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

CISG CASE PRESENTATION

China 21 October 2005 CIETAC Arbitration proceeding (FFS production line case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/051021c2.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20051021 (21 October 2005)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2005/19

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: France (claimant)

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

GOODS INVOLVED: FFS production line


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 53 ; 78 ; 80

Classification of issues using UNCITRAL classification code numbers:

53A [Buyer's obligation to pay price of goods];

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

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

Descriptors: Price ; Interest ; Failure of performance, other party ; Unjust enrichment

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

FFS production line case [21 October 2005]

Translation [*] by Jing Li [**]

Edited by Meihua Xu [***]

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

   -    The arbitration clause in Contract No. CDIG/T-2002-26 signed by Claimant [Seller], ___ [of France] and Respondent [Buyer], ___ (Group) Co. Ltd. [of the People's Republic of China], on 26 July 2002; and
 
   -    The written Application for Arbitration submitted by the [Seller] on 28 March 2005.

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

ARBITRATION PROCEEDINGS

The Secretariat of CIETAC sent out the Notice of Arbitration, the Arbitration Rules, and the Panel of Arbitrators to both parties, respectively, by express mail on 8 April 2005. Meanwhile, the Secretariat sent the [Seller]'s Application for Arbitration and its attachment to the [Buyer].

The [Seller] appointed Ms. ___ as Arbitrator and the [Buyer] appointed Mr. ___ as Arbitrator. Since the parties did not jointly appoint or authorize the Chairman of CIETAC to appoint the Presiding Arbitrator, according to Article 24 of the Arbitration Rules, the Chairman of CIETAC appointed Mr. ___ as the Presiding Arbitrator of the present case. On 24 May 2005, these three Arbitrators formed the Arbitral Tribunal (hereinafter the "Tribunal") to hear this dispute.

The Tribunal, via the Secretariat of CIETAC, decided to hold the arbitration hearings on 12 July 2005. On 24 May 2005, the Secretariat sent out a Notice of Formation of the Tribunal and Notice of Commencement of Arbitration to both parties, respectively, by express mail.

The [Buyer] did not submit a written Statement of Defense or any evidence before the hearings.

On 12 July 2005, the Tribunal commenced the arbitration hearings in Beijing as scheduled. Both parties appointed attorneys to attend. Both parties examined and cross-examined the evidence submitted by the [Seller], made arguments on the factual and legal matters of the case, and answered questions raised by the Tribunal. At the end of the hearing, with the agreement of the parties, the Tribunal decided that if the parties wished to submit supplementary evidence, it shall be submitted before 22 July 2005. Any supplementary evidence would not be taken into account thereafter.

After the hearing, both parties submitted supplementary evidence and statements, respectively. The [Buyer] also submitted a conciliation proposal. The Tribunal, via the Secretariat of CIETAC, exchanged the above materials between the parties. Afterwards, the [Buyer] requested another hearing in order to cross-examine the [Seller]'s supplementary evidence.

According to the [Buyer]'s request, the Tribunal held a second hearing on 8 September 2005 in Beijing. Both parties appointed attorneys to attend. They cross-examined the evidence. Upon the agreement of the parties, the Tribunal sought to conciliate at the hearing, but the parties did not reach a settlement.

This dispute is now settled. The Tribunal issues the award after discussion by the members of the Tribunal in accordance with the available written materials and facts and evidence investigated.

The followings are the facts, the opinion of the Tribunal, and the award.

FACTS

On 26 July 2002, the [Seller] and the [Buyer] concluded Contract No. CDIG/T-2002-26 (hereinafter, the "Contract"), agreeing that the [Buyer] purchases a production line, for the contract price EUR 1,685,000 FOB main port of Europe. Relevant content from the Contract is:

1. Article 2 provides:

"The charges for installation, testing, technical service & training, etc., will be included if not listed out."

2. Article 12 on the payment of contract price mainly provides that a down payment of 10% of the total contract price shall be paid by T/T before 16 August 2002; 80% of the contract price, i.e., EUR 1,348,000 shall be paid by L/C; additionally, Article 12.3 provides that:

"10% of the total contract price to be paid by T/T against presentation of the following documents, but latest three months after the contracted goods arrive at the final destination except due to the Seller's reason:

      (1) Commercial invoice in five copies covering 10% contract value;

      (2) Final acceptance Certificate issued by 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."

The parties disputed in the course of performance of the Contract. Therefore, the [Seller] filed the Application for Arbitration.

CLAIMS AND REQUESTS BY THE PARTIES

[Seller]'s position

The parties concluded the Contract agreeing that the [Buyer] purchased an FFS ___ non-PVC___ production line (___ - ___ ___ Machine FFS ___, hereinafter "Device") from the [Seller] at the price of EUR 1,685,000.

Article 4 of the Contract provided that the [Seller] shall deliver the goods on 20 April 2003 at the latest. According to the conference note of 3 April 2003, the date of delivery was modified to "before 10 July 2003." On 18 June 2003, the [Buyer] postponed the date of delivery to 30 August 2003 in the L/C.

The [Seller] delivered the Device on 29 July 2003 to the [Buyer], and the Device arrived at the final destination Dalian, China in September 2003. According to the confirmation letter of the arrival of the Device issued by the end-user, the Device was to arrive at the place of business of the end-user before 30 September 2003. Therefore, the [Seller] performed its obligation of delivery.

However, the [Buyer] had never performed its entire obligation of payment under the Contract. The [Buyer] merely made payment of 90% of the agreed contract price, i.e., EUR 1,516,500, but did not make payment of the remaining 10% of the contract price, EUR 168,500. The [Buyer] claimed that the non-payment of the arrearage was because of the end-user, because the end-user cancelled the project for which it had ordered the Device. The [Buyer] later claimed that the end-user did not cancel the order for the Device, and that it still needed the Device. It was merely that the end-user could not fix a time to install and adjust the Device. The Device was still packed and placed at the outdoor plant of the end-user. The [Buyer] refused to fulfill the obligation of paying the arrearage under the Contract based on the reason that the Device was not installed and adjusted.

In the meantime, the [Seller] repeatedly sent facsimiles, made phone calls, and sent other written materials to the [Buyer] urging the [Buyer] to perform its obligations under the Contract, and trying to negotiate with the [Buyer] to solve the problem. After one year of efforts, the [Buyer] made payment of half of the arrearage on 16 December 2004, totaling EUR 84,250. However, the remaining half was not paid up to the present.

The [Buyer] claim that the reason for non-payment of the remaining half of the arrearage was because of the end-user is not supported by sufficient evidence. Under Article 12.3 of the Contract, the time of payment was within three months after the delivery of goods without any proviso, unless the delay of payment was due to the Seller's own reason.

Since the [Seller] was not responsible for the belated installation and adjustment, the Device in dispute should be considered accepted by the [Buyer] from the date of 31 December 2003. The Device was to arrive before 30 September 2003, and hence, the arrearage was to be paid on 1 January 2004 at the latest.

The [Buyer] should have paid EUR 85,250 on 1 January 2004, but did not make payment until 16 December 2004, and the remaining amount has still not been paid by the [Buyer]. Therefore, the [Seller] is authorized to request the [Buyer] to pay interest on the deferred payment.

As for the attorneys' fee of the [Seller], if the [Buyer] had made payment of the entire contract price on time, the [Seller] would not have to pay this attorneys' fee. Thus, the [Buyer] should compensate the [Seller] for its attorneys' fee.

The [Seller] accepted that the Contract was legally valid. However, the [Buyer] invited various excuses not to perform the Contract. The [Buyer] was in breach of the Contract, and therefore, should bear the relevant responsibilities.

[Seller]'s claims

The [Seller]'s arbitration claims are to have the [Buyer]:

   (1)   Compensate the [Seller] for the arrearage in the amount of EUR 84,250, which is 5% of the contract price, EUR 1,685,000.
 
   (2)   Compensate the [Seller] for interest on the arrearage (EUR 84,250) calculated from 1 January 2004 to the date when the arbitration was filed in March 2005, totaling RMB 61,113.50; compensate the [Seller] for interest arising from the delay of the payment of arrearage (EUR 84,250) calculated from 1 January 2004 to 16 December 2004, totaling RMB 48,483.38 (the interest rate was consistent with the "RMB annual loan interest rate" issued by the People's Bank of China, which was 5.31% before 28 October 2004, 5.58% from 29 October 2004; the standard price of EUR against RMB was 1,074.64 according to the issuance by the People's Bank of China on 25 March 2005). Until the Application for Arbitration, the interest totaled RMB 109,596.88.
 
   (3)   Bear the [Seller]'s attorneys' fee that arose from the present case, totaling EUR 25,100.57.
 
   (4)   Bear the arbitration fee that arose from the present case.

[Buyer]'s response

The [Buyer] submitted the following response:

1. The [Seller] did not perform all of its obligations under the Contract

Article 2 of the Contract provided that the total contract price was EUR 1,685,000. The fees for installation and adjustment, testing, technical services, and training were included in the contract price if not specified in the Contract. Attachment Three of the Contract provided in detail the [Seller]'s obligations of installation, adjustment, training, technical services, and ultimate inspection and acceptance. However, the [Seller] had never performed the obligations of installation, adjustment, and training under the Contract; nor had the [Seller] provided technical services or relevant technical materials.

Since the fees for the installation, adjustment, and technical services were included in the contract price, the [Seller] did not perform all of its obligations under the Contract. In this connection, the [Seller]'s request that the [Buyer] compensate for the arrearage and the interest thereon was unfounded.

2. The [Seller] did not provide the necessary receipts for the payment

Article 12.3 provides that the prerequisites to the payment of arrearage were: (1) commercial invoice in five copies covering 10% contract value; (2) Final acceptance Certificate issued by 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. Only after the [Buyer] received the above receipts would it make payments of the arrearage under the Contract.

The [Buyer] repeatedly requested the [Seller] by facsimile to provide with the abovementioned receipts by 16 February 2004, i.e., seven business days before the scheduled date of payment. However, the [Buyer] had not received any of the receipts up until the present, nor did the [Buyer] receive a response from the [Seller] about when the receipts would be sent.

Since the [Seller] failed to perform its obligations, the [Buyer] was not able to make payment. The reason (for the non-payment) lay upon the [Seller], and the responsibility was on the [Seller]. Therefore, the [Seller]'s request that the [Buyer] make payment of the arrearage and the interest thereon is factually and legally unfounded.

3. The Device was not verified with regard to its quality

      (1) Article 15 of the Contract (having to do with inspection) specifies that the [Seller] shall test the Device, issue a quality certificate and inspection record, and send the certificate and record to the [Buyer]. However, the [Buyer] has not been provided with the certificate or the record up until the present. Therefore, it was impossible to prove that the goods were qualified.

      (2) Article 15.2 and Attachment 4 of the Contract provides that the [Buyer] shall send a work group of four members of its staff to the [Seller]'s for fourteen days in order to conduct investigation, testing, and pre-inspection and acceptance. However, in the course of actual pre-inspection and acceptance, none of the participants was staff of the [Buyer]'s. Thus, the [Buyer] had never agreed on or signed any documents to agree on the quality of the goods that were ready for delivery in the pre-inspection and acceptance. Up until the present, the [Buyer] has not verified that the Device was qualified.

The [Buyer] specifically pointed out that it did not authorize any representatives to sign the letter of confirmation on the pre-inspection and acceptance and the training on the [Buyer]'s behalf.

      (3) The Device had not been unpacked from September 2003 (when it arrived at the end-user's plant) to the present. The [Buyer] had not unpacked the Device and inspected it. It was not examined by the [Buyer] to determine whether the Device was the one under the Contract, whether the Device was defective, or whether the Device was complete. Additionally, the [Buyer], in its facsimile dated 28 December 2004, negotiated with the [Seller]'s agent ___ Corporation to unpack and inspect the Device on 15 January 2005. However, ___ Corporation rejected it in its facsimile dated 29 December 2004. Thus, the Device was not unpacked for inspection, and it was impossible to know whether the Device was qualified. It was unfounded for the [Buyer] to make payment before verifying the quality of the Device.

4. The delay of the goods and the disqualification of the conference note

      (1) Article 17 of the Contract provides that, except for situations provided in Article 18 (on force majeure), if the [Seller] did not deliver the goods on time, it was responsible for a penal sum of no more than 5% of the contract price, and that the sum shall be calculated as 0.5% for every delay of seven days ("less than seven days" shall be considered as seven days). If the [Seller] delayed the delivery for seven weeks, the [Buyer] was authorized to avoid the Contract, and the [Seller] shall compensate for all losses. It was agreed in the Contract that the delivery of the goods was to be no later than 20 April 2003. However, the Device was delivered in August 2003, and no force majeure existed. The Device arrived almost four months later than agreed in the Contract. The [Buyer], therefore, preserved its right to avoid the Contract and request the [Seller] to make payment of the penal sum.

      (2) The conference note dated 3 April 2003 was not signed by the [Buyer]'s legal representative. Therefore, the [Buyer] did not verify the agreement on delivery time of the goods therein. First, as the contract under the engineer project of ___ environmental protection and management with Japanese Yen loans, only the sole representative, the branch manager ___, authorized by the legal representative of the [Buyer], had the right to sign bidding documents and relevant contracts and agreements in order for these documents to be legal effective. In the conference note dated 3 April 2003, the recorded participant representing the [Buyer] and the person who signed the note were not the same person. Additionally, neither of them was the undersigned recognized by the laws. The official stamp of the [Buyer] was missing as well. Therefore, the [Buyer] denied the legality of this conference note. Consequently, the [Buyer] denied the modification of the delivery time of the Device under the Contract.

5. The [Seller]'s request that the [Buyer] compensate for its attorneys' fee was unfounded

According to Chinese law, it is not appropriate for one of the parties to compensate for the other party's inevitable expenses arising from lawsuits and arbitrations. Further, in the Contract signed by both parties, it was not agreed that the party in breach shall compensate for the attorneys' fee of the innocent party on condition that disputes arose.

6. The [Seller]'s request that the [Buyer] shall compensate for interest was not acceptable

The parties only agreed on a penal sum when the [Seller] was in breach of the Contract, not when the [Buyer] was in breach. Also, according to the above claims, the [Seller]'s request that the [Buyer] shall compensate for interest was legally unfounded.

[Seller]'s supplementary opinion

The [Seller] submitted the following supplementary opinion:

1. The [Seller] performed its obligations under the Contract

The Contract provided that the [Seller] had to deliver the goods by 20 April 2003 at the latest, and provided that the [Buyer] had the right to send members of its staff to inspect the goods before loading and to issue FAT (Factory Acceptance Trial).

Since the materials for testing the Device were tardy, both parties and the end-user signed a conference note on 3 April 2003, agreeing that the delivery date of the Device was modified to before 10 July 2003. These three parties also agreed that the [Seller] was to issue an invitation letter and arrange schedules for the representative for pre-inspection and acceptance verified by ___. Thus, it was agreed that the person to pre-inspect and accept the goods was modified.

Because of the problem of the visa of the representative to pre-inspect and accept, the [Buyer] modified the L/C on 18 June 2003, and changed the delivery date for the [Seller] to 30 August 2003 at the latest.

The [Seller] and the end-user conducted pre-inspection and acceptance, and signed the relevant report at the [Seller]'s plant on 17-18 July 2003.

Eventually, the [Seller] delivered the Device to the [Buyer] on 29 July 2003. Thus far, the [Seller] already had performed the obligation of delivery under the Contract.

On the other hand, the [Buyer] still had not performed its entire obligation of payment up until the present.

As pointed out by the [Buyer], both parties agreed in Article 2 of the Contract that the fees for installation, adjustment, and training were included in the contract price. The attachments of the Contract also provided that the [Seller] had the obligation to provide technical services. The [Seller] had never denied its obligations under the Contract. The materials provided by the [Buyer] as evidence, the facsimile sent by the [Seller] on 29 December 2004 merely suggested that the [Seller] refused the payment arrangement by the [Buyer] (i.e., the installation and adjustment as the prerequisite of payment). In actuality, while the [Seller] requested the [Buyer] to perform according to the time limit under the Contract, it had been in agreement on the performance of the above obligations. The [Seller]'s failure to fulfill the entire obligations was due to the [Buyer]'s failure to fulfill its entire obligations under the Contract. If the [Buyer] could perform its obligation to pay, with the principle of good faith in mind, the [Seller] was still prepared to perform its obligations under the Contract and laws.

2. It was not the [Seller]'s own reason that it did not provide relevant materials as agreed in Article 12.3 of the Contract, and therefore, the [Buyer] shall make payment of the arrearage

The [Buyer] claimed that the [Seller] did not provide it with receipts under Article 12.3 of the Contract (according to the interpretation of the Contract, i.e., commercial invoices), which prevented the [Buyer] from performing the Contract. This reason was unfounded. The [Seller] already issued commercial invoices of the total contract price on 6 August 2002 and 10 July 2003, respectively, and also issued a commercial invoice of the arrearage on 15 July 2003.

Additionally, the Device under the Contract was still in package after arriving at the destination for twenty-two months. The [Buyer] had never inspected and accepted the Device in any form. Therefore, it was reasonable that the [Seller] was unable to submit the final certificate of inspection and acceptance under the Contract. Further, Article 14.4 of the Contract provided that the guarantee period of the Device was twelve months, and it shall start from the date when the final certificate was issued. Since the date thereof was impossible to make certain, it was impossible for the [Seller] to fill out and process the letter of guarantee for warranty time as agreed in the Contract.

3. Effectiveness of the conference note and the belated delivery of the goods

The [Buyer] claimed that the signature by ___ on 3 April 2003 was not valid against it, because ___ was the only person that was authorized to represent the company and sign the documents. This was based on the letter of authorization issued to ___ by the [Buyer] in 2002.

In this connection, the [Seller] claimed that the letter of authorization provided by [Buyer] did not point out that ___ was the [Buyer]'s "only authorized person" in this regard. The letter of authorization also did not point out that "other authorized person must submit written letter of authorization issued by the [Buyer]" or other similar statements. Therefore, this letter of authorization did not exclude other authorized persons representing the [Buyer] in future operations related to the Contract.

The permanent staff and project contact ___, as listed in the list of participants presented by the [Buyer], had already left the company (the [Buyer]). However, the [Buyer] alleged that from the personnel files of the [Buyer], ___ was not yet a staff of the [Buyer] when he signed the conference note. He/she became a permanent staff and project contact afterwards.

In actual fact, ___ had been the contact for the project of the present case since the year 2001. In 2003, ___ and ___ attended the conference together without presenting any documents explaining the limit of his/her authorization, and ___ was not prevented then and there from signing the conference note on behalf of the [Buyer]. Thus, the conference note became effective against the [Buyer]. Article 49 of the Contract Law provides:

"If an actor with no power of agency, oversteps the power of agency, or the power of agency has expired and yet 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."

The content of the conference note was completely legal, and the [Seller] was in good faith and without fault. In this connection, the [Seller] had every reason to believe that ___ was authorized to represent the [Buyer] in this project. Also, ___ later became the manager and contact of this project. A number of significant correspondences between both parties after the conference note were signed and issued by ___. The [Buyer] had never explained to the [Seller] about the limit or denial of ___'s authorization. Instead, the [Buyer] later ratified ___'s authorization.

Further, the [Buyer] claimed that it was not familiar with the content of the conference note. However, the L/C issued by the [Buyer] on 17 April 2003 indicated that the Device shall be delivered on 10 July 2003 at the latest. This delivery date was consistent with the date indicated in Article 3 of the conference note. The [Buyer] also sent a letter to the [Seller] on 7 May 2003, confirming relevant content in the conference note.

In conclusion, this conference note was binding on the three undersigned. It was a modification and supplement to relevant articles of the Contract. The [Seller] was not responsible for the modification to the delivery time of the goods. The [Buyer] had not objected or made any requests thereto. Therefore, the [Seller] was not responsible for any penal sum.

4. Interest and attorneys' fee were legal protections towards the [Seller]

The [Seller] requested the [Buyer] to pay interest because the [Seller] suffered from losses due to the belated payment by the [Buyer]. The fact that the Contract did not have articles on the payment of interest did not mean that the [Seller] had abandoned the right to request interest. If a consensus was obtained by the parties, it shall be decided according to the agreement; if a consensus was not obtained, it shall be decided according to relevant laws. Under Articles 106, 111, 112, and 113 of the Civil Code, the right to arbitrate was an inherent right granted by the laws.

It was well-documented that the [Seller] requested the [Buyer] to pay its attorneys' fee arising from this case. Article 59 of the Arbitration Rules provides that:

"The arbitration tribunal has the power to decide in the arbitral award that the losing party shall pay the winning party as compensation a proportion of the expenses reasonably incurred by the winning party in dealing with the case."

If the [Buyer] had made payment of the full contract price on time as agreed in the Contract, the [Seller] would not have had to pay the attorneys' fee and arbitration fee. Thus, these fees should be borne by the [Buyer].

The [Buyer] suggested that it was because of the end-user that the arrearage was not paid. This was not convincing. According to the letter of confirmation issued by the end-user, the entire amount of the contract price had been paid by the end-user to the [Buyer] by October 2003. Hence, it was a dishonest possession of the [Seller]'s funds that the [Buyer] refused to make payment of the arrearage to the [Seller].

5. It was in bad faith that the [Buyer] refused to pay the arrearage

The parties did not agree in the Contract on the amount of the fee for technical services, nor did the parties agree on how to deduct this fee from the contract price if such services were not necessary. The parties actually verified, at the conclusion of the Contract, that the fee for technical services was an inseparable part of the contract price.

Therefore, it was unreasonable to request deducting the fee for technical services from the contract price as the [Buyer]'s attorneys suggested during the hearing. First, the parties did not conclude any relevant articles in the Contract. The fact that the Device did not undergo any final inspection and acceptance, installation, testing, or after-sale services was not the [Seller]'s responsibility, and thus, the [Seller] should not bear the loss there from. Second, the modifications of rights and obligations were significant modifications to the Contract. If the situations were not in conformity with Article 54 of Chinese Contract Law, these modifications shall be agreed on by the other party.

The Claimant was to continue performing its obligations as a seller under the Contract and the laws. However, the [Buyer] should guarantee the [Seller] that before installation, the Device was at the status stated in the pre-inspection and acceptance report.

Article 15.5 of the Contract provided that the Device shall be unpacked and be inspected by the quality supervision department within 120 days after the Device's arrival at the destination. The [Seller] was authorized, but not obliged to participate in this inspection. According to Article 158 of the Chinese Contract Law:

"Where the parties have agreed upon the inspection period in the contract, the buyer shall, within the period for inspection, notify the seller that the quantity or quality of the object 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's quantity or quality has conformed with the terms of the contract."

The [Buyer] did not send a notice to the [Seller] within the period for inspection, nor did it arrange for inspection for the quality supervision department and the [Seller]. Up until the present, the [Buyer] has not provided the [Seller] with any inspection report or objection to quality in any agreed or legal form. It should be deemed that the Device was accepted by the [Buyer] at the end of January 2004.

Since the Device was placed in open air for a long period by the end-user, its actual damage was not possible to predict. Before the [Buyer] gave the Device to the [Seller] for installation and adjustment, it was obliged to make sure that the Device was in the status as indicated in the pre-inspection and acceptance report. If the [Buyer] wants the [Seller] to test and modify the Device in order for it to be in the status as indicated in the report, so that the Device is ready for installation and adjustment, the [Buyer] shall bear any fees incurred there from.

THE OPINION OF THE TRIBUNAL

1. Applicable law

The Tribunal notes that in the Contract, the parties did not agree on the law applicable to the present dispute. However, the foreword of the Contract states that "this contract is concluded between the Buyer and the Seller according to Chinese laws." At the same time, considering the fact that the Contract was signed in Dalian, China, and the destination of the delivery of the goods was in China, as well as the fact that both parties based their arguments on Chinese laws in the arbitral hearings, the applicable law to the arbitration and the Contract shall be laws of the People's Republic of China.

The places of business of the [Seller] and [Buyer] are France and China, respectively. Both France and China are Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereinafter, the "CISG"). Further, the parties did not expressly exclude the application of the CISG. Thus, the CISG shall be applicable to the present dispute. Therefore, while Chinese laws are applicable, the CISG is applicable to the case as well.

2. Payment of the arrearage

The reason for the [Seller] to request arrearage was that Article 12.3 of the Contract provided that the price shall be paid at the latest three months after the contracted goods arrive at the final destination with no proviso except due to the Seller's reason. In this connection, the [Buyer] argued that:

First of all, the [Seller] had not fulfilled its obligations of installation, adjustment, and training up until the present, and had not provided technical services or relevant technical materials;

Second, according to Article 12.3 of the Contract, the prerequisite of the [Seller] obtaining the arrearage was that it provide the [Buyer] with a commercial invoice covering 10% of the contract value, a final acceptance certificate issued by the end-user and the [Seller], and letter of guarantee for warranty time issued by the [Seller]'s bank covering 10% of the total contract price. However, the [Buyer] had not received any of these;

Finally, the Device had not been unpacked and inspected after its arrival at the end-user's plant since September 2003, and the [Buyer] had not unpacked the Device to examine, which meant that the [Buyer] was not aware whether the Device was the one under the Contract, whether the Device was defective, or whether the Device was complete.

Thus, the [Buyer] alleged that it was unfounded for it to make payment before the verification of the qualification of the Device.

The Tribunal finds that among the three types of receipts that the [Seller] had to provide for the payment of the arrearage of the Contract, the crucial one was the final acceptance certificate issued by end-user and the [Seller]. The reason is that after the arrival of the Device at the final destination, whether it was qualified and accepted, whether it was operating regularly, as well as the determination of the initial date for the lapse of the one-year guarantee period all depended on the passing of the quality check; whether the Device was defective, whether the quantity was consistent with the Contract were also determined by the inspection conducted.

In the course of the signature of the final acceptance certificate in this case, the [Buyer] should have played a dominant role.

The Contract provides that the [Buyer] shall participate in the pre-inspection and acceptance when it is conducted in the [Seller]'s country. The [Seller] had the right to conduct it individually. More importantly, the pre-inspection and acceptance could not substitute the examination of the Device carried out at the port of unloading / work site. Article 15.5 of the Contract provided that the Device shall be unpacked and be inspected by the quality supervision department within 120 days after the Device's arrival at the work site. The [Buyer] shall notice the [Seller] in advance, and if the [Seller] was absent, it did not interfere with the inspection of the Device. The Attachment of the Contract also provided that before both parties sign the final acceptance certificate, the [Buyer] shall place the Device in its factory and plug in the Device before the arrival of the [Seller]'s staff.

Based on the above provisions and the facts both parties approved, the Tribunal finds that the reason that the [Seller] did not perform the obligations of installation, adjustment, and training as agreed in the Contract was obviously not because of the [Seller]. Also, it was apparently not the [Seller]'s responsibility that the Device under the Contract was placed in the open air for three years and was not able to undergo inspection by the Commodity Inspection Bureau.

It was agreed in the Contract that the [Buyer] shall make payment of the arrearage within three months after the arrival of the goods at the final destination. The purpose thereof is to urge the [Buyer] to inspect and accept the Device within the time limit, in order to operate the Device as soon as possible. This purpose is positive. The [Buyer] bears full responsibility for the fact that the Device under the Contract was not inspected within three months. Consequently, the [Buyer] shall, without any proviso, make payment of the arrearage to the [Seller].

3. Payment of relevant interest

The [Buyer] argued that the [Seller]'s request of payment of interest was not agreed in the Contract, and therefore, unfounded.

The Tribunal finds the rule that calculation of interest on the deferred payment is a general usage in international commercial transactions, because when one party owes the other payment in arrears, the former party is in actuality possessing the latter party's capital. The interest on the latter party's capital in capital flow shall be calculated. Therefore, the compensation of the interest on the arrearage in the relevant period is provided specifically in Article 78 of CISG:

"If a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it."

Therefore, the Tribunal finds that it was reasonable for the [Seller] to request the [Buyer] to pay the arrearage, and the Tribunal supports this request.

The [Buyer] did not object to the interest rate and the calculation of the interest submitted by the [Seller]. The Tribunal finds that the calculation submitted by the [Seller] was reasonable. However, the precise amount shall be calculated according to the following Point 4.

4. Fees that shall be paid by the [Seller]

The Tribunal notes that the [Seller] suggested that Article 20 of the Contract specifies that the letter of guarantee for warranty time was to make certain that a penal sum is paid to the [Buyer] if the [Seller] does not perform its obligations under the Contract. The [Buyer] is authorized to request compensation based on the letter of guarantee for warranty time. The Tribunal finds that Article 20 of the Contract provides that the letter of guarantee for warranty time issued by the Seller's bank covering 10% of the total contract price shall be provided before the signature and issuance of the final acceptance certificate by the end user. The purpose thereof is after the [Buyer] makes payment of the arrearage, its interests can be protected within the warranty time via this letter of guarantee. The [Seller] in this case did not perform this obligation, and hence, it was not necessary for the [Seller] to make payment of relevant bank fees and payment of fees for security balance account. The [Seller] gained unjustified enrichment from this nonfeasance. The [Buyer] argued that since the [Seller] did not perform its obligation first, the [Buyer] was unable to make payment. This was due to the [Seller], and the responsibility lay on the [Seller]. Consequently, the [Seller]'s request that the [Buyer] paid the arrearage and the interest thereon was legally and factual unfounded. The Tribunal does not support this argument. The reasons are stated above. However, the Tribunal finds that the [Seller] shall compensate the [Buyer] for economic loss incurred from its unjustified enrichment. Thus, it is appropriate to deduct RMB 59,569.88 from the [Seller]'s request of RMB 109,569.88.

5. The validity of the documents signed by the [Seller]

The [Buyer] alleged that the conference note dated 3 April 2003 was not signed by a legally authorized person, and it was not stamped by an official seal. Therefore, it was not valid, and could not modify the delivery date of the Device.

After investigation, the content of the letter of authorization issued by the [Buyer] to its authorized agent Mr. ___ did not state that this authorization was exclusive. Also, in daily activities, there was no document limiting the signature's authority. For three years, the [Buyer] could not have been unaware that ___ signed the letters of correspondence. The [Buyer], however, has not objected thereto. After the modification on the time for issuance of L/C and the delivery time by the conference note, the [Buyer] then modified the L/C accordingly, and performed accordingly. Based on the above-mentioned, the Tribunal finds that this argument by the [Buyer] has no basis in fact. Thus, the Tribunal does not support this argument.

6. Attorneys' fee

Article 59 of the Arbitration Rules provides:

"The arbitration tribunal has the power to decide in the arbitral award that the losing party shall pay the winning party as compensation a proportion of the expenses reasonably incurred by the winning party in dealing with the case. The amount of such compensation shall not in any case exceed 10% of the total amount awarded to the winning party."

According to the situations of this case and the actual workload of the [Seller]'s attorneys, the Tribunal finds that it is reasonable for the [Buyer] to pay the [Seller] EUR 8,000 as attorneys' fee.

7. Arbitration fee

Taking into account the support by the Tribunal towards the arbitral requests, the Tribunal finds that 20% of the arbitration fee shall be borne by the [Seller] and 80% thereof shall be borne by the [Buyer].

AWARD

The Tribunal hands down the following award:

   (1)   The [Buyer] make payment of the arrearage of EUR 84,250.
 
   (2)   The [Buyer] shall compensate the [Seller] for interest on the arrearage totaling RMB 50,000.
 
   (3)   The [Buyer] shall make payment to the [Seller] in the amount of EUR 8,000 in order to compensate part of the [Seller]'s attorneys' fee incurred from this case.
 
   (4)   The arbitration fee of this dispute is US $6,279. The [Seller] bears 20% thereof, i.e., US $1,255.80, and the [Buyer] bears 80% thereof, i.e., US $5,023.20. The [Seller] has prepaid this arbitration fee, and therefore, the [Buyer] shall pay the [Seller] US $5,023.20.

This is a final award. It comes into effect on the date this award is handed down.


FOOTNOTES

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

** 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.

*** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.

Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated October 2, 2008
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography