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CISG CASE PRESENTATION

China 20 September 2006 CIETAC Arbitration proceeding (Welding machine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060920c1.html]

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

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Case identification

DATE OF DECISION: 20060920 (20 September 2006)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2006/02

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Belgium (respondent)

GOODS INVOLVED: Welding machine


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade Arbitration
Commission (CIETAC) (now South China Branch) 20 September 2006 (Welding machine case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/114],
CLOUT abstract no. 1116

Reproduced with permission of UNCITRAL

Abstract prepared by Haocen Shi

A Chinese buyer and a Belgian seller signed a contract for the sale of electric welders. The contract provided that the buyer would pay 40 per cent of the price of the goods before delivery, and the balance within 7 days after taking delivery. After the contract was signed, the seller delivered the goods to the buyer, after receiving 40 per cent of the payment. However, the buyer did not pay the balance within 7 days after taking delivery of the goods as agreed to in the contract. The parties went on to sign a supplementary agreement, establishing the total amount of the balance, the deadline for the payment and the way to calculate a penalty for further delays in payment. As the buyer did not pay the sum due, the seller initiated arbitration proceedings, asking the Arbitration Tribunal to order the buyer to pay the sum owed and the penalty for breaching the contract by delaying the payment.

The parties had not established in the contract a law to govern it. Since the places of business of the two parties were in States Parties to CISG, the Tribunal ruled, under article 142 of the General Rules of the Civil Code of the People's Republic of China, that the case should be governed first and foremost by CISG. Matters not provided for in the Convention should be governed by the law of the State most closely connected with the case, which was Chinese law.

The buyer did not make any defence or attend the hearing after being legally notified. The Tribunal ruled that the buyer forfeited its rights to defend itself or give evidence, and must therefore accept the relevant consequences, namely that the Tribunal could determine the relevant circumstances on the basis of the written submission by the seller and the hearing.

Regarding the sum owed, the Tribunal found on the basis of the evidence submitted by the seller that the seller had not breached the contract. The buyer, on the other hand, had acted in breach of the contract, and should bear full liability for that. Under articles 61 and 62 of the Convention, the Tribunal ruled that the buyer should pay the seller the sum owed. As for the penalty for the delay, the Tribunal found that the Convention did not have any provision for penalties and therefore ruled according to the law of contract of the People's Republic of China in support of the seller's request.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 4 [Also cited: Articles 61 ; 62 ]

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): penalty clauses]

Descriptors: Scope of Convention ; Penalty clauses

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

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

Welding machine case (20 September 2006)

Translation [*] by Meihua Xu [**]

Translation edited by William Zheng [***]

I. [CASE PROCEEDINGS]

(1) Acceptance of the case

The China's International Economic and Trade Arbitration Commission Huanan Commission (Formerly known as "China International Economic and Trade Arbitration Commission Shenzhen Commission", renamed as "China International Economic and Trade Arbitration Commission Huanan Commission on 18 June 2004, hereafter, the "Huanan Commission") accepted the case according to:

   -    The arbitration clause in the sales contract signed by Claimant [Seller], China Shenzhen R Electricity Company, and Respondent [Buyer], Belgium __ Company on 23 August 2005; and
 
   -    The written arbitration application submitted by [Seller] on 19 April 2006.

(2) Arbitration clause

Article 5 of the aforesaid sales contract stipulates that:

"All disputes or differences which cannot be settled amicably will be arbitrated by the China International Economic and Trade Arbitration Commission. The arbitration will be final and binding upon both parties; all charges will be borne by the losing party."

(3) Arbitration process

This case is qualified to use the Arbitration Rules of the Arbitration Commission (hereafter, the "Arbitration Rules"), which became effective on 1 May 2005.

On 28 April 2006, the Secretariat of the Huanan Commission sent to the [Buyer] by express mail the arbitration notice, the [Seller]'s arbitration application and the attached evidence, the Arbitration Rules, and the arbitrators' name list. The corresponding documents were sent to the [Seller] on the same day.

In its arbitration application, the [Seller] requested to apply summary procedure to this case, alleging that the facts in the case were clear and that the legal relationship was definite. The Huanan Commission forwarded the [Seller]'s request to the [Buyer], informing that the [Buyer] should give written notice to the Secretariat of the Huanan Commission if it agreed to apply summary procedure to this case; if the [Buyer] did not agree or made no response within the stipulated time, it would be deemed that the [Buyer] did not agree to apply summary procedure to this case. The [Buyer] failed to give written response within the stipulated time. Therefore, pursuant to the Arbitration Rules, this case is not qualified to use summary procedure.

(4) Arbitration language

The contract in this case and the entire evidence documents are written in English, and there is no stipulation on arbitration language in the contract. The [Seller] submitted its arbitration application written in both English and Chinese. The Huanan Commission sent to both parties the arbitration notices written in both English and Chinese, informing the two parties that if they failed to reach an agreement on using another language (such as English), within twenty days after receiving the notice, the Huanan Commission would apply article 67 of the Arbitration Rules, which states that:

"If the parties have reached an agreement on the arbitration language, that language shall be applied, otherwise, Chinese shall be the official language for the arbitration procedure" and the letters or documents issued afterwards would be written in Chinese.

Since the two parties failed to reach an agreement to use another language, in accordance with article 67 of the Arbitration Rules, Chinese shall be applied to this case.

(5) Formation of the Arbitration Tribunal

The [Seller] appointed Mr. D as its arbitrator. Since the [Buyer] failed to appoint or ask the Chairman of the Arbitration Commission to appoint an arbitrator, the Chairman of the Arbitration Commission appointed Mr. X as the [Buyer]'s arbitrator; The Chairman of the Arbitration Commission appointed Mr. C as the Presiding Arbitrator since the two parties failed to jointly appoint or ask the Chairman of the Arbitration Commission to appoint the Presiding Arbitrator. These three arbitrators formed the Arbitration Tribunal to hear this case on 20 June 2006.

(6) Court session

The Secretariat of the Huanan Commission scheduled a court session at 9 a.m. on 20 July, and sent the court session notices to the two parties on 21 June 2006 via express mail.

At 9 a.m. on 20 July 2006, the Arbitration Tribunal held the court session. The agent of the [Seller] attended the court session at the place of Huanan Commission. However, neither the [Buyer] nor its agent presented at the court session. Based on article 34(2) of the Arbitration Rules, the Arbitration Tribunal processed this case by default.

At the court session, the Arbitration Tribunal heard the [Seller]'s statement, verified related evidence, and made investigations on related facts.

After the court session, the Secretariat of the Huanan Commission forwarded to the [Buyer] the material submitted by the [Seller] at the court session via express mail, giving a written notice that if the [Buyer] deemed that it was necessary to hold a second court session or had other written opinions or material to submit, it should file the written application or submit written opinions or material within 15 days of the receipt of this letter.

The [Buyer] failed to file written application or submit any written opinions or material within the stipulated time.

(7) Receipt of the documents

The Huanan Commission sent to the [Buyer] by express mail the arbitration documents, including the arbitration notice and the attachment, the notice of formation of the Arbitration Tribunal and the court session notice. Since the [Buyer] failed to submit a defense or to reply by written document, the Secretariat of the Huanan Commission checked the delivery status of the aforesaid mailing on the EMS website, with the conclusion that this mailing had been delivered properly and the entire documents have been sent to the [Buyer] effectively.

This case has been concluded, and the Arbitration Tribunal handed down the award based on the existing material and the facts ascertained at the court session.

The following are the facts, the Tribunal's opinion and award.

II. FACTS

On 23 August 2005, the [Buyer] and the [Seller] signed a sales contract (hereafter, the "Contract"), by which the [Buyer] was to purchase welding machines from the [Seller]. It was stipulated in the Contract that the [Buyer] shall pay 40% of the price for the goods prior to the delivery and pay the remaining amount within seven days after the receipt of the goods.

After signing the Contract, on 31 August 2005, the [Seller] delivered the goods to the [Buyer], however, the [Buyer] failed to make payment within seven days of the receipt of the goods as stipulated in the Contract. On 19 January 2006, regarding the aforesaid payment in arrears, the two parties signed an account checking list, confirming that the [Buyer] eventually owed the [Seller] US $133,112. Based on this, on 20 January 2006, the two parties signed an agreement formally (hereafter, the "Supplementary Agreement") as the Contract attachment.

It was stipulated in the Supplementary Agreement that the [Buyer] shall pay the remaining US $133,112 to the [Seller] and that the [Seller] shall pay US $45,612 to the [Buyer] as a repair fee for the L7812 product and for other problems with the goods. After offsetting, the [Buyer] shall pay US $87,500 to the [Seller] by 23 January 2006 by T/T; if the [Buyer] makes payment later than 15 February 2005 [Note by the Arbitration Tribunal: It should be 15 February 2006], the [Buyer] shall pay 0.2% daily interest to the [Seller].

[Seller]'s position

The [Seller] alleges that the [Buyer] has violated the Supplementary Agreement by failing to make the aforesaid payment. Therefore, the [Seller] filed the arbitration application with the Huanan Commission based on the arbitration clause in the Contract, seeking to have the Arbitration Tribunal rule that:

  1. [Buyer] shall make the payment in arrears of US $87,500;

  2. [Buyer] shall pay the interest on the aforesaid sum calculated from 16 February 2006 to the day of the award at a 0.2% daily interest rate;

  3. [Buyer] shall bear the arbitration fee; and

  4. [Buyer] shall bear the [Seller]'s reasonable expenses for processing this case, including attorneys' fee.

At the court session, the [Seller] confirmed the actual amount for item 4 of its claim as renminbi [RMB] 30,975 and submitted its Agent Entrustment Contract and the invoice for attorneys' fee. After the court session, the [Seller] supplied the arbitration fee for the aforesaid claim.

The [Buyer] neither made defense, nor attended the court session, and did not submit any written opinion or material.

III. OPINION OF THE ARBITRATION TRIBUNAL

The two parties failed to stipulate the applicable law either in the Contract or the Supplementary Agreement. Since the [Seller]'s place of business is in China and the [Buyer]'s in Belgium and both China and Belgium are Contracting States of the CISG, therefore, according to article 142 of the Civil Code of the People's Republic of China, the CISG has priority to be applied to this case. For issues on which the CISG has no stipulations, the Arbitration Tribunal deems that, based on article 145 of the Civil Code of the PRC, the proximate connection principle, China has the closest connection with the dispute in this case; therefore, Chinese domestic law shall be applied.

The Contract in this case was signed by the two parties based on equal negotiation, which does not violate mandatory provisions of Chinese law, and the Contract has been actually performed. Thus, based on Chinese law provisions, the Contract in this case was legal and effective and has binding effect on the two parties.

The Arbitration Tribunal notes that, via legal notice, the [Buyer] neither made defense to the [Seller]'s allegations and its evidence, nor attended the court session, nor submitted any written opinion or evidence within the time period stipulated by the Arbitration Tribunal, relinquishing its rights to make defense and provide evidence Therefore, the [Buyer] should bear the responsibility accordingly, which means the Arbitration Tribunal could only ascertain the related facts based on the written material submitted by the [Seller] and the court session.

After examination, it was found that the Contract in this case was signed by the two parties using fax and scanner. One party faxed the Contract with its signature to the other party, and the other party signed on fax and scanned it back. There were seals and signatures of the two parties on the Contract. The legal representative of the [Seller], Mr. A, signed the Contract, and Mr. M of the [Buyer] signed the Contact on behalf of the [Buyer]. At the court session, the [Seller] submitted the original fax of the Contract. After the conclusion of the Contract, the [Seller] delivered the goods to the [Buyer] within the stipulated time, which is evidenced by the copy of the B/L for that delivery.

The Supplementary Agreement and the account checking list were signed by both parties in person. Mr. P, the vice president of the [Seller], and Mr. M, the representative of the [Buyer], signed the aforesaid documents. At the court session, the [Seller] provided the original Supplementary Agreement and the original account checking list.

After examining the aforesaid evidence, Mr. M signed the entire documents on behalf of the [Buyer], and his signatures are consistent in those documents. The Arbitration Tribunal, therefore, deems that the aforesaid evidence can prove each other, and that the reliability of the aforesaid documents shall be confirmed under the circumstance that there is no opposite evidence.

Based on the stipulations in the Contract, the [Buyer] should have made the remaining payment within seven days after the receipt of the goods, however, the [Buyer] failed to do so. In order to settle the payment issue as soon as possible, on 19 January 2006, the two parties confirmed that the payment in arrears was US $133,112 by signing an account checking list. In addition, the two parties signed the Supplementary Agreement as the attachment to the Contract on 20 January 2006, by which it was eventually confirmed that the [Buyer] needed to pay to the [Seller] US $87,500. The aforesaid amount was supposed to be paid by the [Buyer] by T/T by 23 January 2006. If the [Buyer] failed to make payment by 15 February 2006, it should pay the contract violation fee for late payment at a 0.2% daily interest rate. However, the [Buyer] failed to perform the Supplementary Agreement and has not made payment until now.

Article 61 of the CISG stipulates that:

"(1) If the [Buyer] fails to perform any of his obligations under the contract or this Convention, the [Seller] may:

(a) exercise the rights provided in articles 62 to 65;

(b) claim damages as provided in articles 74 to 77.

(2) The [Seller] is not deprived of any right he may have to claim damages by exercising his right to other remedies."

Article 62 of the CISG states that:

"The [Seller] may require the [Buyer] to pay the price, take delivery or perform his other obligations, unless the [Seller] has resorted to a remedy which is inconsistent with this requirement."

Based on the aforesaid stipulations, the [Seller] is entitled to ask the [Buyer] to pay US $87,500, the payment in arrears. The [Seller]'s first claim shall therefore be accepted.

There is no stipulation on contract violation fee in the CISG. Therefore, the issue of the contract violation fee in the [Seller]'s second claim shall be governed by the Contract Law of the PRC. Article 114 of the Contract Law of the PRC stipulates that:

"The parties may prescribe that if one party breaches the contract, it will pay a certain sum of liquidated damages to the other party in light of the degree of breach, or prescribe a method for calculation of damages for the loss resulting from a party's breach. Where the amount of liquidated damages prescribed is below the loss resulting from the breach, a party may petition the People's Court or an arbitration institution to increase the amount; where the amount of liquidated damages prescribed exceeds the loss resulting from the breach, a party may petition the People's Court or an arbitration institution to decrease the amount as appropriate."

The Arbitration Tribunal notes that based on the aforesaid articles and the facts analyzed above, the [Seller] is entitled to a contract violation fee for the [Buyer]'s delayed payment. Since the [Seller] did not ask the Arbitration Tribunal to adjust the amount of liquidated damages, the Arbitration Tribunal shall not adjust the amount actively. Therefore, the [Seller]'s second claim is acceptable.

Moreover, there is no evidence showing that the [Seller] has breached the Contract during the performance of the Contract; however, the [Buyer] has violated the Contract. Therefore, the [Buyer] shall bear the entire liability and the [Seller]'s claim to have the [Buyer] bear the entire arbitration fee shall be accepted.

At the court session, the [Seller] submitted its agent entrustment contract and the invoice for attorneys' fee. The Arbitration Tribunal notes that the [Seller] has in fact engaged an attorney for processing this case, and that the [Seller] has provided evidence showing that it has paid the attorneys' fee; therefore, based on article 46 of the Arbitration Rules and considering the attorney's actual work load and the award, the Arbitration Tribunal holds that RMB 30,975 is a reasonable amount for the [Seller]'s attorneys' fee, which shall be supported.

IV. THE AWARD

Based on the facts ascertained, the Arbitration Tribunal rules that:

   (1)   [Buyer] shall make payment in arrears to the [Seller], i.e., US $87,500;
 
   (2)   [Buyer] shall pay the contract violation fee for the delayed payment on the aforesaid amount at 0.2% daily interest rate calculated from 16 February 2006 to the day of the award;
 
   (3)   [Buyer] shall bear the entire arbitration fee;
 
   (4)   [Buyer] shall pay the [Seller]'s attorneys' fee of RMB 30,975.

The [Buyer] shall make payments for the aforesaid items within 15 days of this award.

This is the final award.

Presiding Arbitrator:

Arbitrator:

Arbitrator:

20 September 2006 in Shenzhen


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] and Respondent of Belgium 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].

** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of a Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.

*** 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.

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Pace Law School Institute of International Commercial Law - Last updated January 18, 2012
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