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CISG CASE PRESENTATION

China 17 May 2007 Shanghai High People's Court [Appellate Court] (Plastic inflatable swimming pools case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/070517c1.html]

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

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Case identification

DATE OF DECISION: 20070517 (17 May 2007)

JURISDICTION: People's Republic of China

TRIBUNAL: Shanghai High People's Court [Appellate Court]

JUDGE(S): Xu Cuan (Chief Judge), Hu Xiaohong (Judge), Ke Yonghong (Acting Judge)

CASE NUMBER/DOCKET NUMBER: (2007) HGMS(S)ZZ No. 6

CASE NAME: H2O Recreation Inc. v. Dongui Synthetic Resin Inc. (Shanghai).

CASE HISTORY: 1st instance Shanghai First Intermediate People's Court [affirmed]

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

BUYER'S COUNTRY: Canada (plaintiff)

GOODS INVOLVED: Plastic inflatable swimming pools


Classification of issues present

APPLICATION OF CISG: No. This is a case in which the CISG appeared to apply by virtue of Article 1(1)(a). The Appellate Court stated:

"The Convention is not mandatory and it is not necessary that the Convention is applicable to international sales contracts between parties with their places of business in different Contracting States. The Convention does not apply if the parties exclude the application of the Convention expressly or if there is objection to the application of the Convention. Then the rules of Chinese law on determining the law applicable to civil litigation should be resorted to. Thus, the Convention does not apply due to the objection of [Seller], despite the fact that both China and Canada are Contracting States to the Convention."

The Buyer had pleading the CISG. The above ruling was in response to the Buyer's appeal alleging that the Court of First Instance erred in not applying the CISG.

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 6

Classification of issues using UNCITRAL classification code numbers:

6A1 [Implied exclusion or modification]

Descriptors: Autonomy of parties ; Choice of law

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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): Click here for Chinese text of case; see also CISG-China Case [HPC/23]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=78>

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

Shanghai High People's Court [Appellate Court]

H2O Recreation Inc. v Donghui Synthetic Resin Inc. (Shanghai)

17 May 2007 [(2007) HGMS(S)ZZ No. 6]

Translation [*] by Wenwen LIANG [**]

[...]

Appellant Canada H2O Recreation Inc. (hereinafter "[Buyer]") appealed to this court against Civil Judgment (2003) HYZMW(S)CZ No. 76 rendered by the Shanghai 1st Intermediate People's Court of the PRC on the sales contract dispute with the Respondent Shanghai Donghui Synthetic Resin Inc. (Shanghai) (hereinafter "[Seller]"). The case was filed on 6 February 2007 and an open hearing was held by a court panel on 30 March 2007. The counsel of [Buyer] and the counsel of [Seller] attended the hearing. The case is now closed.

The Trial Court found as follows:

In October 2001, [Buyer] ordered plastic inflatable swimming pools from [Seller] [Seller] dispatched the goods commencing in January 2002. In May 2002, after receiving refund claims from customers, [Buyer] stopped payment for goods delivered after 15 May 2002. Given the dispute with [Seller] over whether the products supplied by [Seller] were defective, [Buyer] authorized an independent Canadian laboratory H. Balkowitz et Associes Inc. (hereinafter "Canada Lab") to carry out a sample inspection of the products supplied by [Seller]. Canada Lab concluded that the products were seriously defective. [Buyer] brought proceedings in the court, claiming:

   -    A refund of the price, US $2,390,289.56;
 
   -    Damages totaling US $188,167.14 including an administrative fee of US $35,167.14, freight of US $60,000, warehousing fee of US $3,000, an additional warehouse loading and unloading fee of US $10,000 and sea freight of US $80,000; as well as the litigation fee.
 

Ruling on the applicable law, the Trial Court held that:

   -    As this is a dispute on an international sales contract and both the parties are nationals of Contracting States to the United Nations Convention on Contracts for the International Sale of Goods (hereinafter the "Convention"), the Convention applies.
 
   -    As there is no express clause on dispute resolution in the Convention, the applicable law is to be determined in light of the most significant principle, pursuant to Article 7(2) of the Convention.
 
   -    As [Seller] is a Chinese company, the applicable law is the law of the PRC. Procedural matters are governed by the law of the forum, i.e., the law of the PRC.

Regarding substantive issues, the Trial Court held that:

   -    There is no dispute on the existence of an international sales relationship in place between the parties.
 
   -    [Buyer], which alleges defects in the goods and claims refund and damages from the [Seller], should prove the defects in a sufficient way. But the evidence presented by the [Buyer] only proves that customers got refunds from the [Buyer] for defective goods.
 
   -    The direct evidence submitted to prove serious defects in the goods is the quality inspection report issued by the Canada Lab. However, since [Buyer] has not produced evidence to prove the qualifications of Canada Lab, the inspection report is not effective to prove this fact. In addition, no necessary conclusion of product defect can be made from the fact that customers of the[Buyer] claimed refund, since there is no direct causation between the claims of [Buyer] and the refund claims of its customers.

Thus the trial judge dismissed the claims of the [Buyer]

[Buyer] appealed alleging that:

   -    The trial judgment did not ascertain the facts. When the unilateral inspection report issued by Canada Lab produced by [Buyer] was not accepted by [Seller], the [Buyer] applied to the Trial Court to carry out a quality inspection, to which there was no response.
 
   -    The trial judge also erred on the matter of applicable law. The case should be governed by the CISG, as this Convention is a uniform substantive law convention with provisions on the rights, obligations and remedies on default of parties to international sales, and both China and Canada are Contracting States to the Convention.

The [Buyer] hereby requested the Appellate Court to dismiss the trial judgment and render a new judgment after ascertaining the facts.

[Seller] did not submit any written defense during the appeal. [Seller] argued during the hearing that:

   -    The [Buyer] did not prove that its customers did get refunds in a sufficient way; that the cause of refund claims was the serious defect of the goods; or that the refunded goods were the goods involved in this case.
 
   -    The trial judgment did not exclude the application of the Convention, since the Convention, as an international convention signed and acceded to by China, is part of the Chinese legal system.

[Seller] requeste the Appellate Court to dismiss the [Buyer]'s appeal and sustain the judgment.

This court summarizes the issues in dispute as:

First, whether the goods were defective, and if so, how to decide the responsibilities for breach of contract;

Second, whether the applicable law should be the Contract Law of the PRC (hereinafter the "Contract Law") or the Convention.

[Buyer] did not produce new evidence during the hearing of the appeal. After the hearing, [Buyer] produced an exhibit: a written presentation of some facts, to prove that:

   -    [Buyer] sent four orders to [Seller];
 
   -    [Seller] dispatched goods on 37 occasions;
 
   -    [Buyer] made payment by letter of credit and electronic transfer 63 times; and [Buyer] challenged the quality of the goods by e-mail for the first time in May 2002.

[Seller], however, argued that this is a unilateral presentation by [Buyer], and rejected its authenticity, legality and relevance, for lack of evidence.

This court does not accept the above facts as authentic as asserted in the written presentation of [Buyer] as the exhibit of [Buyer] is a retrospective written presentation without the support of evidence and is rejected by [Seller].

[Seller] produced two exhibits of evidence on the first issue of the dispute:

First, a Chinese translation of exhibits 15 and 16 in the first trial as supplements to the two exhibits;

Second, a Chinese translation of the Deed ((2007) HFZJZ No. 0560) notarized by the Shanghai Fengxian District Notary and a Chinese translation of the e-mail, as a supplement to exhibit 35 in the first trial, to prove that the e-mail from the French International Inspection Bureau, sending the Qualification of product 2035 and 2038 issued by the Yishi Inspection Inc. (Hong Kong), an affiliate of the French International Inspection Bureau, has been notarized.

During the cross-examination, [Buyer] held that as to exhibit 1, the opinion is the same as that in the first trial, i.e., the authenticity cannot be proved. As to exhibit 2, it is a new piece of evidence but irrelevant, as only the printed form of the document was notarized but not the content of the document.

As to exhibit 1 of [Seller], this court does not accept its authenticity as [Buyer] rejected its authenticity and the trial judgment also denied the authenticity of the original of exhibit 1. As to exhibit 2, this court accepts it as new evidence as [Buyer] accepts it is new but irrelevant, and this court holds it not true or relevant as exhibit 1 is not true.

This Court, after examination, confirms the authenticity of the facts found in the trial.

This Court considers this case as an international civil litigation and the fact that [Buyer] brought proceedings in the Trial Court was recognition of the jurisdiction of the Trial Court.

As to the applicable law, it should be determined by the private international law rules of China as it is accepted by both parties that they had no agreement on the applicable law during the conclusion and performance of their sales contract. The Convention is not mandatory and it is not necessarily that the Convention is applicable to international sales contracts between parties with their places of business in different Contracting States. The Convention does not apply if the parties exclude the application of the Convention expressly in their contract or there is objection to the application of the Convention. Then the rules of Chinese law on determining the law applicable to international civil litigation should be resorted to. Thus, the Convention does not apply due to the objection of [Seller], despite the fact that both China and Canada are Contracting States to the Convention. Article 145 of the Contract Law provides that parties to a contract with foreign elements can choose the applicable law to disputes under the contract except provided otherwise by law; absent party choice, the law of the country with which the contract is most significantly related applies. In this case, since the parties did not choose the applicable law, the applicable law should be determined according to the most significant relationship principle. Given the facts of this case, though there is no evidence that the place of the conclusion and performance of the contract was Shanghai, the place of business of the [Seller] was in Shanghai when the contract was concluded. It can therefore be concluded that Shanghai is most significantly related to the contract. Thus the applicable law should be the law of the PRC, i.e., the law on contractual disputes of the PRC. Article 142(2) of the General Principles of Civil Law of the PRC provides that international conventions prevail where there is a difference between international conventions concluded or acceded to by the PRC with the civil law of the PRC, except clauses to which there is a reservation made by the PRC. In this case, whether the Convention applies depends on whether the Contract Law is applicable, i.e., the Convention applies to matters not covered under the Contract Law. There is no matter in this case which is outside the scope of the Contract law. Thus the Contract Law applies.

As the issue whether the products were defective, and if so, how to determine the responsibility for the breach of contract. This court holds that as the [Buyer] claims serious defect of the goods, refund and damages, the [Buyer] should prove that:

   -    The parties have an express agreement on the quality of the goods;
 
   -    The goods were defective;
 
   -    [Buyer] presented to the [Seller] a challenge of the quality of the goods in the agreed or legally imposed period;
 
   -    The quality defect was such that the goods are irreparable, i.e., the performance of [Seller] caused frustration of the purpose of the contract; and
 
   -    The [Buyer]'s claims for damages are legal and supported by the evidence submitted.

Based on the evidence produced by [Buyer] and facts found during the hearing:

   -    The parties did not agree on the standard of quality and period of quality objection, and [Buyer] did not prove the goods were indeed seriously defective;
 
   -    The [Buyer] did challenge the quality of the goods in a reasonable period. However, the claims for damages by the [Buyer] suffer from the lack of sufficient evidence.

In conclusion, the grounds of appeal of [Buyer] are not sound in fact and law. This court dismisses the appeal and sustains the trial judgment holding it clear in its finding facts and correct in applying the law. This court hereby renders the following judgment according to Article 153(1)(1) and Article 158 of the Civil Procedures Law of PRC:

   -    The [Buyer]'s appeal is dismissed and the trial judgment sustained.
 
   -    The litigation fee of this appeal is RMB 117,016. The [Buyer] should bear the litigation fee.
 
   -    This judgment is final.

Xu Cuan (Chief Judge); Hu Xiaohong (Judge); Ke Yonghong (Acting Judge); Feng Nan (Clerk)


FOOTNOTES

* All translations should be cross-checked against the original text. For purposes of this translation, Plaintiff-Appellant of Canada is referred to as [Buyer] and Defendant-Appellee of the People's Republic of China is referred to as [Seller].

** 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 May 12, 2010
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