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CISG CASE PRESENTATION

China February 2006 CIETAC Arbitration proceeding (Fluorite case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060200c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20060200 (February 2006)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2006/16

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Germany (respondent)

GOODS INVOLVED: Fluorite


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 9 ; 25 ; 74 [Also cited: Articles 30 ; 31 ; 33 ; 34 ; 35 ; 46 ; 49 ; 50 ; 77 ]

Classification of issues using UNCITRAL classification code numbers:

9C [Practices established by the parties];

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

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

Descriptors: Usages and practices ; Fundamental breach ; 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) [second draft]

Queen Mary Case Translation Programme

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

Fluorite case (February 2006)

Translation by [*] Dong Ping [**]

PARTICULARS OF THE PROCEEDING

The China International Economic and Trade Arbitration Commission (hereinafter the "Arbitration Commission") accepted the case (Case No. R2005____) according to:

   -    The arbitration clauses in Sales Contracts No. CFIC04-F6106, CFIC04-F6105, and CFIC04-F6108 concluded by Claimant Zhe Jiang AAA Group Limited [of the People's Republic of China (hereinafter: the "[Seller]") and Respondent BBB Minenergy GmbH [of Germany] (hereinafter: the "[Buyer]") on 13 August 2004, 17 August 2004, and 3 November 2004, respectively, and
 
   -    The written arbitration application submitted by the [Seller] on 3 February 2005.

The Arbitration Rules, which were published by the Arbitration Commission and became effective 1 October 2000 ('"Arbitration Rules"), apply to the arbitration proceedings in this case.

On 10 March 2005, Arbitrator Mr. ___, chosen by the [Seller], Arbitrator Mr. ___, chosen by the [Buyer], and Presiding Arbitrator Mr. ___, appointed by the Chairman of the Arbitration Commission according to the Arbitration Rules, since both parties failed to jointly choose or entrust the appointment to the Chairman of the Arbitration Commission, constituted the Arbitration Tribunal to hear this case together.

On 8 April 2005, the [Buyer] submitted a counterclaim application to the Arbitration Commission, and then paid the deposit for the arbitration counterclaim.

On 11 April 2005, the [Buyer] submitted an application for custody of evidence. On the same day, according to the "Arbitration Law of the People's Republic of China", the Arbitration Commission forwarded the custody application to the Zhenjiang City Intermediate People's Court.

On 12 April 2005, Arbitrator Mr. ___ submitted a request to the Arbitration Commission to withdraw, since he used to work together with an arbitration agent of the [Seller]. The Arbitration Commission informed the [Seller] in writing of the need to select another arbitrator or to entrust the appointment to the Chairman of the Arbitration Commission.

The [Seller] chose Mr. ___ as the arbitrator. On 19 April 2005, Mr. ___, Arbitrator Mr. ___, chosen by the [Buyer], and Presiding Arbitrator Mr. ___, appointed by the Chairman of the Arbitration Commission, constituted the Arbitration Tribunal and heard this case together.

On 13 May 2005, the Arbitration Commission received "Civil Award" (2005) No. 002 of the Zhenjiang City Intermediate People's Court according to the application for custody of evidence submitted by the [Buyer]. In the same file, the Court also sent evidence preserved for the Arbitration Commission.

On 25 May 2005, the Arbitration Tribunal opened the oral hearing in Beijing. Both the [Seller] and the [Buyer] sent arbitration agents to attend.

   -    The [Seller] submitted the evidence preserved by the Zhenjiang City Intermediate People's Court, and the [Buyer] did not raise an objection, and the Secretariat of the Arbitration Commission forwarded one hard copy of the preserved evidence to both parties, respectively.
 
   -    The [Seller] also submitted an application for additional arbitration claims, and paid the arbitration deposit to the court.

In the course of the trial, both parties made oral statements, answered the questions of the Arbitration Tribunal, debated, and presented cross-examination. Both parties agreed to make written cross-examination of evidence which was not examined in the hearing and submitted after the court session. At the end of the hearing, the Arbitration Tribunal invited both parties to submit additional evidence within ten days, advising that overdue submissions would not be accepted.

On 7 June 2005, the [Buyer] submitted its application for additional arbitration counterclaims, and paid the relevant arbitration deposit.

After the court session, both parties submitted additional comments and evidence, and the Secretariat of the Arbitration Commission forwarded the documents to the opposite party. Since the documents of SGS testimony, chart of RMB lending rate, chart of foreign exchange quotation, and BFI Annul Report 2001/2002, submitted by the [Buyer], were submitted beyond the time limit for presenting evidence, the Arbitration Tribunal did not accept them.

As the case was complicated, the Arbitration Tribunal was unable to make the award within the time limit provided by the Arbitration Rules. On 9 December 2005, upon the requests of the Arbitration Tribunal, the Secretariat of the Arbitration Commission extended the time limit from 10 December 2005 to 10 March 2006.

On 15 December 2005, the Arbitration Tribunal unsuccessfully sought to achieve a reconciliation after seeking both parties' opinions.

This case is now decided. Considering the facts clarified in the trial and current written materials, the Arbitration Tribunal presents its ruling after a collegiate evaluation.

The following are the facts, the opinion of the Arbitration Tribunal, and the arbitration award.

FACTS

The [Seller]'s position

The [Seller] and the [Buyer] signed three sales contracts No. CFIC04-F6106 No. CFIC04-F6105 and No. CFIC04-F6108 (hereinafter the 'Three Contracts') on 13 August 2004, 17 August 2004 and 3 November 2004, respectively.

Contract No. CFIC04-F6106 provides that: The [Seller] sells metallurgical grade fluorite to the [Buyer], CAF2 no less than 90%, SIO2 no more than 9.0%, CACO3 no more than 1.0%, H2O no more than 1%, grain size 10-70 MM no less than 90%, US $163/MT, FOB Zhenjiang or Nantong trimming charges; the total quantity is 5000MT with 5% more or less; the total purchase price is US $815,000; date of shipment is September or October 2004 (afterwards the two parties agreed to extend this date to no later than 15 December 2004).

Contract No. CFIC04-F6105 provides that: The [Seller] sells metallurgical grade fluorite to the [Buyer], CAF2 no less than 92%, SIO2 no more than 8%, H2O no more than 1%, grain size 5-70 MM no less than 90%, US $163/MT, FOB Zhenjiang or Nantong trimming charges; the total quantity is 2000MT with 5% more or less; the total purchase price is US $336,000; date of shipment is September or October 2004 (afterwards the two parties agreed to extend this date to no later than 15 December 2004).

Contract No. CFIC04-F6108 provides that: The [Seller] sells metallurgical grade fluorite to the [Buyer], CAF2 no less than 90%, SIO2 no more than 9.0%, CACO3 no more than 1.0%, H2O no more than 1%, grain size 10-70 MM no less than 90%, US $163/MT, FOB Zhenjiang or Nantong trimming charges; the total quantity is 2000MT with 5% more or less; the total purchase price is US $326,000; date of shipment no later than 15 December 2004.

These contracts also provide that: Term of payment is 100% sight L/C; negotiable documents include shipped clean B/L, invoice, packing list, certificates of quality and quantity issued by China Entry-Exit Inspection and Quarantine Bureau (CIQ).

The total amount of goods under these contracts is 9,000MT with 5% more or less; the total purchase price is US $1,477,000.

In order to fulfill the Three Contracts, the [Buyer] opened six L/Cs in all: the expiration date of four of them was 6 December 2004 (later extended to 5 January 2005); the expiration date of the other two was 5 January 2005

The goods under the Three Contracts were carried to the ship INCE-B booked by the [Seller] in Zhenjiang Port. Total quantity was 9,051MT, including 2,076.9MT under Contract No. CFIC04 - F6105, 6,974.1MT under Contract No. CFIC04 - F6106 and Contract No. CFIC04 - F6108. According to the price terms, the total purchase price was US $1,485,697.50. The goods under the Three Contracts were delivered to the destination, Port of Antwerp in Belgium, on 17 January 2005.

The goods under the Three Contracts were examined repeatedly: twice before shipment, once during the course of shipment and discharging, respectively. After finding that the quality examination result before the shipment was not consistent with the contract, the two parties started to negotiate about the commodity inspection, value, and how to update the quality. The negotiations lasted until the goods arrived at the destination port, however, an agreement was not reached. Moreover, the [Seller] failed to present the documents for negotiation before the L/C expired for not obtaining the Quality and Quantity Certification issued by CIQ in time.

The [Buyer] applied to a Belgian court to seize the goods after the goods arrived at the destination port and, on 19 January 2005, the Belgian court seized the goods according to a "Notice of Seizure of Movable Property Placing in Custody of a Third Party."

The parties to the dispute could not reach an agreement. The [Seller] submitted an Application for Arbitration to the Arbitration Commission.

The arbitration requests and statement of the [Seller] and the [Buyer]'s defense

-  The [Seller] alleged in its Arbitration Application that:

      The [Seller] entrusted China Entry-Exit Inspection and Quarantine Bureau (CIQ) to examine the goods in Zhenjiang Port on 11 December 2004. CIQ issued a Quality and Quantity Certification, which showed that the goods delivered by the [Seller] were consistent with the contract. The quantity of goods actually delivered by the [Seller] was 9,051MT, including 2,076.9 MT of CAF2 (92%) and 6,974.1 MT CAF2 (90%).

The [Seller] loaded the above goods to the ship INCE-B booked by the [Buyer] on 11 December 2004, and issued an invoice and packing list according to the examination result made by CIQ after shipment at the same day. The invoice value was US $1,485,697.50, including US $348,919.20 of CAF2 (92%) and US $1,136,778.30 of CAF2 (90%).

The [Seller] informed the [Buyer] of the contract no., description of goods, quantity, name of vessel, and date of shipment, and sent the "Shipment Notification" to the advising bank as the negotiable document.

According to the instruction, the [Buyer] opened an L/C in favor of the affiliated company of the [Seller], with the presentation period by 4 January 2005. However, the [Seller] only got the original Quality and Quantity Certification issued by CIQ on 11 January 2005, so the document presentation exceeded the above time limit. The [Seller] received the notification of the [Buyer] on 14 January 2005, which stated that: the carrying vessel will arrive at the Port of Antwerp in Belgium on 17 January 2005. The [Seller] informed the [Buyer] on 16 January 2005 without delay that the goods could be delivered by issuing the bank guarantee to the carrier, but the [Buyer] refused to do so. The [Seller] submitted all the presentation documents including the certification issued by CIQ to the advising bank on 11 January 2005 (the same day that the [Seller] got the CIQ certification), and asked the [Buyer] to pay the purchase price by L/C and bank collection, respectively, but the [Buyer] refused to honor the draft on presentation. Afterwards, the [Seller] contacted the [Buyer] for payment repeatedly, but the latter still refused to pay the purchase price.

In addition, the [Seller] spent RMB $1.22 million (including but not confined to the attorneys' fee) on the loan recourse.

The [Seller] submitted an Arbitration Application to the Arbitration Commission, with the following requests:

   1.    The [Buyer] should pay the purchase price of US $1,485,697.50;
   2.    The [Buyer] should pay the surcharge for overdue payment until strictly net;
   3.    The [Buyer] should pay the reasonable expense of the [Seller] on the loan recourse including attorneys' fee, RMB 1.22 million;
   4.    The arbitration fee should be borne by the [Buyer].

The [Seller] submitted following additional arbitration request at the hearing:

   5.    The [Buyer] should pay the export tax rebate of RMB 543,331.

The [Seller] submitted the additional arbitration request based on: The "Circular of the State Administration of Taxation on Doing the Liquidation Work for Tax Refund or Exemption on Export Goods for the Year 2004" which states that:

"An export enterprise ... must provide a verification certificate on export receipt to the competent drawback department within 180 days after the commodity exported ... or rebates not yet refunded will not be processed."

Since the [Buyer] refused to pay the purchase price, the [Seller] could neither complete the receipts of proceeds nor provide verification and write-off forms of export proceeds in foreign currencies, and therefore failed to get the export rebates. Thus, this loss should be borne by the [Buyer].

The following is the calculation method: Total purchase price US $1,485,697.50 prospective interest rate 8.265 / (1 + value-added tax rate 13%) export rebate rate 5% = RMB 543,331.

The [Buyer] submitted the following defense

1. About the facts

After the contract signing, the [Buyer] entrusted bank to open four irrevocable sight L/Cs (including No. DD3001VA04208129) on 29 September 2004, in which stated that, "the presentation date is the expiration period of the L/C (before 6 December 2004) and shall within 21 days after the shipment." Then the two parties agreed to extend the expiration period of L/C to 5 January 2005, the [Buyer] entrusted the bank to open two irrevocable sight L/Cs (including No. DD3001VA04208198), in which stated that 'the expiration date is 5 January 2005, the shipment date is the expiration period and within 21 days after the shipment'. The amount of above six L/Cs was US $1,477,000, covering the entire purchase price under the Three Contracts.

After goods were loaded on 11 December 2004, the [Seller] failed to present the documents within the period provided in the L/C, before 5 January 2005 (the expiration period of the L/C). The advising bank dishonored for the reason of L/C expiring.

Because of the [Seller]'s above behavior, the [Buyer] could not pick up the goods with effective documents from the carrier in the destination port, and the goods have been under the supervision of the court until now. Meanwhile, the [Buyer] could not distribute the goods according to original plan at the destination port, clients who signed sales contracts at first with the [Buyer] all turned to other competitors, and asked the [Buyer] to compensate the loss of breach.

2. The [Seller] is not entitled to require payment of the purchase price

      (1) The only payment obligation of the [Buyer] under the contract to open the L/C according to the agreement

The contracts in this case clearly identify the payment obligation of the [Buyer]: it is to open the L/C according to the agreement. The [Seller] could have gotten the purchase price if it had acted strictly according to the provisions of the L/C. In this case, the [Seller] cannot get the payment because the [Seller] violated the expiration period and presentation date stated in L/C which led to the refused acceptance of advising bank.

The [Buyer] completed its payment obligation after opening L/C, the [Seller] is not entitled to require other payment obligations. Where an L/C expires due to the [Seller]'s failure to present documents within the expiration period, if the [Seller] wants to change the terms of payment, the [Seller] must reach a consensus with the [Buyer] to modify or amend the original contract provisions. Therefore, the arbitration request of the [Seller] that the [Buyer] should pay the purchase price, is contrary to the contract, laws, and international trade practice, and should be rejected.

      (2) The [Buyer] is the party that should undertake the loss caused by the expiration of the L/C as this was due to its own fault

According to the relevant B/L, the shipment date of goods in this case was 11 December 2004, twenty-five days before the expiration date of the L/C. The presentation documents under the L/C include B/L, invoice, packing list, and CIQ certification of quality and quantity. The invoice and packing list were issued by the [Seller] itself, the B/L was issued after the shipment, the CIQ certification could also have been obtained in fifteen days at the latest.

Thus, it can be seen that the [Seller] could have presented all the documents to the advising bank before the L/C expired and gotten the purchase price. The delay was the [Seller]'s own fault; the [Seller] should undertake all the consequences.

3. The [Seller] fundamentally breached the contract by not presenting documents within the expiration period of L/C. Accordingly, the [Buyer] has the right to terminate the contract and refuse to pay the purchase price.

      (1) Facts

      As an international trading company, the [Buyer] is not the end-user of the goods. At the time of contract signing or ever earlier, the [Buyer] has already signed sales contracts or reached cooperation intentions with foreign clients. The fact that the [Seller] failed to perform the contract, caused the [Buyer] to breach its agreements with other clients and have to satisfy compensation requirements.

      (2) Legal basis

      Article 25 of "United Nations Convention on Contracts for the International Sale of Goods" (hereinafter the "CISG") states that:

"A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract, unless the party in breach did not foresee and a reasonable person of the same kind in the same circumstances would not have foreseen such a result."

Article 49 of the CISG states that:

"(1) The buyer may declare the contract avoided: (a) if the failure by the seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract ..."

Since both parties never made agreements about the applicable law, and the contract has the most significant relationship with China, Chinese laws should apply.

Article 94 of "Contract Law of People's Republic of China" states that:

"The parties to a contract may terminate the contract under any of the following circumstances: ... (4) The other party delays performance of its obligations, or breaches the contract in some other manner, rendering it impossible to achieve the purpose of the contract ..."

      (3) The fact that the [Seller] failed to present documents within the time limit provided in L/C should be regarded as a breach of contract.

Article 30 of the CISG provides that:

"The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention."

In this case, the term of payment is FOB, paid by L/C. It is the fundamental obligation of the buyer to provide all the qualified documents and pass the ownership; otherwise, it should be regarded as breach. In this case, the contractual provision of L/C expiration period actually sets a time limit, if the [Seller] failed to present documents within that time limit, that should be regarded as a breach of contract.

      (4) It is a fundamental breach for the [Seller] not to present documents within the time limit provide by the L/C.

The fact that the [Seller] failed to present documents within the time limit, leads to the frustration of contract purpose, thus continuing to perform becomes meaningless for the [Buyer]. According to Article 25 of the CISG, the fact of the [Seller] failing to present documents and pass ownership of goods should be regarded as a fundamental breach.

      (5) The [Buyer] has the right to avoid the contract and refuse to pay the purchase price.

Based on the above, the breach of the [Seller] of delaying presentation leads to a frustration of the purpose of the contract and should be regarded as a fundamental breach. According to Article 49 of the CISG, the [Buyer] has the right to declare the contract avoided. According to Section 4 of Article 94 of the "Contract Law of People's Republic of China", the [Buyer] also has the right to terminate the contract. The [Buyer] has already sent its notification of termination of the contracts. Thus, the [Buyer] certainly has the right to refuse to pay the purchase price.

4. Moreover, the [Buyer] has the right to refuse to pay the purchase price because the goods supplied by the [Seller] are not consistent with the contract.

According to the examinations made by the neutral inspectors in the shipment port and discharging port:

   -    The content of major quality index CAF2 is only 79% - 85%, far less than the minimum requirement of the contract (90% and 92%);
 
   -    The content of SIO2 is 12%-16%, far more than the maximum requirement (8% and 9%);
 
   -    The inferior fluorites are not consistent with the contract and have no merchantability in European market.

The [Buyer] could not sell these goods to the original clients or find new buyers. Therefore, the [Seller]'s behavior in providing inferior goods is a fundamental breach of contract, and the [Buyer] has the right to refuse to pay the purchase price.

Before and during the hearing, the [Buyer] submitted the following counterclaims and comments

The [Buyer]'s counterclaims:

   1.   The [Seller] should pay the ocean freight, US $472,914.75;
   2.   The [Seller] should pay the loss of prospective profits EUR 103,740.00 and the expense incurred at the destination port, EUR 79,388.30;
   3.   The [Seller] should pay the reasonable expense of processing this case, including but not confined to the attorneys' fee, RMB 1,000,000.00;
   4.   The [Seller] should pay the interest on the above money from the payment date to actual payment by the [Seller].

The [Buyer] also submitted following additional arbitration counterclaims:

   1.   The [Seller] should pay the warehouse fee of EUR 26,509.71 incurred at the destination port in March and April 2005, and the warehouse fee incurred from May 2005 to the date the goods under Three Contracts are completely processed, EUR 434.59 per day;
   2.   The arbitration fee (including but not confined to US $19,439) of the arbitration counterclaims should be borne by the [Seller];
   3.   The evidence preservation fee of RMB 8,800 should be borne by the [Seller].

The [Buyer] submitted the following support for its counterclaims:

Once the Three Contracts were concluded, the [Buyer] started to book ship and open six L/Cs with the expiration date before 5 January 2005. It is said that the [Seller] loaded the goods under the Three Contracts onto ship M/V "INCE - B" rented by the [Buyer] in Zhenjiang on 11 December 2004. However, the [Seller] did not present relevant documents within the time limit, which caused the [Buyer] to be unable to pick up the goods in time when the ship arrived at the destination port, and led to resale contracts which the [Buyer] had signed with its clients being terminated. In addition, according to several inspection reports made by the professional inspection agencies entrusted by the [Seller] at the shipment port and destination port, respectively, the contents of major index CAF2 is less than 85%, much lower than the contractual requirements 90% and 92%.

The [Seller] has fundamentally breached the Three Contracts; thus the ocean freight, loss of prospective interests, and relevant legal expense suffered by the [Buyer] should all be borne by the [Seller].

Moreover, since the goods have been seized at the destination port during the course of trial, the warehouse fee of EUR 26,509.71 incurred in March and April 2005 has already been paid by the [Seller]. Meanwhile, the [Buyer] also paid the arbitration fee for the counterclaims, and the evidence preservation fee of RMB 8,800. These expenses should be borne by the [Seller] as they are all arose from [Seller]'ss breach.

Both parties made declarations after the hearing

The [Seller] alleged that:

1. Applicable law

The [Seller] agrees with the Arbitration Tribunal that the CISG applies to this case and that, to the extent an issue is not covered by the CISG, Chinese law should apply.

2. Quality of the goods

      (1) The goods provided by the [Seller] are qualified

      The [Seller] asserted that, goods provided are qualified and consistent with the Three Contracts. According to the "Quality Certification" issued by Zhenjiang CIQ provided in Three Contracts, goods have already met the requirements of the Three Contracts. The SGS inspection results mentioned by the [Buyer] are not stated in Three Contracts, the [Seller] never agreed to use the SGS inspection results, and should not be bound by those results submitted unilaterally by the [Buyer].

      (2) The effect of the "Quality Certification" issued by Zhenjiang CIQ

      The [Buyer] asserted in the court that, there is no term of quality in Three Contracts. (CIQ certification is only the presentation document). The [Seller] opposed to this saying: Three Contracts have stated the quality term clearly - Zhenjiang Entry-Exit Inspection and Quarantine Bureau will examine the goods and issue the CIQ "Quality Certification". In the fact, both parties were actually performing according to that quality term, and transaction practice is also like this, the [Buyer] has already applied for the evidence preservation about the CIQ certification and related files. Therefore, "Quality Certification" issued by Zhenjiang CIQ, according to which, goods provided by the [Seller] are qualified, shall be binding to both parties.

      (3) The [Seller] should not be bound by the SGS inspection results submitted by the [Buyer]

            (i) SGS inspection results have no relevance

            SGS inspection results are made by the inspection agencies entrusted unilaterally by the [Buyer], the Three Contracts have no such provisions, the [Seller] never agreed to accept such inspection results. In this case, this is no reason to use the SGS inspection results according to the [Buyer]'s intension unilaterally, Three Contracts have already provided the inspection agency clearly, and it has no relationship with whether SGS is famous.

            (ii) SGS inspection results have no legal effect

            The CISG applies to this case, to the extent that is not covered by the CISG, Chinese Laws should apply. The origin place of goods under Three Contracts is in China, Chinese laws should apply to the inspection procedures and standards. SGS examined the goods according to its own rules which were not admitted by the Chinese laws (the [Seller] never accepted neither), so the SGS inspection results have no legal effect in this case.

            (iii) SGS inspection results are untruthful

            Samples examined by SGS were not chosen, made, and sent by both parties together, so the SGS inspection results are untruthful and should not be used as evidence.

            (iv) The so-called CIQ (which is IMI actually) inspection result submitted by the [Buyer] has noted clearly that it is only responsible for the sample, has no relationship with goods under Three Contracts.

      (4) The fact that the [Buyer] received goods in the shipment port made him have no right to challenge the quality in future

According to the inspection results made by the [Buyer] unilaterally in the shipment port, he has already known that the goods are 'not qualified'. However, instead of rejecting loading, the [Buyer] still sent the [Seller] stowage plan and arranged shipment, which led to the legal consequence that, the [Buyer] has already accepted the goods. Thus, he has no right to challenge the so called quality problems in future. It is meaningless whether the [Buyer] examined the goods in destination port, as the [Buyer] has made three inspections in the shipment port and clearly known about the inspection results. Thus, it is totally malicious for the [Buyer] to apply for seizing goods in the destination port.

Article 35(3) of the Convention provides that:

"The seller is not liable under subparagraphs (a) to (d) of the preceding paragraph for any lack of conformity of the goods if at the time of the conclusion of the contract the buyer knew or could not have been unaware of such lack of conformity."

Article 64 of the "Opinions of the Supreme People's Court on Several Issues concerning the Implementation of the General Principles of the Civil Law of the People's Republic of China" states that:

"One party claims his civil rights to the other party, the other party does not state the intention orally or in writing, while his behavior has shown acceptance, then should be regarded as implied recognition."

      (5) CIQ and SGS

      CIQ is the legal institution of import and export commodities inspection, its procedure and standard are all provided by the law. In this case, goods under Three Contracts are all on the legal inspection list, CIQ's examination is necessary. Meanwhile, CIQ is not only the inspection institution according to the Three Contracts, but also the parties' business practice. In addition, the [Buyer] himself also applied the evidence preservation to the Zhenjiang CIQ files, and the result showed that there is nothing wrong in the CIQ inspection procedure and the results. Therefore, the Quality Certification issued by Zhenjiang CIQ should be regarded as the evidence of whether the goods provided by the [Seller] are qualified.

Since there are substantial problems in the relatedness, facticity, and legitimacy, the SGS examination result should not be used as the evidence.

The essence of the problem is: what is the foundation of the right of each contractual party to entrust inspection respectively? This case is the contractual dispute, rights of each party all derive from the agreement, business practice, and the legal provisions (including the CISG).

First of all, agreement is the basis. Contracts in this case provide that the quality inspection should be made by CIQ in Chinese shipment port, not SGS or other institutions. There is no contractual basis for the [Buyer] to entrust SGS to examine the goods.

Second, CIQ inspection results issued in Chinese shipment port are adopted in the sales contracts between two parties for quite a long time, the [Buyer] also mentioned in the hearing that, although there were experiences of the [Buyer] unilaterally entrusting SGS to examine the goods in the former transactions, while the Chinese CIQ inspection results were always the final and only basis to make sure whether the goods were qualified. Article 9 (1) of the CISG provides that: 'The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.'

Third, fluorite is subject to legal inspection, Zhenjiang CIQ is the legal inspection institution, examination result made according to the procedure GB/T2007.1,2-1987 and standard GB5195.1,3,9-85 is legally binding.

3. The delay of document presentation

      (1) The [Seller] has already informed the [Buyer] about the alteration of L/C beneficiary

      The [Seller] has informed the [Buyer] on 4 November 2004: the export quotas have been transferred to 'Zhejiang CCC Import & Export Trade Co. Ltd.', so the L/C beneficiary should be altered (partly) into 'Zhejiang CCC Import & Export Trade Co. Ltd.' The [Buyer] has asked the issuing bank to made the relevant alternation according to this information, but denied the fact in the court. The consequence of above alternation is that, related documents and import procedures should also be modified, which would lead to the delay of the documents presentation. The [Buyer] should foresee this problem and has no right to challenge the legal consequence of the delay.

      (2) The legal consequence of the delay of document presentation

      The [Seller] has admitted the fact of the delay, and the disputable point is the legal consequence of the delay.

The [Seller] declared that, the delay made himself fail to get the purchase price by L/C, (in the fact, according to the notification of issuing bank, there are three discordances in the negotiable documents, even if the presentation happened in time, the L/C would not be successfully negotiated.) While in the transaction theory, practice, and the international common customs, for the [Buyer], the delay of presentation would not necessarily lead to the delay of getting documents, neither the delay of receiving goods in the destination port. Generally speaking, the deliver of documents is always faster than the deliver of goods, when the goods arrive the destination port in advance, in order to avoid the demurrage fee, the party usually processes in the positive way, like discharging by letter of indemnity.

In this case, the [Buyer] has asked the [Seller] four times to agree with the plan to release cargo, and the [Seller] has clearly agreed. If the plan had been performed according to the agreement, influence arising from the delay of documents presentation would not exist (according to the custom, the [Seller] will certainly afford the possible bank charges). In the fact, the [Buyer] never planed to pick up the goods with these documents, while applied the official department to hold them in custody. Therefore, the [Buyer] has no right to defend based on the delay of documents presentation.

The [Buyer] alleged:

1. The basic facts

On 18, 19 November 2004, after confirming the performance date of the Three Contracts, the [Buyer] entrusted SGS to make the first preliminary sampling test, one sample was sent to Shanghai CIQ for inspection. SGS sent the goods and inspection procedure report to the [Buyer], claiming that there were strange materials in the goods. The [Buyer] then informed the [Seller] and asked the latter to examine the strange materials.

On 25 November 2004, Tianjin Office of the [Buyer] informed orally the [Seller] after getting the preliminary inspection result issued by Shanghai CIQ, and sent it to the [Seller]'s German headquarters. According to the report, the average content of CAF2 was 82.56% and 82.62%, while the average content of SIO2 was 13.94% and 15.52%.

On 26 November 2004, after receiving the instruction of [Buyer]'s German headquarters, [Buyer]'s Tianjin Office in writing suggested to the [Seller] that they make a jointly sampling on 27, 28 November 2004, and regard the results of SGS and Shanghai CIQ as the final basis, if the average content of CAF2 is still lower than 90%, the goods will be rejected and the [Seller] will bear the charging fee. On 27 November 2004, SGS made the second sampling test in time. On 29 November 2004, the [Seller] informed the agent of the [Buyer] in writing, stating that joint sampling had been done last Saturday, but complained about the absence of joint sampling preparation.

On 30 November 2004, SGS issued the inspection report about the preliminary test made on 18 November. The results showed that the content of CAF2 was only 83%, and the content of SIO2 was 15.11%. On 3 December 2004, the [Buyer] informed the [Seller] about the joint inspection result issued by Shanghai CIQ, which showed that average content of CAF2 was between 82.62%-85.25%, and the average content of SIO2 still reached up to 12.77%-15.52%. On the same day, the [Seller] replied to these results, declared that its own inspection result was 88%, and stated that the current inferior quality problem could be solved in next transaction by a price adjustment, or by the supply of a high quality fluorite in the early part of the first quarter of 2005 to update the goods.

The [Buyer] replied to the above plan on the same day stating that:

   -    The joint inspection result is extremely disappointing;
 
   -    Goods like these cannot be sold in Europe market; and
 
   -    If inspection reports of shipment and discharge show the same situation, it is necessary for the two parties to discuss seriously the solution, since there would be no qualified goods to supply to the next buyer.

On 8 December 2004, SGS issued its inspection report on joint sampling: the average content of CAF2 in fluorite No. 58001607 was 85%, and the content of SIO2 was 14%.

On 10, 11 December 2004, in the course of shipment, the [Buyer] entrusted SGS to make the third examination, shipment sampling test. On the same day, vessel INCE B set sail. On 17 December 2004, SGS issued the inspection report about the above sampling, which showed that content of CAF2 was 86%, content of SIO2 was 12%.

On 21 December 2004, the [Seller] suggested:

   -    That the price in Contract No. 6108 should be reduced from US $168 to US $163 and that the price reduction be realized in future contracts (since goods had already gone through Customs);
 
   -    That US $280,125 should be reduced from the total price as a rebate for long-time cooperation; and
 
   -    That the parties continue to negotiate the quality problem.

On 23 December 2004, the [Buyer] replied that:

   -    A price reduction must be made on these goods not on future goods;
 
   -    Whether the goods have gone through Customs should not influence the price reduction; and that
 
   -    The [Seller] should supply high quality fluorite as soon as possible.

On the same day, the [Seller] informed the [Buyer] that the price cannot be reduced at this time because of the Customs declaration.

On the same day, the [Buyer] sent the shipment inspection report of LUXCONTROL, which showed that the content of CAF2 was 83.54%-86.73%, and the content of SIO2 was 11.9%-14.4%.

On 28 December 2004, after receiving the above inspection report, the [Seller] lowering the price of fluorite with 92% CAF2 and 90 CAF2 to US $134/mt and US $130/mt, respectively, and canceling all the L/Cs open for Hong Kong Fluorine Investment Holding Group, and handling the price reduction as a rebate for long-time cooperation.

On 5 January 2005, the [Buyer] replied:

"Goods with 82%-85% of CAF2 cannot be sold, contracts between us and the next buyer cannot be fulfilled either. We had already paid US $0.5 million transportation fee, and still had to pay the extra transportation fee, warehouse fee, interest, goods mixture fee, and so on.

"Goods with 15%-17% of SIO2 are only worth US $0.7 million. You said that there are qualified goods with 95% CAF2 that can be used for mixture. We need to know the standard, quantity, and the earliest shipment date to reduce the current loss."

On 6 January 2005, the [Seller] replied:

The Zhenjiang CIQ Certification has not been issued since CIQ made a mistake on the copy number. We have to clarify this problem with Customs. We will get the certification in the coming two days. The quality of goods could not be that lower, and these goods will be sold out successfully. We will supply the high-quality goods as soon as possible."

On 11 January 2005, the [Buyer] sent to the [Seller] the following new proposed solution plan: the [Buyer] should sell the goods as your agent, and get the purchase price after deducting the seaway transportation fee and warehouse fee first; the [Seller] also had to give a clear schedule of arranging new goods with 90%, 92%, or 95% CAF2. However, on 12 January the [Seller] advised that it would not accept this proposal and declared that, according to their experience, the quality problem was not that serious, and they would supply 3,000-4,000 tons of goods with 92 CAF2 in 2005. The [Seller] advised that the shipment port of these 3,000-4,000 tons of goods would be in Nantong, Zhenjiang, and the price would be discussed separately.

The [Buyer] replied through that in order to make the current goods meet the standard of 89%-90%, they need 7,000 tons of 92%, 9,000 tons of 94% and 14.000 tons of 95% to mix with the current goods, and the price should be same as with the current goods, US $163. The [Buyer] would try its best to sell these goods, but getting clients who need goods with 85% CAF2 is a challenge. The [Seller] did not make any further reply to this discussion.

On 14 January 2005, the [Buyer] suggested as follows:

We will give these goods to your warehouse in Duisberg;

SGS will inspect the new sampling again after the goods discharged in Antwerp; the inspection result will be regarded as the foundation of Mrs. Knoetsch discussing the payment problem in China;

You must supply the 3,000-4,000 tons of goods with 92% CAF2 in February 2005, and send the data and the supplying date of the goods to us for SGS's pre-inspection.

On the same day, since the vessel was about to arrive at the destination port, the [Buyer] urged the [Seller] to send the data on the goods as soon as possible and give the discharge confirmation before 17 January, otherwise there would be a demurrage fee.

The [Seller] replied:

"We cannot discharge confirmation since the B/L has already been submitted to the bank, and we have no other document of title since the B/L is transferable. We still believe the problem is negotiable, and will supply 3,000-4,000 tons of goods with higher-quality."

The [Buyer] wrote to the [Seller] again on 16 January 2005:

"We have not received your documents or the discharge confirmation until now, and you should be responsible for the demurrage fee arising therefrom."

On 17 January 2005, after realizing the gravity of the situation, the [Seller] replied that goods could be picked up by the bank guarantee, however, this was without notifying how to arrange the bank guarantee or who should pay the charges of the bank guarantee.

On 17 January 2005, the agent of the [Buyer] wrote the [Seller] again:

"Besides the discharge confirmation, you should also confirm the following two questions: (1) we all agree that the price should be adjusted based on the inspection report issued in the destination port; (2) the price of 3,000 tons of goods with 92% CAF2 should be sent to us."

At the same day, Ellen of the German headquarters of the [Buyer] wrote to Mr. Heqing:

"Since you have not sent us the documents, nor reached any agreement about the relevant negotiation, you have to undertake the charges arising therefrom, including demurrage fee, dead freight, warehouse fee, and other processing fees."

On the same day, the goods arrived at the destination port. In order to avoid the demurrage fee, the [Buyer] had to apply to the court in the destination port to discharge and seize the goods. The [Buyer] informed the [Seller] of the above facts, and expressed that they were still willing to negotiate the problem and try to find a final solution.

After receiving the seizure notification, the [Seller] stated that they wanted to terminate the long-time cooperation relationship. The Vice-Manager of the agent of the [Buyer], Mr. Knotsch, required the [Seller] to pay all the pre-payment under the long-time contract, and hoped to continue the negotiation in Beijing without recourse tp legal action.

On 17 January 2005, at the same time of the discharge, the [Buyer] entrusted SGS to make a sampling test to the goods, the results showed that content of CAF2 was only 84.03%, 86.44%, and content of SIO2 reached up to 11.28%, 13.70%. According to the other inspection report issued in the destination port on 15 February 2005 by Mr. Alex Stewart, the average content of CAF2 was 82.8%, and SIO2 was 13.31%.

On 24-30 January 2005, the agent of the [Buyer] negotiated with the [Seller] in Beijing. On 31 January, the [Seller] required the [Buyer] to provide the seizure information and related documents, and expressed that they would consider the solution after receiving that information. On 4 February, the agent of the [Buyer] notified the name and telephone number of the warehouse fee where goods were held in.

On 5 February 2005, the [Buyer] learned that the [Seller] had already initiated the arbitration, a negotiated solution became impossible, so the [Buyer] sent a notification of contract termination to the [Seller].

2. The CISG applies to this case

The places of business of the two parties are located in China and Germany, respectively, and both countries are the Contracting States of the CISG, therefore, the CISG applies to this case. In addition, the related Chinese laws all provide that, international conventions that the Chinese government has joined apply prior to the domestic laws. Thus, for the problems addressed by the CISG in this case, Chinese laws do not apply. For problems that the CISG does not refer to, the applicable law should be determined by the Arbitration Tribunal according to the conflict rules or relevant legal provisions.

3. The fact that the [Buyer] did not reject loading at the shipment port does not mean the acceptance of goods whose quality do not meet the contract standards

      (1) The [Buyer] has always required that the quality of goods should conform to the contract

According to the Contract, the major quality standards of the fluorite are: content of CAF2 shall be more than 90%, content of SIO2 shall be less than 9%. The [Buyer] never changed these requirements.

      (2) The [Buyer] cannot be expected to reject goods only according to preliminary inspection results issued in the shipment port

            (i) The two inspections made by SGS on 18-19, 27-28 November 2004 were only preliminary

When SGS made the first sampling test on 18-29 November 2004, the [Seller] had not adequately prepared all of the goods; thus, SGS only examined the part of the 6,000 tons of fluorite which had been gotten ready at that time.

In addition, goods were stacked in a pile 20-30m long, 10m wide and 10m high and samples could not be taken inside the pile due to space and equipment limitations. Therefore, SGS inspectors only sampled the goods on the surface layer according to the operational practice and, for the part hard to sample, the inspectors only sampled the goods 10-30cm in from the chip surface.

Therefore, although above two inspections showed that the quality of goods was seriously inconsistent with the contract, the representativeness of the sample was not typical enough. It was also the reason why the [Buyer] did not reject goods in the shipment port.

            (ii) The inspection results of SGS's sampling tests made on 10-11 December 2004 were issued after the delivery

SGS did sufficient sampling when the goods were loaded on board on 10-11 December 2004, and reached results the same as with the former two tests - the quality of goods was seriously inconsistent with the contract.

This sampling was made at the same time of the shipment, after necessary preparation, delivery, and analysis, SGS got the final result and issued the inspection report. At that time, goods were already on the way to the destination port.

Thus, although the inspection result made on 10-11 December 2004 confirmed the accuracy of the former two preliminary inspection results, and fully demonstrated that quality of goods was seriously inconsistent with the contract, since the result was reached after the delivery, it was impossible to be the foundation for the [Buyer] to reject loading at the shipment port.

      (3) The [Seller] expressed that they would adopt positive remedies after receiving the notification that the quality of goods was inconsistent with the contract.

As previously mentioned, the [Seller] had suggested remedies after the issuance of two preliminary inspection reports (the second one was jointly sampled) made before the shipment. The [Buyer] considered that, although it would still lead to certain losses for the [Seller] to mix the high-quality fluorite with current goods, compared with the fundamental breach to the clients and the compensation of dead freight to the ship-owner, accepting the remedial measures would be the best choice in that situation. Meanwhile, considering the long-time cooperation relationship with the [Seller], relevant losses could be fully compensated in later business transactions.

Moreover, the positive attitude of the [Seller] at that time had also led the [Buyer] to believe that quality of goods could be updated by mixture. For instance, in the sampling test on 18-19 November 2004, SGS inspectors found there were plenty of sundries (e.g., plastic tapes, iron wires), and raised an objection to the [Seller]. In the later sampling test on 27-28 November 2004, sundries on the surface of goods had already been cleared.

To sum up, as a world-famous merchant in minerals and energy industry, the [Buyer] has always been praised for its pragmatic and fair working attitude, and never rejected goods only based on the preliminary inspection results issued before the shipment. Meanwhile, it was hard for the [Buyer] to make a rejection decision while considering the update-quality plan suggested by the [Seller].

4. It was reasonable for the [Buyer] to apply for seizure of the discharged goods at the destination port

      (1) The [Seller] had never given any specific confirmation about the high-quality fluorite which they had promised before to provide for the goods mixture.

On 11 December 2004, after the delivery of the goods, the [Buyer] repeatedly sought to have the [Seller] provide the specific scheme (price, date, shipment port, and so on) of updating current fluorite quality, and the [Seller] had always expressed that they would negotiated with the [Buyer].

On 21 December 2004, the [Seller] expressed to the [Buyer] that, in order to solve the quality problem, they would make certain price reductions in later transactions and discuss the details about the goods-mixture plan. The [Buyer] replied on 23 December 2004 that a price reduction must be made for this transaction, and [Buyer] wanted to know the details of the high-quality fluorite as soon as possible.

However, the [Seller] did not provide any further feedback about the related problems afterwards. On 5 January 2005, the [Buyer] wrote to the [Seller], listed all the issues and losses and made it clear that goods in this case could not be sold in the European market, again requesting the information (analysis result, quantity, delivery time) of high-quality fluorite which the [Seller] promised to supply before. On 6 January 2005, the [Seller] replied that they would provide the high-quality fluorite as soon as possible.

Afterwards, in the e-mails sent on 12 and 14 January 2005, the [Buyer] repeatedly asked the specific information on the high-quality fluorite, while the [Seller] had never given any confirmative answer until the goods finally arrived at the destination port.

      (2) The [Buyer] could not pick up the goods legally and duly when the goods arrived at the destination port due to the lack of a B/L

Before the goods arrived at the destination port, in order to pick up the goods in time and avoid the demurrage fee, the [Buyer] repeatedly asked the [Seller] to provide the B/L or other discharge confirmation. The [Seller] first stated that they could not provide discharge confirmation, then agreed that the [Buyer] could pick up goods by providing a bank guarantee.

However, in the fact, according to the subsequent investigation made by the agent of the [Buyer], related documents were sent by DHL from Shanghai Pudong on 18 January 2005, not 14 January as the [Seller] asserted before. Therefore, when the ship arrived at the destination port on 17 January 2005, the [Buyer] had no B/L to present to the carrier, while the carrier could not release cargo without proper documents, otherwise the carrier would be subject to a claim for compensation by the future lawful document holder

About the confirmation made by the [Seller] that the discharge could be made by the bank guarantee, according to maritime law and shipping customs, the B/L is the only proof of picking up goods; there is a high degree of risk for the carrier to undertake if it releases cargo without proper documents. Moreover, even if the carrier agrees to release cargo with a bank guarantee, there is still not any safeguard measure for the bank guarantee charges and quality problems after the release. Obviously, none of these problems had been answered by the [Seller].

What the [Buyer] stresses here is: On the premise that the quality of goods is seriously inconsistent with the contract, neither picking up goods with a bank guarantee nor applying to the court for seizure, is the final solution, but only a temporarily arrangement to avoid huge demurrage charges.

      (3) The [Buyer] has suffered huge losses due to the breach by the [Seller] when the goods arrived at the destination port

As before, the [Seller] had not given any substantial reply to the problem of providing high-quality fluorite until the goods arrived at the destination port. Thus, it was impossible for the [Buyer] to upgrade the quality of goods in this case by mixing them with high-quality fluorite, which further led to the breach of contracts with other clients, liquidated damages and anticipated profit loss became unavoidable. In addition, the [Buyer] had already paid US $500,000 of seaway transportation charges.

      (4) [Buyer]'s customers had already filed for termination and compensation.

      DDD Mineral Resources, which intended to buy 5,000 tons of goods in this case, had claimed for compensation on 17 January 2005, since goods could not be delivered due to the delay of related documents.

      (5) Applying for seizure of the goods was a reasonable way for the agent of the [Buyer] to safeguard himself

Since the [Seller] not only failed to provide qualified goods, but also failed to remedy according to its own promise afterwards, the [Buyer] had suffered huge losses under the Three Contracts. While, there was no executable property in the domicile place of the agent of the [Buyer] - Germany or Europe, meanwhile, at that time, since the case-involving B/L was negotiable, goods could be transferred to other buyers at anytime, it would be difficult for the [Buyer] to claim for compensation on that occasion. Thus, applying for seizing goods as the safeguard for the future claim was the best choice for the [Buyer] at that time.

5. The [Buyer] terminated the sales contract with the [Seller] after being notified that the latter had initiated the arbitration procedure

After applying for seizure, the [Buyer] still hoped to solve the dispute through negotiation and continue to perform the contract, and the [Seller] had also shown same intentions.

However, the [Seller] initiated the arbitration on 5 February 2005, which made it hard for the [Buyer] to believe that the dispute could be solved through negotiations; the [Buyer] had no choice but to send the termination notification.

6. There were serious doubts in the reliability of the Zhenjiang CIQ Certification submitted by the [Seller]

      (1) The issuance date of the Zhenjiang CIQ Certification is irregular

      It is usually no longer than seven days from sampling analysis, to issuance for the Zhenjiang CIQ to inspect import minerals. The [Seller] alleged that they received the CIQ Certification on 11 January 2005, based on which, it had taken thirty-one days for the certification case-involving to be finished, much longer than the usual scheme.

The [Seller] explained in the trial, since both the principal and the consignor were in fact the [Seller], while the certification required listing Zhejiang Furui Import & Export Trade Co. Limited as the consignor, it took considerable time to coordinate with Zhenjiang CIQ, and this unavoidable delayed the issuance date.

However, in all the five sets of documents obtained in the Civil Award (No.[2005] 002) of Zhenjiang Intermediate Court, there was only one set of documents (Quality Certification No. 321300204039861) on which the [Seller] was marked as both the principal and the consignor. In the other four sets of documents, the declared principal, the declared consignor, and the shipper of the quality certification, were all Zhejiang Furui Import & Export Trade Co. Limited. Therefore, the problem that the declared principal, the declared consignor, and the shipper of the quality certification were not consistent did not exist factually.

Moreover, in the e-mail sent on 6 January 2005, the [Seller]'s declaration that it had to explain to Custom and ths delayed the issuance date since Zhenjiang CIQ mistook the quantity of goods, was obviously inconsistent with the explanation submitted in the course of trial.

The [Seller] had never submitted a rational explanation for the unusual delay of the issuance date of the CIQ Certification, which raises a question whether unfair factors existing in the procedure of inspection, analysis, and issuance of the CIQ Certification.

      (2) There were deficiencies in the form of the CIQ Certification submitted by the [Seller]

            (i) Zhenjiang CIQ specified in the Certification that the inspection result was consistent with the contracts without first seeing the contracts involved in the case.

The conclusion parts of all the five CIQ Quality Certification stated: inspection results of above goods are consistent with the contractual provision.

However, related contracts or any description about quality of goods required by the contracts had never been found in the declared documents seized by Zhenjiang CIQ during the course of evidence preservation processed by Zhenjiang Intermediate Court. Obviously, it was untruthful for Zhenjiang CIQ to recognize that the quality of goods inspected was consistent with the quality of goods provided in the contract which they had never seen before.

            (ii) The CIQ Certification submitted by the [Seller] did not describe the sampling procedure

The course of collecting and sampling is the essential part of every reliable quality certification, while the CIQ Quality Certification submitted by the [Seller] did not give any description about this part; it even failed to state whether the sample was collected by Zhenjiang CIQ or the declared party.

Therefore, the [Buyer] considers that CIQ Quality Certification submitted by the [Seller] cannot prove the real quality of the case-involving goods, as it cannot explain whether the inspected sample was definitely and rationally collected from the case-involving goods, there is no confirmative relevance between the inspected sample and the goods involved in this case.

      (3) The inspection result in the CIQ Quality Certification submitted by the [Seller] is contradictory with the inspection result made by the authoritative institution which the [Buyer] repeatedly entrusted

The [Buyer] had entrusted SGS and ALEX STEWART to inspect goods at the shipping port and discharge port, respectively, five times, and got nine inspection reports issued by SGS, ALEX STEWART, Shanghai CIQ, LUXCONTROL, one of which was jointly sampling. The inspection reports all showed that, average content of CAF2 was 82%-85%, while the average content of SIO2 was 13%, seriously inconsistent with the contract.

However, the Quality Certification issued by Zhenjiang CIQ submitted by the [Seller] showed that content of CAF2 was 92% and 90%, fully met the contract provision.

The [Buyer] believed that, it had entrusted authoritative institutions to examine the goods for many times, and got the same results; thus, the deficiency of quality of goods could be completely proved. By way of contrast, the CIQ Certification submitted by the [Seller] had not only an unusual issuance procedure, but also a deficient outer form. Thereby, it could not reflect the real quality of the goods.

      (4) Contrary to [Seller]'s allegation, the so-called business custom of regarding a CIQ Certification as the basis of quality inspection had never existing between the two parties

The [Seller] alleged there was a business custom of regarding CIQ Certification as the basis of quality inspection between the two parties, and then claimed the custom was binding according to Article 9 of the CISG.

The [Buyer] disagrees with this opinion. Section (1) of Article 9 of the CISG provides: "The parties are bound by any usage to which they have agreed and by any practices which they have established between themselves." Therefore, a binding custom should be either agreed expressly or actually established by the parties.

During the period from 2003 to 2004, all the fluorite contracts concluded between two parties adopted the same model, including Three Contracts in this case, all the agreements concerning CIQ Certification regarded CIQ Certification as one of the negotiable documents, not the confirmation of quality of goods. In addition, there was no other content concerning CIQ Certification. Hence two parties never reached any agreement about regarding CIQ Certification as the basis of determining the quality of goods, nor was there agreement to regard it as a business custom.

Moreover, the so-called business custom of regarding a CIQ Certification as the basis of determining the quality of goods had never been established between two parties. The [Seller] should submit enough related evidence to prove this assertion within the time limit provided by Arbitration Tribunal, otherwise the [Seller] should bear the adverse aftereffect.

Since the so-called business custom of regarding CIQ Certification as the basis of determining the quality of goods never existed between two parties, Article 9 of the CISG does not apply.

7. The goods provided by the [Seller] were not merchantable with the European clients of the [Buyer]

      (1) The European clients all regarded the goods involved in this case as useless.

      After the hearing started on 25 May 2005, agent of the [Buyer] again wrote to the European clients to ask whether they would buy the goods involved in this case. The answers were almost the same: they won't buy the goods for them they are useless. These clients were the major customers of the [Buyer] in the European market. They buy fluorite for the manufacture of stainless steel. Their rejection shows their general attitude and proves that the [Buyer] could not sell these goods at all. Even if SRC finally decided to buy, the price could only be fixed at US $90/ton, without containing extra warehouse fee and other expense.

      (2) According to experts' advice, the goods involved in this case could not be used in the smelting operation of stainless steel

In order to prove that the goods involved in this case could not be sold to the European clients, the [Buyer] entrusted BFI to provide an expert advice report on the effect of fluorite in the smelting operation of stainless steel and on different influences to the operation procedure and environment lead by different compositions of fluorite.

The expert opinion stated: since both the contents of CAF2 and SIO2 were inconsistent with the standard, it is necessary to adjust the usage quantity and proportion during the course of smelting, meanwhile due to related physical and chemical reasons, it is impossible to reach the standard of usage quantity and effectiveness only based on later period adjustment.

Using the goods involved in this case will lead to the increase of quantity of materials, excessive assumption of energy, high cost of slag processing, lowering the service life of metallurgical furnace, and the increase of maintenance allowance. More seriously, according to Environment Protection Law of Germany and Europe, the goods involved in this case will force the factory to rebuild the complete plant and revaluate the environmental factors, which will lead to an immeasurable loss. Therefore, the goods involved in this case are definitely unusable in the procedure of stainless steel manufacturing.

8. In response to the additional arbitration claims of the [Seller], the [Buyer] submitted the following written opinions in defense on 3 June 2005, after the trial

      (1) The "Verification of Export Earnings" was not the only document required to process an export tax rebate

Article 1 of the <Circular of the State Administration of Taxation on Some Issues concerning Tax Refund or Exemption on Export Goods> GuoShuiFa [2004] No. 64 states:

"When an export enterprise applies for export tax rebate, despite the application form and related materials, the following documents should also be provided: (1) invoice, foreign trade enterprise should provide VAT invoice; (2) export declaration form; (3) verification of export earnings."

In this case, most of goods were actually exported by the third party Zhejiang Furui Import & Export Trade Co. Ltd, which should provide the VAT invoice or ordinary invoice as a foreign trade enterprise.

Thus, the [Seller] should submit the VAT invoice or ordinary invoice and export commodity declaration form to Arbitration Tribunal. Otherwise, the tax rebate could not be processed whether the [Seller] had verification of export earnings or not.

To sum up: verification of export earnings, VAT invoice, and export commodity declaration form, are all required to process an export tax rebate. There is no necessary connection between whether the [Seller] gets export tax rebate and whether the [Buyer] pays the purchase price.

      (2) The [Seller] should have applied for an extension of the export tax rebate in time

      Article 3 of <Circular of the State Administration of Taxation on Some Issues concerning Tax Refund or Exemption on Export Goods> GuoShuiFa [2004] No. 64 states:

"Export Enterprise should apply for tax refund or exemption to tax authority within 90 days since the date of declaration of commodity export (subject to the date of export noted in <Goods Declaration for Exportation>, similarly hereinafter), overdue application, unless otherwise specified or approved by tax authority higher than (including) the prefecture level for the extraordinary circumstance, will not be accepted."

Article 1 of the <Supplementary Notice of the State Administration of Taxation on Some Issues concerning Tax Refund or Exemption on Export Goods> GuoShuiFa [2004] No. 113 states:

"An export enterprise with one of following conditions should be regarded as the extraordinary circumstance provided by Article 3 of GuoShuiFa [2004] No. 64: (1) failure to get related export tax refund or exemption documents within the time limit for the reason of force majeure; (2) failure to get related export tax refund or exemption documents within the time limit for the reason of adopting monthly post declaration for outbound shipment or other special form of declaration; (3) failure to get related export tax refund or exemption documents within the time limit for the reason of other special operating practice. An export enterprise with one of above conditions, shall submit a written application of extension declaration to the tax authority within the time limit, process tax refund or exemption with the time limit approved by tax authority higher than (including) the prefecture level."

Based on the above provisions, an export enterprise may apply for an extension of declaration if he could not declare within the time limit of 90 days for failing to get the related export tax rebate documents in case of extraordinary circumstances.

In this case, if it were for force majeure reasons that the [Seller] failed to get the purchase price and then failed to get the verification of export earnings, it could apply for the extension of declaring export tax rebate. If the [Seller] cannot prove it had applied for the extension already, even if the loss of export tax rebate really exists, it should be regarded as the [Seller]'s own fault, and has nothing to do with the [Buyer].

      (3) The [Seller] failed to receive the payment because of its own breach

      As the [Buyer] states in the defense, the reason that why it refused to pay the purchase price was the [Seller] fundamentally breached the contract for failing to provide goods and present documents according to the contract. Therefore, even if the [Seller] could not apply for export tax rebate for failing to receiving payment, the should undertake the losses all by itself.

      (4) There is no real price basis for the amount of export tax rebate calculated by the [Seller]

According to the <Circular of the State Administration of Taxation on Some Issues concerning Tax Refund or Exemption on Export Goods> GuoShuiFa [2004] No. 64, an export commodity declaration form should be provided to process an export tax rebate, in order to use the price of export declaration as the base of tax rebate calculation. The [Seller] used US $1,485,697.50 as the base for the export tax rebate calculation, with unit price of US $168/ton and US $163/ton.

While in letters sent on 21, 23 December 2004, the [Seller] stated clearly the prices declared to Customs were US $134/ton and US $130/ton. Therefore, the [Buyer] believes that real amount of export tax rebate could be calculated only after the [Seller] supplies the declaration of exportation. To sum up, the loss of export tax rebate claimed by the [Seller] had nothing to do with the [Buyer]; the real amount of tax rebate could not be calculated without the declaration of exportation.

OPINION OF THE ARBITRATION TRIBUNAL

The applicable law

The parties in this case did not choose the applicable law in the Three Contracts. Since the [Seller] is from China and the [Buyer] is from Germany, and both China and Germany are the Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (hereinafter the CISG), the CISG shall apply in this case.

For the issues which are not covered by the CISG, the [Seller] asserted that Chinese laws shall apply, the [Buyer] expressed in the written documents that Chinese laws shall apply before the hearing, while opposed to adopting Chinese laws in the course of trial. Thus, issues which are not covered by the CISG should be determined by the Arbitration Tribunal according to the applicable conflict rules.

The Arbitration Tribunal holds that, conflict rules of the arbitration locality (China) shall be adopted, including Article 145 of <General Principles of the Civil Law of the People's Republic of China> and Article 126 of <Contract Law of the People's Republic of China>, "If the parties to a contract involving foreign interests have not made a choice, the law of the country to which the contract is most closely connected shall be applied." In this case, the domicile of the seller in the Three Contracts and the arbitration locality are all in China, so the country to which the Three Contracts are most closely connected is China. Therefore, issues which are not covered by the CISG should be settled according to Chinese substantive laws.

Undisputed facts

The Arbitration Tribunal confirms that the following facts are undisputed:

1. The [Seller] and the [Buyer] concluded three written sales contracts (No. CFIC04-F6106, No. CFIC04-F6105, and No. CFIC04-F6108) (hereinafter the "Three Contracts") on 13 August 2004, 17 August 2004, and 3 November 2004, respectively. The Three Contracts are the truthful expression of both parties' intention; neither party attached any conditions to the contracts, nor does any situation exist that may influence the validity of the contracts. Thus the Three Contracts are valid.

2. After the Three Contracts were concluded, in order to fulfill the contracts, the [Buyer] opened six L/Cs together with the total value of US $1,477,000, and the expiration date was finally confirmed as 5 January 2005.

3. After the Three Contracts were concluded, the [Buyer] entrusted SGS and Shanghai CIQ to do the first preliminary inspection on 18 and 19 November 2004. The inspection report showed that the quality of goods did not conform to the contracts, the content of CAF2 was lower than the standard provided, while the content of SIO2 was higher. Afterwards, two parties did a joint sampling on 27 November 2004, and entrusted Shanghai CIQ and SGS to do the second inspection, respectively, the inspection report also showed that the quality of goods was deficient.

4. On 10-11 December 2004, during the course of loading, the [Buyer] entrusted SGS to do a third sampling inspection, and the result issued by SGS on 17 December 2004 still showed the quality problem.

5. After the second inspection, both parties negotiated the contractual problems, including cutting price and updating the quality of the goods, the whole negotiation procedure lasted until the goods arrived at the destination port.

6. The [Seller] failed to present documents before the expiration date of L/C (5 January 2005), mainly because it did not get the Quality and Quantity Certification issued by Chinese CIQ in time, which was one of the negotiable documents of the L/C.

7. After the goods under the Three Contracts arrived at the destination port on 17 January 2005, the [Buyer] entrusted SGS to do the sampling inspection at the same time of discharge. SGS issued the final report on 7 February 2005, according to which, quality of goods was still inconsistent with Three Contracts.

8. In response to the [Buyer]'s application, a Belgium court issued a distress warrant on 19 January 2005, seizing the goods under the Three Contracts at the Port of Antwerp. Later, the two parties negotiated in Beijing but failed to reach a solution plan. The [Seller] initiated arbitration, while the [Buyer] sent a termination notification.

The quality inspections

1. Which inspection result should the goods be subject to?

Article (10) of the Three Contracts states that the negotiable documents of L/C shall include a "Quality Certification and Quantity Certification issued by Chiese CIQ." Based on this article, the [Seller] alleged that the quality of goods under the Three Contracts should be subject to the CIQ Quality Certification, and that being consistent with that certification was actually the business custom between two parties. However, Arbitration Tribunal finds that Article (12) of the Three Contracts states:

"Any objection of quality or quantity shall be raised within 15 days after the date of arrival of the goods at the destination port ..."

The Arbitration Tribunal also notes that, the [Buyer] stated in the e-mail sent to the [Seller] on 26 November 2004: "joint sampling supplier and SGS, CIQ testing, results final, if CAF2 below 90% we cannot load, supplier responsible for dead freight." However, after Shanghai CIQ issued the inspection report, the [Seller] asserted that the inspection result made by itself showed that content of CAF2 was 88%. The [Buyer] stated in the e-mail of 3 December 2004:

"The re-sample result shows really disappointing figures, cargo with this result will be totally unsalable in Europe ...Will see how it is at the load port and report the result, if it would be 87/88 degree as your own result."

Afterwards, inspections at the shipment port and discharge port were processed, the [Buyer] also stated in the e-mail sent to the [Seller] on 13 January 2005:

"SGS as an independent neutral surveyor will take further samples of every 500 tons during discharge in Antwerp. Payment of this delivery will be discussed with Mr. Knoetsch during his next trip to China and the results will be an additional basis for this discussion."

In other words, the SGS inspection result made at the discharge port was also the basis of discussion about the problems of the goods under Three Contracts. The [Seller] did not object to this requirement during the course of the transaction. Therefore, even if parties used to reach an agreement that the second inspection result made before loading should be regarded as the final basis of determining quality of goods, later negotiations and the practical inspections had already modified the issue fundamentally. The final basis of determining quality of the goods should be the SGS inspection result made during the course of discharging at the destination port.

For the above reasons, the Arbitration Tribunal considers that the reasonable interpretation of Article (12) of the Three Contracts should be: "... the buyer shall raise objections to quality or quantity problems based on the inspection result within 15 days since the date of goods arriving at the destination port, and the inspection institution shall be SGS." In other words, the inspection result issued at the destination port has priority over the CIQ inspection result issued at the shipment port. Even if the two parties used to determine the quality of goods by CIQ Quality Certification, the potency of their written contract provision is stronger.

2. The inspections and their results

The Arbitration Tribunal notes that the goods under the Three Contracts were inspected several times mainly by SGS and CIQ, and the inspections were processed before shipment, during the course of loading, and during the course of discharge, respectively. All the inspection results showed that, content of CAF2 was lower than 90% provided in Contract No. CFIC04-F6106 and Contract No.CFIC04 - F6108, and 92% provided in Contract No. CFIC04 - F6105; while content of SIO2 was higher than 9% provided in Contract No.CFIC04 - F6106 and Contract No. CFIC04 - F6108, and 8% provided in Contract No. CFIC04 - F6105. However, there were differences among the inspections. Take the content of CAF2 inspected by SGS as an illustration, the data was 83% in the first inspection, 85% the second time, 86% during the course of shipment, 84.03% and 86.44% during the course of discharge.

Although there were differences among several inspection results, they all showed that quality of goods was not consistent with the contract, especially the inspection result issued during the course of discharge at the destination port -- which has been confirmed by the Arbitration Tribunal in former section to be the authoritative standard -- also proved the quality problem.

According to the e-mail sent by the [Seller] Heqing to the [Buyer] Cathy Luo on 3 December 2004, "Our test result is something around 88% ...", which means that the content of CAF2 was 88% in the inspection raised by the [Seller] itself, still inconsistent with the contract. Arbitration Tribunal thus holds that the quality of goods under the Three Contracts is not consistent with the contract.

The performance of the [Seller]

1. The obligations of the [Seller] under the CISG

According to Article 30 of the CISG, "The seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention."

The [Buyer]'s obligation of delivery under the CISG includes: "Handing the goods over to the first carrier for transmission to the buyer" (Article 31);

"The seller must deliver the goods: (a) if a date is fixed by or determinable from the contract, on that date; (b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or (c) in any other case, within a reasonable time after the conclusion of the contract." (Article 33);

"If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract." (Article 34);

"The seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract." (Article 35).

The shipping port provided in the Three Contracts was Zhenjiang or Nantong in China, the shipping date was September/October 2004 provided in Contract No. CFIC04 - F6106 and Contract No. CFIC04 - F6105, and the day before 15 December 2004 in Contract No. CFIC04 - F6108, later two parties modified all the shipping dates into the day before 15 December 2004. Actually, the goods were delivered from Zhenjiang port on 11 December 2004. Both parties had no dispute about the shipping date and location.

The major problems about the [Seller]'s obligation of delivery are whether the [Seller] had transferred the documents according to the agreement and the quality deficiencies of goods.

2. Whether the [Seller] had transferred the documents in time?

According to the Three Contracts and Article 34 of the CISG, 'If the seller is bound to hand over documents relating to the goods, he must hand them over at the time and place and in the form required by the contract.' Negotiable documents that seller should duly present included a clean on-board B/L, invoice, packing list, Quality Certification and Quantity Certification issued by Chinese CIQ. While in the documents required by the six L/Cs opened by the [Buyer], the packing list was missing, replaced by Origin Certification. Three Contracts did not specify the date of documents transferring, but the expiration date of six L/Cs opened by the [Buyer] was 5 January 2005, therefore the [Seller] had to present the documents required by the L/C to the negotiating bank within the validity period.

In this case, the [Seller] did not present the related documents within the validity period of the L/C. According to [Seller]'s explanation, it was because that the original copy of the CIQ Quality and Quantity Certification was sent on 11 January 2005. However, the [Seller] still breached the obligation under the Three Contracts and the CISG for not duly presenting the documents.

3. The legal consequence of the [Seller] failing to present documents in time

The [Buyer] declared [Seller]'s failure to present the documents in time was a fundamental breach of contract and that the [Seller] should undertake corresponding liabilities.

The Arbitration Tribunal notes:

      (1) According to several e-mails sent between the parties, before 14 January 2005, the major points were the quality problem, and how to solve the quality problem by separately providing high-quality fluorite, while not too much attention was paid to the expiration date of the L/C. The issue of CIQ Certification, which was one of the negotiable document of L/C, was only mentioned in the letter sent by Ellen Hofges to Heqing forwarded by Rain Xiao on 5 January 2005, and the e-mail reply by Heqing to Rain Xiao on 6 January 2005.

      (2) The parties discussed the delivery of goods without B/L by e-mails from 14 January to 17 January 2005. In the e-mail sent by Heqing to Stasche on 17 January 2005, the [Seller] agreed that the [Buyer] could pick up the goods by presenting a bank guarantee to the carrier or his agent after goods arriving at the destination port.

      (3) After receiving the e-mail sent by the [Seller] on 17 January 2005, Cathy Luo, on behalf of the [Buyer]. stated in her e-mail of the same day:

"... besides your confirmation of our discharging the cargo, we need to clarify the following things: 1) After discharge port analysis of cargo in MV INCE B is available, we both shall agree on a revised unit price of the cargo based on disport analysis. 2) Also we need the fixed price of the upgrading material (92 degree cargo 3000 mt) which shall be confirmed by us."

In other words, besides confirming the cargo discharging, the [Seller] should also revise the price based on disport analysis, and fix the price of upgrading material (92 degree cargo 3000 mt).

The Arbitration Tribunal considers that, although the [Seller] did not present documents in time, the [Seller] had already agreed before the goods arriving at the destination port that the [Buyer] could pick up the goods by presenting a bank guarantee to the carrier or its agent. The [Buyer] dully may get the goods duly if it acted according to the instruction. Seen from the correspondences, the two parties actually focused on the quality problem, and the related issues, like how to realize compensation by cutting price or separately providing high-quality goods. Even though the [Seller] delayed presenting documents, if the parties could reach an agreement about those issues, the [Seller] would not have had to initiate the arbitration, neither would the [Buyer] have had to announce the contract termination. The Arbitration Tribunal especially notes that the [Buyer] did not submit a clear claim about the [Seller]'s liability of breach of contract.

The validity of the termination announcement made by the [Buyer]

The Arbitration Tribunal considers that, the major reasons for the dispute are the quality problem and both parties failing to reach an agreement about the remedy measures. According to the CISG, if the goods do not conform to the contract, the buyer may 'reduce the price' (Article 50), "require delivery of substitute goods" (Article 46), "declare the contract avoided" (Article 49), and "claim damages" (Article 74 to Article 77). In cases where the seller has delivered the goods, the [Buyer] can only require delivery of substitute goods or declare the contract avoided when the contract is fundamentally breached.

The Arbitration Tribunal considers the repeated inspection results and the negotiation procedure of cutting price and quality update between the parties have shown that, the quality problem is remediable, and that quality of the goods did not fundamentally breach the contractual provisions. In this case, the [Buyer] has no right to announce the contract avoided or to terminate the contract for the reason of the quality problem.

The arbitration claims of the [Seller] and the counterclaims of the [Buyer]

1. The purchase price

The [Seller] requested that the [Buyer] shall pay the entire purchase price of US $1,485,697.50.

The Arbitration Tribunal considers that, there are deficiencies existing in the aspect of document presentation and quality of goods. However, since the quality problem is not severe, and the Arbitration Tribunal has already regarded the termination announcement made by the [Buyer] as void, the [Buyer] thus has no right to require return or compensating of all of the losses. On the other hand, it is also unreasonable to ask the [Buyer] to pay the entire purchase price according to the price provided in the Three Contracts. Evaluating the practical situation, Arbitration Tribunal considers that the goods which have been seized right now should be turned over to the [Buyer] at a reduced price, with the [Buyer] paying the reduced purchase price.

Specifically, it is reasonable to lower 15% of the price of all the goods under Three Contracts by 15%. The total value is thus US $1,262,842.88.

The Arbitration Tribunal holds that the [Buyer] should pay that part of the purchase price, US $1,262,842.88. Meanwhile, the [Seller] should ensure that the [Buyer] will get the ownership of the goods under the Three Contracts.

2. The overdue payment

The second request of the [Seller] is that the [Buyer] shall pay the overdue payment (until the purchase price being completed). Since the [Seller] did not specify the amount and/or calculation methods of this request, meanwhile the purchase price that the [Seller] is entitled to get is also determined by this award, thus the Arbitration Tribunal does not to support this request.

3. The export tax rebate

The [Seller] declared that, since the [Buyer] refused to pay the purchase price, the [Seller] could not process the formalities of verification of receipt of export within 180 days since the date of case-involving goods being declared export, and then could not apply for the export tax rebate. The [Seller] sought to have the [Buyer] pay the export tax rebate of RMB 543,331.

The [Buyer] asserted that if a reason why the [Seller] could not get <Paper for verification of export earnings> could be regarded as force majeure; the [Seller] could apply for an extension of export tax rebate.

The Arbitration Tribunal considers that, according to Article 117 of the <Contract Law of the People's Republic of China>, force majeure means "the objective circumstances that are unforeseeable, unavoidable and insurmountable." In this case, the [Seller] failing to get the purchase price should not be regarded as such an "objective circumstance," so force majeure is not relevant.

The Arbitration Tribunal holds that, if parties could reach an agreement about price cut and quality update, it would be impossible for the [Seller] to get part of the purchase price and get the export tax rebate. Thus, Arbitration Tribunal decides that the export tax rebate of RMB 543,331 should be borne by the [Seller] and the [Buyer] together, 50% each party, RMB 271,665.50.

4. Expense of case processing and the arbitration fee

The [Seller] claimeded that the reasonable expense of case processing, including attorneys' fee of RMB 1,220,000, should be borne by the [Buyer]. Considering the workload of the [Seller] and the support attitude towards the arbitration requests, Arbitration Tribunal considers that the [Buyer] shall pay the [Seller] the attorneys' fee of RMB 4,000.00.

The arbitration fee of this request should be borne by the [Seller] and the [Buyer] together, 20% and 80%, respectively.

5. The counterclaim of seaway transportation fee

The [Buyer] sought to have the seaway transportation fee of US $472,914.75 borne by the [Seller]. The Arbitration Tribunal considers that the price terms in the Three Contracts are all FOB, so the transportation fee should be regarded as a part of the trade cost of the [Buyer]. In this case, the goods under Three Contracts had already been sold with a price reduction by the Arbitration Tribunal, and the [Buyer] will get the ownership, thus this counterclaim request shall not be supported.

6. Counterclaims of loss of anticipated profit and the expense incurred at the destination port

The [Buyer] sought to have the [Seller] shall pay the loss of anticipated profit of EUR 103,740, which is the price difference between the contract in this case and the contract between the [Buyer] and its next customer. The [Buyer] agreed to deliver with an understanding that, goods may have quality problems, it would be impossible for the [Buyer] to fulfill the contract with next buyer and realize the anticipated profit in time even if both parties reach an agreement about the price cut and quality update. Therefore, Arbitration Tribunal decides not to support the request of anticipated profit.

The [Buyer] also sought to have the [Seller] compensate the expense incurred at destination port in the amount of EUR 79,388.30, later required for the warehouse fee of EUR 26,509.71 incurred at the destination port in March and April 2005 and warehouse fee incurred afterwards until the date of goods in this case being completely processed (EUR 434.59 per day). According to above calculation method, there are 292 days in all from 1 May 2005 to 16 February (date of this award being made), and the amount of relevant warehouse fee is EUR 434.59/day 292 days = EUR 126,900.28. The Arbitration Tribunal holds that above fee was directly tied to the disagreement between two parties about the remedies for quality problem; therefore, each party should undertake 50% of these costs. Until the date of award being made, there is EUR 232,798.29 in all (EUR 79,388.30 + EUR 26,509.71 + EUR 126,900.28), so the [Seller] should pay the [Buyer] EUR 116,399.145.

7. Expense of case processing, arbitration counterclaims fee, evidence preservation charge, and interest

The [Buyer] counterclaimed for the reasonable expense of case processing, including but not confined to attorneys' fee of RMB 1,000.000, should be borne by the [Seller]. The Arbitration Tribunal rules that the [Seller] shall pay the [Buyer] the attorneys' fee of RMB 100,000, other counterclaims including evidence preservation charge of RMB 8,800 and interest are not supported. The arbitration fee of the counterclaims should be borne by the [Seller] and [Buyer] together, 10% and 90%, respectively.

AWARD

The Arbitration Tribunal rules on the Arbitration Claims of the [Seller] as follows:

   1.    The [Buyer] shall pay the [Seller] the purchase price of US $1,262,842.88;
 
   2.    The [Buyer] shall pay the [Seller] the loss of export tax rebate of RMB 271,665.50;
 
   3.    The [Buyer] shall pay the [Seller] attorney fee of RMB 400,000;
 
   4.    The [Seller] shall pay 20% of the arbitration fee (RMB 260,496 in all), RMB 52,189.20; the [Buyer] shall pay 80% of the arbitration fee, RMB 208,756.80. The above arbitration fee has already been credited against same amount prepaid by the [Seller], so the [Buyer] shall pay the [Seller] RMB 208,756.80;
 
   5.    The other arbitration requests of the [Seller] are rejected.

The Arbitration Tribunal rules on the Arbitration Counterclaims of the [Buyer] as follows:

   1.    The [Seller] shall pay the [Buyer] the warehouse fee of EUR 116,399.145;
 
   2.    The [Seller] shall pay the [Buyer] the attorney fee of RMB 100,000;
 
   3.    The [Seller] shall pay 10% of the arbitration fee of the counterclaims (US $20,414 in all), US $2,041.40; the [Buyer] shall pay 90% of the arbitration fee, US $18,372.60. The above arbitration fee has already been credited against same amount prepaid by the [Buyer], so the [Seller] shall pay the [Buyer] US $2,041.40;
 
   4.    The other arbitration counterclaim requests of the [Buyer] are rejected.

Each party shall complete the payment stated above within 30 days since the date of award being made. Overdue interest is 2.1 0/000 per day.

This award is final and binding, takes legal effect upon its issuance


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 [Seller]; Respondent of Germany 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].

** Dong Ping, Bachelor's Degree in Law, Peking University School of Law; Masters Degree in International Economic Law, Chinese University of Hong Kong.

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Pace Law School Institute of International Commercial Law - Last updated August 27, 2009
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