China 10 December 2007 CIETAC Arbitration proceeding (Packaging equipment case) [English text]
[Cite as: http://cisgw3.law.pace.edu/cases/071210c1.html]
DATE OF DECISION:
DATABASE ASSIGNED DOCKET NUMBER: CISG/2007/01
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Italy (respondent)
BUYER'S COUNTRY: People's Republic of China (claimant)
GOODS INVOLVED: Aluminum-plastic packaging and cartoning line equipment
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
4B [Scope of Convention (issues excluded): agency issues]
4B [Scope of Convention (issues excluded): agency issues]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Beijing, 10 December 2007 [Case No. M20060454]
[For purposes of this presentation, Claimant Jiangsu ___ Corp of China is referred to as [AAA], Respondent I___ Automatiche S.p.A of Italy is referred to as [Seller], and Respondent II ___ Pharmacy Co. Ltd of China is referred to as [CCC].]
1. The Claimant in this arbitration is Jiangsu ___ Corp. (hereinafter "Claimant" or "AAA"), a Chinese company with its address at 4F., 7 Xikang Road, Nanjing, Jiangsu Province, China.
2. There are two Respondents in this arbitration. One is ___ Automatiche S.p.A. (hereinafter "Respondent I" or "[Seller]"), an Italian company with its address at Via Emilia 428-442, 40064 Ozzano Emilia, Bologna, Italy. The other is Jiangsu ___ Pharmacy Co., Ltd. (hereinafter "Respondent II" or "CCC"), a Chinese company with its address at East of Shangba River, Jiangyan City, Jiangsu Province, China.
3. China International Economic and Trade Arbitration Commission (hereinafter "CIETAC") took cognizance of the instant arbitration between AAA as Claimant and [Seller] and CCC as Respondents in accordance with the Claimant's Arbitration Application and the arbitration clause contained in Contract No. CITSZI-200231F (hereinafter "the Contract") signed by and between the three parties on 18 July 2002, which reads:
All disputes in connection with this Contract or the execution thereof shall be settled through friendly negotiations. Where no settlement can be reached the disputes shall be submitted for arbitration. The arbitration shall take place in Beijing and be conducted by China International Economic and Trade Arbitration Committee. The decision of the Arbitration Committee shall be accepted as final and binding upon both parties. Neither party shall seek recourse to a law court or other authorities to appeal for revision of the decision. Arbitration expenses shall be borne by the losing party. The arbitration language shall be in English."
4. This arbitration is foreign-related as parties of different country origins are involved. At the same time, since the amount in dispute does not exceed RMB 500,000, summary procedure contained in the Arbitration Rules, effective as from 1 May 2005, shall apply. The relevant procedural history of these arbitration proceedings is summarized as follows:
2006-11-17: Claimant [AAA] filed its Arbitration Application;
2006-12-04: CIETAC Secretariat issued the Notice of Arbitration;
2006-12-27: At the request of the Claimant via CIETAC, the Intermediate People's Court of Taizhou, Jiangsu Province ordered property preservation against CCC.
2006-12-29: CCC filed its Statement of Defense and evidence;
2007-03-16: CIETAC Chairman appointed Madam XX as the Sole Arbitrator; Madam X accepted CIETAC's nomination and signed the Declaration of Acceptance and Statement of Independence;
2007-05-10: The Tribunal was formed; CIETAC Secretariat notified the parties of the formation of the Tribunal;
2007-05-14: CIETAC Secretariat notified the parties that an oral hearing was to be held on 18 June 2007;
2007-05-31: CCC filed its Supplementary Evidence;
2007-06-04: [Seller] filed its Statement of Defense;
2007-06-18: CIETAC Secretariat notified the parties that the Tribunal deferred the oral hearing to 22 June 2007;
2007-06-20: CIETAC Secretariat notified the parties that the oral hearing scheduled for 22 June 2007 had been cancelled;
2007-07-20: CIETAC Secretariat notified the parties that the oral hearing was rescheduled for 9 August 2007;
2007-08-06: Madam X resigned as the Sole Arbitrator; CIETAC Chairman appointed Mr. XXX as the substitute Sole Arbitrator; CIETAC Secretariat notified the parties of the replacement of Sole Arbitrator;
2007-08-06: CIETAC Chairman decided to extend the time period for rendering the arbitral award to 10 November 2007; CIETAC Secretariat notified the parties of the extension;
2007-08-09: The first oral hearing was held in Beijing; the parties agreed that Chinese (Mandarin) would be used as the language for oral hearing and that the award should still be made in the English language;
2007-08-21: [Seller] filed its Supplementary Statement of Defense;
2007-08-22: AAA filed its Supplementary Evidence;
2007-08-24: CCC filed its Statement and Supplementary Evidence;
2007-09-14: CIETAC Secretariat notified the parties that a second oral hearing was to be held on 27 September 2007;
2007-09-27: The scheduled second oral hearing was held;
2007-11-09: CIETAC Chairman decided to further extend the time period for rendering the arbitral award to 10 December 2007; CIETAC Secretariat notified the parties of the extension.
II. BACKGROUND OF THE DISPUTE
5. According to the pleadings and submissions of the three parties to this arbitration and their arguments at the oral hearings, the followings facts can be ascertained:
6. On 18 July 2002, the Claimant and the two Respondents entered into the Contract (No. CITSZI-200231F) in Nanjing, China, whereby the Claimant was listed as the buyer, Respondent I as the seller and Respondent II as the end user. Under the terms of the Contract, the Claimant agreed to buy (for Respondent II, the end user) and Respondent I agreed to sell one set of Aluminium-Plastic Packaging and Cartoning Line (hereinafter "the equipment"), including one set each of WINPACK TR135 and FLEXA/CSD-PC, which shall be manufactured by [Seller] in Italy and shall be shipped from a main port in Italy to Shanghai before 20 December 2002.
7. Under the Contract, the equipment shall be at the total value of CIF Shanghai by sea EUR 445,000.00. The payment shall be effected by the buyer through three installments, i.e. down payment of fifteen percent of the total contract value by T/T, payment of seventy five percent of the total contract value through an irrevocable Letter of Credit in favor of the seller (which covers eighty five percent of the total contract value and remains valid until 180 days after shipment), and final payment of ten percent of the total contract value (upon the "Final Acceptance Protocal of the contracted machine", etc.).
8. Under the Contract, should the seller fail to make delivery on time as stipulated in the Contract, with exception of force majeure causes, the buyer shall agree to postpone the delivery on condition that the seller agree to pay a penalty which shall be deducted by the paying bank from the payment under negotiation. The penalty, however, shall not exceed five percent of the total value of the goods involved in the late delivery. The rate of penalty is charged at half percent for every seven days, odd days less than seven days should be counted as seven days. The buyer shall give the seller a grace period of one week.
9. In December 2002, in light of CCC's failure to provide the testing medicine tablets to [Seller] and [Seller]'s consequent failure to test the molding equipment under the Contract, [Seller] proposed to postpone the shipment of the untested molding equipment. CCC, however, required for delivery of the molding equipment along with other equipment in consideration of custom clearance. Under this circumstance, [Seller] proposed on 2 December 2002 that [Seller] deliver the untested equipment along with others as per the request of CCC, that CCC be responsible for returning to [Seller] the tablets upon receipt thereof and the molding equipment, and that CCC postpone the timetable regarding the Letter of Credit as a result of the delay of performance by CCC.
10. Accordingly, AAA later applied to the bank for amending the Letter of Credit so as to postpone the date of shipment as appears on the Letter of Credit from 20 December 2002 to 10 January 2003. The equipment was delivered by [Seller] on 10 January 2003. After commissioning, CCC and [Seller] signed the Handover Certificate for the contracted equipment on 18 October 2003.
11. The parties have no dispute with regard to the first two installments, i.e. ninety percent of the contract price. After signing of the Handover Certificate, AAA paid the remaining ten percent of the contract price by telegraphic transfer (T/T) on 10 December 2003 as the Letter of Credit had expired by that time. AAA and CCC later expressed conflicting views as to whether that payment should be made.
12. AAA and CCC also entered into an Import Agency Agreement (hereinafter "Agency Agreement") on 23 July 2002, which provides in general terms that AAA was to act as CCC's foreign trade agent and be responsible for signing equipment import contracts on behalf of CCC; that CCC should assume all the relevant costs and charges incurred, such as the contract price, the customs supervision and clearance fees, etc.; and that AAA was entitled to an "agency fee" at seven tenth (0.7) percent of the price of any import contract. AAA as CCC's import agent concluded eight equipment import contracts with foreign exporters, including the underlying contract (No. CITSZI-200231F) of the present arbitration.
13. AAA brought a lawsuit against CCC before the People's Court of Gulou District, Nanjing (hereinafter "Gulou Court"), alleging that under the Agency Agreement between the two sides, AAA entered into eight import contracts with foreign business entities for purchase of equipments; that it paid to foreign entities altogether RMB 9,022,100.30 as contract price, customs clearance and bank charges, etc., under seven import contracts (except for Contract No. 200324), but CCC only paid to it RMB 8,560,925.90. AAA thus sued for the balance of RMB 461,174.40 and interest incurred. CCC as the defendant in that lawsuit rebutted the plaintiff's aforesaid allegation by stating that the plaintiff's actual date of shipment was 10 January 2003, twenty one days later than the contractual date of shipment; that the equipment was returned for repair and thus the delivery was delayed by eight months and a penalty should be imposed upon [Seller]; and that AAA acted beyond its authority by changing the schedule of shipment and not withholding the penalty of EUR 22,250 for the seller's delayed delivery. CCC therefore asserted that the penalty in the sum of EUR 22,250 which it was entitled to should be borne by the AAA.
14. In its judgment dated 26 June 2006 [Ref: (2005) Gu Min Er Chu Zi No. 81], the Gulou Court found that the controversy between AAA and CCC over whether the plaintiff AAA acted beyond the due authority lies in two aspects. Firstly, whether the plaintiff's amendment of the date of shipment in the Letter of Credit was beyond its authority. Secondly, whether the plaintiff's payment of EUR 44,500 to the seller [Seller] by T/T subsequent to the expiration of the Letter of Credit exceeded the plaintiff's authority. As the plaintiff rescheduled the shipment as per the explicit instruction of the defendant, it did not act beyond its authority as the defendant's agent on the change of date of shipment. Under the Contract, the plaintiff should make the final payment through Letter of Credit before it expired on 20 June 2003. However by the time of the acceptance of the equipment in October 2003, the Letter of Credit had long expired. In such a situation, the plaintiff as the agent assumed its fiduciary duty to the principal under the Agency Agreement and should have acquired the defendant's consent on whether to make final payment and the amount of such payment, etc. The plaintiff's actual payment of ten percent of the contract value (EUR 44,500) without the defendant's prior consent is therefore beyond its due authority. As the defendant's allegation that five percent of the contract price should have been withheld is by itself an explicit denial of payment of this amount, payment of the five percent of contract price does not take effect within the agency relationship.
15. The Gulou Court also held in the same judgment that the issue whether [Seller] breached its contractual duty by the delayed shipment is an issue under the Contract (No. CITSZI-200231F) and, accordingly, is up to the decision of an arbitration institution instead of a court.
16. In the end, the Gulou Court awarded the plaintiff (AAA) RMB 231,972.64 and interest, and denied its claim for five percent of the contract value, i.e. the penalty upon [Seller] for late delivery as alleged by CCC, saying such a claim on the basis of the Agency Agreement could not be supported. No appeal followed the Gulou Court's judgment and as such, the judgment later became effective.
17. During about the same period, CCC brought a lawsuit against AAA also before the Gulou Court, claiming for damages of RMB 225,879.78, which was basically the five percent penalty that, allegedly, could have been withheld against [Seller], plus interest. The Gulou Court's findings in its judgment dated 20 March 2006 [Ref: (2005) Gu Min Er Chu Zi No. 503] were generally the same as in the judgment dated 26 June 2006 [Ref: (2005) Gu Min Er Chu Zi No. 81]. In the end, the Gulou Court dismissed CCC's claims.
18. Subsequently, AAA brought another lawsuit in September 2006 with the People's Court of Jiangyan City, Jiangsu Province (hereinafter "Jiangyan Court"). However, the case was dismissed for reason that the Gulou Court already rendered a judgment on the same claim. AAA's later appealed to the Intermediate People's Court of Taizhou City, Jiangsu Province on the Jiangyan Court's ruling for dismissal, but withdrew that appeal when it initiated this pending arbitration with CIETAC.
III. PLEADINGS AND SUBMISSIONS
Claimant [AAA]'s Case
19. AAA has made three claims in this case, i.e. that the two Respondents return the value of EUR 22,250 plus interest EUR 2,955; that the two Respondents bear the related liability; and that the two Respondents pay the arbitration fee and the lawyer's fee.
20. AAA alleged that the parties have no dispute regarding payment of the first ninety percent of the total contract value. AAA had to pay the final ten percent of contract value with its own money in order to obey the import contract and keep its good reputation, as the two Respondents had made the final inspection on 18 October 2003 and agreed that the equipment is okay and qualified. However, when AAA requested CCC for reimbursement of the ten percent of contract value, CCC refused to pay and hence dispute arose.
21. AAA is of the opinion that the Contract had been actually concluded between the two Respondents, and AAA was just the agent of CCC. Even where the two Respondents have conflicts, such conflicts should not affect AAA. AAA was not at fault when paying the final ten percent of contract value in order to obey its contractual obligation.
22. If AAA should not have paid the final ten percent, then [Seller] should return the five percent (EUR 22,250) to it. Otherwise, if AAA should pay the final ten percent, then the CCC should reimburse the amount. Therefore AAA takes the view that the two Respondents should bear the related liability to reimburse the EUR 22,250.
Respondent I [Seller]'s Case
23. [Seller] alleged that AAA's claim for refund of the price of the products or indemnification by [Seller] was not valid since [Seller] delivered the products in compliance with the specifications and delivery time agreed upon by all parties, and did not breach the Contract.
24. [Seller] asserted that the reason for its failure to test the molding equipment under the Contract was CCC's failure to provide the testing medicine tablets to [Seller]. The defects of the products and the deferment of shipment date from 20 December 2002 to 10 January 2003, as stated in the judgment of Gulou Court [(2005) Gu Min Er Chu Zi No. 81] directly resulted from the delay of performance by CCC.
25. The defects of the products and the deferment of shipment date resulting from the delay of performance by CCC as stated above were acknowledged and mutually agreed by AAA and CCC. Besides, neither AAA nor CCC claimed against the [Seller] for any breach of the Contract during the performance. The equipment proved to be in compliance with the Contract based on installation and testing. On 18 October 2003, the test and acceptance certificate of the molding equipment was issued by CCC.
26. According to Article 19 (Later Delivery and Penalty) of the Contract, the buyer shall agree to postpone the delivery on condition that the seller agrees to pay a penalty which shall be deducted by the paying bank from the payment under negotiation. The rate of penalty is at half percent per seven days. The penalty for late delivery shall not exceed five percent of the total value of the goods involved in the late delivery. The buyer shall give the seller a grace period of one week. Based on the above, even if AAA could prove [Seller]'s breach in relation to late delivery for fourteen days (late delivery period for twenty-one days), the penalty imposed upon [Seller] shall be one percent rather than five percent of the total value of the products involved in the late delivery.
Respondent II [CCC]'s Case
27. CCC alleged that it was not a party to the Contract, but merely the end user with no contractual right or under no contractual obligation. Therefore, it was [Seller]'s obligation to deliver the products and AAA's obligation to make payment in accordance with the Contract. The Agency Agreement between AAA and the CCC does not include an arbitration clause and cannot be relied upon as the foundation of the present arbitration. Under the Contract, the Claimant is not entitled to any claim against CCC.
28. The dispute between AAA and CCC for refund of certain proportion of the contractual price relates to the Agency Agreement between the two sides. AAA brought a lawsuit against CCC before the Gulou Court for the alleged violation of the Agency Agreement on the part of CCC. The Gulou Court awarded AAA's claim in part and dismissed its claim for RMB 225,879.78 as the latter was wrongfully based on the Agency Agreement. AAA later sued for the same amount before Jiangyan Court, but the claim was dismissed.
29. Furthermore, CCC has already made the due payment to AAA. In fact, CCC paid to AAA altogether RMB 3,630,000, including RMB 550,000 on 29 August 2002 and RMB 3,080,000 on 31 October 2002, as the amount due under the Contract so that AAA could make down payment and open a Letter of Credit in time. However, AAA only exchanged part, not all, of that RMB amount into EUR, but was still able to open the Letter of Credit for its credibility gained from the bank. AAA used the remaining RMB amount elsewhere and exchanged RMB for EUR only when it had to make payment (to [Seller]). Because of the revaluation of EUR against RMB during the period (rising from 1:8.17 in August 2002 to 1:9.73 in October 2003), AAA could not exchange for sufficient EUR amount to pay the amount due to [Seller]. The delayed exchange for foreign currency and the floatation of currencies explains CCC's apparent failure to pay the whole amount. As such, the balance should be borne by AAA.
IV. THE TRIBUNAL'S FINDINGS AND REASONS
As to the Applicable Law
30. The Contract does not specify the law applicable to the merits of any dispute that may potentially arise in its execution. As the signatories of the Contract are corporate entities registered either in China or Italy, and the two countries are both contracting states to the United Nations Convention on Contracts for the International Sale of Goods (CISG), the Tribunal holds that the CISG applies to the substances of the present contractual dispute.
As to the Jurisdiction of CIETAC / Tribunal
31. As said, all the three parties to the present arbitration are signatories to the Contract. It shall be noted that although AAA entered into this contractual relationship as "buyer", it is however an agent for CCC, which appeared as the "end user". For such an international trade contract, disputes, if any, usually happen between the foreign party as one side, and the Chinese foreign trade company, or its principal, or both, as the opponent side. This present case is unusual as it was brought by the foreign trade agent, being AAA, against both its principal CCC and the foreign seller [Seller].
32. Article 20 of the Contract contains an arbitration clause which refers to resolving disputes through arbitration at CIETAC. All the three parties to this arbitration are signatories to the Contract, as well as to the arbitration agreement. None of the parties challenges the validity and binding force of the Contract and of the arbitration clause. Therefore CIETAC has justifiably assumed jurisdiction over this pending arbitration among the three parties.
33. The task of this Tribunal, therefore, is to decide upon the Claimant's claims as per the provisions of the Contract. The Tribunal, however, finds that the rights and obligations between AAA and CCC are to be defined by the terms of the Agency Agreement of 23 July 2002 between the two parties, which should be and has already been subject to the court jurisdiction rather than that of this Tribunal.
As to the Liability Issue
34. The tribunal further finds that the key issue of this arbitration is whether the buyer is entitled to withholding penalty for [Seller]'s delayed delivery in the amount of five percent of the contract value under Article 19 of the Contract. The Gulou Court in its judgment of 6 November 2006 also held that the issues whether [Seller] had breached its contractual duty of timely shipment of the goods and whether [Seller] should consequently be imposed a penalty should be subject to arbitration in accordance with the arbitration clause of the Contract.
35. [Seller] argued that the deferment of shipment date from 20 December 2002 to 10 January 2003 was a result of CCC's delay in providing testing medicine tablets, and in any event, the delay in shipment could only result in the penalty of one percent, rather than five percent, of the contract value pursuant to Article 19 of the Contract.
36. After the first oral hearing, AAA and [Seller] both introduced into evidence (Evidence No. 2 by AAA; Evidence No. 1 by [Seller]) a fax letter from Mr. Zou Jun of [Seller]'s Shanghai Office to Mr. Yin Haosong of CCC. [Seller] stated in the letter that in light of CCC's persistent request for [Seller]'s delivery of the molding equipment in consideration of the custom clearance notwithstanding its failure to provide the testing medicine tablets to [Seller], [Seller] put forward the following proposal: (1) [Seller] will deliver the untested equipment along with others, at the request of CCC; (2) Upon receipt of the tablets, CCC shall be responsible for returning the tablets and the molding equipment to [Seller]; and (3) CCC shall postpone the timetable provided in the relevant Letter of the Credit accordingly, as a result of the foregoing delay of performance by CCC. Mr. He Xuanli, the then General Manager (according to AAA) or Standing General Manager (according to [Seller]), signed his name on the letter the same day, and also marked "2003.1.10" on the letter.
37. [Seller] alleged that Mr. He thus confirmed [Seller]'s proposal by his signature on the fax letter of 2 December 2002 and agreed to postpone the shipment time to 10 January 2003. [Seller] further introduced into evidence (Evidence No. 2) an Application for Amending Letter of Credit, dated 3 December 2002, issued by AAA to the Nanjing Branch of China Merchants Bank, in which AAA applied for amending the time of shipment to 10 January 2003.
38. The Tribunal finds from the aforesaid two pieces of documentary evidence, i.e. the fax letter of 2 December 2002 and AAA's Application for Amending Letter of Credit, that the seller and the buyer of the Contract did reach an agreement to postpone the date of shipment to 10 January 2003. This finding is in conformity with the Gulou Court's finding of facts in its judgment. Moreover, no discussion has been made between the parties as to whether [Seller] shall pay penalty for delay in shipment under Article 19 of the Contract, and an reasonable understanding on this issue should be that no such penalty may incur as the delay was caused by the end user's aforesaid failure in providing testing tablets..
39. The Gulou Court also mentioned in its judgment that the inspection of equipment indicated some defects with the molds of the equipment; that the [Seller] and CCC reached an agreement in April 2003 on return of the defective molds for repair; that the three parties signed a memorandum in August 2003 to postpone the guarantee period of the equipment by two months due to the outbreak of SARS, etc. The Tribunal does not find that the return of molds in August 2003 amounted to delay in delivery by eight months. Any problem with the quality of the equipment may, presumably, relate to CCC's failure to provide tablets in time. In any event, the buyer may seek relief for quality problems, if any, under Article 17 of the Contract, rather than to impose a penalty upon the seller under Article 19 of the Contract.
40. The Tribunal hence holds that [Seller] did not violate its contractual obligation for timely delivery of the equipment by making the shipment on 10 January 2003, and therefore no penalty shall be justifiably imposed on [Seller], the seller.
As to the Claims
41. AAA's first claim is that the two Respondents should return the value of EUR 22,250 plus interest EUR 2,955, and its second claim is that the two Respondents should bear the related liability. Firstly, the Tribunal does not find that there exists any ground, statutory or contractual, which justifies any related or joint liability between the two Respondents. Secondly, based on the above findings, the Tribunal denies AAA's first claim, i.e. the claim for refund of part of the contract value and interest, against [Seller]; meanwhile, the substantive disputes between AAA and CCC, including CCC's allegation that it already paid the full amount of the contract price to AAA and AAA made the claim because of its loss caused by revaluation of EUR against RMB, are matters under the Agency Agreement that should be subject to court litigation rather than the jurisdiction of this Tribunal or CIETAC, this Tribunal cannot award AAA's first claim against CCC. Therefore, the Tribunal dismissed the Claimant's first and second claims.
42. Because of the foregoing findings and holdings, AAA's third claim for arbitration fee and lawyer's fee also fails.
Having carefully considered all of the arguments, submissions and evidence advanced by the parties, the Tribunal HEREBY AWARDS AS FOLLOWS:
43. The Claimant’s Claims are all dismissed.
44. The Claimant is to bear the arbitration fee in the sum of RMB 20,000. The arbitration fee has been offset with the Claimant’s deposit with CIETAC in the same amount.
45. This Award is the Final Award in respect of all Claims decided herein. The decisions set forth in this Award are final and binding.
Made in Beijing, China on the 10th day of December, 2007._____________________