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CISG CASE PRESENTATION

China January 2007 CIETAC Arbitration proceeding (Business & operation support system case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/070100c1.html]

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

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Case identification

DATE OF DECISION: 20070100 (January 2007)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/2007/05

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (claimant)

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

GOODS INVOLVED: Equipment for business & operation support system


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

Business & operation support system case [January 2007]

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

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

   -    The arbitration clause under the Contract for the Sale and Purchase of Equipment for Phase II of the Project to Expand the Business & Operation Support System (BOSS) of Inner Mongolian ___ Company (Contract no. NMMC0303790) (hereafter the "Contract") entered into by and between the Claimant [Seller], American ___ Holdings, Inc. [of the United States], and the Respondent [Buyer], Neimenggu ___ Technical Trading Company, Ltd. [of the People's Republic of China], on 26 February 2004;

 

   -    The written arbitration application submitted by the [Seller] on 14 September 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 11 October 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 mails and sent the arbitration application together with the schedules thereto submitted by the [Seller] to the [Buyer] as well.

Mr. ___, the arbitrator appointed by the [Seller], together with Mr. ___, 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. ___, 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 10 November 2006 to hear this case.

After reviewed the documents of this case and consulted with the Secretariat of the Arbitration Commission, the Arbitration Tribunal decided to hold a court session on 18 December 2006 in Beijing. The Secretariat sent the notice of the court session to the [Seller] and the [Buyer] respectively by express mails on 14 November 2006.

On 18 December 2006, the Arbitration Tribunal held the court session in Beijing as scheduled. Both parties sent their arbitration agents to attend. The [Buyer] submitted its evidence at the session and the Arbitration Tribunal forwarded the same to the [Seller]. The agents of both parties stated and argued on the facts and legal issues of the case at the session, cross-examined the evidence and answered the Arbitration Tribunal's queries. At the end of the session, as agreed by both parties, the Arbitration Tribunal decided that any supplemental materials in relation to the case should be submitted by 22 December 2006.

After the court session, both parties submitted their supplemental materials by the deadline above and the Secretariat exchanged the same between the parties.

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

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

I. FACTS OF THE CASE

The Claimant, as the supplier, and the Respondent, as the purchaser, signed the Contract on 26 February 2004, under which the Inner Mongolian ___ Company (the "Inner Mongolian Company") was listed as the end-user of the subject equipment. According to the Contract, the [Seller] supplied the equipment to the [Buyer] who would then provide it to the end-user (i.e., the Inner Mongolian Company) for its use in the project to expand its Business & operation support system (the "BOSS"). The Contract, among others, includes the following terms:

   -    Clause 2.1: The total contract price would be US $2,689,021, of which the HPCSS service fee is US $591,514;
   -    Clause 3.1: The [Buyer] is required to deliver an irrevocable sight L/C of 90% of the total contract price (i.e., US $2,420,119) issued by the Industrial and Commercial Bank of China, Inner Mongolian Branch in favor of the [Seller] within three weeks after the execution of the Contract;
 
   -    Clause 3.2: The remaining 10% of the contract price (i.e., US $268,902) shall be paid against the presence of the original of the commercial invoice of the same amount and the initial inspection report issued by the end-user;
 
   -    Clause 10.2: The seat of the arbitration is Beijing and the arbitral institution is CIETAC. The Contract shall be governed by the United Nations Convention on Contracts for International Sales of Goods (the "CISG") made in 1980.

The [Seller] alleged that the [Buyer] did not issue a L/C of US $2,420,119 in favor of the [Seller] as agreed in the Contract but only delivered a L/C of US $1,887,756.30 on 31 March 2004, and the [Buyer] failed to pay the remaining contract price (i.e., US $532,362.60) to the [Seller] by L/C or by other ways.

After its receipt of the L/C, the [Seller], still placing trust in the [Buyer], delivered the equipment for the [Buyer] on 30 April 2004 and performed the installation and test obligation according to the Contract even though it was negotiating with the [Buyer] on the amount of the L/C.

The project passed the initial inspection of the Inner Mongolian Company as the end-user and the original of the inspection report was issued to the [Seller] on 2 February 2005. It indicated the complete performance of the [Seller]'s obligations under the Contract. However, the [Buyer] only paid US $209,750.70 (i.e., the remaining 10% of the contract price other than the HPCSS service fees) to the [Seller].

Due to the [Buyer]'s breach of the Contract, the [Seller] requested the Inner Mongolian Company to pay the HPCSS service fees directly to it. The [Buyer] agreed to this and made the same request to the end-user. The Inner Mongolian Company paid RMB 479,912.24 (which equals US $59,151.40) to the [Seller]. To date, although the [Seller] has several times demanded that the [Buyer] make the remaining payment, the [Buyer] has still failed to pay to the [Seller] the remaining contract price which equals US $532,362.60.

As a matter of fact, the [Buyer] has asked the end-user to pay on 8 May 2005, 15 March 2005 and 21 July 2005, respectively, and the Inner Mongolian Company has agreed to pay and made the payment to the [Buyer]; however, the [Buyer] did not pay the outstanding contract price to the [Seller], which impaired the lawful interest of the [Seller].

The Contract between the [Seller] and the [Buyer] is legal, valid and binding on both parties. The [Seller] has performed the Contract according to its terms whilst the [Buyer] breached the Contract and did not pay in full. The [Buyer]'s refusal to pay has materially impaired the lawful interest of the [Seller].

Based on the above facts, the [Seller] filed this arbitration according to the CISG, the relevant laws and provisions of the Contract and asked the Arbitration Tribunal to:

1. Order the [Buyer] to pay the [Seller] the unpaid contract price of US $532,362.60, together with the interest of US $65,767.64 thereon calculated at 5.33% (one month LIBOR for US dollars as promulgated on 1 September, 2006) from 21 May 2004 to 13 September 2006, and the interest from 13 September 2006 to the date of payment calculated in reference to the LIBOR prevailing then; and

2. Order the [Buyer] to bear the arbitration fee of the case.

The [Buyer] orally replied to the [Seller]'s allegations as follows:

   -    Although the [Buyer] entered into the Contract as a purchaser, the [Buyer] was doing so as an agent of the end-user (i.e., the Inner Mongolian Company). The [Buyer] and the Inner Mongolian Company had entered into an Agency Agreement for Foreign Trade before the execution of the Contract. The Inner Mongolian Company had paid the [Buyer] the amount under the Contract; however, as there were other amounts unsettled between the [Buyer] and the Inner Mongolian Company, the [Buyer] refused to pay the price under the Contract to the [Seller].
 
   -    The [Buyer] alleged that it has signed an Assignment Agreement with the Inner Mongolian Company and the Inner Mongolian Shengkaiyuan Decoration Company (the "Decoration Company") on 23 February 2005 under which the Decoration Company agrees to assign the debt owing to it by the Chifeng Branch Company of the China Netcome Inner Mongolian Communication Company to the Inner Mongolian Company. Both the [Buyer] and the Decoration Company had notified the Inner Mongolian Company on 28 August 2006 of their agreement to its payment of the unsettled amount under the Contract to the [Seller] at any time.
 
   -    Based on the above, the [Buyer] alleged that it was the Inner Mongolian Company but not the [Buyer] who should be responsible for paying the outstanding amount under the Contract, which was evidenced by the fact that the Inner Mongolian Company paid the 10% of the contract price directly to the [Seller].
 
   -    In addition, the [Buyer] alleged that the outstanding amount claimed by the [Seller] was service fees the settlement of which was subject to a separate payment term and was not included in the total price of the Contract.

After the court session, the [Seller] further alleged that:

      1. The legal relationships among the parties were clear. According to terms of the Contract and the fact that the [Buyer] has paid part of the contract price, the [Seller] should be the supplier and the [Buyer] should be the purchaser under the Contract. Therefore, the [Buyer] should pay the contract price according to the terms of the Contract.

It was clear from the Contract that the [Seller] was the supplier, the [Buyer] was the purchaser and the Inner Mongolian Company was the end-user of the equipment. The [Seller]'s obligation was to deliver the equipment in line with the specifications under the Contract while the [Buyer]'s obligation was to pay the contract price according to terms of the Contract. The existence of the Inner Mongolian Company as the end-user should cause no changes to rights and obligations of the [Seller] as the supplier and the [Buyer] as the purchaser.

Although the [Buyer] alleged that it had signed an Agency Agreement for Foreign Trade, neither did it submit this agreement to the Arbitration Tribunal not did it indicate that there was such an agreement during the course of the execution and performance of the Contract. Therefore, the [Seller] requested the Arbitration Tribunal not to accept the [Buyer]'s allegation of the existence of an Agency Agreement for Foreign Trade between it and the Inner Mongolian Company.

As a matter of fact, the [Buyer] has performed the obligation to pay a majority of the contract price as a purchaser and the evidence submitted by the [Buyer] also showed that it was the [Buyer] who paid a majority of the contract price and it should be deemed as the purchaser under the Contract that should be responsible for paying the contract price.

      2. The payment clause in the Contract was about the total contract price and there was no factual or legal basis for the [Buyer]'s excuse that the service fees should be dealt with by different rules.

The payment method as stipulated by Clause 3.1 and 3.2 expressly indicated that it should govern the payment of the entire contract price payable under the Contract and payment of the price and the service fees were not subject to different rules. The [Buyer]'s allegation that the payment of HPCSS service fees was subject to different rules was baseless and in contradiction with the fact the it had asked the Inner Mongolian Company to pay it 90% of the contract price.

      3. The [Buyer] expressly admitted that it had received all the amounts payable under the Contract from the end-user and all other evidence also proved that the Inner Mongolian Company has paid the price to the [Buyer]; therefore, there should be no excuses for the [Buyer]'s refusal to pay.

During the arbitration, the [Buyer] has admitted several times that it had received the amounts payable under the Contract from the Inner Mongolian Company which included US $532,362.60 as claimed by the [Seller] in this arbitration. The evidence provided by the [Seller] was sufficient to show that the [Buyer]'s payment request had been accepted by the Inner Mongolian Company and it had made the payment. According to the relevant laws, the [Buyer] ought to pay according to terms of the Contract even if it had not received the payment from the end-user. The truth was that the [Buyer] had received the payment from the end user; therefore, there should be no condition for the [Buyer] to pay the outstanding contract price to the [Seller].

      4. The [Buyer]'s excuse for the non-payment that it had unsettled disputes with the Inner Mongolian Company was baseless and had no relation to this case in law.

The [Buyer] alleged that the Inner Mongolian Company owed money to it under other transactions between them; therefore, it did not pay the contract price to the [Seller] even if it had received full payment from the end user. In addition, the [Buyer] expressly admitted that it had disposed of the amount received by it under the Contract for other purposes.

The [Seller] considered that the disputes between the [Buyer] and the Inner Mongolian Company under other transactions and the fact that the Inner Mongolian Company owing money to the [Buyer] had no relation to this case and should not be the [Buyer]'s excuse for nonpayment. The [Seller] had no such obligation or right to provide assistance to the [Buyer] in settling its other disputes with the Inner Mongolian Company.

      5. There was no factual or legal basis for the [Buyer]'s allegation that it had become the Inner Mongolian Company's obligation to pay after it had paid HPCSS service fees to the [Seller]. The Inner Mongolian Company paid the HPCSS service fees because the [Seller] requested it to pay while the [Buyer] applied the amounts paid to it by the Inner Mongolian Company for other purposes and this had been agreed by the [Buyer]. This did not mean to change the person responsible for the payment. As a matter of fact, the Inner Mongolian Company's payment with the agreement of the [Buyer] reaffirmed that it was the [Buyer] that should be responsible to pay under the Contract.

II. THE ARBITRATION TRIBUNAL'S OPINION

1. The applicable law

Clause 10.2 of the Contract provides that "the contract shall be governed by the CISG". The parties have entered into an agreement on the governing law of substantive issues under this case and the Arbitration Tribunal accepts the parties' agreement. Therefore, the Arbitration Tribunal determines that the CISG shall be applied to this case.

2. The Contract and the parties

It is verified by the Arbitration Tribunal that both the [Seller] and the [Buyer] have no dispute on the existence and terms of the Contract. Therefore, the Arbitration Tribunal determines that the Contract is legal, valid and binding on both parties.

As to the [Buyer]'s request to list the Inner Mongolian Company as a party to this case, the [Seller] considered that under the Contract, the [Seller] was the Claimant and the [Buyer] was the Respondent and the dispute under this case had no relation to the Inner Mongolian Company which was only an end-user to provide an initial inspection report under the Contract; therefore, the Inner Mongolian Company had no relation to this case.

The Arbitration Tribunal finds that as the [Seller] did not list the Inner Mongolian Company as the respondent, the Arbitration Tribunal has no power to list it as a party to this case.

3. The [Seller]'s claims

      (1) The outstanding amount of US $ 532,362.60 as claimed by the [Seller]

The Arbitration Tribunal notes that the [Buyer] has no objection to the allegation that the [Seller] had performed its obligations under the Contract and the [Seller] admits the fact that the [Buyer] has paid the contract price other than 90% of the HPCSS service fees under the Contract; and both parties confirmed at the court session that the amount of US $532,362.60 as claimed by the [Seller] was equal to 90% of the total amount of the service fees (i.e., US $591,514) under the Clause 2.1 of the Contract.

The Arbitration Tribunal also notes that the [Buyer] confirmed that the end-user, namely, the Inner Mongolian Company, had paid to it the contract price of US $532,362.60 already; however, the [Buyer] refused to pay the [Seller] for the excuse that the Inner Mongolian Company owed money to it under other transactions and the [Buyer] had signed an Assignment Agreement with the Inner Mongolian Company under which it assigned the debt owing to it by the China Netcome Inner Mongolian Communication Company to the Inner Mongolian Company in exchange for its agreement to pay the [Seller] the outstanding amount under the Contract. The [Seller] considered that the dispute between the [Buyer] and the Inner Mongolian Company under other transactions had no relation to this case and the amount owing to the [Buyer] by the Inner Mongolian Company was not the contract price in this case. The Assignment Agreement had no relation to this case and the [Seller] had no knowledge about this agreement. Therefore, the [Buyer]'s defenses for its non-payment were not substantiated.

After deliberation, the Arbitration Tribunal finds that the [Seller] has completely performed its obligations under the Contract and according to Article 53 of the CISG, the buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention. Therefore, the [Buyer] shall pay the contract price according to terms of the Contract.

In addition, the Arbitration Tribunal notes that the [Buyer] alleged that according to the Agency Agreement for Foreign Trade in relation to the Phase III of the Project to Adjust the BOSS of China Mobile Company in Inner Mongolia, the Inner Mongolian Company should pay the [Seller] directly. The Arbitration Tribunal finds that this agency agreement has no relation with this case and it does not amend the provisions of the Contract on the rights and obligations of the [Seller] and the [Buyer]. The Inner Mongolian Company has transferred RMB 479,566.56 to ___Technology (China) Company Ltd. on 23 August 2005, which as alleged by the [Buyer], indicated that the Inner Mongolian Company had become the person to pay under the Contract, the currency under the Contract had been changed to RMB from US dollars and the payee had been changed to ___Technology (China) Company Ltd.

The [Seller] alleged that the ___Technology (China) Company Ltd. was its subsidiary company and the [Seller]'s agreement to the Inner Mongolian Company's payment in RMB to its subsidiary in China was for obtaining the payment as soon as possible. This was the only payment made in this way and had been agreed by the [Buyer] in advance.

The Arbitration Tribunal finds that as the [Seller] submitted its written authorization to its subsidiary company and the all the parties agreed to do so, such change in payment method did not change the provisions of the Contract and the [Seller] and the [Buyer] shall continue to perform pursuant to provisions of the Contract and the [Buyer] shall pay the [Seller].

Based on the above, the Arbitration Tribunal does not support the [Buyer]'s refusal to pay the remaining part of the contract price of US $532,362.60 for the excuse that it had disputes with the Inner Mongolian Company under other transactions.

In addition, during the arbitration, the [Buyer] confirmed that it had the obligation to pay the contract price under the Contract to the [Seller] and it had received the payment of such price of US $532,362.60 from the end-user.

According to the above, the Arbitration Tribunal holds that the [Buyer] shall pay the unpaid amount of US $532,362.60 to the [Seller].

      (2) The interest on the outstanding amount

The Arbitration Tribunal notes that the [Seller] filed a claim for the interest of US $65,767.64 on the unpaid amount calculated at 5.33% (1 month LIBOR for US dollars as promulgated on 1 September, 2006) from 21 May 2004 to 13 September 2006, and the interest from 13 September 2006 to the date of payment calculated in reference to the LIBOR prevailing then.

Article 78 of the CISG provides that, "[i]f a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it, without prejudice to any claim for damages recoverable under article 74." Based on this Article, the Arbitration Tribunal holds that the [Seller] is entitled to require the [Buyer] to pay interest. Considering that the [Buyer] filed no objection to the calculation method and the period suggested by the [Seller], the Arbitration Tribunal holds that the [Buyer] shall pay interest on the amount of US $532,362.60 as determined above from 21 May 2004 to the day of payment calculated at the LIBOR prevailing then.

4. The arbitration fee

The Arbitration Tribunal holds that the [Buyer] shall bear the entire arbitration fee.

III. AWARD

The Arbitration Tribunal holds that:

   1.   The [Buyer] shall pay the [Seller] the unpaid contract price of US $532,362.60 under the Contract, together with the interest thereon from 21 May 2004 to the day of payment calculated at the LIBOR prevailing then.
 
   2.   The arbitration fee is US $7,453, which the [Buyer] shall bear. Since the [Buyer] had already pre-paid the arbitration fee, the [Buyer] shall pay the [Seller] US $17,453.

This is the final award which shall take effect when handed down.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of the United Stqtes is referred to as the [Seller] and the Respondent of the People's Republic of China is referred to as the [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].

** John W. Zhu, LL.M. China University of Political Science and Law on a national 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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