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CISG CASE PRESENTATION

China October 2005 CIETAC Arbitration proceeding (Filling and sealing machine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/051000c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20051000 (October 2005)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2005/24

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (claimant)

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

GOODS INVOLVED: Non-PVC bags forming filling and sealing machine


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 4 ; 7 ; 29 ; 78 ; 80 [Also cited: Article 53 ]

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): agency issues];

7C223 [Recourse to general principles on which Convention is bases: communication and cooperation];

29A [Parties by agreement may modify or terminate the contract];

78B [Rate of interest];

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

Descriptors: Scope of Convention ; Agency issues ; General principles ; Cooperation ; Modification of contract ; Interest ; Failure of performance, other party

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

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

Filling and sealing machine case (October 2005)

Translation [*] by Zheng Xie [**]

PARTICULARS OF THE PROCEEDING

The China International Economic and Trade Arbitration Commission (hereafter, the "Arbitration Commission") accepted the case (Case number: M2005____) according to:

   -    The arbitration clause in Contract No. CDIG/T-2002-26 [the "Contract"] signed by AAA Beschrankter Hafung [Seller] [of Germany] and BBB Cooperation Group [Buyer] [of the People's Republic of China] on 26 July 2002; and
 
   -    The written arbitration application submitted by the [Seller] on 28 March 2005.

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

On 4 August 2005, the Secretariat of the Arbitration Commission by express mail served the [Seller] and the [Buyer] the Arbitration Notice, the Arbitration Rules and the Arbitrators List, and also served the [Buyer] the [Seller]'s arbitration application and attachments.

The [Seller] appointed Ms. ___ as its arbitrator, and the [Buyer] appointed Mr. ___ as its arbitrator. Because the [Buyer] and the [Seller] did not jointly appoint a Presiding Arbitrator within the time limit, pursuant to Article 24 of the Arbitration Rules, the Chairman of the Arbitration Commission appointed Mr. ___ as the Presiding Arbitrator. On 24 May 2005, these three arbitrators formed an Arbitration Tribunal to hear this case.

After consulting with the Secretariat, the Arbitration Tribunal decided to open a court session in Beijing on 12 July 2005. The Secretariat served the [Buyer] and the [Seller] the Notice of Court Session and Notice of Formation of the Arbitration Tribunal.

The [Buyer] did not submit a written response or evidence before the court session.

On 12 July 2005, the Arbitration Tribunal opened the court session in Beijing as scheduled. Each party's representatives appeared at the court session, and stated their opinion and facts, presented evidentiary material and submitted pertinent evidence, answered the Arbitration Tribunal's questions, and made arguments regarding pertinent facts and law. At the end of the court session, with the parties' agreement the Arbitration Tribunal decided that the parties should submit evidence, if necessary, before 22 July 2005, and advised that the Arbitration Tribunal would not accept any evidence submitted after the time period expired.

After the court session, each party submitted supplementary evidence and statements to the Arbitration Tribunal/ The [Seller] also submitted a mediation proposal. Through the Secretariat, the Arbitration Tribunal exchanged the aforementioned material between the parties. Thereafter, the [Buyer] requested another court session in order to cross-examine the supplemental evidence submitted by the [Seller].

As per the [Buyer]'s request, the Arbitration Tribunal opened a second court session in Beijing on 8 September 2005. Each party's representatives appeared in the court session, and cross-examined the evidence. With the parties' agreement, the Arbitration Tribunal sought to mediate the dispute, but the parties failed to reach an agreement.

Based on the facts verified in the court session and all written material, the Arbitration Tribunal entered this award by consent.

The facts, the Arbitration Tribunal's opinion and award are as follows:

FACTS

On 26 July 2002, the [Buyer] and the [Seller] executed the Contract. It stipulated that the [Buyer] purchased a machine from the [Seller] for 1,685,000 Euro FOB Major Port of Europe.

   1.    Article 2 stated that "the charges of installation, testing, technical service & training, etc., will be included if not listed out;
 
   2.    Article 12 stated that the [Buyer] should pay 10% of the contract price by T/T before 16 August 2002 as an advanced payment; 80% of the contract price, i.e., 1,348 Euro, should be paid by a letter of credit. Article 12.3 stated that "10% of the total contract price to be paid by T/T against presentation of the following documents, but at the latest three months after the contracted goods arriving at the final destination except due to the Seller's reason:

(1)   Commercial invoice in five copies covering 10% of the contract value;
(2)   Final acceptance Certificate issued by the end-user and the Seller in two originals;
(3)   Letter of guarantee for warranty time issued by the Seller's bank covering 10% of the Total Contract Price."

During the performance of the Contract, a dispute arose, and the [Seller] petitioned for arbitration.

POSITION OF THE PARTIES

The [Seller]'s position

The [Buyer] and the [Seller] executed the Contract stipulating that the [Buyer] purchased from the [Seller] one Non-PVC Bags Forming Filling and Sealing Machine FFS 794 (the "Machine") for the price of 1,685,000 Euro.

Article 4 of the Contract stipulated that the [Seller] should ship the Machine no later than 20 April 2003. The meeting minutes dated 3 April 2003 demonstrated that the shipping date was changed to before 10 July 2003. Thereafter, the letter of credit was amended on 18 June 2003 to show that the shipping date was postponed to 30 August 2003.

On 29 July 2003, the [Seller] shipped the Machine to the [Buyer]. In September 2003, the Machine arrived at the destination, Dalian, China. The end-user's receipt of the Machine indicated that the Machine arrived at the end-user's place no later than 30 September 2003. Therefore, the [Seller] performed its duty of delivery.

However, the [Buyer] failed to make payments pursuant to the Contract. The [Buyer] only paid 90% of the contract price, i.e., 1,516,500 Euro, and still owed 10% of the contract price, i.e., 168,500 Euro. The [Buyer] alleged that it did not pay the remaining amount because the end-user cancelled the project for which the Machine was purchased. Thereafter, the [Buyer] advised that the end-user did not cancel the project and still needed the Machine, but could not decide the time of testing and adjusting, and the Machine had not been unpacked and was still in the outside place of the end-user's. The [Buyer] refused to pay the balance, averring that the Machine had not been installed and tested.

The [Seller] via facsimile, telephone and other written methods, demanded several times that the [Buyer] perform its duty under the Contract, and tried to negotiate with the [Buyer] to resolve the matter. After the [Seller]'s efforts for half a year, the [Buyer] paid half of the unpaid balance on 16 December 2004, i.e., 84,250 Euro, but still failed to pay the remaining half.

The [Buyer] should not assert the end-user as an excuse for non-payment of the balance. According to the Contract, it should be deemed that the [Buyer] accepted the Machine on 31 December 2003, because the latest arriving time of the Machine was 30 September 2003. Therefore, the outstanding balance should be paid no later than 1 January 2004.

The [Buyer] should have paid 85,250 no later than 1 January 2004, but paid on 16 December 2004, and still failed to pay that balance. Therefore, the [Seller] was entitled to interest accrued on the late payment.

As to the agency fee incurred, if the [Buyer] had performed its duty complying with the Contract, the [Seller] would not have had to to pay the attorneys' fees at all. Therefore, the [Buyer] should compensate the [Seller] for the attorneys' fees.

The [Seller] contended that the Contract was valid, and the [Buyer] failed to pay the reaming balance under the Contract by asserting various excuses. The [Buyer] breached the Contract and should be liable for its breach.

The [Seller]'s requests

1. The [Buyer] should pay the [Seller] the outstanding balance, i.e., 84,250 Euro, which was 5% of the contract price of 1,685,000 Euro;

2. The [Buyer] should pay the [Seller]:

   -    Interest of RMB 61,113.50, which accrued on the outstanding balance of RMB 84, 250 from 1 January 2004 to March 2005 when the arbitration petition was filed; and
 
   -    Interest of RMB 48,483.38 which accrued on the outstanding balance of RMB 84,250 from 1 January 2004 to 16 December 2004.

The interest should be at the annual RMB loan rate published by China People's Bank, 5.31% before 28 October 2004, 5.58% before 29 October 2004, and the foreign exchange rate between Euro and RMB was 1,074.64. The total amount of interest as of the date when the arbitration petition was filed was RMB 109,596.88.

3. The [Buyer] should pay the [Seller]'s attorneys' fees.

4. The [Buyer] should bear the arbitration fee.

The [Buyer]'s position

The [Buyer] alleged that:

1. The [Seller] did not fully perform its duty under the Contract.

Article 2 of the Contract stipulated the contract price was 1,685,000 Euro which included installing fee, testing and adjusting fee, technical services fee, etc., if not listed out. Appendix 3 of the Contract specified the [Seller]'s duty of installing, testing and adjusting, training, providing technical services, final accentuate, etc. However, the [Seller] had not performed its duty of installing, testing and adjusting, training, or providing technical documents, etc.

Since the total contract price included installing fee, testing and adjusting fee, technical services fee, etc., when the [Seller] did not fully perform its contractual duty, its claim for the remaining balance was not established.

2. The [Seller] did not provide the documents required before a payment was made.

Article 12(3) of the Contract stipulated that when requesting the [Buyer] to pay the balance of the contract price, the [Seller] should provide five copies of commercial invoices for 10% of the contract price, two copies of the acceptance certificate executed by the end-user and the [Seller], and a letter of guaranty issued by the [Seller]'s bank for 10% of the contract price. The [Buyer] was obligated to pay the remaining balance only when accepting the aforementioned required documents.

The [Buyer] demanded that the [Seller] provide the aforementioned documents within seven business days before 16 February 2004 when the [Buyer] should make the payment, but the [Buyer] neither received any documents required from the [Seller] nor obtained any response from the [Seller] to advise when the documents would be provided.

Since the [Seller] failed to perform its duty which should be performed before the [Buyer] fulfill its duty of payment, the [Buyer] was not liable for non-payment of the remaining balance. The [Seller]'s claim for the remaining balance and interest lacked legal and factual grounds.

3. The quality of the Machine was not inspected.

      (1) Article 15 of the Contract stipulated that the [Seller] should inspect the Machine and provide a quality certificate and an inspection record to the [Buyer]. However, the [Seller] did not provide a quality certificate to the [Buyer], and it was hard to prove that the quality of the Machine complied with the Contract.

      (2) Article 15.2 of the Contract and Appendix 4 stipulated that the [Buyer] should send four members of its staff to the [Seller]'s place to inspect and test the Machine for fourteen days. However, none of the persons conducting inspection and testing was an employee of the [Buyer]. Therefore, the [Buyer] did not execute the acceptance certificate, and did not agree that the quality of the Machine was satisfied or that the Machine could be shipped. The [Buyer] had not admitted that the quality of the Machine complied with the requirements of the Contract.

The [Buyer] emphasized that it did not entrust any person to execute the acceptance or training certificate.

      (3) Since September 2003 when the Machine arrived at the end-user's factory, the Machine was not unpacked for inspection. The [Seller] did not inspect the Machine, and did not know whether the Machine was the subject goods of the Contract, whether the Machine had defects, or whether the Machine had been completed. Furthermore, on 28 December 2004 the [Buyer] via facsimile discussed with Rodepart Co. entrusted by the [Seller] to inspect the Machine on 15 January 2005. However, on 29 December 2004 Rodepart Co. via facsimile refused to inspect the Machine. Therefore, before the Machine was inspected, it was unknown whether the quality of the Machine conformed to the Contract. There was no basis for the [Buyer] to pay the balance before inspecting the Machine.

4. The delay of delivery and illegality of the meeting minutes

      (1) Article 17 of the Contract stipulated that except for force majeure as stipulated in Article 18, the [Seller] should pay a penalty to the [Buyer] if the delivery was delayed, and the penalty should be 0.5% of the contract price per seven days (calculated as seven days if less than seven days), but not exceeding 5% of the total contract price. If the delivery had been delayed for more than seven weeks, the [Buyer] was entitled to decline the Contract, and the [Seller] should compensate the [Buyer] for all damages. The Contract stipulated that the shipping date should be no later than 20 April 2003, but the Machine was actually shipped in August 2003, and no force majeure existed. Since the delivery was four months later than the stipulated time, the [Buyer] was entitled to decline the Contract and to claim damages from the [Seller].

      (2) The [Buyer] did not admit the stipulations on shipping time, etc. stated in the meeting minutes dated 3 April 2003 and executed by the [Buyer]'s authorized person. First, as to a contract under this project, only the manager of the subsidiary authorized by the [Buyer]'s legal representative had authority to sign documents and pertinent contracts and agreement relating to the project. The meeting minutes were not executed by the person who attended the meeting as the [Buyer]'s representative, and neither the signing person nor the attending person was a person authorized to sign documents; in addition, the meeting minutes were not stamped with the [Buyer]'s seal. Therefore, the [Buyer] did not admit the legality of the meeting minutes or the change of shipping time stipulated in the Contract.

5. The [Seller]'s request for the attorneys' fees was groundless.

Pursuant to Chinese law, the expenses incurred by one party due to litigation or arbitration does not constitute a direct loss for the other party. In addition, the Contract did not stipulate that the breaching party should bear the non-breaching party's attorneys' fees.

6. The [Seller]'s claim for interest should not be sustained.

The Contract only stipulated the penalty for the [Seller]'s breach, but did not stipulate penalty for the [Buyer]'s breach. In addition, the aforementioned response showed that the [Seller]'s request for interest lacked legal basis.

The [Seller]'s supplemental position

1. The [Seller] completed its duty under the Contract.

The Contract stipulated that the [Seller] should ship the goods no later than 20 April 2003, and also stipulated that the [Buyer] was entitled to send persons to inspect the goods before the goods were shipped and to issue a FAT Factory Acceptance Trial.

Because the FAT Factory Acceptance Trial did not occur, the parties to the Contract and the end-users executed meeting minutes on 10 July 2003 stipulating that the shipping date was changed to before 10 July 2003, and also stipulating that the [Seller] should issue an invitation for the inspecting person of the end-user and make arrangements for him. The meeting minutes also change the inspecting person stipulated in the Contract.

Because of the inspecting persons' visa problem, the [Buyer] revised the letter of credit on 18 June 2003, and the shipping date was postponed to 30 August 2003.

The [Seller] and the end-user inspected the Machine at the [Seller]'s factory on 17 and 18 July 2003, and signed the inspection receipt.

Finally, the [Seller] shipped the Machine on 29 July 2003, and completed its duty of delivery under the Contract.

However, the [Buyer] failed to complete its duty of payment.

As alleged by the [Buyer], Article 2 of the Contract stipulated that the contract price included the installing, testing and adjusting and training fees, and the Appendix stipulated the [Seller]'s duty to provide technical services. The [Seller] had never denied its duties stipulated in the Contract. The evidence, i.e., the fax sent by the [Seller] on 29 December 2004, submitted by the [Buyer] could only demonstrate that the [Seller] rejected the [Buyer]'s payment schedule (i.e., payment was conditioned on installing and testing the Machine). In fact, when demanding that the [Buyer] perform its duty of payment, the [Seller] agreed to perform the aforementioned duties, which had not been performed because the [Buyer] failed to perform its duty of payment. If the [Buyer] performed its duty of payment, the [Seller] would perform the aforementioned duties in good faith pursuant to the law and the Contract.

2. The [Seller] did not provide the pertinent documents as stipulated in Article 12.3 of the Contract because of the [Buyer]'s reason, and the [Buyer] should pay the outstanding balance.

The [Buyer] alleged that it could not perform the Contract, because the [Seller] did not issue the commercial invoice as required by the Contract. This excuse was not justified. The [Seller] issued the commercial invoices for the total contract price on 6 August and 10 July 2002, respectively, and issued the commercial invoice for the remaining balance on 15 July 2003.

Furthermore, since the [Buyer] did not unpack the Machine or conduct any inspection twenty-two months after the Machine arrived at the destination, the [Seller] could not provide an acceptance trial stipulated in the Contract. In addition, Article 14.4 of the Contract stipulated that the warranty period should be twelve months after the acceptance trail was executed. Because the date of acceptance could not be determined, the [Seller] could not prepare a warranty certificate as stipulated in the Contract.

3. The validity of the meeting minutes and the delay of the delivery.

The [Buyer] contended that the signature of Mr. Wang on the meeting minutes of 3 April 2003 was not binding on it, because only Mr. Sui had authority to sign a legal document. The [Buyer] submitted its Power of Attorney authorizing Mr. Sui to sign legal documents.

The [Seller] contended that the Power of Attorney submitted by the [Buyer] did not state that Mr. Sui was the only authorized person, or that another authorize person must present a [Buyer]'s power of attorney. Therefore, the Power of Attorney authorizing Mr. Suio did not preclude the [Buyer]'s having authorized another person's appearance to handle matters under the Contract.

The [Buyer] admitted that Mr. Hao, listed as in attendance at the meeting, was its employee and also a manger of the project, and advised that he had left the [Buyer]'s company. The [Buyer] also contended that the [Buyer]'s employee records demonstrated that Mr. Wang was not the [Buyer]'s employee when executing the meeting minute; that he became the [Buyer]'s employee and manage of the project at a later date

In fact, Mr. Wang had been the manager of the project relating to the Contract since 2001. In 2003, Mr. Wang and Mr. Hao attended the meeting together, and no document restricting Mr.'s Wang's authority was presented. Mr. Hao did not present Mr. Wang as the [Buyer]'s representative to sign the meeting minutes, and the meeting minutes took effect and were binding on the [Buyer]. Article 49 of the Contract Law of the People's Republic of China provides, "if an actor having no power of agency, oversteps the power of agency, or the power of agency has expired and yet he concludes a contract in the principal's name, and the counterpart has reasons to trust that the actor has the power of agency, the act of agency shall be effective." When the contents of the meeting minutes were legitimate, and the [Seller] acted in good faith and without negligence, based on the principle of fairness and reasonableness, the [Seller] had sufficient reason to believe that Mr. Wang had authority to execute the meeting minutes. In addition, Mr. Wang later became the manager and contact person for the project, and executed many documents and important correspondence for the [Buyer] thereafter. The [Buyer] had never alleged to restrict or deny Mr. Wang's authority, which demonstrated that the [Buyer] ratified Mr. Wang's agency authority.

Furthermore, the [Buyer] alleged that it did not know the contents of the meeting minutes, but it issued the letter of credit on 17 April 2003, which provided that the shipping date should be no later than 10 July 2003. The shipping date conformed to the date stipulated in Article 3 of the meeting minutes. In addition, the [Buyer] sent a letter to the [Seller] confirming the contents of the meeting minutes.

In sum, the meeting minutes were binding on all three parties who executed it, and it was a change and supplement to the Contract. The [Seller] was not liable for the change of the shipping date, and the [Buyer] had never objected to this change. Therefore, the [Seller] should not pay a penalty.

4. The [Seller] was entitled to interest and attorneys' fees.

The [Seller]'s request for interest was the loss incurred by the [Seller] which was caused by the [Buyer]'s failure to make payments on time. The Contract did not stipulate payment of interest, but it did not mean that the [Seller] gave up its right to claim interest. The parties should perform pursuant to the Contract, if it stipulated; as to the matters which the Contract did not stipulate, the pertinent law should apply. Pursuant to Articles 106, 111, 112 and 113 of the General Rules of Civil Law, the [Seller]'s right to claim interest was its legal right.

The [Seller]'s claim for attorneys' fees was grounded on Article 59 of the Arbitration Rules, which stipulates, "the Arbitration Tribunal may order that the losing party pay the winning party reasonable expenses which the winning party incurred for the relating proceeding based on the facts." If the [Buyer] had paid the contract price complying with the Contract, the [Seller] would not have needed to pay attorneys' fees or the arbitration fee. Therefore, the [Buyer] should bear the [Seller]'s attorneys' fees.

The [Buyer]'s allegation that it did not pay the remaining balance due to the end-user's reason was not convincing. The end-user's confirmation letter demonstrated that it paid the [Buyer] the full contact price in October 2003. Therefore, the [Buyer] held the remaining balance, which should have been paid to the [Seller], in bad faith.

5. The [Buyer] rejected payment of the remaining amount in bad faith.

The Contract did not stipulate the price of technical service or how to deduct an amount from the total price when technical services were not needed, and the parties, when signing the Contract, agreed that the technical services were an indivisible part of the Contract.

Therefore, the [Buyer]'s allegation that technical services fees should be deducted from the total contract price was not justified. First, the Contract did not stipulate a corresponding provision. The Machine was not installed or tested, and the technical services were not needed. The [Seller] should not be liable for the [Buyer]'s damages. The change of the parties' rights and obligations constituted a substantial change of the Contract, which should be agreed to by the parties when it did not conform to Article 54 of the Contract Law.

It was the [Seller]'s duty to continue to perform the Contract under the Contract and law. However, the [Buyer] should assure that the Machine was ready for accepting test and installation.

Article 15.3 stipulated that the Machine should be inspected by a quality inspection agency within 120 days after it arrived at the destination, and the [Seller] had no duty to participate the inspection. Article 158 of the Contract Law provided, "where the parties have agreed upon the inspection period in the contract, the buyer shall, within the period for inspection, provide a notice to the seller that the object quantity or quality fails to conform with the terms of the contract. If the buyer is indolent in making such a notice, it shall be deemed that the object quantity or quality has conformed with the terms of the contract."

The [Buyer] did not provide a notice to the [Seller] or request an inspection agency to conduct inspection within the time period, and did not provide the [Seller] any inspection certificate or objection to the quality as stipulated in the Contract. Therefore, it should be deemed that the [Buyer] accepted the Machine no later than January 2004.

The Machine had been staying outside of the end-user's place, and its physical status could not be determined. Before the [Seller] installed and tested the Machine, the [Buyer] was obligated to make the Machine ready for test and acceptance. If the [Buyer] requested the [Seller] to inspect and repair the Machine in order to make it ready for acceptance and test, the [Buyer] should bear all expenses which the [Seller] incurred.

THE ARBITRATION TRIBUNAL'S OPINION

1. Applicable law

The Arbitration Tribunal noted that the Contract did not expressly stipulate applicable law, but the Preamble to the Contract stated that "this Contract is established pursuant to the law of the People's Republic of China." In addition, considering that the Contract was established in Dalian, and the destination of the Machine was in China, the parties asserted Chinese law, and the arbitration proceeding was in China, the Arbitration Tribunal held that Chinese law should apply to this case

Since the [Buyer]'s place of business was in China, and the [Seller]'s place of business was in Germany, and both China and Germany are Contracting states of the United Nations Convention on Contract for International Sales of Goods (CISG), and the parties did not exclude the application of the CISG in the Contract, the CISG should also apply to this case.

2. The remaining balance

The [Seller] requested the [Buyer] to pay the remaining balance pursuant to Article 12.3 of the Contract which stipulated that the [Buyer] should pay the contract price within three months after the delivery of the Machine without any condition, unless the delay was caused by the [Seller]'s reason.

First, the [Seller] did not perform its duty of installing, testing, training, etc., or provide any technical services or relevant technical documents.

Second, Article 12.3 stipulated that the pre-condition for the [Buyer] to pay the remaining balance was that the [Seller] should provide the [Buyer] a commercial invoice for 10% of the contract price and a letter of guaranty for 10% of the contract price executed by the end-user and the [Seller], but the [Buyer] did not receive the required documents.

Finally, the [Buyer] had not unpacked the Machine since September 2003, and it had been kept outside of the end-user's place, and the [Buyer] had not inspected the Machine to see whether the Machine was the subject goods of the Contract, and that the Machine conformed to the Contract.

Therefore, the [Buyer] alleged that it was groundless for the [Buyer] to pay the remaining balance before the quality of the Machine was confirmed.

The Arbitration Tribunal held that the essential document of the three requirement documents was the acceptance certificate which was required to be executed by the end-user and the [Seller], because after the Machine arrived at the destination many issues, e.g., whether the quality was satisfied, whether the Machine ran normally, and when the warranty period stared, depended on whether the Machine passed the acceptance test.

The [Buyer] should play an essential role during the acceptance test.

The Contract stipulated that the [Buyer] should be present when the acceptance test was conducted in China. The [Seller] was entitled to conduct an inspection independently. More importantly, the acceptance test could not replace the inspection which should be made at the port of loading or working place. Article 15.5 of the Contract stipulated that the inspection should be conducted by an inspection agency within 120 days after the Machine arrived at the working place. The [Buyer] should notice the [Seller], and the inspection should not be affected by the [Seller]'s default. The Appendix of the Contract stipulated that the [Buyer] should locate the Machine in its factory and should prepare it ready for acceptance test before the parties executed the acceptance certificate and before the [Seller]'s engineer arrived to install the Machine.

Based on the Contract and the facts verified by the parties, the Arbitration Tribunal held that it was the [Buyer] who caused that the [Seller] could not perform its duty of installing, testing, training, etc., and caused that the Machine had stayed outside of the factory for three years, and caused that the Machine was not inspected by an inspection agency. The [Seller] should not be held liable.

The Contract stipulated that the [Buyer] should pay the balance within three months after the Machine arrived at the destination, which was stipulated for the purpose to push the [Buyer] to complete the acceptance test and run the Machine as soon as possible. The [Buyer] was liable for the consequence that the Machine was not inspected within three months as stipulated in the Contract, and should pay the remaining balance to the [Seller].

3. Payment of interest

The [Buyer] contended that the [Seller]'s claim for interest lacked contractual basis and should not be sustained.

The Arbitration Tribunal held that it is international commercial custom that interest on delayed payment should be granted, because the debtor had the creditor's funds, and interest accrued if the creditor had the funds in liquidation. Therefore, the delaying party should pay the creditor interest as compensation for the creditor's loss. Article 78 of CISG provides, "[I]f a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74."

The Arbitration Tribunal held that the [Seller]'s request for interest was reasonable and should be sustained.

The [Buyer] did not submit any opinion regarding the interest rate and calculation alleged by the [Seller]. The Arbitration Tribunal held that the interest rate and calculation alleged by the [Seller] was reasonable, but the amount of interest should be determined according to the following Opinion 4.

4. Issue on deduction of the Contract price

The Arbitration Tribunal noted that the [Seller] alleged that Article 20 of the Contract stipulated that the letter of guaranty granted the [Buyer] the right to claim a penalty when the [Seller] failed to perform its duty under the Contract. The Arbitration Tribunal found that Article 20 required the [Seller] to provide the letter of guaranty for 10% of the contract price before the end-user executed the acceptance certificate, and this requirement protected the [Buyer]'s interest within the warranty period after it paid the remaining balance. The [Seller] did not perform this duty, and therefore, it need not pay the bank for charges of letter of guaranty and other bank charges, which would be the [Seller]'s unjust enrichment due to its non-performance. The [Buyer] contended that the [Buyer] did not pay the remaining balance before the [Seller] failed to perform its duty which should be performed before the [Buyer] paid the remaining balance, and therefore, the [Seller] was liable for the [Buyer]'s non-payment of the balance, and the [Seller]'s request for the remaining balance lacked legal and factual basis and should not be sustained. The Arbitration Tribunal did not agree with the [Buyer]'s position. However, the Arbitration Tribunal held that the [Seller] should compensate the [Buyer] from the unjust enrichment. Therefore, the interest of RMB 109,569.88 which the [Seller] claimed should be reduced by RMB 59,569.88.

5. Legality and validity of the document executed by the [Seller]

The [Buyer] alleged that the meeting minutes dated 3 April 2003 were not executed by its authorized person or stamped with its corporate seal, and therefore, the [Buyer] did not admit the legality of this document or the change of the shipping date.

After the investigation, the Arbitration Tribunal found that the Power of Attorney issued by the [Buyer] to its representative Mr. Sui did not state that Mr. Sui was the [Buyer]'s only and exclusive authorized person. In addition, in the normal business, the [Buyer] did not issue any document stating who had authority to sign documents. The [Buyer] knew or should have known that Mr. Wang had executed documents and correspondence for three years, but did not raise any objection. After the meeting minutes changed the date to open a letter of credit and the date of shipping, the [Buyer] revised the letter of credit and performed accordingly. Therefore, the Arbitration Tribunal did not sustain the [Buyer]'s position, because it lacked factual basis.

6. Attorneys' fees

Article 59 of the Arbitration Rules provides, "the Arbitration Tribunal may order that the losing party pay the winning party reasonable expenses which the winning party incurred for the relating proceeding based on the facts, but it should not exceeding 10% of the amount granted."

According to the [Buyer]'s attorneys' actual working load, the Arbitration Tribunal held that it was reasonable for the [Buyer] to pay the [Seller]'s attorneys' fee of 8,000 Euro.

7. Arbitration fee

The Arbitration Tribunal held that the [Seller] should bear 20% of the arbitration fee, and the [Buyer] should bear 80%.

AWARD

   1.    The [Buyer] should pay the [Seller] the remaining balance of 84,250 Euro;
 
   2.    The [Buyer] should pay interest of RMB 50,000 to the [Seller];
 
   3.    The [Buyer] should compensate the [Seller] for its reasonable expenses of 8,000 Euro incurred for this case.
 
   4.    The arbitration fee was US $6,279. The [Buyer] should bear 80% of the arbitration fee, i.e., US $1,255.80, and the [Seller] should bear 20%, i.e., US $5,023.20. The [Seller] had prepaid the arbitration fee to the Arbitration Commission, which was offset by the arbitration fee. Therefore, the [Buyer] should pay US $5,023.20 to the [Seller].

The awards are final, and take effect when entered into.


FOOTNOTES

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

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Pace Law School Institute of International Commercial Law - Last updated May 31, 2011
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