China 10 May 2005 CIETAC Arbitration proceeding (Hat case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050510c1.html]
DATE OF DECISION:
DATABASE ASSIGNED DOCKET NUMBER: CISG/2005/02
CASE HISTORY: Unavailable
SELLER'S COUNTRY: People's Republic of China (claimant)
BUYER'S COUNTRY: United States (respondent)
GOODS INVOLVED: Hats
PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission (CIETAC) 10 May 2005 (Hat case)
Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/99],
CLOUT abstract no. 983
Reproduced with permission of UNCITRAL
Abstract prepared by Fan Yang
This case deals primarily with the payment of the purchase price, fundamental breach and interest.
The seller entered into fourteen contracts with the buyer for the sale of hats. The seller sold the products to the buyer through a third party who was responsible for payment of freight, customs duties and for relating tasks. At first, payment was made to the third party who transferred it to the seller, but later the buyer defaulted on its payment obligation several times despite numerous demands by the seller. The parties concluded an additional contract but when the buyer failed to pay again, this contract was cancelled and the seller contracted directly with the buyer's customer who paid directly to the seller. The seller commenced arbitration to recover the outstanding payment from the buyer. The buyer did not submit any arguments or evidence.
The seller's first claim was for the overdue payment, a part of which should have been paid to the third party for shipping costs and commission. The arbitral tribunal found that the seller delivered the goods and performed its contractual obligations under the contracts of sale, and that the buyer took delivery of the goods without making timely payment of the contract price as required by article 53 CISG. Given the fact that the contract was entered into by the seller and the buyer, the tribunal honoured the full amount of the seller's overdue payment claim regardless of the fact that part of the payment should be paid to the third party. The tribunal ruled that the buyer's failure to pay the price for the goods constituted a fundamental breach of the contract under article 25 CISG. Further, in accordance with article 74 and article 78 CISG, the tribunal held that the seller was entitled to the outstanding payments.
The seller's second claim was for interest on the outstanding purchase price. The calculation was based on the dollar amount of each contract involved, at the rate claimed by the seller. Without elaboration, the tribunal ruled that this calculation was consistent with the CISG.Go to Case Table of Contents
APPLICATION OF CISG: Yes [Article 1(1)(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
25A [Definition of fundamental breach (effect of a fundamental breach): avoidance of contract]; 53A [Buyer’s obligations: obligation to pay price of goods]; 74A [General rules for measuring damages: loss suffered as consequence of breach]; 78B [Rate of interest]
25A [Definition of fundamental breach (effect of a fundamental breach): avoidance of contract];
53A [Buyer’s obligations: obligation to pay price of goods];
74A [General rules for measuring damages: loss suffered as consequence of breach];
78B [Rate of interest]
CITATIONS TO OTHER ABSTRACTS OF DECISION
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1036&step=Abstract>
CITATIONS TO TEXT OF DECISION
Original language (Chinese): Unavailable
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
|Case text (English translation)|
Hat case [No. G20010386] 10 May 2005
Translation [*] by Fan YANG [**]
Edited by Howard Yinghao YANG [***]
In the period between August 2000 and January 2002, Claimant ("Seller"), a Chinese company, entered into fourteen contracts (No. 20128, etc.) for the sale of hats with the Respondent ("Buyer"), an American company. In accordance with the arbitration clauses in their contracts, the Seller applied for arbitration on 4 December 2001 and CIETAC accepted the case.
The CIETAC Arbitration Rules ("Rules"), effective as of 1 October 2000, govern the procedure of this arbitration.
On 7 December 2001, the Secretariat of the Arbitration Commission sent to the Buyer, by express mail, the following documents: Notice of Arbitration, Seller's Application for Arbitration and the attachments thereto, the Arbitration Rules, and the Roll of Arbitrators. The Buyer was also required to appoint arbitrators and submit its answer. The Buyer signed the receipt for these arbitration documents on 17 December 2001.
The Seller authorized the Chairman of the Arbitration Commission to appoint Mr Liu Wenjie as the Arbitrator for the Seller. The Buyer failed to appoint or to authorize the Chairman to appoint an arbitrator within the required time limit, therefore, the Chairman appointed Ms Zhou Xiaoyan as the Arbitrator for the Buyer according to Article 26 of the Rules.
The parties did not jointly appoint or jointly authorize the Chairman to appoint a third arbitrator within the required time limit, thus according to Article 24 of the Rules, the Chairman appointed Mr Wang Shengchang to be the Presiding Arbitrator. The Arbitration Tribunal was formed on 15 January 2002 and the hearing was scheduled on 28 February 2002.
The Buyer's counsel did not show up at the hearing session which took place, as scheduled, on 28 February 2002 in Beijing. According to Article 12 of the Rules, the Arbitration Tribunal conducted a default hearing. The Seller's counsel presented the facts to the Tribunal and answered the questions it raised. After the hearing, the Seller submitted supplementary materials, a copy of which was sent to the Buyer by the Secretariat of the Arbitration Commission. The Buyer was again informed of its right to submit a written answer, which it never did throughout the arbitration.
The Arbitration Tribunal, based on the written materials and the facts ascertained during the oral hearing, has decided the case and rendered the award.
The facts, opinion and arbitral award are presented as follows:
The Seller stated:
Since 1992, the Seller has sold products to the Buyer through Chinese Company C ("C"). In the transactions, C was to help the Buyer handle the matters in China, including paying freight, ORC, customs duty and the Seller was to manufacture the goods and provide export-related documents and quota certificates. Payment was made to C's account in Hong Kong and then transferred to the Seller's account. In 1999, the parties agreed to change the payment method from OA/30 days to OA/90 days. The seller began to fall behind the payment schedule from the year 2000. Till 30 April 2001, the payments in arrears accumulated to US $244,880.77, which involved fourteen contracts. The Seller sent numerous faxes demanding payment. Although Mr. Chris, CEO of the Buyer, promised to pay off the debts by the end of 2001, the promise has not been fulfilled to date.
On 19 February 2001, the Seller and the Buyer concluded a new contact of sale -- Contract No. 21041. Around that time, Mr. Chris, in his email, made a promise again to pay off the debts but gave no concrete plan or timetable for repayment. It turned out the Buyer paid US $9,900.00, only a fraction of the total debt, and made no further efforts to repay. The Seller anticipated that the Buyer would not be able to perform its payment obligation under Contract No. 21041, so after friendly negotiation among the Seller, the Buyer and C, Contract No. 21041 was cancelled. On 17 April 2001, the Seller entered into Contract No. 21041A directly with the ultimate customer, the American Company D ("D"), who agreed to make direct payment to the Seller. Under this new contract with D, the Seller has already collected the payment of US $100,080.00, among which, US $29,700.00 should be paid to the Buyer for the shipping cost, custom duty, tax and commission. To date, such amount owed to the Buyer is still retained at the Seller's account..
Based on the foregoing, the Seller claims for:
After the hearing of 28 February 2002, the Seller submitted an application on 6 March 2002 and amended its claims as follows:
1. The applicable law
The parties did not specify any applicable law in their contracts. The Arbitration Tribunal noted that the places of business of both parties are located in Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (1980) ("CISG") and the contract did not exclude the application of the CISG. Therefore, the CISG applies to this case.
2. The performance of the fourteen contracts and liabilities for breach thereof
The Seller stated that it had performed its contractual obligations under the fourteen contracts (No. 20128, etc.) and the Buyer has never made any objection thereto.
The Tribunal examined and evaluated the following evidence submitted by the Seller:
The Tribunal found that these items of evidence are objective, relevant, valid and collaborating with each other, and thus should be admitted. The fact that the Buyer did not submit any evidence or answer would not affect the Tribunal's decision based on the evidence currently available. The Tribunal concluded that the Seller performed its contractual obligations under the fourteen contracts of sale, and that the Buyer took delivery of the goods without making timely payment of the contract price. According to Article 25 and Article 53 of the CISG, the Buyer is in breach of the contracts. And according to Article 74 and Article 78 of the CISG, the Seller is entitled to the outstanding payments and the interest thereupon.
3. Seller's claims
The Seller's first claim is for the overdue payment of US $205,280.77. The Tribunal considers the calculation behind this claim reasonable, because the payment of US $9,900.00 by the Buyer and the amount of US $29,700.00 retained by the Seller have been deducted from the total contract price for the fourteen contracts. The amount of US $24,874.60 which should be paid to C for shipping cost and commission is included in the amount claimed. Given the fact that the contract was entered between the Seller and the Buyer, the Seller's claim for the full amount of the contract price shall not be affected by the fact that part of the payment should be paid to C. Therefore, the Tribunal sustains the Seller's first claim.
The Seller's second claim is for the interest on the overdue payments in the amount of US $12,109.73. To support its claim, the Seller submitted a detailed list of interest calculations. The calculation was based on the dollar amount of each contract involved and the interest was accrued till 30 November 2001 at the annual rate of 7.875% or 6.8125%. The Tribunal considers this calculation method consistent with the CISG, and thus the second claim by the Seller is sustained.
4. Costs of the arbitration
The Tribunal decides that the Buyer should bear all the costs of this arbitration.
Based upon the foregoing, the Tribunal rules:
This award is final.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of the People's Republic of China is referred to as Seller; the Respondent of the United States is referred to as Buyer. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of the P.R. China (renminbi) are indicated as [RMB].
** Fan Yang, Ph.D. Candidate (London), LL.M. (Birmingham), LLB (Shanghai), Researcher, School of International Arbitration Centre for Commercial Law Studies, Queen Mary University of London.
*** Howard Yinghao YANG is an associate of Debevoise & Plimpton LLP, New York.Go to Case Table of Contents