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CISG CASE PRESENTATION

China 31 October 2005 CIETAC Arbitration proceeding (Waste plastic case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/051031c1.html]

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Case identification

DATE OF DECISION: 20051031 (31 October 2005)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2005/10

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (respondent)

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

GOODS INVOLVED: Waste plastic


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 49 ; 74 ; 81 [Also cited: Article 51 ]

Classification of issues using UNCITRAL classification code numbers:

49A1 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract];

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

81C [Effect of avoidance on obligations: restitution by each party of benefits received]

Descriptors: Avoidance ; Fundamental breach ; Restitution ; Damages

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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)

Queen Mary Case Translation Programme

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

Waste plastic case [31 October 2005]

Translation [*] by Zheng Xie [**]

Edited by John W. Zhu [***]

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

   -    Clause 12 (Arbitration) in Contract No. Item 1: 060164-05/1 and Item 2: 05-0164-05/2 (hereafter the "Contract") signed by Qingdao ___ Freight Forwarding Company (Claimant's import agency, hereafter "Qingdao ___ Company"), and Respondent [Seller], ___ GmbH, on 9 March 2005; and
 
   -    The written arbitration application submitted by Claimant [Buyer], Qingdao ___ Trade Company, on 8 June 2005; and
 
   -    The Agency Agreement for Importing Waste Plastic dated 8 March 2005 between the [Buyer] and Qingdao ___ Company for purchasing waste plastic.

The Arbitration Rules of the Arbitration Commission which took effect on 1 May 2005 [hereafter, the Arbitration Rules] shall apply to this case. Because the disputed amount is less than RMB 500,000, according to Article 50 of the Arbitration Rules, the Chapter Four (Summary Procedure) shall apply. Any issues not addressed in this chapter shall be subject to provisions of other chapters of the Arbitration Rules.

I. ARBITRATION PROCEDURE

On 20 June 2005, the Secretariat of the Arbitration Commission sent the notice of arbitration and relevant documents to each party, respectively, and invited the [Seller] to file a written response and/or counterclaim within the period provided by the Arbitration Rules.

Because the parties did not reach an agreement on the selection of a sole arbitrator, the Chairman of the Arbitration Commission appointed Ms.___ as the sole arbitrator on 5 August 2005 to form the Arbitration Tribunal to hear this case.

On 8 August 2005, after the consultation with the Secretariat of the Arbitration Commission, the Arbitration Tribunal decided to hold a court session on 1 September 2005.

Before the court session, the [Seller] did not submit any written material.

On 1 September 2005, the Arbitration Tribunal held the court session in Beijing as scheduled. Both parties sent arbitration agents to attend. At the court session, the [Buyer] presented the facts and legal opinion with evidence to support its claims; the [Seller] submitted its written response and relevant evidence, and made an oral statement; the parties cross-examined the evidence, presented arguments and answered the Arbitration Tribunal's questions. After the court session, according to the parties' intent, the Arbitration Tribunal requested them to submit supplementary evidence and statements before 12 September 2005. Both parties confirmed that they would cross-examine the supplementary evidence submitted after the court session in writing.

After the court session, the [Buyer] submitted its Statement and Agency Opinion Regarding ____'s Evidence with Attachment and the [Seller] submitted a Supplementary Response. On 16 September 2005, the Secretariat of the Arbitration Commission exchanged the aforementioned documents between the parties, and also solicited written cross-examination and comments. Thereafter, the [Buyer] submitted Comments on the [Seller]'s Supplementary Response, but the [Seller] did not submit any document.

During the arbitration process, the Arbitration Commission and/or the Secretariat effectively served all documents submitted to both parties.

This case has been completed. Based on the facts verified during the court session and the evidence submitted by the parties, the Arbitration Tribunal handed down the award.

The following are each party's allegations and evidence, and the Arbitration Tribunal's opinion and award.

II. ALLEGATIONS OF THE PARTIES AND EVIDENCE SUBMITTED

1. The [Buyer]'s application, claims and evidence

The [Buyer]'s position:

      The [Buyer] met the [Seller] through a German middleman in February 2005 and intended to import ___ from Germany. Because the [Buyer] had no import and export authority in China, it had to authorize Qingdao ___ Company, which has the right to import and export, as its import agent. The [Buyer] and Qingdao ___ Company signed an import agency agreement on 8 March 2005. Qingdao ___ Company and the [Seller] then signed a contract, i.e., the Contract in this case, for the international sale of goods on 9 March 2005. The Contract stipulates that Qingdao ___ Company shall purchase, and the [Seller] shall sell 100 tons of ___ for the total price of $53,420 which is equal to RMB 443,386 at the foreign exchange rate of 8.3.

On 8 March 2005, the [Buyer] signed a sales contract with its customer, ___, for the resale of ten tons of ___, which Qingdao___Company purchased from the [Seller]. The resale was priced at US $600/ton. For the performance of the Contract in this case signed by Qingdao ___ Company and the [Seller], the [Buyer]'s customer paid Qingdao ___ Company RMB 250,000 which is equal to the prepaid price of US $26,710 under the Contract in this case.

According to the Contract, Qingdao ___ Company paid the prepaid price of US $26,710, i.e., 50% of the contract price to the [Seller] on 11 March 2005, and completed the procedures for opening the L/C on 18 March. The L/C was valid through 30 April 2005. In addition, as a matter of fact, all communications for the performance of the Contract happened directly between the [Buyer] and the [Seller].

According to Article 3 of the Contract, the [Seller] should have completed loading the goods within four weeks after receiving the prepaid contract price and the L/C. However, the [Seller] failed to ship the goods within the period stipulated in the Contract. [Seller] delayed delivering the goods, alleging unjustified reasons, and finally rejected to ship the goods.

   -    On 14 April 2005, the [Seller] informed the [Buyer] that it had sent some persons to Romania to prepare the goods, and that the goods were ready.
 
   -    On April 15, the [Seller] alleged that it had loaded 48 tons of goods.
 
   -    On April 29, the [Seller]'s employee, Mr. ___, informed the [Buyer] that the goods would be delivered on the 18th week.
 
   -    On 3 May, the [Seller]'s president informed the [Buyer] that the goods would be delivered on the 20th week.
 
   -    On May 23, the [Seller] notified the [Buyer] that it would make a new offer based on the market price at that time.

Considering the [Seller]'s repeated changes and rejecting to perform the Contract, the [Buyer] negotiated with the [Seller] through e-mails, facsimile and middleman Mr.___ many times, but failed to reach an agreement. Therefore, according to Article 11 of the Contract, the [Buyer] sent formal letters to the [Seller] via facsimile on 27 and 29 April 2005, respectively, announcing the avoidance of the Contract and requesting the [Seller] to refund the prepaid price, but the [Seller] refused to refund the prepaid price.

The [Seller] severely breached the Contract and infringed the [Buyer]'s legal rights, which caused economic loss and loss of anticipated profits to the [Buyer]. The [Buyer] filed the arbitration application in accordance with Article 12 of the contract between Qingdao ___ Company and the [Seller] and Article 402 of the Contract Law of the People's Republic of China which states:

"Where the agent, acting within the scope of authority granted by the principal, entered into a contract in its own name with a third person who was aware of the agency relationship between the principal and agent, the contract is directly binding upon the principal and such third person, except where there is conclusive evidence establishing that the contract is only binding upon the agent and such third person."

The following are the [Buyer]'s arbitration claims:

1.   The [Seller] shall refund the prepaid price of US $26,710;
2.   The [Seller] shall compensate the [Buyer]'s other economic loss of RMB 58,206.70;
3.   The [Seller] shall bear the arbitration fee;
4.   The [Seller] shall compensate the [Buyer] for any other expenses incurred for this case.

As to the above Item 2, the [Buyer]'s economic loss was calculated as follows:

      (1) The fees for remitting the prepaid price outbound of RMB 428.62 (including remitting fee of RMB 200 and procedure fee of RMB 332.09);

      (2) The fees for issuing the L/C of RMB 532.09 (including remitting fee of RMB 207.22 and procedure fee of RMB 221.40);

      (3) The remittance agency fee of US $26,710 x (8.5 - 8.2889) = RMB 1,631.99;

      (4) The import agency fee of 100 tons x RMB 10 = RMB 1,000;

      (5) The loss of anticipated profits: The [Buyer] signed a sales contract with ___ reselling 10 tons of the goods at the price of US $600 per ton to ___. The anticipated profit is: US $600 8.3 100 tons - (US $527 8.3 60 tons + US $545 8.3 40 tons) = RMB 54,614.

When asserting the above claims, the [Buyer] also submitted the following documents:

   -    The Contract in this case,
   -    The Agency Agreement for Importing Waste Plastic dated 8 March 2005between the [Buyer] and Qingdao ___ Company,
   -    The sales contract signed by the [Buyer] and ___ on 8 March 2005,
   -    The bank slip and receipt for the amount ___ paid to Qingdao ___ Company,
   -    The bank slip for Qingdao ___ Company's remittance of US $26,710 to the [Seller],
   -    The L/C issued by Qingdao ___ Company and receipt of relevant fees, and
   -  The e-mails and facsimiles between the parties, etc.

The [Seller]'s position and evidence

The [Seller] responded to the [Buyer]'s claims as follows:

       The [Seller] is a legally registered German company in the business of sales of waste plastic including exporting waste plastics to China for many years. In all of these transactions, the [Seller] completely complied with international trade custom and the principle of good faith, and has never breached contracts or caused any disputes because of its own reasons. The [Seller] alleged that this dispute arose because the [Buyer] breached the contract first. The follow facts document the [Seller]'s position.

1. On 3 March 2005, as per the [Buyer]'s agent Chinese ___'s request in Germany, ("Chinese ___"), the [Seller] issued pro forma invoices No. ___ and No.___, which stipulate that the [Buyer] shall prepay 50% of the contract price, i.e., US $15,810 and US $10,900, respectively, and issue an irrevocable and transferable L/C for the remaining 50% of the contract price. Chinese ___ was owned by Mr.___, i.e., the middleman mentioned by the [Buyer]. In fact, Mr. ___ is not a middleman by a general definition, but the [Buyer]'s agent in Germany. Therefore, Mr. ___ not only reached an agreement with the [Seller] regarding this transaction, but also requested the [Seller] to issue two pro forma invoices before signing the Contract with the [Buyer] as a precondition for execution of the Contract. The [Buyer] authorized Mr. ___ to do most of the negotiations on this transaction with the [Seller].

2. On 8 March 2005, after the [Seller] issued the pro forma invoices, the [Buyer] and the [Seller] formally signed the Contract stipulating that the [Seller] should sell 100 tons of waste plastic to the [Buyer] for the total price of US $53,420.

3. On 14 March 2005, the [Seller] received the prepaid amount of US $26,710 from the [Buyer].

4. On 22 March 2005, the [Seller] received the L/C issued by Qingdao ___ on 18 March 2005.

Although this transaction appeared to run smoothly, the L/C issued by the [Buyer] did not comply with the Contract as follows:

   1.   According to the parities' agreement, the opener of the L/C shall be the [Buyer], but the actual opener was Qingdao ___ Company;
 
   2.   According to the parties' agreement, the [Buyer] shall issue an irrevocable and transferable L/C, but the L/C issued was not transferable;
 
   3.   According to Article 3 of the Contract, the validity period of the L/C shall be through 30 April 2005, but the expiration date of the L/C that was issued was 15 April 2005;

Obviously, the [Buyer] failed to perform in accordance with the parties' agreement. The L/C issued by Qingdao ___ caused the [Seller] considerable trouble in preparing the goods, because the [Seller]'s supplier insisted on rejecting the L/C, and the [Seller] had to solve the financial problem by itself, which took some time. Therefore, the [Seller] requested the [Buyer] to prolong the validity period of the L/C many times via telephone or e-mail, and in the meantime, actively prepared the goods ready for loading. However, the [Buyer] always rejected the [Seller]'s request.

On 9 May 2005, the [Buyer]'s agent in Germany announced that if the [Seller] delivered the goods when the [Buyer] did not prolong the validity period of the L/C, the [Buyer] would reject the delivery. The [Seller] had been contacting the [Buyer] and its agent in Germany through 2 June 2005 in order to resolve this matter, but the parties did not reach any agreement. Thereafter, the [Seller] received the notice of arbitration issued by the Arbitration Commission.

In view of the above facts, the [Seller] stated that in this transaction, the [Seller] had no fault at all. After the dispute arose, the [Seller] actively took measures seeking to resolve this matter in good faith. However, the [Buyer]'s fault caused the dispute, but [Buyer] was not willing to resolve the dispute in good faith causing damages to the [Seller].

When presenting the above response, the [Seller] submitted:

   -    The pro forma invoices No.___ and No.___,
   -    The agreement between the [Seller] and the [Buyer]'s agent in Germany,
   -    The contract between the [Buyer] and the [Seller],
   -    The remittance receipt of the [Buyer]'s prepaid contract price,
   -    The L/C issued by Qingdao ___ Company,
   -    The correspondence between the parties, etc.

THE PARTIES' SUPPLEMENTARY STATEMENTS

1. The [Buyer]'s response to the [Seller]'s evidence

      (1) The pro forma invoices

      A pro forma invoice is only a commercial certificate issued by a seller to a buyer in international trade, but it was neither signed by the buyer nor proof of the parties' contractual rights and/or obligations. In addition, the [Seller] did not submit the original pro forma invoices.

In the Contract between Qingdao ___ and the [Seller], the parties only stipulate that the [Buyer] shall issue a L/C, but do not specify whether the L/C shall be transferable or irrevocable. Therefore, Qingdao ___ Company's issuing a non-transferable and irrevocable L/C did not constitute a breach of the Contract.

      (2) The Agreement between the [Seller] and the [Buyer]'s agent in Germany

      The [Buyer] had never signed any agency agreement with Chinese ___ as the [Seller] alleged and Chinese ___ was not the [Buyer]'s agent in Germany, but only introduced the [Seller] to the [Buyer].

Mr. ___ attested that he did not sign this Agreement with the [Seller] at all. Therefore, this "Agreement" is at most an intent to sign an agreement rather than a formal agreement between the [Seller] and Chinese ___.

In addition, this "Agreement" only states how Chinese ___ could get a commission from the [Seller], but was irrelevant to the [Buyer]. Since the [Seller] alleged that Chinese ___ was the [Buyer]'s agent, why would the [Seller] pay Chinese ___ a commission? To pay Chinese ___ a commission shows that Chinese ___ is a middleman.

      (3) The Contract between the [Seller] and the [Buyer]

      On 8 March 2005, the [Buyer] signed a contract for the international sale of goods with the [Seller] in order to import ___ from Germany. After signing the contract, the [Buyer] found that according to the relevant Chinese law on import and export at that time, foreign trade authority was required for a company to import ___, but the [Buyer] did not have this authority. Thereafter, the [Buyer] through the middleman, Mr.___, informed the [Seller] of this. On the same day, the [Buyer] authorized Qingdao ___ Company which had foreign trade authority to act as its import agent. On 9 March 2005, Qingdao ___ Company and the [Seller] signed the second sales contract, i.e., the Contract in this case.

It should be clarified that the contents of the aforesaid two contracts are the same. It appeared that the [Seller] signed two contracts with two Chinese companies; however, in fact, the two Chinese companies have real agency relationship, and the contents of the two contracts are the same. The [Seller] signed the Contract in this case on the next day after signing the first contract with the [Buyer]. This shows that the two contracts are closely related. The above facts sufficiently prove that the Contract in this case replaced the first contract signed by the [Seller] and the [Buyer].

Therefore, according to PRC law, the contract signed by the [Seller] and the [Buyer] is invalid, but the Contract in this case signed by the [Seller] and Qingdao ___ Company is valid and shall be the basis for this arbitration.

      (4) The remittance receipt for Qingdao's prepayment

      Because the [Buyer] had no foreign trade authority and Qingdao ___ Company, and the [Seller] signed the Contract, the relevant payment should be made by Qingdao ___ Company. The [Buyer] through Qingdao ___ Company prepaid US $26,710, i.e., 50% of the contract price to the [Seller].

      (5) The L/C issued by Qingdao ___ Company

      The Contract stipulates that the validity period of the L/C is through 30 April 2005. The L/C issued by Qingdao ___ Company was valid through 15 April 2005. When issuing the L/C, the [Buyer] considered that according to the Contract, the [Seller] should finish loading the goods within four weeks after receiving the payment and the L/C; there are four weeks between March 18 when the L/C was issued to 15 April; during this period, the [Seller] should complete loading the goods. Therefore, when issuing the L/C, the [Buyer] explained to the middleman that the valid period of the L/C was changed to April 15, and the [Seller] agreed on this; thereafter, the [Buyer] issued the L/C. The [Buyer] completely performed its contractual duties and did not breach the Contract at all.

      (6) The e-mails

      The [Seller] submitted three e-mails. Two of these e-mails were sent to the [Buyer] on 27 May and 2 June, respectively, and the [Buyer] received them. In these two e-mails, the [Seller] emphasized the reasons why it had to delay delivering the goods. This further shows that the [Seller] breached the Contract. The e-mail dated May 31 was sent from Mr.___ to the [Seller], because the [Buyer] tried many times to reach the [Seller] via telephone and e-mails, but the [Seller] rejected to answer by some excuses, such as in a meeting, out of office, etc. Therefore, the [Buyer] had to ask the middleman, Mr.___ to request the [Seller] to refund the amount paid.

2. The [Buyer]'s Supplementary Statements

      (1) The issue on the [Seller]'s request in the e-mail dated 13 May 2005 that the [Buyer] should provide "updated information on the delivery date, quote, etc."

Further to the above e-mail, the [Seller] through the middleman requested the [Buyer] to provide a new offer for delivery of the goods. However, the [Buyer] averred that the [Seller]'s request severely breached the Contract and the [Buyer] did not agree to change the original offer and delivery of the goods under the valid Contract between the parties. Therefore, the [Buyer] rejected the [Seller]'s unjustified request.

According to the relevant provisions of the Contract Law of the People's Republic of China, if the parties do not reach an agreement to revise a contract, the contract is not revised, and the original contract is binding on both parties.

      (2) The [Seller] failed to deliver the goods according to the Contract which results in the [Buyer]'s loss of profits, which constitutes a fundamental breach of the Contract. Therefore, the [Buyer] was entitled to avoid the Contract, and the [Seller]'s allegation that the [Buyer] may not "unilaterally avoid the Contact" lacks factual and legal basis.

Since the [Buyer] had already notified the [Seller] of the avoidance of the Contract, according to the Contract Law of the People's Republic of China, the [Seller] should refund the prepaid amount of US $26,710 to the [Buyer], and compensate the [Buyer] for its economic loss of RMB 58,206.08 and other expenses.

      (3) Because the [Seller] neither filed a counterclaim nor paid the arbitration fee, its claim for liquidated damages and loss should not be sustained.

3. The [Seller]'s position

      1. The [Seller] did not agree with the [Buyer]'s request and reasons to avoid the Contract, because the Contract was the parties' agreement and cannot be avoided by one party unilaterally.

      2. The [Seller] alleged that the Contract could not be performed because of the [Buyer]'s fault, because the [Buyer] did not issued a L/C complying with the parties' stipulation. In other words, the [Buyer] did not duly perform the Contract; therefore, the goods could not be delivered on the day stipulated.

      3. In view of the above two items, the [Buyer] should not have requested the [Seller] to refund the prepaid amount. In addition, the [Seller] has no money to refund to the [Buyer], because after signing the Contract, the [Seller] paid this amount to the supplier according to the Contract in order to prepare the goods.

      4. When the [Buyer] failed to duly perform the Contract and the L/C issued by the [Buyer] was rejected by the supplier, in order to complete this transaction the [Seller] tried to get funds by itself on the one hand; on the other hand, the [Seller] requested the [Buyer] to prolong the effective period of the L/C, but the [Buyer] refused to. Therefore, the [Seller] suffered severe damages.

      5. The [Seller] requested the [Buyer] to pay liquidated damages, any loss incurred and other expenses.

III. THE ARBITRATION TRIBUNAL'S OPINION

1. The arbitration procedure

In this case, the [Seller] submitted its written Response and evidence at the court session on 1 September 2005, which is beyond the response time provided in the Arbitration Rules. As to this, the [Buyer] orally raised its objection in the court session and requested the Arbitration Tribunal to follow the provision of the Arbitration Rules. The Arbitration Tribunal holds that in order to verify the facts and fairly determine this case, according to Article 53(1), the Arbitration Tribunal accepted the [Seller]'s late Response and evidence.

2. The applicable law

The parties did not agree on the applicable law in the Contract. Since the Contract is for the international sale of goods, and China, where the [Buyer]'s business place is located, and Germany, where the [Seller]'s business place is located, are Contracting States of the United Nations Convention on Contracts for International Sales of Goods (CISG), and the destination port and the arbitration place stipulated in the Contract is in China, the Arbitration Tribunal determines that CISG shall be the prevailing law applicable to this case; at the same time, the Contract Law of the People's Republic of China (the Contract Law) and other relevant Chinese laws shall also apply.

3. The subject qualification of the [Buyer]

The Arbitration Tribunal notes that the [Buyer] filed this arbitration based on the arbitration clause stipulated in the Contract signed by the [Seller] and Qingdao ___ Company, and the import agency agreement signed by the [Buyer] and Qingdao ___ Company.

The [Buyer] stated that because the [Buyer] did not have foreign trade authority, after signing the contract (hereafter, the first contract) with the [Seller], the [Buyer] explained to and negotiated with the [Seller], and authorized Qingdao ___ Company to sign the Contract in this case. Therefore, that Contract is the one which the parties actually performed. In fact, Qingdao ___ Company is only the [Buyer]'s import agent. According to Article 402 of the Contract Law, the [Buyer] is entitled to file an arbitration application.

Although the [Seller] alleged that the contract signed with the [Buyer] was another contract, it neither denied the authenticity of the Contract in this case, nor did it object to the [Buyer]'s allegation of the process regarding the parties' signing the two contracts and the agency relationship between the [Buyer] and Qingdao ___ Company.

Therefore, according to the process of the execution and performance of the Contract in this case, the Arbitration Tribunal believes that the [Seller] had known of the [Buyer] and Qingdao ___ Company's agency relationship when signing the Contract with Qingdao ___ Company; therefore, according to Article 402 of the Contract Law and the Arbitration Law of the People's Republic of China, the arbitration clause of the Contract is binding on the [Buyer], and the [Buyer] is a qualified party in this case.

4. The validity and performance of the Contract

It was verified that the Contract was signed by the parties based on a friendly negotiation, and reflected the true intent of the parties; no parties signed the Contract under duress or misrepresentation, and the content of the Contract does not violate any mandatory law; therefore, the Arbitration Tribunal determines the Contract is valid, and both parties must perform the Contract in good faith.

After signing the Contract, the [Buyer] prepaid the [Seller] US $26,710 on 11 March 2005, and the [Seller] admitted that it received this payment on 14 March 2005. Thereafter, the [Buyer] issued L/C No. ____ on 18 March 2005, and the [Seller] alleged it received the L/C on 22 March 2005, but it did not deliver the goods under the Contract with the [Buyer]. Both parties admitted these facts; therefore, the Arbitration Tribunal confirmed the above facts.

The [Seller] alleged that according to the Contract, (1) the issuing party of the L/C should not be Qingdao ___ Company, but the [Buyer]; (2) the [Buyer] should issue an irrevocable and transferable L/C, but it issued a non-transferable L/C; (3) the valid period of the L/C should be through 30 April 2005, but the effective period of the L/C issued by the [Buyer] was through 15 April 2005, which caused that the [Seller] did not have sufficient time to prepare the goods and faced severe troubles. Because the L/C issued by the [Buyer] did not comply with the Contract, the [Seller] rejected the delivery of the goods under the Contract. The [Buyer], on the other hand, stated that it had issued the L/C in accordance with the Contract and had completely performed its contractual duties, and that the [Seller]'s non-delivery of the goods constituted a breach of contract.

Obviously, the focus of the disputes in this case is whether the L/C issued by the [Buyer] complied with the Contract, and whether the [Seller]'s defense for non-delivery of the goods was justified. The Arbitration Tribunal analyzed these issues as follows:

      (1) The effective period of the L/C

      Article 3 of the Contract stipulates, "TIME OF SHIPMENT: Within four weeks with weekly partial-shipments of full 40 HC container-loads after receipt of down-payment and L/C valid until April 30 2005." Therefore, the shipping time is within four weeks with weekly partial-shipment of full 40 HC container-loads after receipt of the down payment and the L/C valid through 30 April 2005. Article 5 of the Contract stipulates, "PORT OF DESTINATION: Qingdao port of China.". Therefore, the destination port is Qingdao, China. Article 6 of the Contract stipulates, "26,710 US $ by T/T in advance, 26,710 US $ by L/C payment against documents after receipt of goods at port of destination and after inspection by CCIC, but latest within 7days after receipt of goods." Accordingly, the prepayment of US $26,710 should be made by T/T, and the remaining amount, i.e., US $26,710 should be paid by L/C after receipt of the goods at the port of destination and after inspection by CCIS, but within seven days after receipt of the goods. As the Arbitration Tribunal verified above, the [Seller] received the down payments of US $26,710 from the [Buyer] on 14 March 2005 and 22 March 2005, respectively; therefore, according to Article 3 and Article 6 of the Contract, the [Seller] should have completed loading the goods within four weeks after 22 March 2005, i.e., before 19 April 2005, and the [Buyer] should pay the remaining US $26,710 by L/C within seven days after receipt of the goods.

The Arbitration Tribunal notes that Article 3 of the Contract stipulates that the valid period of the L/C is through 30 April 2005, and the date of expiry specified in Article 31D of the L/C confirmed by the parties is 6 May 2005. The Arbitration Tribunal holds that the valid period of the L/C issued is longer than the time period stipulated in the Contract, so this L/C could not adversely affect the [Seller]'s delivery of the goods or its interest; on the contrary, the [Seller] had sufficient time to prepare and deliver the goods. Therefore, it is difficult to understand the [Seller]'s allegation that the valid period of L/C, i.e., through 15 April 2005, made it difficult for the [Seller] to prepare the goods.

      (2) The issuing party and transferability of the L/C

      The Arbitration Tribunal holds that in foreign trade agency practice, the laws do not prohibit an agent from making a payment to a third party under its own name, unless the third party and the principal stipulate otherwise; in this case, the [Seller] had known that Qingdao ___ Company was an agent of the [Buyer], and had accepted the down payment made by Qingdao ___ Company. Meanwhile, after reviewing the Contract and the evidence submitted by the parties, the Arbitration Tribunal does not find any evidence showing that when signing or after signing the Contract, the parties entered into an agreement on the issuing party of the L/C. Therefore, it is not inappropriate that Qingdao ___ Company was the issuing party of the L/C.

The Arbitration Tribunal notes that the [Seller] also alleged that the L/C should be transferable rather than non-transferable, which can be proved by the two pro forma invoices which the [Seller] issued to Chinese ___ and the Agreement between the [Seller] and Chinese ___. Because the [Seller] did not submit the originals of the above evidence, based on the prime facie evidence and the [Buyer]'s cross-examination, the Arbitration Tribunal determines that the evidence cannot prove the [Seller]'s allegation that the L/C should be transferable. In addition, the Arbitration Tribunal does not find any evidence to show that the L/C should be transferable.

      (3) The modification of the L/C

      The [Seller] alleged that because the L/C issued by the [Buyer] did not comply with the Contract, the [Seller] had requested the [Buyer] to revise the L/C. After reviewing the correspondence between the parties, the Arbitration Tribunal notes that the [Seller] had requested the [Buyer] to revise the L/C; however, the reason for the modification request is that the [Seller]'s supplier could not deliver the goods on time; therefore, the [Seller] could not prepare and load the goods within the valid period of the L/C., so it negotiated with the [Buyer] on a new offer and modification of the L/C. The Arbitration Tribunal did not find any evidence submitted by the parties proving that the [Seller] had requested the [Buyer] to revise the L/C because of the inconsistence between the L/C and the Contract.

In sum, the Arbitration Tribunal holds that the L/C issued by the [Buyer] complied with the Contract, which neither caused any damages to the [Seller] nor adversely affected the [Seller]'s performance of the Contract. Therefore, the Arbitration Tribunal does not sustain the [Seller]'s allegation that it was entitled to refuse to deliver the goods because the L/C issued by the [Buyer] did not comply with the Contract. The Arbitration Tribunal holds that the [Seller] did not timely deliver the goods, which constituted a breach of the Contract.

5. Avoiding the Contract

The Arbitration Tribunal holds that because the [Seller] breached the Contract as determined in the above section, according to Article 11 of the Contract stipulating that the [Buyer] is entitled to revoke the Contract when the [Seller] fails to deliver the goods on time, and Article 51(2) of CISG, "[t]he buyer may declare the contract avoided in its entirety only if the failure to make delivery completely or in conformity with the contract amounts to a fundamental breach of the contract," the [Buyer] is entitled to avoid the Contract. Since the [Buyer] had already sent a letter to the [Seller] to avoid the Contract and the parties in facts suspended performing the Contract, the Arbitration Tribunal holds that the Contract has already been avoided.

6. The [Buyer]'s claims

      (1) Requesting the refund of the down payment of US $26,710

      Since the Arbitration Tribunal has determined that the Contract was avoided and the [Seller] breached the Contract, according to Article 81(2) CISG, "[a]party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. If both parties are bound to make restitution, they must do so concurrently," and Article 11 of the Contract, the [Buyer] is entitled to request the [Seller] to refund the down payment of US $26,710. The Arbitration Tribunal sustains the [Buyer]'s claim.

      (2) Requesting the [Seller] to compensate for the economic loss of RMB 58,206.70

      According to the statements and calculation methods provided by the [Buyer], this claim includes: (1) foreign exchange procedure fee of RMB 428.62; (2) L/C procedure fee of RMB 532.09; (3) remittance fee of RMB 1,631.99; (2) import agency fee of RMB 1,000; (5) loss of anticipated profits of RMB 54,614. The total amount of the above five is RMB 58,206.70.

Considering that the [Buyer] actually performed the Contract, the Arbitration Tribunal holds that the fees listed in the above items (1) -(4) were really incurred, and the [Buyer] also submitted the relevant evidence; therefore, the claim for these fees in the total amount of RMB 3,592.70 is sustained.

As to the loss of anticipated profits listed in item (5), the Arbitration Tribunal holds that the [Buyer] did not submit sufficient evidence, so this claim is not sustained.

In conclusion, the Arbitration Tribunal only sustains the [Buyer]'s claim for other economic loss, i.e., RMB 3,592.70.

      (3) Other expenses incurred for this case

      Because the amount is not specified in this claim, and the [Buyer] did not submit any evidence to prove these expense were actually and reasonably incurred, the Arbitration Tribunal does not sustain this claim.

7. The [Seller]'s claim

The Arbitration Tribunal notes that in the supplementary response submitted after the court session, the [Seller] requested the [Buyer] to pay liquidated damages, loss and expenses incurred in this case.

The Arbitration Tribunal notes that in this arbitration, the [Seller] neither filed a counterclaim within the period provided in the Arbitration Rules, nor paid any procedure fee. Therefore, the Arbitration Tribunal will not consider the [Seller]'s claim.

      (8) The arbitration fee

      The dispute in this case was caused by the [Seller]'s breach, so the [Seller] shall bear the entire arbitration fee.

IV. AWARDS

   1.   The [Seller] shall refund the down payment of US $26,710 to the [Buyer];
 
   2.   The [Seller] shall compensate the [Buyer] for its other loss of RMB 3,592.70;
 
   3.   The [Buyer]'s other claims are dismissed;
 
   4.   The arbitration fee is RMB 20,000, which the [Seller] shall bear. Since the [Buyer] had already pre-paid the arbitration fee, the [Seller] shall pay the [Buyer] RMB 20,000.

The [Seller] shall pay the amounts listed in the above Item 1, 2 and 4 within ten days of this award; otherwise, interest at the annual rate of 5% shall be added.

This award is final and takes effect when handed down.


FOOTNOTES

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

*** John W. Zhu, LL.M. China University of Political Science and Law (National Graduate Scholarship); Bachelor of Law, Southwest University of Political Science and Law; Double Degree, English Literature, Sichuan International Studies University, Chongqing, China. Focus: International Economic Law.

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Pace Law School Institute of International Commercial Law - Last updated December 10, 2008
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