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CISG CASE PRESENTATION

China July 2006 CIETAC Arbitration proceeding (Granite and marble case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060700c1.html]

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

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Case identification

DATE OF DECISION: 20060700 (July 2006)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2006/11

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: United States (respondent)

GOODS INVOLVED: Granite and marble (natural stones)


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 30 ; 35 ; 53 ; 78

Classification of issues using UNCITRAL classification code numbers:

30A [Seller's obligations: delivery of the goods];

35B3 [Conformity of goods to contract: quality of goods held out as sample or model];

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

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

Descriptors: Delivery ; Conformity of goods ; 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

Granite and marble case [July 2006]

Translation [*] by Li Jie [**]

Edited by William Zheng and Jingyuan Sun [***]

Particulars
Facts
Opinion of the Arbitral Tribunal
1. Applicable law
2. Validity of the contract
3.  Performance of the Contract
4. Claims of the Seller
Award

PARTICULARS

China's International Trade and Economic Arbitration Commission (hereafter, "the Arbitration Commission") accepts the present case as Case No. G2005____ according to:

   -    The arbitration clause in Revised Sales Confirmation (No. JBU2004034) signed by the Claimant ___ Import & Export Co., Ltd [of the People's Republic of China] (hereinafter referred to as "[Seller"), and Respondent ___ Inc. [of the United States] (hereinafter referred to as "[Buyer] on 30 August 2004; and
 
   -    The written Application for Arbitration submitted by the [Seller] on 3 November 2005.

The "China International Economic and Trade Arbitration Commission Arbitration Rules" (hereafter, the "Arbitration Rules") which became effective on 1 May 2005 are applicable to this case.

All of the documents were delivered by express mail to the [Buyer] in accordance with the address provided by the [Seller]. The [Buyer] has signed and accepted all the documents, which made the delivery effective. The delivery has been checked by the Secretariat of the Arbitration Commission.

The [Seller] appointed ___ as arbitrator. As the [Buyer] failed to appoint or entrust the Chairman of the Arbitration Commission to appoint its arbitrator within the time limit, the Chairman of the Arbitration Commission appointed ___ as an arbitrator according to the Arbitration Rules. As both parties failed to appoint or entrust the Chairman of the Arbitration Commission to appoint the presiding arbitrator, the Chairman of the Arbitration Commission appointed ___ as presiding arbitrator according to the Arbitration Rules. The three arbitrators formed the Arbitration Tribunal on 26 January 2006 to hear the case.

The [Buyer] did not submit any defense to the Arbitration Commission within the time limit.

On 22 March 2006, the Arbitration Tribunal held a hearing in Beijing. The representative of the [Seller] presented at the hearing. The [Buyer] failed to send its representative to appear at the hearing without valid excuse. The Tribunal heard the case by default according to the Arbitration Rules.

After the hearing, the [Seller] submitted its supplementary written opinion and evidence. The Secretariat of the Arbitration Commission sent these documents to the [Buyer] on 6 April 2006. The [Buyer] did not submit any defense to the merits of the case or any objection to the arbitration proceedings.

The case is concluded. The Arbitration Tribunal renders its default award based on the facts and the evidence. The following are the facts, the Arbitration Tribunal's opinion and the award.

FACTS

In the Application for Arbitration, the [Seller] submitted the following claims:

  1. The [Buyer] should pay to the [Seller] US $108,096.12 for the goods the [Buyer] purchased from the [Seller];
  2. The [Buyer] should pay to the [Seller] US $113,500.93 as late interest charge on payments for the goods as of 13 July 2005, the amount of which was modified by the [Seller] to US $108,096.12 in the written materials submitted after the hearing;
  3. The [Buyer] should be responsible for the [Seller]'s attorneys' fees in the amount of RMB 60,000;
  4. The [Buyer] should bear all the arbitration costs.

The [Seller] submitted the following facts and reasons.

1. The signing process and performance of the Contract

On 30 August 2004, the [Seller] and the [Buyer] signed Revised Sales Confirmation No. JBU2004034 (hereinafter, the "Contract"). This Contract stipulates that the [Seller] will provide marble and granite (stone materials) for the [Buyer]. The name of the products, specifications, weight, price, freight and discharging expenses, insurance, time of payment, and the liabilities for delay of payment were set forth therein.

After signing the contract, the [Seller] immediately started manufacturing and arranged three shipments (on 2 November 2004, 6 November 2004 and 2 December 2004, respectively) of goods worth US $108,096.12 in total according to the Contract. The [Buyer] has never paid for or returned the goods.

2. The provision of goods and other related issues

(1) The difference between the customs clearing price and the invoice price

The invoice price is the price in the Contract and the price at destination, including the freight and related fees in the territory of U.S.A. The customs clearing price is only composed of the price at exportation, excluding the related fees in the territory of U.S.A. Therefore, there exists a difference between these two prices. The [Buyer] should pay according to the price specified in the contract.

(2) The discordance between the number contained in the 1 December 2004 bill of entry and the number of the de facto bill of lading

The bill of entry for the third shipment of goods on 1 December 2004 is numbered 371120040114578579. The number of the corresponding bill of lading is APLU026957305. The number of the de facto bill of lading is XMNBL04120007. The discordance between the numbers of the two bills of lading was caused by a mistake at the customs entry at Dongdu Customs. It can be concluded that the contents of both bills are the same, because the quantity of goods (9 pieces), the number assigned to the container cranes (TRLU2260180), the gross weight of the goods (17,500 kg), and the name of the transport vessel (SHENG DA/449A) in both bills are exactly the same. Therefore, the goods in No. XMNBL04120007 and No. APLU026957305 are the same goods.

(3) The calculation of the late interest charge

Pursuant to Article 5 of the Contract, when payment of goods is delayed, a late interest charge is calculated as follows: If the payment is delayed for one week, the breaching party shall pay the interest on the payment owed; if for more than two weeks, the breaching party shall pay 5% of the payment owed; if for more than one month, the breaching party shall pay 10% of the payment owed, and this rate shall be doubled every month until all the payment is cleared.

According to the above method, the total late interest charge for the [Buyer]'s delay of payment is US $162,143.15. Considering that the breach of contract damages shall normally be no more than the subject amount of the contract, the [Seller] modified the late interest charge claim to the amount of the total payment of goods.

Since the total amount of late interest charge would be too much if calculated according to the method in the Contract, the [Seller] gives up part of its right and adopts a standard resulting in a lower charge. Under this standard, the late interest charge for the three shipments of goods shall be calculated, respectively, as of 15 June 2005, 19 June 2005 and 13 July 2005, which added up to a total of US $113,500.93. Based on the calculation and instructions above, the [Seller] agreed to modify the late interest charge to US $108,096.12, which equals the total payment for goods in the Contract.

3. The Contract reflects both parties' intent. The two parties reached a valid agreement on the sales of goods upon signing the contract.

When the contracting parties are located in different countries or regions, it is hard for them to be physically present to sign the contract together, taking the cost into consideration. Therefore, for some small-amount transactions, it is common that one of the parties provides a Sales Confirmation with contract terms by e-mail or fax, and the parties sign the Sales Confirmation, respectively, to establish the contract. The Contract in the present case was established in that way. The [Seller] provided the Sales Confirmation to the [Buyer], and the [Buyer] signed the confirmation and sent it back by fax for the Seller to sign it. Thus, this purchase contract, i.e., the Sales Confirmation, was established when both parties signed it. It is thereafter legally binding on both parties. Therefore, the [Buyer] and the [Seller] are obligated to perform their obligations in accordance with the Contract.

Article 5 of the Contract stipulates clearly that the contract becomes valid once it is signed by both parties, and any non-performance is a breach of contract. In the remarks, subsection (g) of Article 6, it is also agreed that the Contract is binding once it is signed by both sides. Therefore, the Contract is a written and valid sales contract binding on both parties.

4. After the Contract was concluded, the [Seller] provided samples for the [Buyer] pursuant to the Contract, and delivered part of the goods after the [Buyer] confirmed the samples. However, the [Buyer] has failed to pay for the delivered goods as contracted, which constitutes a breach of contract.

Pursuant to Article 5 of the Contract, the [Buyer] is obligated to pay within 90 days from the issuance of the bill of lading, and to make full payment within 60 days from the arrival of goods in U.S.A.. However, after the goods arrived, the [Buyer], giving all kinds of unreasonable excuses, refused either to pay for the goods, or to return the goods as required by the [Seller]. This breach of contract by the [Buyer] has caused unanticipated loss and expenses to the [Seller]. The [Buyer] should bear the responsibilities.

5. The defense by the [Buyer] that the goods are not in conformity with the Contract is groundless.

As stated above, the [Buyer] did not raise any question to the quality of the samples provided by the [Seller]. After the [Buyer]'s confirmation of the samples, the [Seller] manufactured and shipped the goods to the [Buyer] as contracted. However, the [Buyer] brought up quality problems of the samples (i.e., alleging some damage and color difference) when the goods were en route. The [Buyer]'s conduct was an unreasonable excuse for the non-performance of the Contract.

First, in Article 2 of the Contract, it is agreed that the [Seller] shall start manufacturing after the samples are confirmed by the [Buyer]. In the present case, when the samples were provided, the [Buyer] did not raise any quality problem, which was deemed a confirmation of the samples. The [Seller] started manufacturing after that and delivered goods which are exactly the same as the samples. In this circumstance, the [Buyer] should have checked and accepted the goods instead of raising quality issues.

Second, Article 1 of the Contract clearly states that a 5% damage rate is acceptable. The [Seller] shall not bear any responsibility unless both parties confirm that the damage rate exceeds 5%.

Third, certain color and pattern differences are acceptable under Article 6 (b) since granite and marble are both natural stone products. Therefore, the [Seller] should not be responsible as long as the differences are reasonable.

In addition, Article 6 of the Contract stipulates that the [Buyer] is obliged to report quality problems and provide photos as evidence to the [Seller] or its agent within 15 days from the arrival of goods, and that the [Seller] shall not be responsible if the [Buyer] fails to do so. However, in this case, even when requested several times, the [Buyer] has never provided to the [Seller] any photos or materials as evidence of damages and quality problems. The [Buyer] also unilaterally claimed the number of damaged goods while refusing to verify it with the [Seller]'s agent. Based on Article 6 of the Contract, even if there is any quality problem, the [Seller] should not bear any contractual responsibilities in such circumstance.

Moreover, after the [Buyer] refused to either pay for or return the goods, it suggested that the [Seller] accept an extremely low price that [Buyer] offered to settle the dispute. When the [Seller] applied for arbitration, the [Buyer] refused to come to the proceeding. If the [Buyer] has valid excuses for its non-performance, why doesn't it come to the proceeding? The so-called quality problem is just an unreasonable excuse for its non-performance of the Contract. The [Seller] should not be held responsible for the so-called quality problem, either on the basis of the contract or the relevant facts.

In conclusion, the Contract reflects both parties' intent and it is valid and binding on them. There is no merit to the [Buyer]'s reasons, and its refusal to pay for the goods has constituted a breach of the contract and the [Buyer] should bear the responsibility for the breach of contract. Based on all these reasons, the [Seller] claims as stated above.

OPINION OF THE ARBITRAL TRIBUNAL

1. Applicable law

The Contract does not stipulate the applicable law. Since China and the U.S.A., which are the countries of the places of business of the [Seller] and the [Buyer], are parties to the United Nations Convention on Contracts for the International Sale of Goods (CISG), the CISG shall apply to this case.

For matters not covered by the CISG, it is for the Arbitration Tribunal to decide which law it shall apply to the case. The Arbitration Tribunal holds that the law of the seat of the arbitration, i.e., the law of China, specifically Article 145 of Contract Law of the People's Republic of China as well as Article 126 of the General Principles of the Civil Law of the People's Republic of China, shall be applied to the present case. These two articles state that "Where parties to a foreign-related contract fail to select the applicable law, the contract shall be governed by the law of the country with the closest connection thereto." As both the seller's place of residence and the seat of arbitration are China, the country with the closest connection is China. Therefore, the substantive law of China shall be applicable to matters that are not stipulated by the CISG.

2. Validity of the Contract

In this case, the [Buyer] and the [Seller] signed the Contract by fax. Pursuant to Article 6(g) of the Contract, the Contract became valid and binding when both parties signed it. The validity of the Contract was not affected by any other events, and both parties have actually performed the Contract without any objection to its validity. Therefore, the Tribunal holds that the Contract is the expression of both parties' intent, and is thus valid and binding on both parties.

3. Performance of the Contract

Pursuant to Article 30 of CISG, the duty of the seller under an international sales contract is "[to] deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention." According to Article 53 of CISG, the duty of the buyer is "[to] pay the price for the goods and take delivery of them as required by the contract and this Convention." Based on these articles, the Tribunal made the following analysis:

(1) The performance of the [Seller]

After the contract was concluded, the [Seller] delivered the goods in three shipments on 3 November 2004, 7 November 2004 and 1 December 2004. The invoice price was US $27,201.12, US $60,810.00 and US $20,085.00, respectively. The [Seller] also provided the bill of lading, the bill of package, the bill of entry, the business invoice, and the fumigation & sanitization certificate as evidence. As to the discordance between the number of the bill of lading and that of the de facto bill of lading for the third shipment, it is submitted by the [Seller] that this discordance was caused by a mistake at the customs entry by Dongdu Customs. The [Seller] also alleged that the contents of both bills are the same, including the quantity of goods, the number assigned to the container cranes, the gross weight of goods, and the name of the transport vessel, which indicates that the goods on the two bills are the same. The Tribunal has reviewed the evidence and believes that this explanation is reasonable. Moreover, considering that the [Seller] has provided the original copy of most documents which can support and relate to each other, without any comment from the [Buyer], the Tribunal holds that the [Seller] has delivered goods in the three shipments to the [Buyer] worth US $108,096.12.

(2) The performance of the [Buyer]

According to Article 5 of the Contract, the [Buyer] is obligated to pay within 60 days from the arrival of the goods in the U.S.A. In the present case, the [Seller] submitted that the [Buyer] has never paid for the goods, which is not denied by the [Buyer]. The Tribunal thus affirms this fact.

After the hearing, the [Seller] provided the e-mails between the two parties from November 2004 to February 2005, authenticated by the Notary Office of City A___. The Tribunal holds that these authenticated e-mails can be used as evidence in this case. After reviewing these e-mails, several matters concerning the payment of the [Buyer] need to be analyzed further:

A. The samples

According to Article 6(a) of the Contract, the quality of the goods is determined by that of the samples which were delivered to the [Buyer] after the conclusion of the Contract. In the e-mail sent by the [Buyer] to the [Seller] at 1:30 on 14 December 2004 titled as "Our orders and relationship", the [Buyer] told the [Seller] that they could not accept the mosaic samples because of their quality problems. In the e-mail titled as "Reply in detail" by the [Seller] at 17:14 on the same day, the [Seller] argued that because the quality problem of the samples was not brought up in a timely manner, the samples should be deemed as accepted. The [Seller] also stated in the e-mail that it had already started manufacturing the goods. Based on the evidence, it is impossible for the Tribunal to decide the exact delivery time of the samples, but the time must be within a reasonable time after the conclusion of the Contract. As to the [Seller]'s reply in the e-mail, the Tribunal found no objection by the [Buyer] in any of the later e-mails between the two parties. Adding up the fact that these e-mails were sent after the three shipments, the Tribunal confirms that the [Buyer] received the samples and did not raise objection to the quality before the goods were delivered. Therefore, the [Buyer] cannot raise the quality problem of the samples as a ground for not performing the Contract.

B. The alleged damages and the color difference

In the e-mail sent by the [Buyer] to the [Seller] at 1:30 on 14 December 2004 titled as "Our orders and relationship", the [Buyer] mentioned the color difference. In the e-mail sent to the [Seller] at 5:34 on 8 January 2005, the damage of the goods was brought up.

The [Seller] argued that Article 1 of the Contract permits a 5% damage rate. According to Article 6(b) of the Contract, it was agreed that granite and marble are natural stone products, and thus certain differences in color and texture are deemed as acceptable.

The Tribunal also notes that in the e-mail titled as "Reply in detail" sent by the [Seller] at 17:14 on 14 December 2004, it is mentioned that marble may have color differences. The [Buyer] never objected to this explanation in the evidence. Regarding the damage rate, both parties have mentioned this in their communications.

Based on Article 1 of the Contract, if there is any problem concerning the number and quality of the goods, the [Buyer] should tell the [Seller] within 15 days from the receipt of goods, and provide relevant photos as evidence. After reviewing all the e-mails between the two parties, the Tribunal notes that the [Seller] did not receive any photo from the [Buyer]. Moreover, since the [Buyer] did not raise the quality problem of the samples or provide evidence in time, the Tribunal affirms that the [Buyer] did not inform the [Seller] of the quality and color problems properly as contracted.

C. Settlement

In the e-mail sent by the [Seller] (JB) to the [Buyer] (ZK) at 0:04 on 4 February 2005 titled as "About settlement", the [Seller] offered to settle the dispute with the [Buyer] for US $80,000. However, no evidence showed any actual settlement or payment of money.

In conclusion, the Tribunal holds that, as there is no evidence to show that there is any quality problem of the goods, or that the [Buyer] has paid for the goods as contracted, the non-performance of the [Buyer] has constituted a breach of contract, and the [Buyer] should consequently be responsible for the breach.

4. Claims of the [Seller]

Based on the above analysis, the Tribunal sustains the [Seller]'s first claim that the [Buyer] make the payment for goods to the [Seller] in the amount of US $108,096.12.

Regarding to the [Seller]'s claim for late interest charge in the amount of US $108,096.12 on the basis of Article 5 of the Contract, the Tribunal overrules this claim in that such a late interest charge is too high (10% for the first month and double for every following month) and is penal in nature. According to Article 78 of CISG ("if a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it"), the Tribunal holds that it is reasonable to calculate the interest on the payment of goods from the date set in Article 5 of the Contract (the first sum US $27,201.12 from 1 February 2005, the second sum US $60,810.00 from 5 February 2005, the third sum US $20,085.00 from 1 March 2005). The total interest on the payments of goods as of the date of the award is US $31,602.40.

Regarding to the [Seller]'s attorneys' fee, the Tribunal holds that the [Buyer] is responsible for the attorneys' fee of RMB 60,000.

Based on the results of this proceeding, the Tribunal holds that the [Seller] is responsible for 20% of the arbitration fee and the [Buyer] is responsible for the remaining 80%.

AWARD

Based on the above facts and analysis, the Tribunal renders the following award:

  1. [Buyer] shall pay US $108,096.12 to [Seller] for the goods;
  2. [Buyer] shall pay US $31,602.4 to [Seller] as interest on the payment of goods;
  3. [Buyer] shall pay RMB 60,000 to [Seller] as compensation for the attorneys' fees;
  4. The arbitration fee is RMB 66,373, 20% of which shall be assumed by the [Seller] (i.e., RMB 13,274.60) and 80% by the [Buyer] (i.e., 53,098.40). As the [Seller] has paid RMB 66,373 in advance, the [Buyer] shall pay RMB 53,098.40 to the [Seller]
  5. All of the money must be paid by the [Buyer] to the [Seller] in 45 days from the date of this award.

This award is final.


FOOTNOTES

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

** Li Jie, Master degree of Law, Tsinghua University in Beijing, BA in Law, Tsinghua University, Beijing.

*** 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 Sheppard Mullin China Law Update. Jingyuan Sun is an Associate with the New York office of this firm.

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Pace Law School Institute of International Commercial Law - Last updated October 21, 2009
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