e.,
  a)  The damages the [Buyer] must pay to the Management Office in the amount of RMB 381,996 according to the Jinan Arbitration Institution's Arbitral Award Ji Zhong Cai Zi No. 1001;
  b)  Other direct economic loss due to the breach of the [Seller] in the amount of RMB 629,864.21;
  c)  Loss of profits due to the breach of the [Seller] in the amount of RMB 520,600;
5)    Require the [Seller] to pay for the [Buyer]'s attorneys' fee for both instances in the amount of RMB 199,000;
6)    Require the [Seller] to pay for the litigation fee for both instances.

[Seller]'s position

On appeal, the [Seller] requested this Court to overrule the following parts of the original judgment:

1. Second paragraph of Page 17 concerning with the finding that Chengwei Huang's conduct was within the limits of his functions and powers, and that the [Seller] was responsible for Chengwei Huang's conduct.

2. Seventh line of Page 18 concerning the finding that the [Seller] refused to perform as promised and that the [Seller] violated the principle of honesty and good faith in the course of negotiating a contract, and thus, the [Seller] was responsible for compensating the loss the [Buyer] encountered.

      The [Seller] alleged that Chengwei Huang was merely a staff member of the [Seller]. As a project manager, he was not the legal representative of the [Seller], and had no authority to sign any official document. Chengwei Huang issued the alleged Letter of Attorney and quotation sheet without the [Seller]'s authorization. This conduct was beyond his competence and was invalid. The [Seller] was not bound by it, and thus, the [Seller] was not responsible for any legal consequences arising out of this conduct. In addition, it was frivolous for the Court of First Instance to conclude that the [Seller] violated the principle of honesty and good faith in the course of negotiating a contract and was liable for the [Buyer]'s loss, because this issue was not heard at court and neither party discussed the issue of pre-contractual obligations. Consequently, the [Seller] objected to this decision.

[Seller]'s response to [Buyer]' position on appeal

With regard to the [Buyer]'s position on appeal, the [Seller] responded with the following:

      [1] The [Buyer] alleged that without the application of the CISG, the contract was concluded pursuant to the Chinese Contract Law. The [Buyer] did not mention this issue in the Petition for Appeal. Therefore, the [Seller] had no response to this issue. In the first instance, both parties expressly selected Chinese law to be applicable to the case. The [Buyer] also expressed its willingness to apply the CISG. The [Seller], however, wished to exclude the application of the CISG. In addition, the [Seller] pointed out that the Chinese law it wished to apply was limited to national legislation.

      [2] As for the allegation that the Court of First Instance violated the law and the principle of logical reasoning by finding that the sales contract was not formed between the parties and concluding that the [Seller] had made promises and that the necessary terms for a contract were fulfilled without any reasoning, the [Seller] argued that this allegation was not legally founded, because it confounded the concept of "offer" with "promise". The Letter of Attorney issued was merely a "promise" in lay language. Therefore, the Court of First Instance correctly found that the contract was not formed.

      [3] The [Buyer] claimed on appeal that the Court of First Instance's finding that the loss claimed by the [Buyer] was "uncertain and had not yet happened" was factually and legally unfounded. The [Seller] did not accept this finding, either, because the [Seller] did not breach the contract and it was not the [Seller]'s responsibility to compensate any loss whether the loss was certain or uncertain, or happened or not yet happened.

      [4] The [Buyer] alleged that the Court of First Instance did not exercise its powers of inquiry in a timely manner, which led to the [Buyer]'s inability to submit evidence to demonstrate the [Buyer]'s reliance loss arising out of the [Seller]'s negligence in contracting. However, the [Seller] asserted that the issue of power of inquiry was not involved. On the other hand, the Court of First Instance decided that the contract was not formed while wrongly verifying the establishment of liability of damages. This was the major reason why the [Buyer] was confused.

[Buyer]'s appellate response

With regard to the [Seller]'s position on appeal, the [Buyer] responded with the following:

      [1] The [Seller] alleged that Chengwei Huang's conduct was beyond his functions and powers and was illegal. The features of an act of official duty can be seen from its concept. First, this duty is based on a labor contract relationship and the person has to be the legal representative, other employee, or other person in charge; second, this person has to engage in civil acts on behalf of the legal person. Therefore, a civil act has to be legal, while an act of official duty does not require such feature. The [Seller] alleged that Chengwei Huang's conduct violated the law, i.e., the Regulations on the Scope of Duties of the Employees of a Foreign Company's Representative Office in Beijing issued by the former Ministry of Foreign Trade and Economic Cooperation. However, these were merely department regulations. They shall not be considered law under the Chinese Contract Law. Hence, the contract's validity was not affected by these regulations. In addition, the ascertained facts of the present case did not indicate that Chengwei Huang was an employee at the [Seller]'s Beijing Representative Office. The business card of Chengwei Huang merely indicated that he was the Project Manager of the [Seller]'s Spectral Detective Department.

      [2] The [Seller] alleged that the [Buyer] failed to demonstrate the [Seller]'s intention to violate the principle of honesty and good faith. However, in accordance with basic jurisprudence, a person's intention is judged by his conduct. The principle of honesty and good faith is to protect transactions. Therefore, the [Seller]'s claims on appeal were not founded.

REASONING OF THE APPELLATE COURT

After investigation, this Appellate Court ascertains that:

      [1] On 17 November 2002, Shandong He De Tendering Co. Ltd. was delegated by Shandong Provincial Government Procurement Center to issue Bidding Document No. SDGP2002-47, i.e., the Bidding Document for the purchase of a radio monitoring and direction-finding device by the Management Office. To participate in this public bidding, the [Buyer] contacted Chengwei Huang, Project Manager of the [Seller]'s Spectral Detective Department requesting the latter to provide the requisite antenna as part of the device required by the Bidding Document. According to the stipulations of the Bidding Document Annex VI, Chengwei Huang issued the Letter of Attorney to the [Buyer] on 15 November 2002, within which is stated:

"We the Thales (France) Co. (name of the corporation), a manufacturer duly organized under the laws of France (name of the country) and with its principal place of business at 66, rue de Fosse-Blanc-BP156, 92231 Gennevilliers CEDEX, France (address of the corporation), hereby make, constitute and appoint Chen Guang Hui Long Electronic Technology Development Co. Ltd. (name of the corporation), a corporation duly organized under the laws of the People's Republic of China (name of the host country) and with its principal place of business at Li Heng Yuan Building 3, Suite B01, 23 Nan Bin He Road, Xuanwu District, to be our true and lawful attorney to take part in the following:

(a)    To represent and bind us in the People's Republic of China for the project (Bidding Document No. SDGP2002-47) for supply of the goods proposed in the bid which we manufacture or produce.
(b)  That, as a manufacturer, we bind ourselves as a bidding partner and are jointly and severally responsible for the compliance of the said bid.
(c)  Herewith we grant Chen Guang Hui Long Electronic Technology Development Co. Ltd. (name of the corporation) full powers to handle and to perform all and every act and thing whatsoever, requisite, necessary and proper to be done in the premises, as fully, to all intends and purposes as we might or could do, with full power of substitution and revocation, hereby ratifying and confirming all that Chen Guang Hui Long Electronic Technology Development Co. Ltd. (name of the corporation) or its duly authorized representative shall lawfully do, or cause to be done by virtue hereof.

IN TESTIMONY WHEREOF we have hereto signed this document on 15 November 2002. Chen Guang Hui Long Electronic Technology Development Co. Ltd. (name of the corporation). Accepted on 18 November 2002."

The [Buyer]'s General Manager and legal representative Xiaobing Zhu and the [Seller]'s Project Manager of the Spectral Detective Department Chengwei Huang signed as duly authorized representatives with their names, positions, and departments. On 26 November 2002, Chengwei Huang sent an e-mail to Weidong Wang's e-mail address. Weidong Wang worked in Chen Guang Brothers Corporation (the [Buyer]'s shareholder). The sender's e-mail address was identical to the e-mail address shown on the business card presented by Chengwei Huang to the [Buyer]. This e-mail stated:

"To: Chen Guang Brothers Corportation,
Attn.: General Manager Xiaobing Zhu,
Object: ANT194A and ANT184A
Mr. Zhu,

The price of the antenna may be on CIF basis at EUR 54,600. The goods are guaranteed for one year. The period of delivery is three months. The [Seller] will help install the device and will provide technical support."

Thereafter, the [Buyer] participated in the bidding for the project (SDGP2002-47) and submitted the Letter of Attorney issued by Chengwei Huang of the [Seller]'s Spectral Detective Department to Shandong He De Tendering Co. Ltd. On 28 November 2002, the [Buyer] was awarded the project. On 3 March 2003, the [Buyer] and the Management Office signed the Procurement Contract, agreeing that the [Buyer] was obligated to provide the relevant radio monitoring and direction-finding device within three month at the price of RMB 3,506,000. Additionally, the parties agreed that should the [Buyer] fail to perform or violate the contract, the [Buyer] would be obligated to compensate the Management Office for the latter's loss; the [Buyer] was obligated to deliver the said device according to the contract; for each day the device was delayed, the damages would be calculated at the rate of 2ë of the contract price. The annexes of the Procurement Contract stipulated the name and quantity of the device that the [Buyer] was responsible for delivering. After the conclusion of the Procurement Contract, the [Buyer] required the [Seller] to sign a sales contract for the said antenna device and annexes including clauses of non-disclosure of technology and after-sale service. The [Seller] and its Project Manager Chengwei Huang rejected to sign these documents claiming that they were not authorized.

      [2] On 1 April 2003, the [Buyer] sent a letter to the Management Office suggesting thar it substitute for the [Seller]'s products, products produced by other companies. The Management Office replied on 6 June 2003 requiring the [Buyer] to deliver the complete set of device provided in the annexes of the Procurement Contract. The [Seller] had not delivered the said antenna device to the [Buyer], and therefore, the [Buyer] was not able to deliver the required goods to the Management Office. On 25 November 2003, the Management Office sent a letter to the [Buyer] requesting the latter to provide the complete set of device as agreed in their Procurement Contract before 31 December 2003 and to pay for damages; and advised that, if the [Buyer] was not able to perform the Procurement Contract before 31 December 2003, the Management Office would change the antenna and implement the Procurement Contract accordingly. Other devices under the bid were delivered by the [Buyer] to the Management Office in a timely manner as provided in the Procurement Contract. The [Buyer] paid for attorneys' fee in the amount of RMB 70,000 in the first instance.

SUPPLEMENTARY EVIDENCE SUBMITTED BY THE PARTIES

[Buyer]'s additional submission

On appeal, the [Buyer] submitted the following sets of supplementary evidence:

SET 1: Receipts for the expenses due to the bidding process and the signature and performance of the Procurement Contract

      Item 1: Receipts for the expenses due to the bidding process and the signature and performance of the Procurement Contract, proving that:

a)    The [Buyer] had procured the bidding document in accordance with Section One (Invitation for Bids) of the Bidding Document issued by the Shandong Province and He De Tendering Co. Ltd. and had made payment of RMB 3,400;
b)  In order to participate in the bidding, according to Section Two (Instruction to Bidders), Part VIII (Cost of Bidding) of the Bidding Document, the [Buyer] had paid for the bid service charge and notary fee in the amount of RMB 109,337 (Note: The bid service charge and notary fee were for the fixed station and mobile station, and the fixed station value was RMB 3,506,000, and thus, the bid service charge and notary fee for this fixed station was RMB 54,343 calculated pursuant to the proportion provided in the Bidding Document); and
  Since the [Seller] breached the contract with the [Buyer], the latter was not able to perform the Procurement Contract with the Management Office, and therefore, the [Buyer] could not claim refunds of the two above-mentioned fees from the Management Office;

      Item 2: Telephone bills between November 2002 and April 2004, proving that:

a)    from November 2002 to April 2004, the [Buyer] had paid RMB 20,569 for telephone calls; and
b)  from 23 December 2002 to 18 January 2003, the expenses on phone calls accounted for approximately 34.81% for the [Buyer] to participate in the bidding and to perform the Procurement Contract, and thus, the [Buyer] spent RMB 7160.32 on phone calls relating to the participation in the bidding and performance of the Procurement Contract between November 2002 and April 2004;

      Item 3: Receipts for the travel expenses in the amount of RMB 11,063 for the staff of the [Buyer] traveling to Shandong Province in participating in the bid, and signing and performing the Procurement Contract, proving that the [Buyer] had sent its staff multiple times to Shandong Province for preparation of the bidding, and to discuss detailed matters concerned with participation in the bidding, and signing and performing the Procurement Contract;

      Item 4: Receipts for the travel expenses for the staff of the [Buyer] traveling to Nanjing in performing the Procurement Contract, proving that in order to accelerate the software development and debugging, shorten the delay period for the [Buyer] to deliver the entire set of device to the Management Office, and mitigate the loss including damages due to the non-performance of the [Seller], the [Buyer] spent RMB 3,001.70 on traveling;

      Item 5: Receipts for the purchase of relevant accessories for the device in performing the Procurement Contract, proving that a) in performing the Procurement Contract, the [Buyer] purchased some accessories for RMB 44,386.21; b) the [Seller] failed to perform the sales contract with the [Buyer], which led to the [Buyer]'s failure to deliver these accessories to the Management Office as part of the entire set of the device, and thus, the [Buyer] suffered loss in purchasing these accessories;

      Item 6: The Technology Development (Agency) Contract between the [Buyer] and Beijing University of Technology, Department of Technology Development and Management (hereinafter, the "Technology Department") and receipts for the research cost, proving that:

a)    In performing the Procurement Contract, the [Buyer] signed the Technology Development (Agency) Contract with the Technology Department, agreeing that the Technology Department was to develop dual-channel direction-finding processor for RMB 370,000; and
b)  The research cost was RMB 4,000, and due to the [Seller]'s failure to deliver the antenna device, the [Buyer] could not perform the Procurement Contract, and thus, the [Buyer] was not able to get the compensation from the Management Office for this research cost;

      Item 7: Five tax withholding and collection vouchers issued by the Beijing Fengtai District Local Tax Bureau Science and Technology Park Tax Office, proving that the [Buyer] established a project team to perform technology development under the Procurement Contract, and that the salaries paid by the [Buyer] totaled RMB 270,825.

SET 2: Receipts for the cost of attending the arbitration with Jinan Arbitration Commission brought by the Management Office on the [Buyer]'s failure to perform the Procurement Contract resulted from the [Seller]'s breach of the contract (hereinafter, the "Arbitration")

      Item 8: Receipt for the arbitration fee paid by the [Buyer] to Jinan Arbitration Commission on the counterclaim;

      Item 9: Invoice for the attorneys' fee for the Arbitration;

      Item 10: Receipts for the travel expenses of the [Buyer]'s staff and its representatives attending the Arbitration.

SET 3: Explanation on the loss of profits suffered by the [Buyer] from its failure to perform the Procurement Contract due to the [Seller]'s breach of the contract.

      Item 11: Explanation on the loss of profits suffered by the [Buyer] from its failure to perform the Procurement Contract due to the [Seller]'s breach of the contract;

SET 4: Invoice for the notary fee for this dispute

      Item 12: Invoice for the notary fee issued by Chang'an Notary Office, China;

      Item 13: Invoice for the notary fee issued by Beijing Haidian District Second Notary Office, China.

SET 5: Invoice for the attorneys' fee for the present dispute

      Item 14: Invoice for the attorneys' fee issued by Beijing Zhong Lun Law Firm, proving that in order to maximize the protection to the [Buyer] and mitigate its loss, the [Buyer] hired attorneys to represent itself in the Arbitration for an extra amount of RMB 64,528.78 on 9 June 2004 and the attorney's fee for the Arbitration totaled RMB 129,056.78.

[Seller]'s additional submission

In response, the [Seller] submitted the following:

SET 1: Many of the receipts the [Buyer] submitted under SET 1 were new evidence submitted after the first instance. For new evidence, the [Buyer] should have re-litigated; otherwise, this Court's decision on this evidence would be final in the first hearing, which would have adverse influence on the [Seller]'s litigation rights.

      Item 1: The [Seller] disapproves of [Buyer]'s Item 1 evidence.

      Item 2: The proportion set by the [Buyer] was not objective, and thus, the [Seller] disapproves this evidence.

      Item 3: This evidence cannot prove that these expenses were spent in performing the Procurement Contract; moreover, expense claim sheets cannot be submitted as evidence.

      Item 4: Id.

      Item 5: This evidence was not verified by the Consulate, and thus, the [Seller] disapproves this evidence.

      Item 6: The amount shown on the receipts is large and the [Seller] requests the submission of the original copy; moreover, the amount shown on these receipts was not counted correctly, and thus, the [Seller] disapproves this evidence.

      Item 7: The [Seller] does not object to the authenticity of the evidence; however, the [Seller] objects to the content that the [Buyer] was trying to prove.

The [Seller] does not object to the authenticity of other evidence submitted by the [Buyer]. However, the [Seller] requests the original copies of the Letter of Authorization, invoices for the attorneys' fee, and the fee standards for legal practitioners. The [Seller] submitted that the fee standards claimed by the [Buyer] were inconsistent with the statutory fee standards issued by the Ministry of Justice.

REASONING OF THE APPELLATE COURT

After hearing the reasoning presented by the parties, this Court verifies the authenticity of the supplementary evidence. The telephone bills existed in the first instance. However, the [Buyer] cannot submit reasonable reasons explaining why it failed to submit these bills in the first instance. Therefore, this Court does not accept these bills as evidence. As for the evidence submitted to prove the loss of profits, this Court finds that this evidence does not qualify as evidence (see below). This Court verifies the new evidence submitted in this instance, i.e., the Arbitral Award by Jinan Arbitration Commission in 2004 (Ji Zhong Cai Zi No. 1001) and other relative documents demonstrating the arbitration fee and attorneys' fee arising out of the Arbitration.

The above facts were supported by the Letter of Attorney issued by Chengwei Huang in accordance with Annex VI of the Bidding Document quotation sheet sent to Xiaobing Zhu, General Manager of the [Buyer]'s firm by Chengwei Huang via e-mail, bidding documents, correspondence between the parties, the Arbitral Award, and receipts for the attorneys' fees as well as the statements by the parties and the records of the court session.

After investigation, based on the parties' cross-examination and their position, this Court finds that:

Governing law

The [Buyer] asserts that Chinese law and the CISG apply to the present dispute. The [Seller] asserts that only Chinese law applies to this dispute, and denied the application of the CISG in the first instance. This Court finds that the parties do not object to the application of Chinese law. The key is whether the CISG is applicable. Article 142 of the General Principles provides,

"If any international treaty concluded or acceded to by the People's Republic of China contains provisions differing from those in the civil laws of the People's Republic of China, the provisions of the international treaty shall apply, unless the provisions are ones on which the People's Republic of China has announced reservations."

If businesspersons from two Contracting States of the CISG do not exclude the application of the CISG, the CISG shall automatically and preemptively be the law applicable to their transactions. However, the [Seller] in the present case expressly stated that the Chinese domestic law applied to the dispute, which does not include the CISG. Moreover, the [Buyer] did not submit that the Chinese law and the CISG have different provisions. On the other hand, the [Buyer] claimed that under the relevant provisions on "offer" and "acceptance" of either Chinese law or the CISG, the contract between the [Buyer] and the [Seller] was sufficiently concluded. Consequently, this Court does not support the [Buyer]'s claim on appeal that the Court of First Instance erred in not applying the CISG. This Court upholds the Court of First Instance's application of Chinese law to the present case.

Substantive claims of the [Buyer] on appeal

      [1] Whether the sales contract between the parties was formed and the [Seller]'s liability

      The [Buyer] claims that the prerequisites of a valid contract were fulfilled and the sales contract between the parties was concluded. The [Seller] argued that the contract was not validly concluded because the "offer and acceptance" requirements under the law were not fulfilled, and that the Letter of Attorney was merely a regular "promise" and the quotation was ambiguous, i.e., whether the price was a total price or a unit price was not clear. This Court finds that the [Seller] was more reasonable in arguing whether the contract was sufficiently concluded. The Letter of Attorney was a general promise to provide the antenna device and relevant services, and to bear responsibility. The quotation sheet listed the price for certain models or a certain model. However, it cannot be determined whether the price of EUR 54,600 was the total price or a unit price for one particular model. Moreover, the CIF terms did not indicate a specific port. If the Letter of Attorney is considered an offer, there was no acceptance. Judging by the fact that the [Buyer] requested the [Seller] to sign a contract several times, the purported sales contract has never been concluded. Otherwise, there would have been no need to sign the contract again. Therefore, according to the Chinese Contract Law, the purported contract was not concluded and the [Seller] is merely responsible for liability for negligence in contracting, i.e., the [Seller] did not keep its promise to sign a sales contract with the [Buyer], and thus, responsible for the direct economic loss that the [Buyer] suffered therefrom.

      [2] Scope of economic loss

      Since the purported sales contract was not formed, the [Seller] did not breach this contract. Only if a contract validly exists should a party to this contract be held responsible for its own breach. The loss of profits and the loss that existed but not proved by the [Buyer] in the first instance claim by the [Buyer] are not legally founded. Hence, this Court does not support this claim. This Court accepts the [Seller]'s response to the said claim. The Arbitral Award submitted by the [Buyer] was new evidence, and the [Seller] did not object to this evidence. Therefore, this Court refers to the Arbitral Award in calculating loss, including the attorney's fee and arbitration fee arising out of the Arbitration. The loss should include the attorney's fees for the first and second instances, too.

      [3] The powers of inquiry of the Court of First Instance

      The [Buyer] asserted on appeal that the Court of First Instance failed to exercise its powers of inquiry in a timely manner, which led to the [Buyer]'s inability to submit evidence to demonstrate the [Buyer]'s reliance loss arising out of the [Seller]'s negligence in contracting. This Court finds that the "he who asserts must prove" evidence rule applies to the matter of the conclusion of the purported contract. Therefore, the burden of proof lies in the parties and the Court of First Instance was not obligated to inquiry when it comes to the issue of whether the contract between the parties was concluded. This Court does not support this claim by the [Buyer].

Substantive claims of the [Seller] on appeal

The [Seller] requested this Court to overrule the original judgment concerning the following issues:

      [1] Chengwei Huang's conduct and the subject of liability

      This Court finds that the [Seller] confirmed in both instances that Chengwei Huang was the Project Manager of its Spectral Detective Department. Chengwei Huang issued the Letter of Attorney and the quotation sheet, which was conduct within the limits of his functions and powers, i.e., business related to spectral detective. Article 43 of the General Principles provides,

"An enterprise as legal person shall bear civil liability for the operational activities of its legal representatives and other personnel."

Chengwei Huang's conduct of issuing the Letter of Attorney and the quotation sheet was within the limits of his functions and powers. It was relied on by the [Buyer], which further advanced the conclusion of the Procurement Contract between the [Buyer] and the Management Office. The [Seller] shall be held responsible for the civil liability for Chengwei Huang's said conduct. This Court does not support the [Seller]'s claim that the [Seller] was not responsible for Chengwei Huang's conduct, which was purported to exceed his authority and was illegal.

      [2] Reasons for holding the [Seller] liable for compensating the [Buyer]'s losses

      On 15 November 2002, Chengwei Huang issued the Letter of Attorney to the [Buyer] in accordance with the Bidding Document. The [Seller] promised therein that as a manufacturer, it bound itself as a bidding partner and was jointly and severally responsible for compliance with the bid. Thereafter, holding himself out as the Project Manager of the [Seller]'s Spectral Detective Department, Chengwei Huang sent the quotation sheet to Xiaobing Zhu, General Manager of the [Buyer]'s firm on 26 November 2002. It was stated therein that:

"The price of the antenna may be on CIF basis at EUR 54,600. The goods are guaranteed for one year. The period of delivery is three months. The [Seller] will help install the device and will provide technical support."

This statement caused the [Buyer] to believe that the [Seller] would provide the conforming antenna for the bid and the relevant services. Based on this reliance, the [Buyer] participated in the bid and was awarded the Procurement Contract. When the [Buyer] notified the [Seller] of the award of the Procurement Contract and requested the antenna from the [Seller], the [Seller] refused to sign the sales contract with the [Buyer] and provide the goods. This was based on the position that Chengwei Huang's conduct exceeded the limits of his functions and powers. This led to the [Buyer]'s failure to perform its obligations of delivery under the Procurement Contract and later the Arbitral Award requiring the [Buyer] to compensate the large amount of loss. Without the [Seller]'s particular promise to provide the antenna device, this may not have happened. Therefore, the [Seller] shall be responsible to compensate the direct loss that the [Buyer] has encountered due to its promise to the [Buyer]. The Court of First Instance correctly verified the above facts. Therefore, this Court does not support the [Seller]'s request to overrule this verification.

The Judgment of the Court of First Instance

This Court finds that with regard to the [Buyer]'s claims and the evidence submitted by the parties, the Court of First Instance ascertained the facts and verified the liabilities clearly, and applied the law correctly. The judgment of the Court of First Instance was appropriate. Considering the new evidence submitted by the [Buyer] in the second instance that was directly related to the present dispute, proving that the [Seller]'s failure to keep its promise to deliver led to the Arbitral Award requiring the [Buyer] to cover damages in the amount of RMB 581,996 and the arbitration fee of RMB 30,000, with the actual attorneys' fee of RMB 129,056.78, the amount that the [Buyer] is responsible for totals RMB 741,197.38. The [Buyer] claimed on appeal that the said damages and the attorneys' fees arising out of both instances ($7,000 each) resulted directly from the [Seller]'s failure to keep its promise stated in the Letter of Attorney, and conclude the sales contract, and provide the antenna device. This Court affirms this claim. However, the loss of profits and other direct economic loss that the [Buyer] claimed on appeal were not factually or legally founded. This Court does not support these claims.

RULING OF THE APPELLATE COURT

To sum up, the Court of First Instance was not in error ascertaining the facts, distinguishing liabilities, or applying the law. However, due to the new evidence submitted in this instance, this Court modifies the decision of the Court of First Instance.

In conclusion, according to Article 43 of the General Principles, Item 3 of the first paragraph of Article 153, Civil Procedure Law of the People's Republic of China, and Item 2 of the first paragraph of Article 41, Several Provisions of the Supreme People's Court on the Evidence for Civil Actions, this Court:

(1)    Overrules the original judgment;
(2)    Requires that the [Seller] shall make payment of RMB 741,197.38 to the [Buyer] compensating the [Buyer]'s economic loss within twenty days after this judgment is served;
(3)    Requires that the [Seller] shall make payment of RMB 14,000 to the [Buyer] compensating the attorneys' fees arising out of this dispute within twenty days after the serving of this judgment;
(4)    Dismisses the other claims of the [Buyer]'s on appeal; and
(5)    Dismisses the [Seller]'s appeal.

The litigation fee of the first instance was RMB 17,213. The [Buyer] is responsible for RMB 10,000 (paid in full); the [Seller] is responsible for RMB 7,213 (shall be paid in full within seven days after the serving of this judgment).

The litigation fee of the second instance is RMB 17,213. The [Seller] is responsible for the entire amount (paid in full).

This is the final judgment.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Appellant, Beijing Chen Guang Hui Long Electronic Technology Development Co. Ltd. of the People's Republic of China, is referred to as [Buyer] and Appellee, Thales (France) Co., is referred to as [Seller]. Amounts in the currency of the European Union (euro) are indicated as [EUR]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

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

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Pace Law School Institute of International Commercial Law - Last updated May 12, 2010
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