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CISG CASE PRESENTATION

China 23 February 2006 CIETAC Arbitration proceeding (Microwave defrosting lines case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060223c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20060223 (23 February 2006)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2006/25

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: France (respondent)

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

GOODS INVOLVED: Microwave defrosting lines


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 80

Classification of issues using UNCITRAL classification code numbers:

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

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

Descriptors: Fundamental breach ; Failure of performance, other party

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

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

Microwave defrosting lines case of 23 February 2006

Translation [*] by Jingyuan Sun [**]

Edited by Jing Li [***]

  1. Procedure
  2. Facts and Position of Parties
  3. Arbitral Tribunal‘s Opinion
  4. Award

I. PROCEDURE

The China International Economic and Trade Arbitration Commission ("CIETAC", hereinafter also referred to as the ["Arbitration Commission"]) accepted the case (Case No. M2004_____) according to:

-    The arbitration clause in Contract No. MDF020820001 (hereinafter referred to as the "Contract") concluded on 20 August 2002, between Claimant ___ Co. Ltd. [of the People‘s Republic of China] (hereinafter referred to as the "[Buyer]") and Respondent ___ Co. [of France] (hereinafter referred to as the "[Seller]"); and
 
-    The Request for Arbitration submitted by the [Buyer] on 14 December 2004.

The Arbitration Rules of CIETAC (the "Arbitration Rules") which took effect as of 1 October 2000 apply to this case.

On 10 January 2005, the Secretariat of CIETAC (the "Secretariat") forwarded by express mail the Notice of Arbitration, the Arbitration Rules and the List of Arbitrators to the parties, and the Request for Arbitration and its annexes to the [Seller].

The [Buyer] appointed Mr. __ as arbitrator. Since Mr. __ did not reside in Beijing, the [Buyer] prepaid the traveling expense for him. The [Seller] appointed Mr. __ as arbitrator. Since the parties did not jointly appoint or entrust the Chairmen of the Arbitration Commission to appoint a presiding arbitrator within the prescribed period, the Chairman appointed Mr.__ as the presiding arbitrator according to Article 24 of the Arbitration Rules. On 23 February 2005, the three arbitrators established the Arbitral Tribunal to hear the case.

On 18 March 2005, the [Seller] submitted its Statement of Defense and Counterclaims to the Arbitral Tribunal. Later, the [Seller] prepaid the arbitration fee for its counterclaims pursuant to the Arbitral Tribunal's written notice.

On 11 May 2005, the Arbitral Tribunal held the hearing as scheduled. Both the [Buyer] and the [Seller] sent representatives. The [Buyer] amended its claims and submitted a revised Request for Arbitration during the hearing. At the hearing, the parties made oral statements on the facts and their claims, examined the evidence, and answered inquiries of the Arbitral Tribunal. At the end of the hearing, the Arbitral Tribunal required the parties, after consulting them, to submit any supplemental opinions and additional evidence within 30 days. As for the possible cross-examinations by the parties on the supplementary evidence, the parties both agreed to cross-examine in writing.

After the hearing, the parties submitted their supplemental opinions and additional evidence. The Secretariat exchanged these documents between the parties and required them to submit their written cross-examination opinions on the evidence within the prescribed period.

On 23 May 2005, the [Buyer] submitted a Request for Inspection, asking the Arbitral Tribunal to appoint an institution to inspect the quality of the two defrosting lines related to this case.

The Arbitral Tribunal refused this request, via the Secretariat, stating in its letter of 23 June 2005 that it was not necessary to appoint an institution for such an inspection or evaluation.

Since the presiding arbitrator was in the hospital, the Arbitral Tribunal could not hand down its award before the deadline (23 November 2005) according to the Arbitration Rules. On 23 November 2005, the Secretary General of CIETAC extended the deadline for rendering the arbitration award for three months, postponing the deadline from 23 November 2005 to 23 February 2006.

The case is now closed. The Arbitral Tribunal, after discussing jointly, hands down its award based on the verified facts and evidence as well as the written documents submitted by the parties.

The facts, the position of the parties, and the Arbitral Tribunal's opinion and award are as follows.

II. FACTS AND POSITION OF PARTIES

The parties concluded Contract MDF02082001 (the "Contract") on 20 August 2002 in which the [Seller] agrees to sell two 3T/h, 915 MHz microwave defrosting lines to the [Buyer]. The Contract stipulates:

Price. The total contract price is EUR 460,000;
Delivery. CIF Shanghai;
Specifications. The initial temperature of the meat blocks is to be -20ºC, and the final temperature of the meat blocks is to be -4ºC to -2ºC; the average difference in temperature of defrosted meat blocks is to be 1ºC to 2ºC.

The [Buyer]‘s position

The [Buyer] states in its revised Request For Arbitration that, after the Contract was concluded, it paid EUR 230,000 on 12 December 2002 and EUR 184,000 on 5 June 2003. After five stages of debugging and adjusting, the lines still could not meet the quality standard stipulated in the Contract. Since the lines could not meet the acceptance requirement and could not be used for the [Buyer]'s manufacturing, the [Buyer] tried to return the lines to the [Seller]. After negotiating, the [Seller] promised to resell the lines but did not take action for a long time.

According to Article 8 and Article 148 of the Contract Law of the People‘s Republic of China (hereinafter referred to as the "Contract Law"), the [Buyer] alleges that it has fulfilled its contractual obligations, and that the purpose of the contract has been frustrated due to the [Seller]'s failure to fulfill its contractual obligations. Therefore, the [Buyer] filed the present arbitration.

Relief requested by the [Buyer]

1. Termination of the Contract with the [Seller] refunding to the [Buyer] the payment for the goods and compensating for the [Buyer]‘s losses

      (1) The [Buyer] would return the two 915 WHz (Arbitral Tribunal‘s note: sic, it should be "915MHz") microwave defrosting lines. The [Seller] should repay the payments made by the [Buyer], which equal RMB 3,678,673.68.

      (2) The [Seller] should repay the customs duties, VAT and other fees paid by the [Buyer]. The total is RMB 896,921.72.

      (3) The [Seller] should be held responsible for the expense of supporting facilities and resource consumption of the two 915 WHz (Arbitral Tribunal‘s note: sic, it should be "915MHz") microwave defrosting lines totaling RMB 1,769,288.

      (4) The [Seller] should compensate the [Buyer] for the site cost RMB 132,000 and for the interest on the equipment loan RMB 218,000. The total is RMB 351,800.

2. The [Seller] should be held responsible for all of the arbitration costs.

      (1) The attorneys‘ fees: RMB 50,000;

      (2) The arbitration fee.

The [Seller]'s position

The [Seller] states in its Statement of Defense and Counterclaims that:

      Microwave defrosting is a new food processing technology. The [Seller] has sold many microwave defrosting lines and supporting facilities in China and has received many compliments from its customers for the regular operations of its equipment.

      In 2002, the [Seller], through its sales agent, negotiated the sale of microwave defrosting lines to the [Buyer]. In July 2002, the parties had a formal meeting in Shanghai. At the meeting, the [Buyer] provided the [Seller] with samples of two types of meat blocks it needs to defrost.

      The focus of the parties' negotiation was whether the lines can achieve a 3 MT/hour output and assure the final temperature (-2/-4ºC). On 20 August 2002, the parties concluded the Contract and three annexes. Under the circumstances that the samples of meat blocks for defrosting provided by the [Buyer] were partly defrosted, according to the usual requirement of meat by microwave defrosting lines, the [Seller] made technical confirmations on the above-mentioned output, final temperature and difference in temperature in the annexes.

      The [Seller] delivered the lines in June 2003, and sent its personnel to the [Buyer]'s factory to debug and adjust from September 2003.

      However, in the course of the debugging and adjusting, the [Seller] found that the meat provided by the [Buyer] was different from the samples provided at the conclusion of the Contract and was also different from the usual meat for microwave defrosting. The differences in size, weight, and shape, the fact that the meat blocks were packed in cartons, and that part of the meat blocks had air caused some "over-heated points" in the defrosted meat blocks. The [Buyer] called the [Seller]‘s attention to the over-heated points. Although the subject of "over-heated points" was not covered in the Contract and its annexes, the [Seller] tried its best and pointed out the problems to the [Buyer] on the spot several times. In addition, in February 2002, the [Seller] produced a written report, analyzing the problems and providing solutions.

      After diligent adjustment by the [Seller], the defrosting output and the final temperature met the requirements of the terms of technical confirmations in the Contract annexes up until January 2004, and the lines were working well. However, the [Buyer] still refused to accept the two lines on the ground that there were over-heated points in some isolated cases. The [Seller] sent its personnel to the [Buyer]'s factory in April and in June 2004 to check the defrosting. The inspection showed that both the defrosting output and the final temperature met the requirements of the Contract.

      The [Seller] also pointed out to the [Buyer] that meat blocks defrosted by microwave and those defrosted by the traditional method are different in terms of water content and other aspects. Since the [Buyer] had been using the traditional method in defrosting, it should alter the technique and formula in the food processing following the microwave defrosting accordingly in order to maintain the original features of the meat such as its taste. However, the [Buyer] refused to make the adjustment. The [Buyer] showed its lack of cooperation after the [Seller] adjusted the lines for the first time and finally proposed to terminate the Contract. Therefore, the [Seller] alleges that the [Buyer]'s claims are groundless, factually and legally.

1. Regarding the termination of the Contract

      (1) The [Seller] believes that the technical standard for acceptance of the lines is whether the defrosting output and the final temperature of defrosted meat blocks satisfy the requirements of the Contract annexes, not whether there are over-heated points in the meat blocks. The [Seller] alleges that the two lines definitely comply with the standard set by the Contract after being adjusted by the [Seller].

When deciding whether to accept the lines, the [Buyer] should check whether the output, the final temperature of the defrosted meat blocks, and the safety standards satisfy the requirements in Annex 2 of the Contract. Any other standards, including the "over-heated points" claimed by the [Buyer] several times are not mentioned in the Contract and its annexes, and thus, the [Buyer] cannot use this as a standard for accepting the lines.

In fact, the [Buyer] directly processed the defrosted meat blocks and sold the final products after the lines were adjusted. This showed that the two lines actually satisfied the [Buyer]'s manufacturing requirements.

      (2) The over-heated points exist because the meat blocks used by the [Buyer] do not meet the usual requirements for meat blocks for microwave defrosting lines.

From a technical point of view, microwave is not an "all rounder". Both well functioning defrosting lines and materials that are fit for microwave defrosting lines are needed to make high quality defrosted meat. In the "Feasibility Analysis of Importation of Microwave Defrosting Equipment by Malin Food Co. Ltd." provided by the [Seller]'s sales agent to the [Buyer] before the Contract was concluded, it is stated that the materials for defrosting should be "box-type frozen pork, with the size of 60(L) 43(W) 15(H)CM, an initial temperature of -18ºC, and a weight of 25 kilograms/box." During the adjustment, the [Seller]'s engineers pointed out to the [Buyer] many times that the shape and the weight of the meat blocks were irregular, that the packing did not meet the requirements, and that there was air in the meat blocks. Although the output and final temperature satisfy the technical requirements, there would still be some isolated over-heated points because of the problems with the meat blocks provided by the [Buyer]. The [Seller] informed the [Buyer] about the above issue in 2004 in the February and September reports.

In actuality, it is widely acknowledged in the industry that because of the characteristics of microwave defrosting technology, it is very possible to have over-heated points when the materials are different. Many of the [Seller]'s customers home and abroad have also encountered the issue of over-heated points in their defrosted materials and they all understood that it was because of the problems in the materials, instead of the defects in the defrosting lines.

Therefore, it is unfair for the [Buyer] to blame the function of the defrosting lines for the isolated over-heated points. It is legally unfounded for the [Buyer] to terminate the Contract.

      (3) Even if the isolated over-heated points were attributable to problems with the defrosting lines, the [Buyer] would not have the right to terminate the Contract. According to Article 148 of the Contract Law, the prerequisite for a party to a sales contract to terminate the contract on the ground of quality issues is that the quality of the subject matter is so poor that the purpose of the contract is frustrated.

In the present case:

      First, over-heated points only exist in some isolated parts of the meat blocks. The test shows that the weight of those parts is no more than 0.02% of that of the whole block and thus can be ignored. It is obvious common sense in the microwave defrosting industry that isolated over-heated points do not affect the quality of the processed food.

      Second, the [Buyer] purchased the two lines to defrost meat blocks. Therefore, whether the purpose of the Contract is frustrated depends on whether the two lines satisfy the general requirements of defrosting. In the course of negotiating and concluding the Contract, the [Buyer] never mentioned how much over-heated points could affect its manufacturing. Therefore, the [Seller] regards the [Buyer]'s purpose of purchasing the two lines as for the general purpose of using defrosting lines. This understanding is in conformity with the general principles of contract law.

      Third, the test shows that the lines worked well after adjustment and the defrosted meat has been processed and sold. The purpose of the Contract was obviously not frustrated.

None of the situations for terminating a contract provided for by the Contract Law exists in this case. The [Buyer] does not have the right to terminate the Contract.

2. Regarding the refund of the payment for the goods and the taxes paid by the [Buyer]

Since the [Buyer] does not have the right to terminate the Contract, its request that the [Seller] refund the payment for the goods should not be supported. The foreign exchange cost and other fees are costs that the [Buyer] should be responsible for. The [Buyer] is not authorized to hold the [Seller] responsible for those.

Moreover, since the [Buyer] has possession of the goods, the customs duties, VAT and other fees should be borne by the [Buyer].

3. Regarding compensation for the [Buyer]'s economic loss

When considering economic loss, one should recognize that:

      First, according to general principles of contract law, in a sales contract, compensating the economic loss of a party (damages) is one type of responsibility for breach of contract. The prerequisite of such responsibility is that one party breaches the contract and causes actual loss to the other party. In the present case, the [Seller] delivered the two lines in a timely manner and adjusted them to operate regularly and meet the requirements of the Contract. Therefore, the [Seller] did not breach the contract, and the [Buyer] has no right to request the [Seller] to compensate its economic loss.

      Second, the evidence produced by the [Buyer] does not prove that it incurred economic loss. The [Buyer] was not listed as a party in the contracts and invoices in Evidence exhibits 7 - 13. Therefore, this evidence is irrelevant to the case. No evidence has been produced to prove the alleged "resource consumption" and "other unpredictable loss", which are not in the scope of the subject matter of the Contract. In addition, supporting facilities would not lose their value even if the [Buyer] returned the lines.

4. Regarding the arbitration fee

Since the [Buyer]'s claims cannot be supported, the [Buyer] should be responsible for the entire arbitration fee.

The [Seller]'s counterclaims

According to Article 7 of the Contract ("Terms of Payment"), the [Buyer] should pay the balance, i.e., EUR 46,000, within one month after it examines and accepts the lines. As stated above, the [Seller] delivered the lines within the delivery time as per the Contract, and the microwave defrosting lines started operating regularly after the adjustment according to the technical standards stipulated in the Contract in January 2004. Therefore, the [Buyer] should have accepted the two lines and paid the balance. However, the [Buyer] refused to accept the lines and to pay the balance alleging that the lines could not satisfy the [Buyer]‘s manufacturing needs. The [Buyer] insisted on refusing to accept the lines and paying the balance even after the [Seller] sent personnel to adjust the lines for a second time. The [Seller] sent letters to the [Buyer] by itself and through its sales agent Meili Corp., requiring [Buyer] to pay the balance. The [Seller] believes that the [Buyer]'s reasons for not accepting the lines and not paying the balance are untenable. [Buyer] should have paid the balance by 4 July 2004, one month after the last adjustment on 4 June 2004. The [Seller] has the right to claim [Buyer]'s delayed payment.

Relief requested by the [Seller]

The [Seller] requests that:

1.    The [Buyer] should pay the EUR 46,000 balance to the [Seller], and the fine for delaying payment at the rate of 0.021% per day from 4 July 2004 to 18 March 2005. The total of the fine is EUR 2,492.28.
 
2.    The [Buyer] should compensate the [Seller] for its travel expense incurred from the case after the last adjustment. The total of the travel expense is EUR 12,850.
 
3.    The [Buyer] should compensate the [Seller] for its attorneys‘ fee and the arbitration fee for the counterclaim.

The [Buyer]'s response to the [Seller]'s Statement of Defense and Counterclaims

In the "Reply to the [Seller]'s Statement of Defense and Counterclaims" submitted by the [Buyer] dated 18 April 2005, the "Attorney's Opinion" dated 15 May 2005, and the "Attorney's Opinion Regarding the Quality Issues" dated 18 May 2005, the [Buyer] responded as follows.

1. [Buyer]‘s allegation that the final temperature does not meet the requirements agreed in the Contract

In the range between -6ºC and 0ºC, 136 out of 420 points checked by the [Buyer] did not meet the requirements of the Contract. The unqualified rate was 32.38%. A fair portion of the defrosted meat did not satisfy the agreed final temperature.

Annex 1 submitted by the [Buyer] is the diagram of the temperature distribution of meat boxes with even numbers and meat boxes with odd numbers in the test on 17 January 2004. The [Buyer] declares that "the diagram shows that the temperature of every box with an odd number is higher than the temperature of all the boxes with even numbers," and that "any box with an odd number is put side-by-side with the box with the next even number in the line. For example, Box No. 1 and Box No. 2 enter the microwave defrosting cavity structure at the same time. If the microwave is equally distributed in the cavity structure, the final temperature of the two boxes should be the same. Even if the shape of the meat blocks may affect the final temperature, it would not be the fact that the temperature of every box with an odd number is higher than the temperature of all the boxes with even numbers from a statistical point of view. On the other hand, the two temperature lines would have been intersectional." Therefore, the [Buyer] concludes that "the difference in the final temperatures of the boxes put side-by-side is caused by the unevenly distributed microwaves in the defrosting cave, a defect in the two lines. This can be supported by the Supplementary Evidence exhibit 5 submitted by the [Seller]".

Supplementary Evidence exhibit 5 submitted by the [Seller] shows that the final temperature of 98.9% of the lean meat and of 88.9% of the fat meat is between -6ºC and 0ºC after microwave defrosting and exposure to the air for two hours. However, according to the Contract, the final temperature of the meat blocks should be between -6ºC and 0ºC after microwave defrosting without the two-hour exposure to the air. Such exposure is the [Buyer]'s food processing procedure following the defrosting, and is irrelevant to the quality of the microwave defrosting lines. The temperature of the meat blocks after they are defrosted by microwave and exposed to the air could not be used as the final temperature in the acceptance of the lines.

2. The [Buyer]‘s allegation that the output of the lines does not meet the requirements agreed in the Contract

Output is another important standard stipulated in the Contract.

According to the [Buyer]'s Evidence exhibit 16, the [Buyer] alleges that the output of the five recipes of 90% lean meat is from 1.85 MT/hour to 2.5 MT/hour, and that of the five recipes of 50% lean meat is from 1.85 MT/hour to 2.5 MT/hour, while the agreed output is 2.6 to 2.8 MT/hour and 3.0 to 3.3 MT/hour, respectively. The output of the lines never met the agreed standard of the Contract.

3. The [Buyer]‘s allegation that the [Seller] repeatedly places blame on problems with the meat in order to conceal the defects of the lines

The [Buyer] in its brief statement referred to the first adjustment from 2 September to 25 September 2003 and the second adjustment from 28 October to 29 October 2003, and cited from the [Seller]'s Statement of Defense and Counterclaims that in October 2003, the output and final temperature met the terms of technical confirmations in the Contract (Arbitral Tribunal‘s note: At the hearing on 11 May 2005, the [Seller] orally acknowledged that it was in January 2004 when the requirements of the Contract were met). Later, the [Buyer] stated that:

"If the two lines were working well as alleged by the [Seller] after two adjustments, why would the [Seller] waste the money to conduct the third adjustment and voluntarily offer to change the core component (magnetron) of the lines free of charge during the fourth adjustment? Obliviously, the two lines were of poor quality, and the [Seller] knew from the beginning that its lines could not meet the technical confirmations of the Contract."

4. Regarding the meat blocks for defrosting

      (1) The two meat blocks in the photo submitted by the [Seller] as Evidence exhibit 1 are not the only meat blocks shown during the negotiation.

      In July 2002, during the [Seller]'s general manager's visit to the [Buyer]'s factory, the general manager discussed with the [Buyer]'s technicians about the characteristics of the lines and microwave defrosting technology. When they discussed how the fat content of a meat block could affect the defrosting, the [Buyer] showed more then ten meat blocks with different fat contents in order to ensure the fulfillment of the contractual purpose. Thereafter, the [Buyer] accompanied the [Seller]‘s general manager to visit the workshops under operations. The [Seller] did not bring up the size of the meat blocks at that time.

      (2) The two meat blocks in Evidence exhibit 1 are not the ones that were shown as samples, nor are they fit for the material or formal requirements in the legal sense.

      According to the Contract Law, a sample needS be placed under seal to be effective. Since the [Seller] only submitted the photo of two meat blocks, but did not seal them or obtain the signatures of both parties, the two meat blocks are not samples.

      (3) The [Seller] did not specify the standard size of meat blocks in the Contract.

      In the course of negotiating the Contract, the [Seller] only mentioned that the fat content of meat blocks would affect the defrosting results. Therefore, Annex 2 of the Contract stipulates different technical standards for 50% lean pork and 90% lean pork. However, the [Seller] never challenged the size and shape of the meat blocks prepared by the [Buyer]. Neither party mentioned any requirements of the meat blocks when confirming the technical standards.

After citing part of the [Seller]'s defense, the [Buyer] stated that:

"The [Seller] confirmed the technical standards based on the usual requirements of the meat blocks and the fact that the meat was partly defrosted ... In order to get the Contract concluded, the [Seller] recklessly confirmed the output and final temperature based on general requirements for microwave defrosting lines. The [Seller] should be responsible for any unfavorable consequences due to its recklessness."

5. Regarding the over-heated points from over defrosting

The [Buyer] made the following statement:

      The encyclopedia does not define the term "over-heated points." The [Buyer] calls the Arbitral Tribunal's attention to the fact that this term is not an individual technical index, but "over-heated points" are related to the temperature distribution of the defrosted meat blocks and thus the final temperature. The [Seller] alleged that "over-heated points" are not included in the technical standard of acceptance in order to conceal the poor quality of the lines. In fact, the number of over-heated points, to some extent, shows whether the two lines meet the final temperature and the temperature difference between pre-defrosted and defrosted meat blocks specified in Annex 2. Over-heated points appear to be cooked in practice, and the temperature of some of these cooked points reach 80ºC. The [Buyer] purchased the two lines to defrost the meat but not to cook the meat. Cooked meat will affect the food processing that follows and thus the quality of the [Buyer]'s final products. Moreover, the over-heated points test was sampling. The actual over-heating is much more severe than demonstrated by the statistics. This substantially affects the [Buyer]‘s regular production.

      If the final temperature is between -4ºC to -2ºC, and the difference of temperature between pre-defrosted meat and defrosted meat is kept within 1ºC to 2ºC, the problem of over-heating and cooking the meat would not exist. The failure of the defrosting lines to satisfy the technical standard is the direct cause of over-heated points. Therefore, the [Seller] should not deny the existence of the over-heated points by asserting that the Contract has not specified such technical standard.

6. The [Buyer]‘s allegation that the severe defect of the microwave defrosting lines frustrated the purpose of the Contract, and that the [Buyer] has the right to terminate the Contract

The [Buyer] concluded the Contract to purchase microwave defrosting lines in order to defrost meat blocks within a shortened period of time, to reduce the lost of blood and improve the quality of defrosted meat, and to meet the requirements of materials for its food processing and manufacturing. However, the lines achieve none of these purposes.

      First, the time for defrosting is not shortened. Since the final temperature of the meat blocks was lower than required, the [Buyer] had to put them onto defrosting racks overnight for further defrosting.

      Second, because the final temperatures of different parts of a meat block are very different, the heat exchange among the different parts during the further defrosting would make some defrosted points refrozen, and thus causing the damage of the tissues and lost of blood in the meat resulting in lowering the elasticity of the tissues of the meat.

      Third, since some over-heated parts of the meat blocks are actually cooked, the protein form of those parts changes, and the meat cannot be preserved without an extra procedure that cuts off the cooked points causing extra expenses in labor.

      Fourth, some of the defrosted meat is unevenly preserved because some part of it is cooked and some other part is not. This substantially lowers the quality of the final products because they appear to be too firm, lack of tenderness, and rough in transection.

      Lastly, the total defrosting output dropped because the two microwave defrosting lines occupied the space which was used for manual defrosting.

In conclusion, the purpose of the Contract has been frustrated.

7. The [Buyer]‘s allegation that the [Seller] is liable for the damages and the arbitration fee for this case

As stated above, because the purpose of the Contract was frustrated, the [Buyer] is entitled to terminate the Contract. According to Article 97 of the Contract Law, the [Seller] should return the 90% of the contract price paid by the [Buyer], and the [Seller] has no right to claim the remaining 10% thereof. In addition, the [Seller] should be liable for the interest on the loan, the customs duties, the VAT, and the exchange difference incurred by the [Buyer] in the course of performing the Contract.

According to Article 115 of General Provisions of Civil Law of the People‘s Republic of China and Article 97 of the Contract Law, the [Seller] should compensate the [Buyer] for the cost of resources and supporting facilities for the two lines. The [Buyer] installed a chilled water booster pump, power cable electric boxes, and reconstructed the second and the fourth floors in the workshops for the two microwave defrosting lines. Because the above mentioned facilities and reconstructions were for the operation of the two defective lines, all of them have lost their values. The [Seller] is responsible for the total cost of those facilities and reconstructions, i.e., RMB 730,000.

Adjustments of the lines consumed a lot of resources including 75 tons of meat, 3,996 tons of water, and 12,960 kilowatt-hours of electricity. In addition, the [Buyer] paid RMB 47,520 for the labor. The total cost of resources and labor for adjusting the lines is RMB 888,288. The [Buyer] tried to reprocess the poorly defrosted meat produced during the adjustments in order to mitigate the loss. However, the quality of the defrosted meat was so poor after several times of defrosting that the final products did not meet the quality standards set by the quality inspection authorities. The [Buyer] had to internally handled these products and eventually had to scrap them.

It is the [Seller]'s breach of contract that led the [Buyer] to apply for arbitration. Therefore, the [Seller] is liable for the arbitration fee.

8. The [Seller] is not entitled to claim the 10% balance of the contract price

After the lines were adjusted five times, the output and final temperature still could not meet the requirements of the Contract, and the meat defrosted in the lines could not be used for the [Buyer]'s food processing. Therefore, the [Buyer] is not obligated to pay the 10% balance of the contract price.

9. The [Seller] is liable for the traveling cost incurred by the [Seller]

It is agreed in the Contract that the [Seller] is responsible for adjusting and for after-sale service. Since adjusting the lines is a contractual obligation of the [Seller], the [Seller] should be liable for the traveling cost incurred in the adjusting. Since the dispute arose because the two severely defective lines do not meet the requirements of the Contract, the [Seller] is also responsible for costs incurred after it breached the Contract, including the traveling cost.

10. In summary

The [Seller]'s counterclaims are groundless. They should not be supported. The [Seller] is liable for all of the attorneys‘ fees and arbitration fees in this case.

The [Seller]'s After-Hearing Statement and Opinion on the [Buyer]'s documents

In its After-Hearing Statement and Opinion on the [Buyer]'s documents dated 13 June 2005, the [Seller] stated:

1. Regarding the standard final temperature agreed in the Contract

The standard final temperature agreed in the Contract is between -6ºC and 0ºC. The [Buyer] acknowledged this during the hearing. Therefore, the -5ºC/-1ºC standard in the [Buyer]'s evidence is groundless and should not be accepted. The statistic results based on this standard should be ignored.

2. Regarding the adjustment of the lines

The [Seller] sent its personnel to assemble the two lines after they were delivered to the [Buyer]'s workshops in September 2003. Later, the [Seller] sent its engineers to adjust the lines in October 2003. The engineers found that the microwave was distributed unevenly and sent some other engineers to adjust the lines again. These were the first adjustments. In December 2003, the [Seller] sent its engineers again to adjust the two lines. That adjustment was suspended during Christmas and New Year and restarted in January 2004. This was the second adjustment. It should be noted that to ensure the result of this adjustment, the [Seller] brought a magnetron from France as a backup. After the parties checked the lines and the results showed that the two lines had met the requirements of the Contract, the [Seller] brought the magnetron back to France. Thereafter, the parties performed a test on the defrosting lines. The result showed that the technical index of the lines met the requirements of the Contracts.

The [Seller]'s personnel went to the [Buyer]'s workshops in April and June 2004 only to help the [Buyer] deal with the so-called "over-heated points", which were irrelevant to the technical confirmations under the Contract.

3. Regarding the meat blocks

In July 2002, when the parties were negotiating the Contract in Shanghai, the [Buyer] showed the [Seller] the two types of meat blocks that were to be used in defrosting. This fact was confirmed by both parties at the hearing. However, while the [Buyer] confirmed that the meat blocks shown in the photo submitted as Evidence exhibit 1 by the [Seller] were the ones that the [Buyer] provided for defrosting, at the same time, the [Buyer] alleged that the meat blocks in the photo were not all of the types of meat blocks shown to the [Seller] during the negotiation. The [Buyer] must produce related evidence to prove that it had provided other types of meat blocks at negotiation and the details of these meat blocks, otherwise its allegation should not be supported.

According to the occasion and function at which the [Buyer] showed the two meat blocks, it is reasonable for the [Seller] to assume that meat blocks with the same basic features would be used in the microwave defrosting lines. The [Buyer] itself also confirmed at the hearing that "the two meat blocks provided are representative" (hereinafter referred to as "representative meat blocks").

In Evidence exhibit 7 submitted by the [Seller], the Expert Opinion, the two microwave defrosting experts state that the defrosting results will be affected if the shape and weight of meat blocks are not unified, and if there is air in the meat blocks.

In fact, the meat blocks used by the [Buyer] are not unified and regular in terms of shape and weight with air in the meat, and are very different from the "representative meat blocks" shown at the negotiation. It should be further noted that after being notified by the [Seller] about the problems of the meat blocks, the [Buyer] did not solve the problems, and declared at the hearing that it could not improve the meat blocks accordingly and provide meat blocks of the same features of the "representative meat blocks".

The technical standards such as output and final temperature in the Contract were made based on the prerequisite that the meat blocks to be used in the defrosting lines are to be of the same features of the "representative meat blocks". When the [Buyer] could not provide meat blocks with the same or similar features of the "representative meat blocks", the results of the defrosting test would not meet the requirements of the Contract. Therefore, the [Seller] should not be liable for the negative result of the defrosting test.

4. Regarding the result of the defrosting test

The [Seller] alleged that, "during the test in January 2004, the parties recorded the same initial date of the test respectively" and "drew contrary conclusions based on the same data."

The [Seller] alleged that the reasons why the parties had contrary conclusions are that the [Buyer] did not use the data collected after the meat blocks were exposed in the air for two hours, nor did the [Buyer] use the -6/0ºC final temperature standard in the Contract as the basis. More importantly, the [Buyer] did not consider the effect on the result by the meat blocks that did not conform to the requirements. Therefore, the [Buyer]'s conclusion regarding the test cannot be used to decide whether the two lines satisfy the requirements of the Contract.

On the other hand, the [Seller] made its conclusions based on the -6/0ºC final temperature standard in the Contract. The data used by the [Seller] was collected after the meat blocks were exposed in the air for two hours, a usual method in the microwave defrosting industry and in conformity with the parties‘ agreement. The [Seller]‘s conclusion is based on the right data and thus reliable.

With regard to the over-heated points:

      First, the issue of "over-heated points" is never mentioned in the Contract or its annexes, and thus cannot be used as a standard in deciding the lines' compliance with the requirements of the Contract.

      Second, the over-heated points exist because of the problems of the meat blocks and not because of defects of the lines, which is proved by the [Buyer]'s evidence as well.

      Moreover, the weight of the parts of meat blocks with over-heated points is only 0.02% of the total weight, which can be ignored.

5. Regarding the [Buyer]'s request for inspection

The [Buyer] has requested the Arbitral Tribunal to appoint an institution to inspect the quality and operation of the two defrosting lines. The [Seller] objected to this request and provided the following reasons:

      First, it can be seen from the hearing that the parties did not dispute the data collected from the test. Therefore, it is not necessary to appoint an institution to inspect and re-do the test.

      Second, it has been more than one year since the [Seller] went to the [Buyer]'s workshops to solve the problem of over-heated points for the last time in June 2004. The two lines have been operated and maintained by the [Buyer] since then. If the lines are inspected and tested now, the result of such test will not reflect the true conditions of the lines after the adjustments by the [Seller]. The [Seller] does not have any knowledge of the current conditions of the defrosting lines, either.

III. THE ARBITRAL TRIBUNAL'S OPINION

1. Regarding the Contract

The [Buyer] filed the present dispute with CIETAC based on the arbitration clause in Contract No. MDF020820001 concluded on 20 August 2002 (the Contract). The [Seller] did not challenge CIETAC‘s jurisdiction in its Statement of Defense and Counterclaims. On 10 May 2005, the [Seller] submitted six Supplementary Evidence exhibits to the Arbitral Tribunal, including a contract also numbered MDF020820001 concluded on 20 August 2002 between the [Seller] and Shanghai Food Import and Export Corporation. The content of this contract is identical to the Contract at issue except for the name of the buyer. The [Seller] explained at the hearing that it submitted this evidence to show that these two contracts concerned the same single transaction, and that the [Buyer] needed to have Shanghai Food Import and Export Corporation act as its import agent due to the import regulations of China, instead of intending to challenge the Contract at issue. The performance of the Contract at issue, including paying the contract price, was performed by Shanghai Food Import and Export Corporation. Therefore, the [Seller] understood that Shanghai Food Import and Export was the [Buyer]‘s import agent. As the principal, the [Buyer] had the right to refer the dispute to arbitration.

The [Buyer] confirmed the above-mentioned contract between the [Seller] and Shanghai Food Import and Export Corporation, that there existed merely one transaction, and the fact that Shanghai Food Import and Export Corporation was its import agent in this transaction.

Therefore, the Arbitral Tribunal confirms that:

(1)    The [Buyer] applied for arbitration according to the Contract and it is appropriate and lawful for the Arbitral Tribunal to accept and hear the case.
 
(2)    Any performance completed by Shanghai Food Import and Export Corporation under its contract (MDF020820001) with the [Seller] should be considered as the conduct of an agent of the [Buyer].
 
(3)    The Arbitral Tribunal accepts and hears this case based on Contract No. MDF020820001 concluded by the parties on 20 August 2002, i.e., the Contract at issue. The contract between the [Seller] and Shanghai Food Import and Export Corporation numbered MDF020820001 is accepted as evidence and reference of the present case.

2. Applicable law

The parties did not choose the applicable law in the Contract. Since the countries where the parties reside (China and France) are both Contracting States to the United Nations Convention on Contracts for International Sale of Goods (hereinafter referred to as the "CISG"), the CISG applies to this case. For matters not covered by the CISG, the law of China applies according to the principle of the most close connection.

3. The main disputed issue

The Arbitral Tribunal notes that, the [Buyer] alleged that after five adjustments, the 3T/h, 915 MHz microwave defrosting lines could not meet the final temperature requirements in Annex 2 of the Contract by April 2004. The defrosting lines did not conform to the Contract. Therefore, the [Buyer] requested to return the lines, and that the [Seller] refund the payment the [Buyer] made and compensate the [Buyer]‘s loss. The [Seller], on the other hand, declared that the lines met the requirements of the Contract in January 2004 after adjustments, and requested that the [Buyer] pay the 10% balance of the contract price.

The Arbitral Tribunal finds that the main disputed issue is whether the microwave defrosting lines meet the requirements of the Contract after the adjustments. However, whether the defrosting lines meet the requirements of the Contract involves many sub-issues. According to the statements and the evidence provided by the parties, the Arbitral Tribunal summarizes the sub-issues as follows: (1) the final temperature; (2) the over-heated points; and (3) the quality of the meat blocks. The Arbitral Tribunal will first analyze these three sub-issues, and then decide whether the defrosting lines meet the requirements of the Contract after the adjustments to determine whether the claims by the [Buyer] and the counterclaims by the [Seller] should be supported or not.

4. The final temperature

The Arbitral Tribunal notes that it is stipulated in Annex 2 of the Contract that:

"2. Final Temperature: The initial temperature of the meat blocks is -20ºC, and the final temperature should be -4ºC to -2ºC.

"Generally, the average difference in temperature of defrosted meat blocks should be 1ºC to 2ºC.

"The temperature of thicker parts of the meat or the parts with less fat content will be lower than the temperature of thinner parts or the parts with more fat content."

The expression "Generally, the average difference in temperature of defrosted meat blocks should be 1ºC to 2ºC" is vague and can be interpreted in many ways. It need further explanation of its precise meaning. The Arbitral Tribunal inquired the parties' opinions at the hearing, and the parties both agreed that, based on the range of acceptable difference in temperature, the acceptable final temperature is -6ºC to 0ºC.

The [Seller] made the following calculation in its Supplementary Evidence exhibit 5 dated 10 May 2005 (Editor’s note: The Arbitral Tribunal then cites the following "as is" in English in order to avoid mistranslating):

90/10 meat blocks:
"Number of controlled boxes: 28
" Number of points measured in each box: 15,
" i.e., 28 15 = 420 points.
" Number of points between -6 and 0ºC: 284 (=67.6%),
" Number of points above -6ºC: 136 (32.4%)
" ...
"After 2 hours out of 29 blocks:
- "Number of measured points: 417
- "Number of points between -6 and 0ºC: 412 (=98.9%),
- "Number of points above -6ºC: 5 (=1.1%)"

50/50 meat blocks:
"Number of controlled boxes: 8 (...)
" Number of points measured in each box: 15,
"i.e., 8 x 15 = 120 points.
" 86 points between -6 and 0ºC (=71.7%),
"34 points above -6ºC (=28.3%)."
"...
"After 2 hours:
- "Number of measured points: 117
- "104 points between -6 and 0ºC: (=88.9%),
- "13 points above -6ºC: (=11.1%)"

In its Opinion of Cross-Examination dated 18 May 2005, the [Buyer] commented on the above, stating that:

"It is impossible to find the source and confirm the authenticity of this Evidence exhibit since there is no original copy of the document. It cannot support the [Seller]'s claim, and in fact proves that the lines did not meet the requirements of the Contract."

The Arbitral Tribunal finds that the calculation in the Supplementary Evidence exhibit 5 was accomplished by the [Buyer] (Translator‘s note: It should be "the [Seller]" judging from the context.) and should be confirmed. The [Seller] (Translator‘s note: It should be "the [Buyer]" judging from the context.) is also authorized to conduct its own calculation to explain its claim. The issue is whether such calculation is precise and reliable.

At the hearing, the [Seller] orally stated that the calculation it conducted was based on the test data recorded together with the [Buyer] and the parties checked and approved the data. With the inquiry of the Arbitral Tribunal, the [Buyer] confirmed this statement by the [Seller].

The Arbitral Tribunal notes that, beside the calculation cited above, in the Supplementary Evidence exhibit 5 submitted by the [Seller], there are two tables for 50/50 meat blocks and 90/10 meat blocks, respectively. Both tables list items according to "Box No" and the columns were titled "Points between -6 and 0ºC" and "Points above -6ºC". Before submitting the Supplementary Evidence exhibit 5, in the "Report on the adjustments of Malin microwave defrosting lines" submitted by the [Seller] dated 4 May 2005, Table 1 and Table 2 show the record of temperature of defrosted lean meat by Machine No. 1 and Machine No. 2 (power at 50KW and belt speed at 54 CM/MN), respectively. Table 3 in the report shows the temperature record of defrosted fat meat with power at 50KW and belt speed at 55CM/MN. These three tables, with categories by the number of boxes, list the temperature after defrosting and the temperature two hours after defrosting.

The above tables reflect the [Seller]'s data from the test.

The Arbitral Tribunal also notes that the [Buyer]'s Attorney's Opinion on the Quality Issues (Annex 2), dated 16 May 2005, mentions a "temperature record on 17 January 2004 of lean meat defrosted with the power at 50KW and the belt speed at 54 CM/MN" categorized with the number of boxes (including a column called "out of the range part"). This reflects the [Buyer]'s data from the test.

The Arbitral Tribunal finds that the table regarding 90/10 meat blocks in the [Seller]'s Supplementary Evidence exhibit 5, the Table 1 of its "Report on the adjustments of Malin microwave defrosting lines", and the table in "temperature record on 17 January 2004 of lean meat defrosted with the power at 50KW and the belt speed at 54 CM/MN" should be cross-references. The purpose of cross-referencing is to examine whether the data obtained by each party is identical to each other. After carefully examining the data, the Arbitral Tribunal finds that:

      (1) The "Box No" in the [Seller]'s tables is the same as the "Box No" in the [Buyer]'s table.

      (2) The number of points listed by the [Seller] in the "Points above -6ºC" column for 90/10 meat blocks generally matches that listed in the "out of the range part" column by the [Buyer] (expect for certain obvious mistakes). Particularly, the total "136/420" indicated in the "out of range part" column is identical to the [Seller]‘s calculation cited above.

      (3) The temperature record of meat after defrosting in the [Seller]'s Table 1 matches that in the [Buyer]'s table.

The [Buyer] only submitted one table limiting the above cross-references to merely 90/10 lean meat blocks. However, the above findings show that the data on the temperature in the test in January 2004 collected by the [Buyer] are identical with that collected by the [Seller], which further demonstrate that it is credible with regard to the parties‘ confirmation of the data at the hearing. Therefore, although the [Buyer] challenged the [Seller]'s data recorded in the Supplementary Evidence exhibit 5, the data being utilized for the [Seller]‘s calculation is identical to the one that is recorded by the [Buyer]. Hence, the Arbitral Tribunal will decide the final temperature issue based on the calculation in the [Seller]'s Supplementary Evidence exhibit 5.

The [Seller] alleges that the above data show that the final temperature meets the requirements of the Contract, while the [Buyer] insists that the data do not, and that the data demonstrate that the defrosting lines are severely defective.

According to the [Buyer], the final temperature of 98.9% of the lean meat and that of 88.9% of the fat meat is between -6ºC and 0ºC after microwave defrosting and exposures to the air for two hours. However, according to the Contract, the final temperature of the meat blocks should be between -6ºC and 0ºC after microwave defrosting without the two-hour exposure to the air.

A relevant issue is: Whether an two-hour exposure or an exposure for other certain hours is a necessity in the processing of defrosting in order for the meat blocks‘ final temperature to be examined, and thus, whether this exposure is a component of the defrosting process.

Neither the Contract nor Annex 2 defines the term "final temperature." According to Supplementary Evidence 2 dated 30 April 2005, the document titled "Supplementary Remarks on the 1 August 2002 Exchange Conference on Microwave Defrosting Technology" and the notes prepared by Ouyang ___, the Arbitral Tribunal finds that in the "Supplementary Remarks on the 1 August 2002 Exchange Conference on Microwave Defrosting Technology", the relevant record reads:

"After microwave defrosting, the final temperature of the entire box with the initial temperature of -18ºC is between -4ºC to -2ºC. After thermal balance for a while (about three hours), the temperature of the meat blocks could reach -2ºC to 0ºC, and the next process will begin."

Ouyang ___'s notes state:

"(4) Thermal Balance. Thermal balance is necessary after microwave defrosting (-20ºC --> -4/-2ºC)

"Thermal balance is necessary for temperature uniformity due to the fact that microwave‘s disorder."

In the [Buyer]'s Evidence exhibit 20, i.e., the "Analysis on the Causes for Uneven Defrosting" enclosed with the letter dated 27 February 2004 prepared by Qin Li from Meili International, it is stated that "the only way to achieve temperature uniformity after microwave defrosting is to wait for 2 to 4 hours until the difference in the temperature drops to 1ºC to 3ºC.

Therefore, to describe the microwave as "disordered"is exaggerating. However, the wording vividly reflects the elements that affect the final temperature of microwave defrosting, which are numerous, complicated, and sensitive. The Arbitral Tribunal finds that thermal balance (exposing the meat blocks in the air) is a necessary step following microwave defrosting to achieve temperature uniformity of the meat blocks. However, in the present case, since neither the Contract nor its annexes resolves the issue of "thermal balance", the Arbitral Tribunal needs to decide whether "thermal balance" is a necessary step for the meat blocks to reach the "final temperature" agreed in the Contract, or a step that improves the results after the meat blocks reach the agreed final temperature. If it is the former, the "thermal balance" should be considered a necessary step in reaching the final temperature and the temperature should be examined after the "thermal balance" in determining whether the temperature is in conformity with the Contract, which means that the [Seller]‘s claim should be supported; if it is the latter, the meat blocks should reach the final temperature before the "thermal balance" in order to meet the standard of the Contract, which means that the [Buyer]‘s claim should be supported.

In the evidence submitted by both parties cited above, the final temperature should be the temperature after the thermal balance according to the " Supplementary Remarks on the 1 August 2002 Exchange Conference on Defrosting Technology " and "Ouyoung ___'s notes", but it should be the temperature before the thermal balance according to the " Analysis on the Causes for Uneven Defrosting". Regarding this technology intensive issue, it should be determined and agreed on by the parties via technology exchange and discussion, but not decided by the Arbitral Tribunal. However:

      (1) The Contract and its annexes do not stipulate the issue;

      (2) Even when considering the two-hour thermal balance (exposing the meat blocks to the air) procedure, according to the [Seller]‘s calculation, the temperature of the meat blocks is close to but not entirely fulfilled the final temperature agreed in Annex 2. After the two-hour exposure to the air, 98.9% of the 90/10 meat blocks and only 88.9% of the 50/50 meat blocks reached the final temperature.

Therefore, the Arbitral Tribunal finds that the meat blocks are defrosted by the two microwave defrosting lines. However, they were only close to but never reached the final temperature agreed in the Contract.

The Arbitral Tribunal also notes that the [Buyer] alleges that the two lines have severe quality defects based on the above data. The [Buyer] declares that according to the data collected on 17 January 2004, the temperature of boxes after defrosting with odd numbers is higher than that of those with even numbers. In addition, the [Buyer] (Translator‘s note: It should be "the [Seller]" judging from the context.) has agreed to replace the magnetron free of charge. Therefore, the [Buyer] concludes that the microwave in the defrosting cavity is not evenly distributed. The [Buyer] also declares that since the [Seller] offered to change the core part (the magnetron) for free during the fourth adjustment, it is reasonable to presume that the microwave defrosting lines delivered by the [Seller] have quality defects and do not meet the requirements of the Contract.

The Arbitral Tribunal notes that before the second-staged adjustment claimed by the [Buyer], i.e., the first adjustment claimed by the [Seller], the [Seller] had sent its engineers to solve the uneven distribution of microwave. A magnetron is a key component of the microwave device. At the fourth-staged adjustment claimed by the [Buyer], i.e., the second adjustment claimed by the [Seller], the [Seller] did bring a magnetron from France. However, the [Seller] took the magnetron back when it decided that the magnetron in the defrosting lines were functioning well.

The Arbitral Tribunal finds that with regard to microwave device, it is not surprising that the microwave is not distributing evenly. What is important is to adjust the microwave. The mere fact that the [Seller] was prepared to replace the magnetron free of charge only demonstrates that the [Seller] was acting with reasonable care during adjustment. Moreover, the original magnetron was not defective, and thus, the [Seller] took the magnetron back to France. Regarding the [Buyer]'s allegation that the defrosting lines are severely defective because the temperature of boxes after defrosting with odd numbers is higher than that of those with even numbers, the Arbitral Tribunal finds that without other direct evidence, this allegation is merely a speculation. It is in need of further investigation. Even if it is confirmed that the microwave is unevenly distributed, it could only prove that the microwave was not perfectly adjusted and needs further adjustment.

With the complexity of the facts of the present case, the conclusion that the Arbitral Tribunal can make at this point is that, based on the data collected in the test on 17 January 2004, the final temperature of the meat blocks was close to but did not reach the final temperature agreed in the Annex 2 of the Contract.

5. Regarding the over-heated points

It is recorded in Evidence exhibit 15 ("Record of over-heated points in defrosted meat blocks") submitted by the [Buyer] that:

"Number of sampling meat blocks: 875. Number of over-heated meat blocks: 46. ... Detailed Records: a. Number of meat blocks with over-heated interior: 16. Number of meat blocks with over-heated exterior: 30."

This coincides with the data in the [Seller]'s "Analysis on the Causes for Uneven Defrosting". Therefore, these data should be considered agreed on by the parties.

The Contract does not stipulate whether the existence of over-heated points is allowed or not. In the fifth-staged adjustment according to the [Buyer] (the third adjustment according to the [Seller]), the parties tried to eliminate or reduce the over-heated points without changing the shape and size (i.e., the evenness) of the meat blocks. But in vain.

In the conclusion of the Shanghai Malin Report, it is stated that:

"The wish of the Shanghai Malin team was to obtain products with no hot spot (internal and external), so tiny it could be. To globally obtain this result, we had to treat the balls with much lower power than what we thought during the discussions held in 2002, and then the final temperatures we achieved were much lower: the balls had to be stored in a room for a too long time (2 to 3 times more than expected), and this was not suitable for Shanghai Malin."

Ets Chillet & Cie explained in its letter dated 21 March 2005 that its experience was similar to that of Shanghai Malin.

Therefore, the problem with the over-heated points was not resolved.

It is stated in the [Buyer]'s "Attorney's Opinion" dated 15 May 2005 that:

"... The measurement of over-heated points is not an individual technical index. Over-heated points are related to the temperature distribution of the defrosted meat blocks and thus the final temperature. The [Seller]‘s allegation that over-heated points are not included in the acceptance standard under the Contract is to conceal the substantive problem. The number of over-heated points, to some extent, shows whether the two lines meet final temperature and temperature difference specified in Annex 2. Over-heated points appear to be cooked in practice. The temperature of some of the points reach 80 ºC. The [Buyer] purchased the two lines to defrost the meat but not to cook the meat. The fact that the meat is cooked in defrosting affects the following food processing and thus the quality of the [Buyer]'s final products. Moreover, the over-heated points test was sampling. The actual over-heating is much more severe than demonstrated by the statistics. This substantially affects the [Buyer]‘s regular production.

"If the final temperature is between -4ºC to -2ºC, and the difference of temperature is kept within 1ºC to 2ºC, the problem of over-heating and cooking the meat would not exist. The defrosting lines' failure to meet the technical standard is the direct cause of over-heated points. Therefore, the [Seller] should not deny the existence of the over-heated points by denying the fact that the Contract has not specified such technical standard."

Regarding the above statement by the [Buyer], the [Buyer]‘s opinion on the over-heated points is that "over-heated points are related to the temperature distribution of the defrosted meat blocks and thus the final temperature", that "the defrosting lines‘ failure to meet the technical standard is the direct cause of the over-heated points", and that over-heated points are the cause of the final temperature not conforming the Contract. The Arbitral Tribunal finds that this opinion is worth discussing. As stated by the [Buyer], the temperature of the cooked meat blocks reached 80ºC. However, what initiated the over-heated points? The [Buyer] failed to explain this point. Instead, the [Buyer] directly came to the above conclusion. In the course of microwave heating/defrosting, the temperature of the microwave itself does not increase. The high temperature is reached because the microwave‘s power is gradually absorbed, or lost, by/to the food being heated. The microwave itself or the surrounding of the microwave is not the source of high temperature. Thus, the cause of the over-heated point should come from the meat blocks. Therefore, it is not reasonable for the [Buyer] to simply conclude that the over-heated points are caused by defects of the microwave defrosting lines.

The Arbitral Tribunal finds that, although the Contract does not cover the over-heated points, the parties should try their best to eliminate or reduce the number of such points. However, it is not reasonable to conclude that the number of over-heated points is directly related to the final temperature. The fact that the May 2004 adjustment (the fifth-stage adjustment according to the [Buyer]; the third adjustment according to the [Seller]) failed to eliminate the over-heated points without changing the properties of the meat blocks indicates that the existence and number of over-heated points are related to the properties of the meat blocks.

6. Regarding the output

The Arbitral Tribunal notes that the output stipulated in Annex 2 is:

"1. Output. Each microwave defrosting line meets the average output of 3 MT/ hour: (1) 50% lean meat: about 3.0 to 3.3 MT/hour; (2) 90% lean meat: about 2.6 to 2.8 MT/hour."

The Arbitral Tribunal notes that the above statement was based on Evidence exhibit 16 submitted by the [Buyer], i.e., the "Analysis Report on the Results of the Fifth Adjustment" prepared by the [Buyer]. Referring to the inquiry at the hearing on 11 May 2005 and the above analysis in “4. The final temperature", since the data collected in January 2004 (i.e., the fourth-stage adjustment claimed by the [Buyer]; the second adjustment claimed by the [Seller]) are confirmed by both the parties, the Arbitral Tribunal will use this data to analyze the output issue.

According to the data collected in January 2004, the output of 90% lean meat was 2.7 MT/ hour, which met the above requirement; the output of 50% lean meat was 2.75 MT/ hour, which does not meet the requirement, but is 91.67% of the lower limit of the above requirement.

7. Regarding the evenness of the meat blocks provided by the [Buyer] for microwave defrosting

       The Arbitral Tribunal notes that it is stated in Evidence exhibit 20 submitted by the [Buyer] (the letter by Qin Li from MGL International to the [Buyer] on 27 February 2002 attached with Analysis on the Causes for the Uneven Defrosting") that:

"1. Summary.

"During the microwave defrosting, we noticed that over-heated points (above 0ºC) and hot spots (over 60ºC) emerged in different parts of the meat blocks.

"The main cause of the uneven defrosting is that the difference in the shape (round, rectangle or irregular shapes), solidity (defrosted by machine or defrosted naturally), properties (the fat content), the regularity (substance or surface), the thickness, and the location in the cavity of the meat blocks affect directly the distribution of temperature and the number of over-heated points.

"The quantity of meat that the lines defrost at one time also influences the temperature after defrosting which is related to the number of over-heated points in the meat.

"The following three factors cause the uneven temperature of the defrosted meat blocks: (i) the extent to which the energy penetrate the meat depends on the fat content of the meat; (ii) the extent to which the meat absorbs the microwave energy depends on the fat content and other properties (such as water content and ice content) of the meat; (iii) Enthalpy (heat content) changes greatly between -5ºC to 1ºC."

      "2. Penetration" describes how microwave works on the interior of the meat blocks. After introducing and illustrating with graphics, it goes on listing the penetration data of air, purified water, salty water, lean beef, and fat beef at a temperature between -18ºC and 0ºC under 915 MHz. Part 2 then concludes with the statement that:

"The temperature of the exterior of the meat blocks is always higher than that of the interior part. The only way to reach temperature uniformity is to expose the meat blocks in the air for a few hours (the thermal balance procedure).

"The shape of the meat blocks should be as regular as possible.
"The size of the meat blocks should be the same.
"The meat blocks should be put in the cavity in a regular way."

In the next part "3. Differences in absorbing microwave", after citing the formulas "P=V2/R, [formula not reproduced]" and "[formula not reproduced]", explaining the relationship between the power of the microwave and the ??of materials, and listing the [symbol not reproduced] of ice/purified water, ice/salty water, lean beef, and fat beef at a temperature between -18ºC and 0ºC under 915 MHz, it goes on and concludes that

"The defrosting outputs of different materials (e.g., fat meat, lean meat and water) are very different because the rate of microwave abortion varies among materials with different properties.

"A hot point will absorb more microwave energy, and become over-heated after it melts.

"A meat block should be sent to the defrosting line immediately after it is taken out from the icehouse, which prevents its exterior part from melting and being over-heated. The air inside the defrosting machine should even be chilled."

In "4. Enthalpy", after demonstrating with graphics that the nonlinearity of enthalpy has apparent differences in the range between -5ºC and -1ºC, it goes on and concludes that"

"Higher power is needed in microwave defrosting from -4ºC to -2ºC than from -20ºC to -4ºC.

"Higher power is needed for lean meat than fat meat to achieve temperature uniformity in defrosting.

"Higher power is needed to defrost materials with higher water content.

"If mixed materials are defrosted under the same power level, the temperature of fat meat will be higher than that of lean meat."

In "5. Shanghai Malin‘s Resolution", it is stated:

"A. Acknowledgement ...

"B. Analysis of the microwave

"After the communication taken place from 5 to 19 January 2004, we solved the uneven distribution of the microwave. As you have seen, the microwave in the defrosting lines are now evenly distributed."

"C. Interior over-heated points and exterior over-heated points

"The reason why we did not conduct the test of your microwave defrosting lines in Sairem is that:

"Regarding the quantity of materials (3MT/ hour)

"We found that the shape of your materials for defrosting (the meat blocks) is different from the standard shape used in Europe.

"Regularizing the shape of the meat blocks could reduce the number of exterior over-heated points. In fact, the shape of every meat block should be the same, and the height should be between 10 to 15 cm.

"If you insist on using cartons during thermal balance, the risk of having over-heated points will increase. In the first test conducted in October 2003 before the lines were adjusted, Mr. Bernard demonstrated to you the risk and that using cartons during thermal balance is not allowed in Europe.

"Regarding the interior over-heated points, this report explains the causes thereof. These over-heated points were caused by the fact that the meat blocks were not refrigerated in accordance with regular shapes. The real problem was the refrigeration. Our clients who do not have the issue of over-heated points all use standard compact meat blocks with the size of 600mm x 400mm x 150mm. The details can be found in the attached two letters of confirmation from Chillet Corporation and Socopa Corporation.

"Ignoring the problem of irregularity, the 875 meat blocks (5 kg each, total weight 4,395 kg) were tested again. The following results demonstrate that the defrosting lines operated regularly. The number of the over-heated pointed could be ignored when it was compared to the number of meat blocks, especially comparing to the total weight of the meat blocks.

"Out of the 875 meat blocks that were measured in the test, only 30 had exterior over-heated points (approximately 3%), and only 16 had interior over-heated points (approximately 2%). The total percentage of meat blocks that have over-heated points was about 5%.

"The weight of meat with over-heated points is only about 20g to 30g, and the 46 over-heated points weighed merely 0.9 to 1.3 kg (46 x 0.02 = 0.9 or 46 x 0.3 = 1.3 kg). the percentage of the over-heated points was 1kg / 4,375kg = 0.02%. Excluding the over-heated points caused by the cartons packaging and irregular shapes of the meat blocks, the number of over-heated points can be ignored. The microwave defrosting lines are working well.

"On a separate note: Some of our clients also have the issue of over-heated points. They all ignore them because after mixing with a lot of other materials, the influence of the over-heated points on the food processing can actually be ignored."

The above letter was sent after the test from 6 to 8 January 2004. Although the [Seller] alleged that the test proved that the defrosting was in accordance with the requirements of the Contract, the [Seller] did not deny the existence of the problem. On the other hand, the [Seller] suggested therein the causes of the problem and methods for improvement.

The Arbitral Tribunal does not know the response that the [Buyer] had over the above letter. However, in the letters from the [Buyer] to the [Seller] and Meili International sent on 11 June 2004 and 23 July 2004 (Evidence 18 and 19 submitted by the [Buyer]) (after the fifth-stage adjustment claimed by the [Buyer]; the third adjustment claimed by the [Seller], the [Buyer] refused to pay the 10% balance of the contract price, and insists that the lines cannot meet the contractual requirements, and that the [Seller] should retrieve the defrosting lines and refund the [Buyer] the EUR 41,300,000 it paid. However, the [Buyer] did not respond to the [Seller]'s explanation and suggestions in the letter dated 27 February 2004. However, the Arbitral Tribunal notes that the [Buyer] stated in the letter sent on 23 July 2004 that:

"We had communicated with you about the materials for defrosting and the characteristics of the microwave defrosting lines before concluding the Contract. At that meeting, we also provided samples of meat blocks for defrosting for your technical confirmation. The technical standards in the Contract are based on the above communication. During the adjustments, we cooperated with you to make many reasonable changes in order to solve the problems the defrosting lines had. However, after we tried our best to meet your suggestions, we cannot make another change of the meat blocks as you suggested."

It is indicated that the [Buyer] had shown the "samples" to the [Seller]. The question then is whether the defrosting lines are not suitable for the "samples" or the meat blocks used in the test were different from the "samples".

The [Buyer] made an opposite statement about the meat blocks shown at the meeting in its Attorney's Opinion dated 15 May 2005.

The Arbitral Tribunal notes that in the Evidence exhibit 21 submitted by the [Buyer], i.e., the letter sent to the [Buyer] by Qin Li/ Chen Zhengquan of Meili International dated 11 September 2004 and the report titled "Shanghai Malin" it is stated:

"JULY 2002

Meeting at your company to finalize the discussion of your project. During this technical meeting, some products were shown to us:

"picture no. 1 shows a relatively homogeneous ball (90/10);

"picture no. 2 shows a little less homogeneous product (50/50), but it can be treated anyway."

The "picture no.1" and "picture no. 2" mentioned in the report are the same as the pictures of sample meat blocks submitted by the [Seller]. In addition, the parties both confirmed during the hearing on 11 May 2005 that the meat blocks in the pictures are the "sample meat blocks" mentioned in the 23 July 2004 letter.

Picture 3, Picture 4, Picture 5 and Picture 6 are the same as four of the six pictures of "meat blocks actually used in defrosting" submitted by the [Seller]. The report commented as follows on the pictures :

"a) total heterogeneity of the weight of the balls in the boxes (see pictures 3 and 4). For us in each box there were 5 balls (5 kg each), i.e., 25kg. But this is absolutely not the case: weights can vary from 3 to 6 kg.

"b) total heterogeneity of shape: the diameter of some balls is only 7 cm, while the diameter of other balls is comprised between 10 to 12 cm, Furthermore some balls have ‘potato‘ shapes (see pictures 5 and 6).

"c) in the center of each ball there is an air cavity due to a simplistic freezing (boning of the ham, then creation of a ball by bringing the sides to the center). But this air trapped in the center is not acceptable with microwaves, because it creates a very high electric field; it concentrates microwave energy in some points and therefore creates hot spots inside, while there are no longer hot spots outside (of course, provided the operator chooses correct recipe). ...

"The two letters we received from two industrial French companies (see attached) state that they never had hot spots inside, because they treat parallel epipedic blocks (see pictures 7 and 8). These blocks are frozen using a press and as a consequence there is no air inside them."

According to the above cited materials, the samples are the two meat blocks shown in Evidence exhibit 1 ("Pictures of sample meat blocks") submitted by the [Seller]. One is a sample of 90/10 meat blocks, and the other is a sample of 50/50 meat blocks. After investigation, the Arbitral Tribunal affirms the following facts:

      (1) The two "sample" meat blocks shown in the pictures were not specifically made for showing, but were picked randomly from the [Buyer]'s materials. Therefore, the [Buyer] is capable of providing meat blocks like the samples in defrosting.

      (2) During the five stages of or three adjustments throughout seven months, all the meat blocks for defrosting provided by the [Buyer] were different from the samples. They were heterogeneous, and had air in the meat.

The Arbitral Tribunal will decide whether it is of great importance to have homogeneous meat blocks in microwave defrosting process.

This is an issue with detailed technical content. Technology has to follow scientific principles. Therefore, the Arbitral Tribunal will pay special attention to the scientific principle basis that the parties made their statements on, including expert opinion.

In its letter of 27 February 2004, its letter of 11 September 2004 and the attached report titled Shanghai Malin, and the expert opinion it submitted in its Statement of Defense and Counterclaims (A.C. Metaxas: Shanghai Malin versus SAIREM; P.O. Risman: Memorandum on microwave heating of food objects having different shapes and microwave properties; T. Ohlsson and P.O. Risman: Temperature Distribution of Microwave Heating -- Spheres and Cylinders.), the [Seller] stated the requirements of meat blocks used in microwave defrosting based on scientific data and theories.

However, the [Buyer] never provided any scientific evidence or expert opinion that challenges the scientific data and theories presented by the [Seller] or proves that the [Seller] referred to the wrong data and theories in any written documents or oral statements at or after the hearing.

It is widely known in the industry that microwave defrosting is in actuality a process of microwave heating. The basic scientific principle microwave heating is that the status and results of heating of the materials in the microwave field are determined by the strength of the microwave field as well as the materials‘ ability of absorbing, converting, and exhausting the microwave power. In the present case, the defrosting method utilized is tunnel defrosting. Under the set technics, especially the set power level and tape speed, a large amount of separated meat blocks will be continuously heated in order to be defrosted under the power of microwave. Since the power level of the microwave and defrosting time are pre-set, the result of microwave heating is heavily depending on the defrosting materials' ability to absorb, convert and exhausting the energy. Unlike defrosting in natural air, microwave defrosting requires the meat blocks to be homogenous in order to be heated evenly. This scientific principle requirement is widely known, and should be followed even if the Contract has no relevant provisions.

Therefore, the size, shape, fat content, purity of the meat blocks and whether they have air inside will greatly influence their homogeneity and thus the result of the defrosting.

In addition, besides the final temperature, the emergence and number of over-heated points is also related to the extent of homogeneity of the meat blocks (reference may be made to the above session 5 where the issue of over-heated points is analyzed and discussed).

Although the parties both stated that they have confirmed the technical standards when negotiating and concluding the Contract, the Arbitral Tribunal finds that the parties did not prove via the evidence they submitted or at the hearing that they have a mutual consent on the homogeneity of the meat blocks. The parties did not agree on the requirements of the meat blocks in the Contract, either. The [Buyer] did provide two meat blocks as "samples" before the conclusion of the Contract. However, this does not necessarily mean that the [Buyer] has agreed to use materials the same as the samples in microwave defrosting. On the other hand, even if there is no relevant provisions in the Contract, it does not necessarily mean that the [Seller] has agreed that its two microwave defrosting lines can defrost any meat blocks that the [Buyer] is willing to, because disregarding the homogeneity of the meat blocks is against the scientific principle in defrosting. Therefore, the parties did not come to an agreement on the homogeneity of the meat blocks for microwave tunnel defrosting. The Arbitral Tribunal finds that both parties were at fault in negotiating, concluding, and performing the Contract, and should be responsible for the unfavorable consequences.

Because the [Seller] is an expert in microwave defrosting, it is primarily responsible for not requiring the homogeneity of the meat blocks when negotiating and concluding the Contract. The [Buyer] is primarily responsible for not improving the homogeneity of its meat blocks after it was aware of the problem during the adjustments.

The Arbitral Tribunal finds that it is very possible for the defrosted meat blocks to have met the requirements of the Contract and for the problem with over-heated points to be solved if the [Buyer] had made an effort to improve the homogeneity of the meat blocks with the help from the [Seller]. The letters from Shanghai Lianhua Distribution Center, Shanghai Xinlong Foods Ltd., SOCOPA Enterprise and Ets Chillet & Cie submitted by the [Seller] indicate the above inference. These letters cannot be used as evidence as objected by the [Buyer]. However, they may be used as reference.

8. Regarding the [Buyer]'s request for inspection

In the Request for Inspection submitted on 17 May 2005, the [Buyer] asked the Arbitral Tribunal to appoint an institution to inspect the quality of the two microwave defrosting lines. The [Seller] objected to the Request.

The Arbitral Tribunal notes that the [Buyer] made the following requests:

      (1) The Arbitral Tribunal should appoint an institution to inspect the function in defrosting of the two microwave defrosting lines and collect relevant data;

      (2) Based on the data collected, the appointed institution should analyze and decide whether the two lines meet the requirements of the Contract.

The first request by the [Buyer] is the basic srep. The second request cannot be accomplished without the data from this first step. However, it is doubtful whether it is necessary to appoint an institution for collecting data.

In the Request, the [Buyer] does not show any intention to change the meat blocks for defrosting without mentioning the status of the meat blocks. Without changing the meat blocks, is it necessary to test and collect data again?

According to the analysis in the above session 4 and the hearing held on 11 May 2005, the parties have no dispute on the data collected in the adjusting in January 2004, because both parties submitted tables with identical test data. Therefore, the Arbitral Tribunal holds that, providing that the [Buyer] uses the same meat blocks, it is not necessary to conduct another test and to collect additional data. The Arbitral Tribunal will make the award based on the data collected in January 2004. Hence, it is not necessary to appoint an institution for another test.

The data collected in January 2004 and confirmed by both parties should be used as a basis for deciding the present dispute.

As for the second request made by the [Buyer], i.e., to analyze the data and decide whether the defrosting lines conform to the Contract, it is the Arbitral Tribunal‘s responsibility and function. This Arbitral Tribunal will consider opinion made by the parties as well as expert opinion to make such decision. It is not a decision for any institution to make.

Therefore, the requested appointment is not necessary. The Arbitral Tribunal has notified the parties on 23 June 2005 that the [Buyer]'s Request for Inspection is rejected.

9. Conclusion

The [Buyer] alleges that after five stages of adjustments throughout seven months, the output and final temperature of defrosting failed to meet the requirements of the Contract, and that the purpose of the Contract has been frustrated; the [Seller] alleges that after the adjustment in January 2004, the two lines are working well, and the requirements of the Contract have been satisfied.

The Arbitral Tribunal finds that the requirements of output and final temperature in the Contract were not met according to the data collected in January 2004.

However, whether the purpose of the Contract was frustrated will depend on the following analysis:

The purpose of a contract shall not be exaggerated arbitrarily. On the other hand, it shall be analyzed and construed according to the content of the contract, especially according to the agreements and promises made in the contract. Whether the results of adjustment demonstrate the frustration of the purpose of the Contract shall be analyzed in depth.

The results of adjustment depend on the process, the material for defrosting and the equipment itself. It is necessary to further analyze and discuss these three elements.

According to the evidence and the statements by the parties as well as the above reasoning, the Arbitral Tribunal finds that:

      (1) The parties have no dispute on the process, especially the selected power level and tape speed of the microwave defrosting lines;

      (2) With regard to the equipment itself, the [Buyer]'s only challenge is that the final temperature of every box with an odd number is higher than that of every box with an even number, and thus, the [Buyer] alleges that the microwave is not distributed evenly. However, even if the microwave was not evenly distributed in the cavity, this problem could be fixed by adjusting. It is not a fatal defect.

      (3) With regard to the material for defrosting, during the five stages of adjustments throughout the seven months (or the three adjustments as to the [Seller]), the [Seller] repeatedly pointed out the need for homogeneity of the meat blocks, while the [Buyer] kept using meat blocks it used in natural air defrosting, and those meat blocks were heterogeneous. The [Seller] has proved by scientific evidence and expert opinion that the homogeneity of the meat blocks is an important factor affecting the result of defrosting, and the [Buyer] has not made any persuasive argument against that. In addition, the [Buyer] never made any effort to improve the homogeneity of the meat blocks during these seven months.

      (4) The Arbitral Tribunal notes that, in the [Buyer]'s Evidence exhibit 17 (the unsigned "Working Note on the Two Microwave Defrosting Lines" made on 25 September 2004 by the [Buyer]), the [Buyer] stated:

" Informal Adjustment ...

" We ordered a small amount of special meat blocks from the supplier for microwave defrosting test (to reduce the gap between the materials by slicing, piling, and pressing).

"However, the test shows that the defrosting result does not change when meat blocks with a different shape are used."

Since the test was done by the [Buyer] on its own, the Arbitral Tribunal finds that the "adjustment content" and "adjustment results" without any description and supportive statistics should not be accepted as evidence.

      (5) Therefore, the homogeneity of the meat blocks is still not proved by any test. The Arbitral Tribunal finds that according to the scientific principle of microwave heating, it is very possible for the defrosted meat blocks to have reached the contractual final temperature and for the problem of over-heated points to be solved if the [Buyer] had made an effort to improve the homogeneity of the meat blocks.

      (6) Only the [Buyer] could improve the homogeneity of the meat blocks. The [Seller] could not do so.

       (7) Whether the food processing following defrosting needs to be adjusted after the [Buyer] switches from natural air defrosting to microwave defrosting is not covered by the Contract, and therefore should be handled by the [Buyer] itself, not the [Seller].

Therefore, it can be concluded that the result from the interaction among these three elements led to the fact that the defrosting lines were not fit for the Contract and the problems of over-heated points. The important factor that influences the result, however, is the homogeneity of the meat blocks.

The Arbitral Tribunal finds that:

The purpose of the Contract has not been fully fulfilled, but is also not frustrated. The [Buyer] has successfully defrosted many meat blocks using the two lines, and has used them in following food processing. However, the defrosted meat blocks did not fully meet the requirements of the Contract. Therefore, the [Seller] performed the Contract defectively, i.e., the [Seller]‘s after-sale service, including assembling and adjusting the defrosting lines has not satisfied the requirements of the Contract. Hence, the [Seller] has breached the Contract. However, this is not a fundamental breach. The problems can be solved by improving the homogeneity of the meat blocks; in any event, the purpose of the Contract is not frustrated.

10. Regarding the [Buyer]'s claims and the [Seller]'s counterclaims

      The [Buyer]'s claims

      [1] The [Buyer] requested the Arbitral Tribunal to have the contract terminated, with the [Seller] refunding to the [Buyer] the payment of goods and compensating the [Buyer]‘s losses.

It is the [Buyer]‘s position that:

            (1) The [Buyer] should return the two microwave defrosting lines. The [Seller] should pay back the payment made by the [Buyer], i.e., RMB 3,678,673.68.

            (2) The [Seller] should pay back the customs duties, VAT and other fees paid by the [Buyer]. The total is RMB 896,921.72.

            (3) The [Seller] should be held responsible for the expenses on supporting facilities and resource consumption of the two 915 microwave defrosting lines, totaled RMB 1,769,288.

            (4) The [Seller] should compensate the [Buyer] for the site occupancy cost RMB 132,000 and for the interest on the equipment loan RMB 218,800. The total is RMB 351,800.

The [Buyer] made the above requests based on the fact that the [Seller] breached the Contract. After five stages of adjustments throughout seven months, the output of the defrosting lines and the final temperature still fail to meet the requirements of the Contract, which frustrated the purpose of the Contract.

Based on the above discussion, the Arbitral Tribunal finds that the first item requested by the [Buyer] should not be supported without sufficient evidence; the second to fourth items claimed are the costs for the [Buyer] that also should not be supported.

      [2] The [Buyer] further claimed that the [Seller] should be held responsible for all of the arbitration costs.

            (1) The attorneys‘ fee: RMB 50,000; and
            (2) The arbitration fee.

Since the [Buyer]‘s first request is not supported by the Arbitral Tribunal, the [Buyer] should be held liable for the arbitration costs including the arbitration fee and attorneys‘ fee.

      The [Seller]'s counterclaims

      It is the [Seller]‘s position that:

      [1] The [Buyer] should pay the EUR 46,000 balance to the [Seller], and a fine for delaying payment at the rate of 0.021% per day from 4 July 2004 to 18 March 2005 (temporarily calculated). The total of the fine is EUR 2,492.28.

The present dispute arose from a sale of goods contract with the [Seller] providing after-sale service (including assembling and adjusting the goods). According to the analysis and discussion made as above, the Arbitral Tribunal has found that the two microwave defrosting lines had been delivered, but do not completely conform to the standards of output and final temperature set forth by the Contract. In other words, the service provided by the [Seller] has not entirely met the standards for the [Buyer] to accept the goods. Under the Contract, the conditions precedent have not been met for the [Buyer] to pay the 10% balance of the contract price and the interest thereon. This balance should be paid when both parties can continue cooperating and accomplishing the adjustment to the standards set forth by the Contract for the [Buyer] to accept the goods in good faith. Therefore, the Arbitral Tribunal does not support this counterclaim by the [Seller].

      [2] The [Buyer] should compensate the [Seller] for its travel expense incurred in the present case after the last adjustment. The total of the travel expense is EUR 12,850.

      [3] The [Buyer] should compensate the [Seller] for its attorneys‘ fee and arbitration fee for the counterclaims.

Since the [Seller]‘s first counterclaim is not supported by the Arbitral Tribunal, the Arbitral Tribunal does not support the [Seller]‘s second and third counterclaims.

IV. AWARD

The Arbitral Tribunal finds that:

1.    All of the [Buyer]'s claims are dismissed.
 
2.    All of the [Seller]'s counterclaims are dismissed.
 
3.    The [Buyer] is responsible for the actual expense of its arbitrator's trip to Beijing for the hearing. The total is RMB 4,500, which is set off against by the RMB 8,000 paid by the [Buyer] in advance. CIETAC should refund the balance of RMB 3,500 to the [Buyer].
 
4.    The [Buyer] is responsible for the arbitration fee of this case, which is RMB 173,684. The arbitration fee is set off against the prepayment made by the [Buyer].

The [Seller] is responsible for the arbitration fee for the counterclaims, which is US $2,863. It is set off against the prepayment made by the [Seller].

This is the final award. It takes effect when made.


FOOTNOTES

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

** Jingyan Sun is an Associate with the New York office of Sheppard Mullin Richter & Hampton LLP. Her firm produces the Shephard Mullin China Law Update.

*** Jing Li, Associate, Institute of International Commercial Law, Pace University School of Law; LL.M., University of Texas at Austin, School of Law; Master of Law and LL.B., Sun Yat-Sen University School of Law, China; Participant, Thirteenth Annual Willem C. Vis International Commercial Arbitration Moot (2006); Participant, Fifth Annual Willem C. Vis (East) International Commercial Arbitration Moot (2008).

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Pace Law School Institute of International Commercial Law - Last updated April 15, 2010
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