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CISG CASE PRESENTATION

China 13 August 2007 Xinxiang Intermediate People's Court [District Court] Entreprise P. Boucher Ltee v. Henan Yuanfeng Leather Manufacturing Co. Ltd [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/070813c1.html]

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

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Case identification

DATE OF DECISION: 20070813 (13 August 2007)

JURISDICTION: People's Republic of China

TRIBUNAL: Xinxiang Intermediate People's Court [District Court]

JUDGE(S): Tu Yanbin (Presiding Judge), Wang Lin, Ding Yuguang

DOCKET NUMBER: Unavailable

CASE NAME: Entreprise P. Boucher Ltee v. Henan Yuanfeng Leather Manufacturing Co. Ltd

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Canada (plaintiff)

BUYER'S COUNTRY: People's Republic of China

GOODS INVOLVED: Cattle hides


Classification of issues present

APPLICATION OF CISG: This is a case in which there was no contract reference to the governing law. Pointing out that the parties were from Contracting States (Canada and the PRC), the Buyer pleaded the CISG. Stating that "the law of the People's Republic of China has 'the closest connection", the Court cited Articles 107, 126 and 159 of the Contract Law of China in support of its ruling.

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions cited: Article 11

Classification of issues using UNCITRAL classification code numbers:

Unavailable

Descriptors: Unavailable

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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 [IPC/07]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=71>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

The CISG Translation Network

Intermediate People's Court of Xinxiang City,
Henan Province, People's Republic of China

Entreprise P. Boucher Ltee v. Henan
Yuanfeng Leather Manufacturers Co. Ltd.

13 August 2007

Translation [*] by Fan Yao [**]

Translation edited by M. Bob Kao

PARTIES TO THE TRIAL

Plaintiff (Defendant to the Counterclaim) [of Canada]: Entreprise P. Boucher Ltee (hereinafter "[Seller]"); Legal representative: Dominique Boucher, General Manager; Trial Representative: Xu Yingjun, Lawyer of Henan Yi Long Law Firm

vs.

Defendant (Plaintiff to the Counterclaim) [of the People's Republic of China]: Henan Yuanfeng Leather Manufacturers Co. Ltd. (hereinafter "[Buyer]; Legal representative: Shang Zhongzhou, Chairman of the Board of Directors; Trial Representatives: Yang Qingjun, Director of Legal Department of the Corp.,Yu Baoguo, Lawyer of Henan Run Zhi Lin Law Firm

I. THE TRIAL PROCEEDINGS

[Seller] filed a lawsuit with Zhengzhou Intermediate People's Court on 30 August 2006 against [Buyer] because of a dispute over arrears resulting from a sales contract. On 27 September 2006, [Buyer] filed an objection to the jurisdiction of the Court. The Zhengzhou Intermediate People's Court decided on 26 December 2006 through its (2006) Zheng Min San Chu Zi No. 302-1 Civil Ruling to transfer the suit to this Court. This Court accepted the case on 16 February 2007 and established a collegiate bench according to the law, of which Judge Tu Yanbin was the Presiding Judge, Assistant Judge Ding Yuguang was the Trial Judge, and Judge Wang Lin participated in the deliberations. The [Buyer] submitted a counterclaim on 16 March 2007. The Court held the trial publicly on 15 May 2007. Xu Yingjun, representative of [Seller], and Yang Qingjun and Yu Baoguo, representatives of [Buyer], participated.

The Court has concluded all of its proceedings for this case.

II. POSITION OF THE PARTIES

A. [Seller]'s claims

[Seller] alleges that:

Based upon the introduction by an intermediary and the trust between the parties, [Seller] and [Buyer] made an oral agreement on the importation of goods in May 2005. They agreed that [Seller] would provide [Buyer] ten containers of wet blue cattle hides from abroad. Later, from July to the end of November 2005, [Seller] delivered the aforementioned goods to China. [Buyer] received them successively from August to December 2005 and issued a Confirmation Note on 3 March 2006. The total amount owed for the goods was US $437,800. However, although [Seller] reminded [Buyer] several times to pay for the goods, [Buyer] continued to delay payment. As of now, [Buyer] has not paid anything, which seriously breached the contract and [Buyer]'s trust. Thus, [Seller] has the following requests:

      1. [Buyer] should pay [Seller] US $437,800 for the goods plus US $36,000 for demurrage fees, which is US $473,800 (equal to RMB 3,790,000) in total;

      2. [Buyer] should pay the litigation fees, asset preservation fees, and other associated costs of this case.

B. [Buyer]'s rebuttal

[Buyer] alleges that:

      1. There was no sale of goods contractual relationship between [Seller] and [Buyer] since the parties did not sign any written sales contracts. Both [Seller]'s home country, Canada, and [Buyer]'s home country, China are, Parties to the United Nations Convention on Contracts for the International Sale of Goods. Because China has declared a reservation to Article 11 of this Convention, the People's Court should find that the contractual relationship between [Seller] and [Buyer] was not established. Therefore, [Buyer] has no obligation to pay for the goods, let alone the demurrage fees.

      2. The parties actually established a processing contractual relationship. Since [Seller] has not yet provided [Buyer] the processing remuneration, [Buyer] has the right to detain the products that have been processed. As [Seller] did not pay the processing remuneration, it has no rights to the goods.

[Buyer] counterclaims that:

Due to the introduction by an intermediary and the trust between the parties, [Buyer] and [Seller] made an oral agreement on the processing of cattle hides. They agreed that [Buyer] would process cattle hides for [Seller] and [Seller] would buy them back after [Buyer] processed the cattle hides into leather. Subsequently, [Seller] delivered ten containers of wet blue cattle hides to Xingang, Tianjin, China and asked [Buyer] to transport these goods to Qinyang, Henan Province to process them. Because of this, [Buyer] paid a large amount of port fees, loading and discharge fees for transportation, and warehousing fees. In addition, [Buyer] imported large quantities of high quality chemicals according to [Seller]'s request and organized its staff to process these goods. Most of the wet blue cattle hides have now been processed into finished goods or semi-finished goods and are awaiting [Seller] to take them back to Canada for sale. Nevertheless, while [Buyer] was working to perform the processing contract, it received the summons for the lawsuit demanding payment for the goods by [Seller], which brought [Buyer] great shock.

[Buyer] believes that the parties have established a processing contractual relationship, and [Buyer] has performed the main obligation of the contract. If [Seller] violates the principle of good faith and does not perform the obligation of buying back the goods, it will undoubtedly bring great loss to [Buyer], which not only includes various fees that have been paid by [Buyer], but may also involve loss of customs payment, available profits, and so on and so forth. To avoid these unnecessary losses, [Buyer] filed a counterclaim with this Court, requesting that:

      1. [Seller] should compensate [Buyer] for the following losses:

-   Entry-exit inspection and quarantine fee, RMB 10264;
- Container detention charges, RMB 882;
- Imported goods delayed declaration fee, RMB 487;
- Ocean freight paid by [Buyer] in advance for [Seller], RMB 5,881;
- Delivery fee, RMB 64,000;
- Imported chemical materials, RMB 1,063,448.58;
- Warehousing fee, RMB 150,000;
- Processing fee, RMB 1,585,330.70;
- Loss of profits RMB, 158,533.07;

The above fees total RMB 3,038,826.35.

      2. The litigation costs of this case should be paid by [Seller].

C. Evidence submitted by the Parties

In order to prove its submissions, [Seller] submitted the following evidence:

1. The Confirmation Note issued by [Buyer] on 3 March 2006;

2. Ten sets of invoices, packing lists and client-acceptance notifications sent by [Seller] to [Buyer];

3. Three faxes (reminders to pay for the goods) sent to [Buyer];

4. One Certification issued by Zhengzhou Customs on 20 October 2006; and

5. The record sales contract issued by Zhengzhou Customs on 16 May 2007.

[Buyer] has no objections to the authenticity of this evidence. However, it believes that Evidence Exhibit 2 was provided by [Seller] unilaterally, and the record sales contract in Evidence Exhibit 5 is irrelevant to the suit, as the goods' name, quantity, specifications and price are inconsistent with the Confirmation Note.

Evidence materials submitted by [Buyer] are:

1. Confirmation Note issued on 3 March 2006;

2. Ten customs declarations for the goods;

3. Nine receipts for Entry-Exit Quarantine fees;

4. Four international shipping agency invoices;

5. One invoice for customs administrative charges;

6. Three pieces of carriage invoices;

7. Two customs declarations for the import of goods;

8. One receipt for warehousing fees;

9. One list of processing fees;

10. Eleven sets of leather processing technical standards;

11. Three photos.

[Seller] states in the evidence examination that it has no objections to the authenticity of [Buyer]'s Evidence Exhibits 1 and 2, and that the other evidence exhibits are not relevant to the present case.

The Court identified the aforementioned evidence to which the parties had no objections to authenticity.

III. FACTS IDENTIFIED BY THE COURT

Based upon the parties' statements, evidence adduced, and opinions, the Court identifies the facts of the present case as follows:

In May 2005, [Seller] and [Buyer] made an oral agreement on the importation of goods, providing that from July to November 2005, [Seller] would send ten containers of cattle hides to [Buyer]. In that period, [Buyer] drafted a sales contract by itself and made a record to Zhengzhou Customs. In that contract, [Seller] was Entreprise P. Boucher Ltee, while [Buyer] was Yuanfeng Co. Ltd. After [Buyer] received the goods, it issued a Confirmation Note to [Seller] on 3 March 2006, confirming that it had received [Seller]'s ten containers and noted the quantities and price for the goods, as well as stating that "these products will be used to produce the export orders of [Seller], the order contract will be discussed separately". On 13 March 2006, 24 March 2006, and 5 April 2006, [Seller] faxed [Buyer] to remind it to pay for the goods, but [Buyer] has not paid for the goods as of now.

IV. APPLICABLE LAW

This Court holds that the parties did not choose the applicable law of the dispute, so pursuant to paragraph 1 of Article 126, Contract Law of the People's Republic of China, "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." The applicable law of this dispute should be determined by the closest connection principle. The signing, performance, and subject matter of the contract were are all in the territory of the People's Republic of China; hence, this Court applies the law which has the closest connection with the present contract to settle this dispute, which is the law of the People's Republic of China.

V. CORE ISSUE OF THE CASE

The core issue of this case is the nature of the contract: whether the parties have a sales contractual relationship or a processing contractual relationship. [Buyer] alleges that the parties established a processing contractual relationship, but the contract it submitted to Zhengzhou Customs that was submitted to the record is a typical sales contract. Although [Buyer] explains that the signature of [Seller] in the contract is not the real signature of [Seller], [Seller] had already expressly accepted the contract, which means this contract reflects the true intention of the parties. [Buyer] noted in the Confirmation Note it issued to [Seller] on 3 March 2006 that "these products will be used to produce the export orders of [Seller], the order contract will be discussed separately," but in the three faxes sent by [Seller] to [Buyer] on 13 March 2006, 24 March 2006, and 5 April 2006 to remind the [Buyer] to pay for the goods, [Seller] expressed that it did not agree with this notation. This notation was merely a unilateral expression by [Buyer], and the parties have not yet confirmed the order contract even now. Thereby, the nature of this contract cannot be changed because of this notation.

According to the certification issued by Zhengzhou Customs on 20 October 2006 and the import goods declarations submitted by [Buyer], the ownership of the imported goods of the present case belongs to [Buyer], and the goods are indicated as to be processed with imported materials for the purpose of export buy-back. Processing with imported materials is a kind of business where the business entity purchases imported raw materials, other materials, auxiliary materials, components, component parts and packaging materials to specifically process goods for exportation. Through the processing, the goods are turned into finished products or semi-finished products to be sold-back for exportation. From the perspective of trading partners, processing with imported materials and then exporting the goods do not have a necessary connection. Importing goods is one type of trading, and processing the goods for exporting them is another type of trading; there is no necessary connection between the importation and exportation contracts, and both transactions are sales in nature rather than processing.

To conclude, the nature of the present contract is a sales contract. [Buyer] received the goods but did not pay for them, which breached the contract and [Buyer] should be held liable for the breach of contract. [Seller] has sufficient reasons and strong evidence to ask [Buyer] to pay for the goods, and the Court upholds its submission. [Buyer] does not have sufficient evidence to support its counterclaim to request [Seller] to pay the processing fees according to a processing contract. The Court does not support this request.

VI. COURT'S JUDGMENT

To summarize, according to Paragraph 1 of Article 126, Article 159 and Article 107 of Contract Law of People's Republic of China, this Court hands down the following judgment:

      1. [Buyer] should pay [Seller] US $437,800 and the demurrage fees (US $437,800 as the base, calculated from 4 March 2006 to the day of payment according to the foreign currency loan interest rates in the same period provided by People's Bank of China) within 10 days after this judgment comes into effect. The debt interest will be doubled for overdue payment.

      2. The counterclaims submitted by [Buyer] are dismissed.

The case acceptance fee of RMB 34,752, asset preservation fee of RMB 19,200, and counterclaim fee of RMB 15,555, which total RMB 69,507, should be paid by [Buyer]. The case acceptance fee and asset preservation fee paid by [Seller] previously will not be refunded, as they should be settled when the parties enforce the judgment.

Should there be an objection to this judgment, the parties may appeal by submitting a Petition of Appeal with six copies, as well as pre-paying the appeal fee, through this Court to Henan High People's Court within 15 days after the judgment is served.

(Recipient: Extra-budgetary funds of Henan Provincial Finance Department;

Opening Bank: Direct Branch of Henan Agricultural Bank of China;

Account Number: 3812801050818;

Please submit the payment procedures to Civil Court 3 of this Court for reference within 7 days, any overdue submissions will be treated as abandoning the appeal.)

Presiding Judge: Tu Yanbin; Judge: Wang Lin; Assistant Judge: Ding Yuguang; Court Clerk: Feng Zhuoqun

13 August 2007


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of Canada is referred to as [Seller] and Defendant of the People's Republic of China 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 (renmimbi) are indicated as [RMB].

** Fan Yao, graduate student studying International Economic Law at the School of Law, Tsinghua University, Beijing; has participated in the 6th annual Willem C. Vis (East) International Commercial Arbitration Moot.

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Pace Law School Institute of International Commercial Law - Last updated March 13, 2014
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