Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography

CISG CASE PRESENTATION

China 22 August 2005 CIETAC Arbitration proceeding (Valve case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050822c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20050822 (22 August 2005)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2005/13

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (claimant)

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

GOODS INVOLVED: Valves


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 64 ; 74 ; 77 ; 78 [Also cites: Articles 30 ; 53 ; 75 ; 76 ]

Classification of issues using UNCITRAL classification code numbers:

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

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

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

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

78B [Rate of interest]

Descriptors: Avoidance ; Fundamental breach ; Damages ; Foreseeability of damages ; Mitigation of loss ; Interest

Go to Case Table of Contents

Editorial remarks

Go to Case Table of Contents

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

Go to Case Table of Contents
Case text (English translation)

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC (PRC) Arbitration Award

Valves case [22 August 2005]

Translation [*] by Zheng Xie [**]

Edited by Jing Li [***]

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

   -    The arbitration clauses in Contract No. 00DMEC/TGGZ13-DE-1 (hereafter, Contract #1) and Contract No. 00DMEC/TGGZ13-DE-2 (hereafter, Contract #2) signed by Claimant [Seller], ___ & Co. KG , and Respondent [Buyer], Shenzhen ___ Company, on 20 June 2000; and
 
   -    The written arbitration application submitted by the [Seller] on 29 April 2004.

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

ARBITRATION PROCEEDINGS

On 5 August 2004, the Secretariat of Arbitration Commission sent out the Notice of Arbitration, the Arbitration Rules, and the Panel of Arbitrators to the [Seller] and the [Buyer] by express mail, and also sent the [Seller]'s Application for Arbitration and its attachment to the [Buyer].

The above documents sent to the [Buyer] were returned by the express mail company with the notation "the recipient is out." On 26 October 2004, the [Buyer] provided its address for service of process as follows: ___ Building ___ Road ___ Guangzhou, and the Arbitration Tribunal re-served the above documents to the [Buyer] to that address.

The [Seller] appointed Mr. ___ as Arbitrator; the [Buyer] appointed Mr. ___ as Arbitrator. Because the parties neither jointly appointed nor authorized the Chairman of the Arbitration Commission to appoint the Chief Arbitrator, according to Article 24 of the Arbitration Rules, the Chairman appointed Mr. ___ as the Chief Arbitrator. The aforementioned three arbitrators formed the Arbitration Tribunal on 23 November 2004. On the same day, the Secretariat of the Arbitration Commission sent out the Notice of Formation of the Arbitration Tribunal to both parties.

After discussion with the Secretariat, the Arbitration Tribunal decided to hold an oral hearing in Beijing on 17 January 2005. On 17 December 2004, the Secretariat sent the Notice of Commencement of Arbitration to the parties, respectively.

On 20 December 2004, the [Buyer] sent a letter to the Arbitration Commission requesting postponement of the hearing. The Arbitration Tribunal accepted the [Buyer]'s request and postponed the hearing to 26 January 2005. On 22 December 2004, the Arbitration Commission sent the Notice of Postponement to the parties.

On 26 January 2005, the Arbitration Tribunal commenced the oral hearing in Beijing. Both parties sent their arbitration agents to attend. At the oral hearing, both parties presented their facts and statements, cross-examined the evidence, and answered the Arbitration Tribunal's questions.

After the hearing, the [Seller] submitted its Attorneys' Opinion, and the [Buyer] submitted a Cross-examination Opinion in writing.

This case is now settled. Based on the written material submitted by the parties and the facts verified at the oral hearing, the Arbitration Tribunal handed down the award.

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

FACTS AND ISSUES

1. Stipulations in the contracts

On 30 June 2000, the [Seller] and the [Buyer] signed the two contracts in this case with the same contents. Each contract includes the following contents:

   1.   Goods: (a) Actuators; (b) Valve body; (c) Control console, Solenoid valve cabinet and Hydraulic unit;
   2.   Contract price: US $211,000;
   3.   Shipping time: On or before 23 September 2000;
   4.   Payment term: Documentary L/C payable at sight before 30 days before loading for delivery

2. Issues

      (1) [Seller]'s position

      As early as 1 September 2000, the [Seller] notified the middleman of this transaction, ___ Co. (HK) Ltd., by facsimile that the goods were ready to load for delivery. On 12 September 2000, ___ Co. (HK) Ltd. responded to this notification stating that the [Buyer] agreed to the [Seller]'s loading arrangement.

While the [Seller] was actively performing the contracts, on 27 October 2000 the [Buyer]'s agent, Guangzhou ___ Industry & Trade Co. Ltd. (hereinafter, "___ Industry & Trade"), notified ___ Co. (HK) Ltd. that the [Buyer] was postponing the issuance of the L/C because of its own reason, and the [Buyer] did not make any payment in cash either. Up until the present, the [Buyer] has not issued a L/C.

In order to perform the contracts and supply the complying valves under the contracts, the [Seller] had ordered valves from a supplier, Japan ___ Company, in July 2000. Because of the [Buyer]'s aforementioned breach of the contracts, the [Seller] could not issue a timely L/C to Japan ___ Company. The Japan ___ Company, therefore, filed a lawsuit against the [Seller] before the German ___ District Court with the cause of action "the [Seller] is in breach of the contract (between the [Seller] and Japan ___ Company).". The German ___ District Court ruled that the [Seller] should immediately pay the full contract price to Japan ___ Company. The [Seller] had made the payment accordingly and had also incurred other damages because of that lawsuit.

The goods under the contracts in this case were specially ordered for the [Buyer]. Although the [Seller] tried its best to look for another purchaser to resell the goods in order to mitigate its loss, the [Seller] was unable to find another purchaser for all or part of the goods because of the uniqueness of the goods. Therefore, the [Seller] incurred the loss of the full contract price.

In sum, according to the United Nations Convention on Contract for International Sales of Goods (hereinafter, the "CISG"), the [Buyer] fundamentally breached the contracts and caused damages to the [Seller].

      (2) [Seller]'s claims

      In order to protect the [Seller]'s legal interest, the [Seller] requested the Arbitration Commission to find that:

            (1)   The [Buyer] fundamentally breached the contracts;
 
            (2)   The [Buyer] should compensate the [Seller] for damages in the amount of US $206,915.00 incurred due to the [Buyer]'s breach;
 
            (3)   The [Buyer] should pay the [Seller] interest totaling EUR 118,080.45 on the overdue contract price accrued from 6 September 2000 to 23 January 2004, and interest accrued from 23 January 2004 to the date of the award of this arbitration;
 
            (4)   The [Buyer] should compensate the [Seller] for the litigation fee and the attorneys' fee totaling EUR 164,721.01 incurred for the lawsuit which Japan ___ Company filed against the [Seller] in the German ___ District Court.
 
            (5)   The [Buyer] should compensate the [Seller] for the storage charges in the amount of EUR 6,240 because the [Seller] could not deliver the goods;
 
            (6)   The [Buyer] should compensate the [Seller] for the attorneys' fee incurred for this arbitration;
 
            (7)   The [Buyer] should bear the entire arbitration fee.

      (3) [Buyer]'s position

            (1) The [Seller] failed to provide sufficient evidence on the facts alleged in the arbitration application; since the [Seller] had burden of proof towards its claims, it should bear any unfavorable consequences caused by the insufficiency of proof.

Article 2 of Some Provisions of the Supreme People's Court on Evidence in Civil Procedures provides:

"The parties concerned shall be responsible for producing evidence to prove the facts on which their own allegations are based or the facts on which the allegations of the other party are refuted. Where any party cannot produce evidence or the evidence produced cannot support the facts on which the allegations are based, the party concerned that bears the burden of proof shall undertake the unfavorable consequences."

The [Seller] failed to provide sufficient evidence to prove the facts it alleged. According to the relevant Chinese laws, the [Seller] shall bear the burden of proof as well as any adverse consequences when it fails to provide sufficient evidence.

            (2) Some evidence submitted by the [Seller] should not be admitted, because it was not notarized and certified.

            (3) Some evidence submitted by the [Seller] should not be admitted, because it was not signed or sealed. The documents without signature or seal could be forged, and could not be verified or legalized.

            (4) The goods under the contracts were not particular.

The [Seller] has confirmed this issue. At page 5 of Evidence Item 13 (a photocopy of the judgment in the lawsuit filed by Japan ___ Company against the [Seller]) submitted by the [Seller], it is stated:

"The defendant claims that......The valves to be delivered were not special version made for this purpose."

Moreover, on 10 April 2002, the [Seller] sent a letter to ___ Industry & Trade stating:

"With respect to the above (the [Buyer]'s) order, we inform you that it is almost impossible for us to perform the contract ... we are going to avoid the contract ... in case of modification of the order, all commercial terms including price, shipment time, L/C shall be re-determined."

This shows that the [Seller] wished to avoid the contract and seek better commercial terms, such as a higher price, in the contract.

Also, the [Seller] did not provide responsive evidence in answer to the following questions: Whether the [Seller] still had the goods under the contracts at hand? Whether the [Seller] had already sold the goods? If the goods were not sold, what was the reason?

            (5) The [Seller] intentionally avoided disclosing the fact that the contract was avoided.

On 10 April 2002, the [Seller] sent a letter to ___ Industry & Trade stating:

"With respect to the above (the [Buyer]'s) order, we inform you that it is almost impossible for us to perform the contract ..."

___ Industry & Trade forwarded this letter to the [Buyer]. On 19 April 2002, the [Buyer] sent a letter to the [Seller] stating that:

"so we don't hope you cancel our goods contract with your company."

On 22 April 2002, the [Seller] sent a letter to ___ Industry & Trade stating:

"We will wait until end of May 2002. If the L/Cs do not arrive within this period we will handle according to our fax dd. 10th April 2002."

___ Industry & Trade forwarded this letter to the [Buyer]. The [Buyer] did not issue a L/C within the time period stipulated in the contracts because the [Seller] had already avoided the contracts.

The [Seller] neither claimed the contract price from the [Buyer] anymore, nor delivered the goods to the [Buyer], nor requested the [Buyer] to accept the goods. This shows that the [Seller] had already avoided the contracts.

            (6) The [Seller] did not incur the above damages of US $206,915.40.

The [Seller] did not provide any evidence to prove these damages. The only evidence the [Seller] submitted was a list of claims without a signature or seal by any individual or institution, which could not prove any facts.

In fact, the [Seller] did not deliver any goods to the [Buyer]. On 10 April 2002, the [Seller] sent a letter to ___ Industry & Trade, stating its willingness to terminate the contracts. If the [Buyer] requested to purchase the goods, the [Seller] may increase the price.

The [Seller] did not explain the nature and cause of the alleged damages or why the [Buyer] should bear the alleged damages, but only ambiguously alleged "damages there from," and at the same time, the [Seller] claimed interest, litigation fee, attorneys' fee, and storage fee in its claims 3, 4 and 5, but these fees were not within the scope of "damages there from."

Therefore, it was the [Buyer]'s position that the [Seller]'s claim for the alleged damages of US $206,915.40 had no basis, and to some extent, it was contradictive and overlapped with [Seller]'s other claims.

According to general trade custom, when signing a contract, a buyer does not foresee or should not have foreseen damages other than loss of price due to the buyer's breach. When signing the contracts, the [Buyer] could not foresee these unjustified damages. Therefore, according to the relevant laws, the [Buyer] should not be called upon to compensate the [Seller] for the alleged "damages" in the amount of US $206,915.40.

            (7) The [Seller]'s claim for interest in the amount of EUR 118,080.45 lacks any factual or legal basis.

The [Seller] neither shipped nor intended to ship the goods, so it was not entitled to the contract price. [Seller] would only be entitled to claim damages based on breach of contract. Therefore, the [Seller] was not entitled to interest on the contract price.

A claim for interest is a secondary right subject to the existence and validity of a primary debt. In this case, the contracts had been avoided, so the [Seller] was not entitled to the contract price.

The [Seller] did not submit sufficient evidence to prove the alleged interest of EUR 118,080.45; therefore, it should bear the adverse consequences of insufficient proof.

As for the calculation of the interest of EUR 118,080.45, the [Seller] had not provided with any sufficient proof relating to interest rate, method of calculating interest, or basis of calculating interest. Thus, it should bear the loss incurred from insufficient proof.

            (8) The [Seller]'s claim for the litigation fee and the attorneys' fee incurred for the lawsuit filed by Japan ___ Company against the [Seller] lacks either legal or factual basis.

The litigation fee and the attorneys' fee incurred for the lawsuit filed by Japan ___ Company against the [Seller] were incurred due to the [Seller]'s fault. The [Seller] should bear these fees. They are not relevant to the [Buyer].

The [Seller] lost the case with Japan ___ Company primarily because it rejected the goods without any justified reasons. This was caused by the [Seller]'s own fault. The [Seller]'s Evidence Item 13 (___ Court's judgment on the lawsuit filed by Japan ___ Company against the [Seller]) shows that the [Seller]'s fault was the primary reason for it to lose the case.

At page 10 of the judgment, it is stated:

"The duty of performance of the plaintiff as specified by the relevant contract stipulation, has lapsed. The duty of performance of the debtor lapses if the creditor neglects to exercise due co-operation ( xxxxxxx - xxxxxxxxx xxx . 61st Ed .§ 320 Rdn 18x.x.x.). This is the case here. Despite several offers, with warnings and the setting of periods for acceptance, the defendant was not prepared to accept the goods purchased."

At page 11 of the judgment, it is stated:

"The defendant was in arrears with its obligation to accept the goods by 8.9.2000 at the latest, and despite several warnings, the defendant was not prepared to accept the goods. Due to this refusal by the defendant and the consequent delay in acceptance, the plaintiff incurred costs for packing, heat treatment, storage etc. in the amount of 456729.00JPY ... The plaintiff may require reimbursement of these costs from the defendant in accordance with § 286BGB."

Since the [Seller] independently signed a sales contract with Japan ___ Company, it should have paid the contract price to Japan ___ Company, and should not blame the [Buyer] for its inability to make payment.

In fact, the [Seller] was not unable to pay the contract price to Japan ___ Company. In the Application for Arbitration , the [Seller] stated:

"(On 24 February 2003), the German ___ District Court handed down the final judgment, and the [Seller] immediately paid the full contract price to Japan ___ Company. The [Seller] had made the payments accordingly."

The above facts demonstrated that the [Seller] was not unable to pay the contract price, and therefore, it was not true that the [Seller] could not make payment due to the [Buyer]'s failure to issue the L/C.

The [Buyer] should not be called upon to compensate the [Seller] for the litigation fee and the attorneys' fee incurred for the lawsuit filed by Japan ___ Company against the [Seller] because these fees could not be foreseen when the [Buyer] signed the Contracts.

            (9) The [Seller]'s claim for storage charges lacks legal and factual basis.

The [Seller] only submitted an invoice issued by itself, which cannot prove that the alleged storage charges were really incurred.

The [Seller] did not provide any evidence to prove the time when the goods under the contracts were in the warehouse. The invoice issued by the [Seller] shows that the storage period was thirty-nine months ending on 23 January 2004. This was recorded by the [Seller] itself and is not convincing.

The [Seller] did not provide with any evidence to prove the standard charge for the storage of the same type. The [Seller] merely submitted an invoice issued by itself, and calculated the storage fee according to a standard of EUR 5 per day, and this is not convincing.

The [Seller] did not prove that the alleged storage charges were necessary and reasonable.

            (10) According to the contracts, the damages are limited to direct loss. As to the [Seller]'s liabilities due to its breach, the contracts stipulate that they shall be limited to direct loss. Article 19 of the contracts stipulates,

"If breaching the contract, the [Seller] shall

19.1 agree that the [Buyer] returns the goods, and restitutes the contract price in original currency to the [Buyer], and be liable for any direct loss related to return of the goods."

Therefore, according to the contracts, the [Seller]'s liabilities due to its breach shall be limited to direct loss.

            (11) The [Seller] did not fulfill its duty to mitigate the loss; therefore, the [Buyer] is not liable for any loss which the [Seller] could have mitigated.

More than three years has lapsed from September 2000. The [Seller] should have fulfilled its obligation of mitigation in order to avoid enlarging damages, but it failed to do so. Therefore, the [Buyer] requests the [Seller] to deduct the loss which could have been mitigated.

In conclusion, the [Buyer] alleged that the [Seller]'s arbitration claims lack both legal and factual basis, and should be dismissed.

4. [Seller]'s supplementary opinion

On 10 June 2005, the [Seller] submitted its final statements to the Arbitration Tribunal alleging:

After the contracts took effect, the [Buyer] sent a notice of order to the [Seller], and the [Seller] confirmed the [Buyer]'s order. Thereafter, the [Seller] embarked on preparing to perform the contracts and ordered all the goods under the contracts from Japan ___ Company. Before 1 September 2000, the goods were ready to ship, and the [Seller] notified the middleman of this transaction, ___ Co. (HK) Ltd. via facsimile that the goods were ready to ship. On 12 September 2000, ___ Co. (HK) Ltd. responded to the [Seller] advising that the [Buyer] agreed on the [Seller]'s shipping arrangement.

On 15 September 2000, the [Buyer] through its agent, ___ Industry & Trade and the middleman, ___ Co. (HK) Ltd., sent a facsimile to the [Seller] alleging that because of the bank's reason, the owner of the ship could not timely issue a L/C for the [Buyer]; therefore, the [Buyer] could not timely open a L/C for the [Seller]. The [Buyer] asked the [Seller] to postpone the shipping time, and promised to resolve the problem as soon as possible without specifying a deadline. The [Seller] had to store the goods in a warehouse while urging the [Buyer] to resolve the problem.

On 18 January 2001, the [Buyer] through ___ Industry & Trade sent a facsimile to the [Seller] stating that the L/C would be issued before 2 February 2001, but it failed to issue the L/C as promised. Thereafter, the [Buyer] sent many facsimiles to the [Seller] hoping the [Seller] could understand the [Buyer]'s situation and confirming that it would perform the contract. In these facsimiles, the [Buyer] mentioned the issuance of the L/C many times, but it did not issue the L/C at all.

The above facts show that the [Seller] had already duly performed its duties under the contracts, but that the contract had not been performed until the present because the [Buyer] failed to perform its contractual duties. The [Buyer] fundamentally breached the contracts.

Because the goods under the contracts were specially made according to the [Buyer]'s order, the [Seller] had tried to seek another buyer to resell the goods to in order to mitigate the loss after knowing that the [Buyer] would breach the Contracts, but failed to resell them because of the particular nature of the goods. Therefore, the [Buyer] should bear the loss of price of the goods.

The [Buyer]'s breach caused direct economic loss to the [Seller]. This loss was specified in the [Seller]'s claims. However, considering that part of the components of the goods might be re-used, the [Seller] did not claim the loss of the full contract price, but only part of the contract price.

As to notarization and certification, in its Response, the [Buyer] alleged that some evidence the [Seller] submitted was not notarized or certified, so it should not be admitted. In support, the [Buyer] cited Some Provisions of the Supreme People's Court on Evidence in Civil Procedures. However, this regulation only applies to civil litigation. Arbitration and litigation have differences in procedure and requirements of evidence. Judicial interpretations by the Supreme People's Court do not automatically apply to arbitrations, and are not binding on an arbitration tribunal to admit evidence.

The [Seller]'s loss that was incurred due to the litigation filed by Japan ___ Company in Germany was caused by the [Buyer]'s non-performance of the contracts resulting in the [Seller]'s inability to perform its contract with Japan ___ Company. If the [Buyer] had duly performed the contracts, the [Seller] would not have breached its contract with Japan ___ Company, and the Court would not have ruled that the [Seller] should compensate Japan ___ Company for its damages. Because the court ruled that the [Seller] should compensate Japan ___ Company for its damages, it is reasonable for the [Seller] to claim these damages from the [Buyer]. The [Seller]'s loss because of this litigation was caused by the [Buyer]'s breach.

Although the goods under the contracts were not delivered to the [Buyer], this was caused by the [Buyer]'s breach and non-issuance of the L/C under the contracts. Because of the [Buyer]'s breach, the [Seller] had to store the goods in the warehouse; because of the particularity of the goods, the [Seller] could not resell the goods to a third party and incurred loss of the contract price.

The damages the [Seller] claimed were supported by sufficient evidence. The [Seller]'s claims are common for breach of sales contracts, and could be foreseen by the [Buyer] when signing the contracts. Therefore, it lacks factual basis for the [Buyer] to allege that the damages the [Seller] claimed could not been foreseen when it signed the contracts, and should not be compensated for by the [Buyer].

THE ARBITRATION TRIBUNAL'S OPINION

The Arbitration Tribunal carefully heard the parties' statements in the oral hearing, reviewed all the documents submitted by the parties, instructed the parties to cross-examine the evidence, and provided enough time for the parties to submit and cross-examine supplementary evidence after the oral hearing. The following is the Arbitration Tribunal's opinion:

1. Applicable law

The [Buyer] asserted that the relevant Chinese laws including the Civil Procedure Law and Some Provisions of the Supreme People's Court on Evidence in Civil Procedures should apply to the procedure of this case. As to the substantive laws, CISG shall apply to this case; and matters not concerned with by the CISG or the contracts shall be governed by the Chinese laws, including the Contract Law and the General Rules of Civil Law.

Except for the regulations on evidence, the [Seller] did not raise any other objection. Therefore, the Arbitration Tribunal finds that the parties' opinions (except for the regulations on evidence) regarding the applicable law are basically consistent.

2. The contracts in dispute and the parties to this arbitration

In the oral hearing, the [Buyer] alleged that the other party signing the contracts was ___ Co. (HK) Ltd., not the [Seller], and raised the questions whether the [Seller] was a party to the contracts, and whether the [Seller] was entitled to file this arbitration. In its written cross-examination, the [Buyer] pointed out that the [Seller]'s business registration numbers in two pieces of evidence provided by the [Seller] were not consistent; in the Application for Arbitration, the number is HRA__, and in the supplementary evidence, the number is HRA…; therefore, it is an issue whether the two numbers relate to different companies.

The [Seller] asserted that it appears that ___ Co. (HK) Ltd. was the Seller in the contracts, but both the [Seller] and the [Buyer] knew that the actual Seller was the company indicated as the [Seller] in the arbitration application; more importantly, the [Buyer] did not oppose the [Seller]'s qualification as a party to this case in the oral hearing. The [Seller] provided Supplementary Evidence Items 1 and 2 to support its allegation.

In the hearing, the Arbitration Tribunal found that the contracts stipulate:

"For and on behalf of ___ & Co. KG

___ Co. (HK) Ltd."

The Arbitration Tribunal finds that "for and on behalf of" means that "representing ___ to sign the contracts," and the party who signed following "for and on behalf" was the [Seller] (the person who was represented). Therefore, the above words shall be construed as ___ Co. (HK) Ltd. signed the contracts as an agent representing the [Seller], and the [Seller] is the actual party to the contracts. This interpretation is consistent with the facts.

The [Seller] is recorded in the contracts, which shows that the parties knew that the [Seller] was the actual party to the contracts.

In addition, the title of the contracts is "Contract of Shenzhen ___ Aviation Supplies Co. Ltd.," which shows that the contracts are the [Buyer]'s standard contracts;

The [Seller]'s signature sections were added to the standard contracts;

If the [Buyer] did not know the facts, it would not have printed the [Seller]'s name in the standard contracts.

In sum, Article 39 of the Contract Law of the People's Republic of China (hereinafter, "Chinese Contract Law") provides:

"Where a contract is concluded by way of standard terms, the party supplying the standard terms shall abide by the principle of fairness in prescribing the rights and obligations of the parties ..."

Article 48 of the Chinese Contract Law states that:

"... The other party may demand that the principal ratify the contract within one month."

The Arbitration Tribunal finds that ___ Co. (HK) Ltd. and ___ Industry & Trade were agents for the [Seller] and the [Buyer], respectively. In addition, the [Seller] and the [Buyer] knew and confirmed each other's position in this transaction.

The [Seller] had both duties and rights under the contracts signed by its agent ___ Co. (HK) Ltd. Therefore, the [Seller] has the qualification for this arbitration based on the facts and law.

Because the [Seller]'s business registration numbers are not consistent, the [Buyer] raised the issue whether there are two companies. After reviewing the evidence submitted by the [Seller], the Arbitration Tribunal finds that the evidence attached to the [Seller]'s Application for Arbitration contains detailed information and the address recorded in the evidence was the same as the [Seller]'s address recorded in the contracts. The registered place is "the court in the [Buyer]'s city," which is clear. However, Item 1 of the supplementary evidence is neither detailed nor consistent with the contracts. It states that the registered place is "the local court" which is not specific. Therefore, the supplementary evidence is not convincing, and is not admitted by the Arbitration Tribunal. Although the [Seller]'s proof has some defect, it does not affect its qualification in this arbitration.

3. Validity of the contracts

When cross-examining the evidence, the [Buyer] alleged that it did not object to the truthfulness of the contracts, but requested the [Seller] to present the Power of Attorney authorizing ___ Co. (HK) Ltd. to sign the contracts on its behalf, because the contracts were signed by ___ Co. (HK) Ltd. instead of the [Seller].

The [Seller] alleged that ___ Co. (HK) Ltd. signed the contracts as its agent, and submitted Supplementary Evidence Item 1 after the oral hearing. As to this evidence, the [Buyer] asserted that it was a confirmation letter issued by the [Seller]'s Directing Manager and Business Administrative Manager, but not an agency contract between the [Seller] and ___ Co. (HK) Ltd. or a power of attorney, so it doubted the truthfulness of the [Seller]'s authorization to ___ Co. (HK) Ltd.

The Arbitration Tribunal finds that the [Seller] had some negligence as to the form of the signature of the contracts and it is understandable that the [Buyer] had doubt. However, ___ Co. (HK) Ltd.'s authority can be confirmed by the signature section in the first page and last page of the contracts as well as in the correspondence between the [Seller] and the [Buyer]. The contents and format of the contracts are in compliance with the relevant provisions on formation of contracts provided in the CISG and the Chinese Contract Law; therefore, the contracts are valid.

4. Performance of the contracts

The [Seller] asserts that after the contracts took effect, the [Buyer] sent a notice of order to the [Seller], and the [Seller] confirmed the [Buyer]'s order. Thereafter, the [Seller] started preparing to perform the contracts, including placing an order with Japan ___ Company for components for the goods under the contracts, and got the goods ready before 1 September 2000. The [Seller] then, via facsimile, notified ___ Industry & Trade that the goods were ready to be shipped. On 12 September 2000, ___ Industry & Trade responded to the [Seller] stating that the [Buyer] had agreed on the [Seller]'s arrangement of shipping. However, the [Buyer] did not issue a L/C to the [Seller], and the contracts were not performed. Therefore, the [Buyer] breached the contracts.

In its Response, the [Buyer] did not answer the question regarding the performance of the contracts, and mainly presented its opinions on the [Seller]'s burden of proof, probity of the evidence, and calculation of damages. In the oral hearing, the [Buyer] admitted that it did not issue a L/C according to the contracts, and alleged that it was caused by the owner of the shipper's failure to issue a L/C for the [Buyer].

After hearing this case, the Arbitration Tribunal concludes that the [Seller] had already gotten the goods ready to ship, and notified and demanded several times that the [Buyer] issue the L/C under the contracts. However, the [Buyer] repeatedly requested the [Seller] to delay delivering the goods and to hold the goods until it issued the L/C. Although the [Seller] agreed to delay delivering the goods, the [Buyer] had failed to issue the L/C. In addition, Article 12 of the contract stipulates that the [Buyer] shall issue the L/C thirty days before the goods are loaded; therefore, the issuance of the L/C was a duty prior to loading the goods on board, and whether the Seller had goods ready for delivery was not the prerequisite for the issuance of the L/C by the Buyer. According to Articles 25, 30 and 53 of the CISG, the [Buyer]'s conduct constituted a breach of contract.

5. Scope of liabilities for breach

The [Seller] asserted that the [Buyer] should compensate it for the damages and interest on the contract price incurred due to the [Buyer]'s breach, for the litigation fee and attorneys' fee incurred because of the litigation in Germany filed by Japan ___ Company, for storage charges incurred due to the non-delivery of the goods, and for the attorneys' fee and arbitration fee in this case.

The [Buyer] alleged that the [Seller] bears the burden of proof with respect to the alleged damages, interest and storage charges; and that none of the evidence submitted by the [Seller] was notarized or certified, so it should not be admitted as evidence.

As to the litigation fee and the attorneys' fee incurred due to the litigation filed by Japan ___ Company, the [Buyer] asserted that this litigation was filed due to the [Seller]'s breach, and that the [Seller] was able to pay the contract price, but did not do so and rejected taking delivery of the goods;

In addition, the court only ruled that the [Seller] should take the delivery of the goods and pay the contract price, but did not rule that the [Seller] should pay damages.

The [Seller]'s evidence cannot prove that the alleged litigation fee and attorneys' fee were actually incurred; furthermore, the alleged litigation is irrelevant to this case.

As to the liabilities disputed by the parties, the Arbitration Tribunal finds as follows:

            (1) Compensation of the loss

            Since the parties only stipulated in the contracts how to resolve the matter regarding non-complying quality of the goods and late delivery, but did not provide terms on damages, according to Articles 74, 75, 76, and 77 of the CISG, the provisions regarding damages shall apply to this case. Accordingly, the Arbitration Tribunal finds that the [Seller]'s claim for damages in the amount of US $206,915.40 mainly consists of Items A, C, E, F and G listed in its statements of damages. The evidence shows that all these items are devices or components. According to the [Seller]'s Supplementary Evidence Item 5, the Remote Control Valve System for 3500 DWT oil barge, the subject of the contracts, includes "Actuators, Valve body, Control Console, Solenoid valve cabinet and Hydraulic unit, etc." These are either the [Seller]'s or Japan ___ Company's products with their own model numbers, and the parts are standard general products. The [Seller] claimed 100% of the contract price as damages. Because the ownership of the goods was not transferred, nor did the goods disappear because of the [Buyer]'s breach, the reasons for the [Seller]'s claim are not sufficient. Therefore, the Arbitration Tribunal does not sustain this claim.

However, according to the relevant provisions of the CISG, a claim for price difference or loss of profits is reasonable. Since the [Seller] did not claim the price difference or loss of profits, the Arbitration Tribunal finds that it is reasonable for the [Buyer] to compensate the [Seller] for 30% of the contract price as damages while the [Seller] still has the ownership of the goods. Thus, Item A is US $49,765.56, Item C is US $4,830, Item E is US $6,910.80, Item F is US $21,265.80, Item E is US $6,910.80, Item F is US $21,256.80, and Item G is US $9,022.80. The total amount for the above five items is US $91,794.16.

            (2) The litigation fee and attorneys' fee that arose from the litigation between the [Seller] and Japan ___ Corp.

            The Arbitration Tribunal thoroughly reviewed the [Seller]'s evidence and the [Buyer]'s written cross-examination opinion, and notes that the model numbers of the goods described in Supplementary Evidence Items 4 and 5 are consistent, and the place of delivery is in compliance with the stipulation in the contracts. The contents recorded in the [Seller]'s Supplementary Evidence Item 3 are consistent with the aforementioned evidence regarding the order the [Seller] placed with Japan ___ Company. The Arbitration Tribunal finds that the litigation filed by Japan ___ Company against the [Seller] was caused by the [Buyer]'s breach of the contracts in dispute (it was the result of a chain reaction); therefore, the [Buyer] should bear the relevant liabilities. The attachments and the list of claims (B) submitted by the [Seller] show that the [Seller]'s claim includes three items: 1) and 2) are traveling expenses and the attorneys' fee, and 3) is the contract price paid to Japan ___ Company and interest accrued. Because Supplement Evidence Items 9 and 10 were bills issued by the [Seller] unilaterally, and were not payment certificates, this evidence could not prove that the [Seller] had already made the payment, and the Arbitration Tribunal does not sustain the above items 1) and 2). Item 3) was incurred when the [Seller] performed its duty to take the delivery of the goods from Japan ___ Company; because Supplementary Evidence Item 7 could not clearly and validly prove the the relationship between the purpose of the payments and the contracts in this case, the Arbitration Tribunal does not sustain the full amount the [Seller] claimed. Articles 1, 2, 3 and 7 of the contracts in this case clearly show that the [Seller] ordered ____ from Japan ___ Company for the contract price of US $60,000 per set. The [Seller]'s statement of claims shows that the total amount of Items A, C, E, F and G is US $305,980.53; therefore, it can be calculated that the total price for the [Seller]'s order with Japan ___ Company in Item B (3) is actually US $116,059.47. Considering that the [Seller] was still holding the goods, the Arbitration Tribunal sustains 30% of the contract price, i.e., US $34,805.84.

            (3) The storage charges

            The Arbitration Tribunal reviewed Invoice No.____provided by the [Seller], and finds that this invoice was not issued by a professional storage company but by the [Seller] itself, and could not prove that the [Seller] had already paid the storage charges; therefore, the Arbitration Tribunal does not sustain this claim.

            (4) The interest on the unpaid contract price from 6 September 2000 to 23 January 2004

            The [Buyer] alleged that the [Seller] had not delivered the goods, and that the claim for interest was a secondary right; and that, because the Contracts were avoided, the [Seller] was not entitled to interest. In addition, it was the [Buyer]'s position that the [Seller] did not provide any valid evidence to prove EUR 118,080.45 accrued. The Arbitration Tribunal reviewed the interest calculation table submitted by the [Seller], the letter the [Seller] sent to ___ Industry & Trade on 10 April 2002 which the latter forwarded to the [Buyer], and the letter the [Seller] sent to [Buyer] on 22 April 2002, and finds that according to Article 78 of CISG, the [Seller] is entitled to damages as well as interest on the contract price. However, the currency used in the calculation table provided by the [Seller] is not in US dollars as stipulated in the contract but in Euro, and the interest lacks a bank's proof. Therefore, the Arbitration Tribunal does not sustain the final amount in the [Seller]'s calculation table. The interest shall accrue from the day when the [Buyer] should pay the contract price to the day when the contracts were avoided.

The contracts were signed on 30 June 2000; the facsimile the [Seller] sent on 1 September 2000 shows that all of the goods should have been delivered at the end of October 2000; the payment under the contracts should be made by a L/C; after ten (10) bank business days were added, it is reasonable that the [Buyer] should have made the payment on 10 November 2000;

The facsimile the [Seller] sent on 22 April 2002 shows that the contracts were avoided at the end of May 2002; therefore, the interest should accrue from 10 November 2000 to 31 May 2002.

According to various interest rates from 10 November 2000 to 31 May 2002 provided by Bank of China, the total amount of interest is US $35,971 calculated as follows:

From 10 November 2000 to 12 January 2001: 63 days × 8.5% ÷365 days × US $422,000 = US $6,191;

From 13 January 2001 to 6 February 2001: 24 days × 8.1875% ÷365 days × US $422,000 = US $2,272;

From 7 February 2001 to 20 March 2001: 42 days × 7.625% ÷365 days × US $422,000 = US $3,703;

From 21 March 2001 to 23 April 2001: 34 days × 7.1875% ÷365 days × US $422,000 = US $2,825;

From 13 January 2001 to 6 February 2001: 24 days × 8.1875% ÷365 days × US $422,000 = US $2,272;

From 24 April 2001 to 13 May 2001: 20 days × 6.625% ÷365 days × US $422,000 = US $1,532;

From 14 May 2001 to 24 June 2001: 42 days × 6.06255% ÷365 days × US $422,000 = US $2,944;

From 25 June 2001 to 26 August 2001: 62 days × 5.8125% ÷365 days × US $422,000 = US $4,167;

From 27 August 2001 to 20 September 2001: 25 days × 5.5625% ÷365 days × US $422,000 = US $1,608;

From 27 August 2001 to 20 September 2001: 25 days × 5.5625% ÷365 days × US $422,000 = US $1,608;

From 21 September 2001 to 25 September 2001: 5 days × 5.3125% ÷365 days × US $422,000 = US $307;

From 26 September 2001 to 9 October 2001: 14 days × 4.50% ÷365 days × US $422,000 = US $728;

From 10 October 2001 to 11 November 2001: 32 days × 4.2168% ÷365 days × US $422,000 = US $1,560;

From 12 November 2001 to 31 May 2001: 201 days × 3.50% ÷365 days × US $422,000 = US $8,134;

Total: US $35,971.

            (5) Attorneys' fee for the present case

            The [Seller] submitted a letter from the attorneys regarding the attorneys' fee. The [Buyer] alleged that this evidence could not prove that the attorneys' fee is related to this case. The Arbitration Tribunal finds that this letter could only show the amount of the attorneys' fee and the request for payment, but could not prove whether the [Seller] had already made the payment; therefore, the Arbitration Tribunal does not sustain this claim.

            (6) The arbitration fee

            The Arbitration Tribunal finds that the [Seller] shall bear 30% of the arbitration fee, and the [Buyer] shall bear 70%.

AWARD

According to the above opinion, the CISG and Chinese Contract Law, the Arbitration Tribunal hands down the following award:

   (1)    The [Buyer] fundamentally breached the contracts and shall bear liabilities thereof;
 
   (2)    The [Buyer] shall compensate the [Seller] for damages in the amount of US $126,600;
 
   (3)    The [Buyer] shall compensate the [Seller] for the loss of interest from 10 November 2000 to 21 May 2002, totaling US $35,971;
 
   (4)    The [Seller]'s other claims are dismissed;
 
   (5)    The arbitration fee is US $16,114, of which the [Seller] shall bear 30%, i.e., US $4,834, and the [Buyer] shall bear 70%, i.e., US $11,280. The [Seller] had paid US $16,114 to the Arbitration Commission; therefore, the [Buyer] shall pay the [Seller] US $11,280.

This award is final and takes effect when it is handed down. The [Buyer] shall pay the above amount to the [Seller] within 15 days after this award comes into effect; otherwise, interest at an annual rate of 6% shall be added.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of ___ & Co. KG is referred to as [Seller]; Respondent of Shenzhen ___ Aviation Supplies Co. Ltd., the People's Republic of China is referred to as [Buyer]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the uniform European currency (Euro) are indicated as [EUR]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

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

*** Jing Li, 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.

Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated September 22, 2008
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography