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CISG CASE PRESENTATION

China December 2006 CIETAC Arbitration proceeding (Transformer case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/061200c3.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20061200 (December 2006)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2006/19

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (claimant)

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

GOODS INVOLVED: Transformers


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 53 ; 78

Classification of issues using UNCITRAL classification code numbers:

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

78B [Rate of interest]

Descriptors: 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) [second draft]

Queen Mary Case Translation Programme

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

Transformer case [December 2006]

Translation [*] by John W. Zhu [**]

The China International Economic and Trade Arbitration Commission (hereafter, the "Arbitration Commission") accepted the case (Case no. M2006 ___) according to:

   -    The arbitration clause under Contract no. ZN003-RITZ-003 (the "Contract") signed by and between the Claimant [Seller], ___ Ritz Messwandler GmbH & Co. [of Germany], and the Respondent [Buyer], Shanghai ___ Machine & Electrical Equipment Development Company, Ltd. [of the People's Republic of China] on 25 July 2003; and
 
   -    The written arbitration application submitted by the [Seller] on 27 July 2006.

The Arbitration Rules of the Arbitration Commission which took effect on 1 May 2005 (the "Arbitration Rules") shall apply to this case.

ARBITRATION PROCEDURE

On 21 August 2006, the Secretariat of the Arbitration Commission sent the notice of arbitration, the Arbitration Rules and the List of Arbitrators to the [Seller] and the [Buyer], respectively, by express mail and sent the arbitration application together with the evidence attached thereto filed by the [Seller] to the [Buyer] as well.

Mr. Liu ___, the arbitrator appointed by the [Seller], together with Mr. Zhang ___, the arbitrator appointed by the Chairman of the Arbitration Commission (the "Chairman") according to the Arbitration Rules for the [Buyer] as it did not appoint or authorize the Chairman to appoint its arbitrator, and Mr. Ding ___, the presiding arbitrator appointed by the Chairman as the parties failed to jointly appoint or authorize the Chairman to appoint a presiding arbitrator within the time limit, formed the Arbitration Tribunal on 9 October 2006 to hear this case. The Secretariat sent the notice on the formation of Arbitration Tribunal to both parties on the same day.

After having consulted with the Secretariat, on 16 October 2006, the Arbitration Tribunal decided to hold a court session on 14 November 2006 in Beijing and the Secretariat sent the notice of the court session to the [Seller] and the [Buyer] on the same day.

On 14 November 2006, the Arbitration Tribunal held the court session in Beijing as scheduled. The [Seller] sent its arbitration agent to attend the session and the [Buyer], although notified in writing, did not send its representative or agent to the session and did not state the reason for such absence to the Arbitration Tribunal as well. According to Article 34(2) of the Arbitration Rules, the Arbitration Tribunal decided to hear this case by default. At the court session, the agent of the [Seller] stated the facts of the case, answered the Arbitration Tribunal's queries, explained the evidence submitted by it and presented the original of the evidence.

At the end of the court session, as agreed by the [Seller], the Arbitration Tribunal required the [Seller] to file five copies of supplemental evidence and statement, if any, in 14 days (i.e., before 28 November 2006); unless otherwise agreed, the Arbitration Tribunal would not accept the supplemental evidence and statement submitted after this date.

After the court session, the Secretariat send a written notice to the [Buyer] and the [Seller], respectively, and the Arbitration Tribunal, acting through the Secretariat, required the [Buyer] to file any opinions about this case or evidence or request to hold another court session before 28 November 2006.

Neither the [Seller] nor the [Buyer] submitted any materials after the court session and the [Buyer] did not ask to hold another court session.

All arbitration documents of this case have been effectively served to the parties according to Article 68 of the Arbitration Rules.

This case has been completed. Based on documents and the facts verified during the court session, the Arbitration Tribunal handed down this award.

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

I. FACTS OF THE CASE

On 25 July 2003, the [Seller] and the [Buyer] executed the Contract under which the [Buyer] agreed to purchase the goods from the [Seller] mainly on the following terms:

   -    Specifications and number of the goods: 15 550KV current transformers with 6 or 8 secondary windings and 12 550KV current transformers with 7 or 9 secondary windings;
 
   -    Total contract price: EUR 738,000 CIF Main Port of China;
 
   -    Country of production and the producer: Germany, the [Seller];
 
   -    Delivery: For the 12 550KV current transformers with 7 or 9 secondary windings, FOB Port of Germany before the end of January, 2004; for the 15 550KV current transformers with 6 or 8 secondary windings, FOB Port of Germany before the end of March, 2004
 
   -    Payment terms:

(1) The [Buyer] shall pay 10% of the contract price (i.e., EUR 73,800) within 30 days after the execution of the Contract by telegraphic transfer and the [Seller] shall issue three copies of pro forma invoice of 100% of the contract price and commercial invoice of 10% of the contract price;

(2) The [Buyer] shall, pursuant to the delivery schedule provided by the [Seller], issue an irrevocable L/C of an amount of 90% of the contract price for the goods under each delivery (80% of the price shall be 75 days at sight and 10% of the price shall be 600 days at sight) in 30 days before loading the goods; the total amount of all irrevocable L/Cs should be 90% of the total contract price (i.e., EUR 664,200); and

(3) The [Buyer] shall, within 18 months after the delivery of the goods, issue an acceptance certificate to pay off the remaining 10% of the total contract price (i.e., EUR 73,800).

In addition to the above terms, the Contract also included provisions such as inspection and claims, quality warranty, postponement of delivery and penalty and arbitration.

After conclusion of the Contract, disputes arose between the parties on the contract performance. Failing to resolve the dispute by negotiation, the [Seller] filed this arbitration according to the arbitration clause in the Contract.

The [Seller] claimed that:

1. After conclusion of the Contract, the [Seller], the [Buyer], Hangzhou ___ Electrical Equipment Company (the "Hangzhou Company"), Mr. Jiang Hao and Mr. Lu Liang executed a Deed of Guarantee which provides that during the 12 months period from the date that the goods passes the 72 hours testing run period or 18 months period after delivery of the goods (the one which expires earlier), the [Buyer] shall be the primary obligor to pay the remaining 10% contract price and Mr. Jiang Hao and Mr. Lu Liang shall guarantee the payment of such price and the Hangzhou Company shall be the secondary obligor to pay the price;
 
2. On 28 May 2004, the goods started operation and functioned well. However, even though the [Seller] had urged for several times, the [Buyer], the Hangzhou Company, Mr. Jiang Hao and Mr. Lu Liang did not pay the remaining contract price of EUR 73,800.

The [Seller] alleged that the [Buyer] purchased the goods and it ought to pay the contract price in time and its non-payment after the due date had constituted a breach of contract.

Based on the above, the [Seller] request the Arbitration Tribunal:

1. To order the [Buyer] to pay the remaining contract price of EUR 73,800;
 
2. To order the [Buyer] to pay interest calculated at the lending interest rate prevailing then on the remaining contract price of EUR 73,800, which totals EUR 4,900 (calculated at 5.58% per annum and from 28 May 2005 to 31 July 2006, and the interest shall keep accruing until the date of payment); and
 
3. To order the [Buyer] to pay the arbitration fee of this case.

The [Buyer] did not file any response or present its opinions at the court session during the period under the Arbitration Rules or fixed by the Arbitration Tribunal.

II. THE ARBITRATION TRIBUNAL'S OPINION

1. The applicable law

The parties did not agree on the applicable law in the Contract. Since both Germany (where the [Seller]'s place of business is located) and China (where the [Buyer]'s place of business is located) are Contracting States of the United Nations Convention on Contracts for the International Sales of Goods (the "CISG"), the dispute under this arbitration should be determined by provisions of the CISG.

2. The issues subject to this arbitration

As the [Seller] only asked the Arbitration Tribunal to determine the rights and obligations between the [Seller] and the [Buyer] and did not mentioned the rights and obligations between it and the Hangzhou Company and other parties, the Arbitration Tribunal will only hear and rule on the rights and obligations between the [Seller] and the [Buyer] according to the powers conferred upon the Tribunal under the arbitration clause of the Contract.

3. The disputes between the parties

The disputes in this case arose out of the [Buyer]'s nonpayment of the remaining 10% contract price and this is the cause for the [Seller]'s initiation of this arbitration.

According to the [Seller]'s statements in the arbitration application, the Arbitration Tribunal considers the following issues are the real disputes in this case:

   -    Whether the goods delivered by the [Seller] are in compliance with the Contract?
 
   -    Whether the conditions for the payment of the remaining 10% contract price in the Contract have been satisfied?

The Arbitration Tribunal will address the above issues respectively.

      (1) The quality of the goods delivered by the [Seller]

It is provided in the Contract that:

   -    Specifications and number of the goods to be supplied by the [Seller]: 15 550KV current transformers with 6 or 8 secondary windings and 12 550KV current transformers with 7 or 9 secondary windings;
 
   -    Shipping mark on the goods: BBB Gaoling;

The goods under the Contract are the same goods under Supply Contract no. D03WSB44-04 signed by and between the [Buyer] and the State Grid Corporation of China, Construction Branch Company on 2 July 2003.

The certification submitted by the [Seller] which was issued by Jinzhou Ultra-high-voltage Bureau, Gaoling Substation states that "Gaoling Substation is a 500KV cross-area substation directly invested and managed by the State Grid Corporation of China and started operation from 28 May 2004. The substation has purchased 27 current transformers of type RITZ OKSF550. It is hereby certified that these current transformers have been operating well without defects and malfunctions and being in good quality."

The [Buyer] filed no objection to the above evidence submitted by the [Seller]. And the Arbitration Tribunal verified the original of this evidence and finds that the [Seller] has delivered the goods under the Contract which have already been put into use by the end user and "operating well and being in good quality" since 28 May 2004 (the day on which they were put into use) to 17 April 2006 (the date of the certification), which shows that the goods operate well and their quality complies with the Contract's requirements.

      (2) The condition to the payment in dispute

The Arbitration Tribunal notes that Clause 6 (Payment terms) of the Contract provides that:

"6.3 The [Buyer] shall, within 18 months after the delivery of the goods, issue an acceptance certificate to pay off the remaining 10% of the total contract price (i.e., EUR 73,800)"

However, the [Seller], the [Buyer] and the Hangzhou Company signed the Deed of Guarantee, which include the following payment provision:

"Party A (note by the Arbitration Tribunal: the [Buyer]) and Party B (note by the Arbitration Tribunal: the Hangzhou Company) must pay EUR 73,800 to Party C (note by the Arbitration Tribunal: the [Seller]) in 12 months after the goods pass the 72 hours testing run period or in 18 months after delivery of the goods (which ever expires earlier) if the goods operate well during the testing run period and ensure the Party C's receipt of the contract price. Party A shall be the primary obligor to pay the above price and the legal representative of Party A, Mr. Jiang Hao, and the legal representative of Party B, Mr. Lu Liang, shall guarantee the payment of such price with their personal property and Party B shall be the secondary obligor to pay the price. In case Party A did not pay the price when it becomes due, Party B must unconditionally pay the price to Party C in the above time limit."

According to the parties' above agreement, the Arbitration Tribunal finds that by signing the Deed of Guarantee, the [Seller] and the [Buyer] have agreed to change the condition to the payment of the remaining 10% contract price from the "[Buyer]'s issuance of an acceptance certificate" to "pay in 12 months after the goods pass the 72 hours testing run period or in 18 months after delivery of the goods (which ever expires earlier) if the goods operate well during the testing run period."

According to the Tribunal's opinion relating to the quality of the goods above, the Arbitration Tribunal finds that the goods under the Contract operate well and comply with provisions of the Contract and the goods have operated over 12 months, which indicates that the condition for the payment of the remaining contract price has been satisfied. Therefore, the [Buyer] ought to pay the remaining EUR 73,800 to the [Seller].

4. The [Seller]'s claims

      (1) The [Seller]'s first claim

      As the [Seller] has performed its delivery obligation under the Contract and the goods have operated well over 12 months, the [Buyer] ought to pay the remaining 10% of the contract price which totals EUR 73,800.

      (2) The [Seller]'s second claim

      With respect to the [Seller]'s request to require the [Buyer] to pay interest on the remaining contract price of EUR 73,800 at the lending interest rate prevailing then, the Arbitration Tribunal finds that it is a breach of contract on the [Buyer] part that it did not pay the remaining contract price in time when the condition to the payment has been satisfied; therefore, the [Buyer] shall pay interest to the [Seller].

The [Seller] requested to calculate the interest from 28 May 2005. The Arbitration Tribunal notes that according to the certification issued by the end user (Jinzhou Ultra-high-voltage Bureau, Gaoling Substation) on the goods under the Contract, the above goods went into operation since 28 May 2004 and no defects or malfunctions occurred since then and have been operating well and being in good quality. The Deed of Guarantee provides for "12 months after the goods pass the 72 hours testing run period," which is the day falling 12 months and 72 hours after 28 May 2004. Therefore, the interest shall be calculated from 31 May 2005 and the [Buyer] shall be the primary obligor to pay the interest on the 10% contract price.

The Arbitration Tribunal holds that the [Buyer] shall pay interest calculated at the interest rate of 5.58% per annum from 31 May 2005 to the date of this award (i.e., 30 December 2006), which totals EUR 6,532 (EUR 73,8005.58%(579/365)).

      (3) The [Seller]'s third claim

As this case arose out of the [Buyer]'s breach of contract and the Arbitration Tribunal supported all the claims of the [Seller], the entire arbitration fee of RMB 37,545 should be borne by the [Buyer].

III. AWARDS

Based on the above, the Arbitration Tribunal holds that:

   1.   The [Buyer] shall pay the remaining contract price of EUR 73,800 to the [Seller];
 
   2.   The [Buyer] shall pay interest of EUR 6,532 to the [Seller] which is calculated at 5.58% per annum from 31 May 2005 to the date of this award (i.e., 30 December 2006);
 
   3.   The entire arbitration fee of RMB 37,545 shall be borne by the [Buyer]. Since the [Seller] had already pre-paid the arbitration fee, the [Seller] shall compensate the [Buyer] RMB 37,545.

The [Seller] shall pay the above amounts within thirty days of this award; otherwise, interest at the annual rate of 6% shall be added.

This award is final. It takes effect when handed down.


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]; Respondent of Germany is referred to as [Seller]. Amounts in the currency of the European Union (eurodollars) are indicated as [EUR]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

** John W. Zhu, China University of Political Science and Law on a graduate scholarship. He received his Bachelor of Law degree from Southwest University of Political Science and Law and Double Degree of English Literature from Sichuan International Studies University in Chongqing, China. His focus is on International Economic Law.

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Pace Law School Institute of International Commercial Law - Last updated October 19, 2009
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