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CISG CASE PRESENTATION

China May 2006 CIETAC Arbitration proceeding (LDPE film case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060500c2.html]

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

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Case identification

DATE OF DECISION: 20060500 (May 2006)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2006/18

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (respondent)

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

GOODS INVOLVED: LDPE film


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 33 ; 74 ; 81 ; 84

Classification of issues using UNCITRAL classification code numbers:

33A [Obligation of seller to deliver on date fixed or determined from contract];

74A ; 74A1 [General rules for measuring damages: loss suffered as consequence of breach];

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

84A [Seller bound to refund price must pay interest]

Descriptors: Delivery ; Damages ; Profits, loss of ; Restitution ; Interest Price ; Interest

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

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

LDPE film case [May 2006]

Translation [*] by William Zheng and Sandy Xie [**]

Edited by Wenwen Liang [***]

The China International Economic and Trade Arbitration Commission (hereinafter referred to as the "Arbitration Commission") has accepted the case of (G2005____), a dispute involving a contract for the sale of LDPE film according to

   -    The arbitration provision in "Purchase Contact No. 06-0114-04/10" signed by Claimant AAA Trade Co., LTD [of the People's Republic of China[ (hereinafter referred to as the "[Buyer]") and Respondent BBB Plastec GmbH [of Germany] (hereinafter referred as to the "[Seller]") on 18 November 2004; and
 
   -    The written arbitration application submitted by the [Buyer] on 28 October 2005.

The arbitration procedures are subject to the China International Economic and Trade Arbitration Commission Arbitration Rules (hereinafter referred to as the "Arbitration Rules") effective as of 1 May 2005.

On 7 November 2005, the Secretariat of the Arbitration Commission (hereinafter referred to as the "Secretariat") sent the Notice of Arbitration, the Arbitration Rules and List of Arbitrators to both parties by express mail, and delivered to the [Seller] the application materials for arbitration that were submitted by the [Buyer].

Since the [Buyer] has neither appointed an arbitrator nor entrusted the Chairman of the Arbitration Commission to designate an arbitrator within the applicable period, the Chairman appointed Mr. ___ as an arbitrator for this case in accordance with the Arbitration Rules. Further, since the [Seller] has neither appointed an arbitrator nor entrusted the Chairman of the Arbitration Commission to designate an arbitrator within the applicable period, the Chairman appointed Mr. ___ as the arbitrator for this case in accordance with the Arbitration Rules. Since the parties did not jointly appoint or entrust the Chairman of the Arbitration Commission to designate the Presiding Arbitrator within the applicable period, the Chairman appointed Mr. ___ as the Presiding Arbitrator for this case in accordance with the Arbitration Rules. On 12 January 2006, the three arbitrators established the Arbitral Tribunal to hear this case.

On 21 February 2006, the Arbitral Tribunal held an open hearing in Beijing. The [Buyer]'s representative for arbitration appeared before the Tribunal. The [Seller] was absent before the Tribunal without giving any explanation. The Tribunal handed down a default award pursuant to Article 34(2) of the Arbitration Rules.

During the course of the hearing, the [Buyer] made oral statements, presented evidence and called witnesses. Further during the hearing, the [Buyer] and its witnesses all responded to the questions posed by the Tribunal.

After the hearing, the [Buyer] submitted supplementary written opinions and evidence, which were forwarded to the [Seller] by the Secretariat by express mail. Both parties were invited to submit final statements and written cross-examination opinions or to apply for another hearing before 30 March 2006. On 3 April 2006, the Tribunal further requested the Secretariat to inform the [Seller] of the procedures of the arbitration, and gave the [Seller] until 30 April 2006 to raise objection, if any, to the procedures or to apply for another hearing. The [Seller] failed to submit any written material within that period.

All the arbitration documents have been properly served upon both parties by express mail. It is confirmed that both parties signed for these documents.

The trial of this case is now completed. The Arbitral Tribunal renders the following award based on the documents, facts found and evidence accepted during the hearing. The facts of this case, the Arbitral Tribunal's opinions and award are:

I. FACTS

On 18 November 2004, the [Buyer] and the [Seller] entered into "Purchase Contract No. 06-0114-04/10" (the "Contract"), stipulating that the [Seller] shall sell LDPE film to the [Buyer]. The Contract also set forth the category, quantity, price, shipment period, and payment terms of the goods.

In the arbitration application, the [Buyer] stated that it had paid in advance US $35,100, 60% of the total price for the goods, on 22 November 2004, and that the [Seller] confirmed the receipt of these funds by telephone four days later, but failed to deliver the goods within seven working days following the receipt of the pre-payment, as stipulated in the Contract.

Despite the fact that the [Buyer] made several requests for delivery, the [Seller] refused to perform its contractual obligations. This constituted a fundamental breach of contract. Thereafter, the [Buyer] made several notifications on rescinding the Contract and requests for refund of the pre-payment. All the efforts were in vain due to the bad faith of the [Seller]. Therefore, the [Buyer] applied for arbitration.

[Buyer]'s claims

[Buyer] requests the Arbitration Tribunal to rule that:

1.   The [Seller] repay the [Buyer] the payment for goods in the amount of US $35,100 with interest on this amount;
 
2. The [Seller] repay the [Buyer] its economic loss in the amount of US $13,000;
 
3. The [Seller] indemnify the [Buyer] the attorneys' fee in the amount of US $10,000;
 
4. The [Seller] indemnify the [Buyer] the [Buyer]'s travel and accommodation expenses involved in this case, i.e., US $4,000;
 
5. The [Seller] bear the arbitration fees of this case.

In its "Statement of Arbitration Claims" submitted after the trial, the [Buyer] alleged that:

1. When requiring the [Seller] to return to the [Buyer] the payment for the goods, i.e., US $35,000, and the interest thereon, the fluctuation of foreign exchange rate in the past year should be taken into consideration. The [Buyer] actually paid RMB 290,940.39 for the goods and RMB 431 for formalities; the total amount was thus RMB 291,371.39. The [Seller] should pay in US dollars on the basis of the foreign exchange rate at the time of repayment.

2. In terms of the claim that the [Seller] shall repay to the [Buyer] the economic loss in the amount of US $13,000:

      The [Buyer] signed a sales contract with CCC Industry & Trade Co. ("[Buyer's customer]") on 20 November 2004 to resell the goods referred to in the Purchase Contract to [Buyer's customer] at the price of RMB 7,000/t and received RMB 20,000 as deposit fee. The anticipated profit was 7,000 - (585 8.2883 + 1200) = RMB 900/t at the then RMB/US $ exchange rate of 8.2889 and customs clearance price RMB 1,200/t. This batch of goods weighed 100 tons, thus the total payment for goods was RMB 95,100. However, due to the [Seller]'s failure to deliver the goods, the [Buyer] was unable to make the delivery before 15 January 2005. As a result, the [Buyer] was obliged to refund double the deposit fee to [Buyer's customer] because of its breach of contract, namely, RMB 40,000. Besides, the [Buyer] purchased another 100 tons of goods with the same quality at the then market price of 7,000/t to sell to [Buyer's customer] in order to maintain the long-term business relationship. Therefore, the total economic loss suffered by the [Buyer] was 95,100 + 20,000 = 115,100, which is approximately US $13,900. In order to have the total claimed amount within RMB 500,000, the [Buyer] claimed only US $13,000 with the Arbitration Commission.

3. With regard to the claim that the [Seller] shall indemnify the [Buyer] for the attorneys' fees in the amount of US $10,000 attributable to the [Seller]'s breach of contract, the [Buyer] engaged Hamburg CR Law Firm in Germany for consultation and negotiation. The [Buyer] had paid EUR 2,262 for attorneys' fees and investigation fees by 27 July 2005. According to the rate of the Firm, there is at least EUR 1,500 for attorneys' fee and EUR 5,000 for enforcement to be paid. That is, EUR 8,762 or approximately RMB 10,000 in total.

4. With regard to the claim that the [Seller] shall indemnify the [Buyer] for the travel expenses arising from the [Buyer]'s coping with this case, i.e., US $4,000: the [Buyer] sent two people to Hamburg for debt collection in July 2005 since the parties had reached no fruition after negotiating for several times. The two representatives took an Air France flight to Hamburg via Paris. After negotiating with the [Seller] in Hamburg, the [Buyer] was allowed to inspect the goods three days after the meeting. However, the [Seller] broke its promise again. As a result, the [Buyer]'s representatives stayed in Hamburg for seven days with the expense of more than US $200 per day on average.

The [Seller] neither issued any written opinion on this case, nor appeared before the Arbitration Tribunal.

II. OPINION OF THE ARBITRATION TRIBUNAL

(1) Applicable law

The parties to the Contract did not stipulate the applicable law to settle their dispute. The CISG shall apply since China and Germany, countries of the principal business places of both parties to this case, respectively, are Contracting States to the United Nations Convention on Contracts for the International Sale of Goods ("CISG") and the Contract at dispute is a contract for the international sale of goods. Moreover, since China is where the Contract was signed, the principal business place of the [Buyer] and the place of arbitration, the Arbitration Tribunal holds that China is the country most closely related to this case and, in accordance with the principle of most significant relationship, the laws of the People's Republic of China shall be the applicable laws for matters upon which there is no specific provision in the CISG.

(2) Validity of the contract, and Refund of the deposit

Considering that the CISG does not include any provision regarding the validity of contracts for the sale of goods, therefore, the laws of People's Republic of China shall apply when determining the validity of the Contract in this case. After investigation, Contract 06-0114-04/10 signed by the parties on 18 November 2004 indicates the true intention of both parties and it is not in violation of statutory rules of Chinese laws and regulations. Thus the Arbitration Tribunal confirmed the Contract to be legal and valid. After entering into the Contract, the [Buyer] remitted 60% of the total price by T/T to the [Seller] as a deposit which amounted to US $35,100 in accordance with Section 7a of the Contract, but the [Seller] failed to deliver the goods within seven working days upon receipt of the deposit in compliance with Section 3 of the Contract. Pursuant to Article 33 of CISG that, "the seller must deliver the goods: (a) if a date is fixed by or determinable from the contract, on that date ...", the [Seller]'s deed constituted a breach of contract.

The Arbitration Tribunal noted that after being informed that the [Seller] would not be able to deliver the goods on time, the [Buyer] mailed to the [Seller] on 1 March 2005 through its representative in Germany an official declaration of the avoidance of the Contract and demanded refund of the deposit fee within three days. However, the [Seller] did not refund this money although the [Buyer] contacted the [Seller] several times and sent an Attorney's letter. Article 81(b) of CISG provides that "a party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract". Article 84(a) provides that "if the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid". As a result, the Arbitration Tribunal supports the claims that the [Seller] shall refund the paid deposit which amounts to US $35,100 and pay interest on this amount.

The Arbitration Tribunal noted that the [Buyer] stated in the Arbitration Claim dated 1 March 2006 that:

"When requiring the [Seller] to repay to the [Buyer] US $35,100 and interest on this amount, the change of foreign exchange rate in the past year should be taken into consideration. Our company had paid RMB 290,940.39 for the goods and RMB 431 for the formalities (totally RMB 291,371.39). The [Seller] should be required to refund the prepayment of goods in US dollars at the foreign exchange rate at the time of refund."

The Arbitration Tribunal holds that this claim actually altered the original claim raised by the [Buyer], but the [Buyer] did not formally apply for an alteration of its arbitration claims. Under such circumstances, the Arbitration Tribunal shall make its award based on the original claims.

(3) Compensation for damages

Article 74 of CISG provides that damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party because of the breach.

The damages claimed by the [Buyer] against the [Seller] include loss of the anticipated profit and the actual loss.

As for the loss of anticipated profit: on 20 November 2004 after the Contract was executed, the [Buyer] entered into a sales contract with a client [Buyer's customer], stipulating that the [Buyer] shall collect a deposit from its customer in the amount o RMB 20,000. However, the [Buyer] did not realize its anticipated profit due to the [Seller]'s failure of delivery of goods under the Contract. Based upon the evidence provided by the [Buyer], the unit price of the goods sold to [Buyer's customer] was RMB 7,000/t. The foreign exchange rate at that time was 8.2889 and the customs clearance fee was RMB 1,200/t, so the anticipated profit of the [Buyer] should be [RMB 7000 - (US $585 8.2889 + RMB 1200)] 100t = RMB 95,100 based on the formula: [unit price of the resold goods- (unit price under the Contract in this case then foreign exchange rate + customs clearance fee)] quantity = the anticipated profit. The [Seller] did not raise any objection against the resale contract, the foreign exchange rate or the customs clearance price provided by the [Buyer], so the Arbitration Tribunal accepts all the above evidence.

As for deposit loss: Article 115 of the Contract Law of People's Republic of China provides that:

"The parties may agree that a party pay a deposit to the other party as a guaranty for the obligation in accordance with the Security Law of the People's Republic of China ... where the party accepting the deposit fails to perform its obligations under the contract, such party shall refund twice the value of the deposit."

The [Buyer] had accepted a deposit of RMB 20,000 paid by [Buyer's customer] when the resale contract was signed, but it had to refund at twice the value of the deposit, RMB 40,000, to [Buyer's customer] due to its failure to deliver the goods. The [Buyer] submitted to the Arbitration Tribunal the receipts of the deposit from [Buyer's customer] and the refund of the deposit to [Buyer's customer]. Since the [Seller] did not raise any objection against the receipts, the Arbitration Tribunal accepts the receipts as valid and confirms that the actual loss incurred to the [Buyer] is RMB 20,000.

The total amount of the above losses is RMB 115,100 or US $13,900 at the exchange rate of 8.2889. Since the claim value of the [Buyer] is US $13,000, the Arbitration Tribunal holds in favor of this claim.

(4) Attorneys' fee of the [Buyer]

The attorneys' fee claimed by the [Buyer] is US $10,000. In accordance with Article 46(2) of the Arbitration Rules and based on the degree of support for the claims and the evidence provided by the [Buyer], the Arbitration Tribunal finds it appropriate for the [Seller] to pay US $4,800 to the [Buyer] to recover its attorneys' fee.

(5) Travel and accommodation expense of the [Buyer]

The travel expense claimed by the [Buyer] is US $4,000. Considering the fact that the [Buyer] took a plane to Hamburg where the [Seller] is based for debt collection and that this business trip was not only for debt collection, the Arbitration Tribunal holds in favor of part of the claim, namely, US $3,000.

(6) Share of the arbitration fee

Since most of the [Buyer]'s claims are supported by the Arbitration Tribunal, 90% of the arbitration fee shall be borne by the [Seller] while the [Buyer] shall be responsible for the remaining 10%.

(7) Language of the arbitration award

The Arbitration Tribunal noted that the [Buyer] stated in its "Arbitration Claims" dated 1 March 2006 that the law firm in Germany requested a German arbitration award. According to Article 67 of the CIETAC Arbitration Rules, which are applicable to this case, where the parties have agreed on the arbitration language, their agreement shall prevail. Absent such agreement, the Chinese language shall be the official language to be used in the arbitration proceedings. Therefore, the Arbitration Tribunal holds that the arbitration award shall be made in Chinese.

III. ARBITRATION AWARD

1.   The [Seller] shall refund the payment of goods it has received in an amount of US $35,100 with interest. The loan interest rate of the People's Bank of China for the same term shall be applied, and the interest shall be calculated from the date when the [Seller] received the payment to the date when it actually refunds the payment;
 
2. The [Seller] shall repay the [Buyer] the economic loss in the amount of US $13,000;
 
3. The [Seller] shall repay the [Buyer] the attorneys' fee in the amount of US $4,800;
 
4. The [Seller] shall indemnify the [Buyer] for the travel expenses in the amount of US $3,000;
 
5. The arbitration fee for this case is RMB 27,605. 90% of the arbitration fee is to be borne by the [Seller], namely, RMB 24,844.50, while 10% by the [Buyer], namely RMB 2,760.50. The arbitration fee have been pre-paid in full by the [Buyer], so the [Seller] shall repay RMB 24,844.50 to the [Buyer];
 
The above payments shall be fully paid within 30 days from the delivery of this arbitration award. Interest at the loan interest rate of the People's Bank of China at the same term will be added for delay in payment.
 
6. The other claims of the [Buyer] are hereby rejected.

This arbitration award is final, and comes into effect immediately.


FOOTNOTES

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

** William Zheng is a graduate of the Pace University School of Law. He is special counsel with the Shanghai Office of Sheppard Mullin Richter & Hampton LLP and Editor of the Shephard Mullin China Law Update. Sandy Xie is an Associate with this firm.

*** Wenwen LIANG, Ph.D candidate, University of Manchester, UK; LL.M. Wuhan University, China.

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Pace Law School Institute of International Commercial Law - Last updated October 30, 2009
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