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CISG CASE PRESENTATION

China 2008 [assigned date] Guangzhou Intermediate People's Court [District Court] (Enders Colsman AG v. Guangzhou Qingchu Group Ltd) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/080000c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20080000 (2008) [assigned date]

JURISDICTION: People's Republic of China

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

JUDGE(S): Chief Judge: Zhao, Jianwen; Judge: Wang, Meiying; Agent Judge: Liu, Zhijie

DOCKET NUMBER: Unavailable

CASE NAME: Enders Colsman AG v. Guangzhou Qingchu Group Ltd

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Germany (plaintiff)

GOODS INVOLVED: Barbecue utensils


Classification of issues present

APPLICATION OF CISG: No. The Buyer and the Seller agreed to ôthe application of Chinese law to the [Seller]'s counterclaim.ö The Buyer pleaded that ôthe original claim should be governed by Chinese law, if not explicitly stipulated, the CISG was also acceptable.ö The Seller pleaded that ôthe original claim should be governed by Chinese law and the CISG.ö The Court regarded the original claim and the counterclaim as governed by the 1999 Contract Law of the PRC.

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 6

Classification of issues using UNCITRAL classification code numbers:

6A [Autonomy of parties: [implicit] agreement to apply Convention, to exclude Convention]

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 [IPC/06]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=72>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Global jurisconsultorium case translation program

The Intermediate People's Court of Guangzhou [2008]

Enders Colsman AG v. Guangzhou Qingchu Group Ltd

Translation [*] by Xia Lu and Wu Qian [**]

   -    Proceedings
   -    Position of the parties
   -    Findings of the Court
   -    Issues present and Court's resolution of these issues
   -    Judgment

[PROCEEDINGS]

PARTIES AND COUNSEL. Plaintiff (Counterclaim Defendant): Enders Colsman AG [of Germany] (hereafter, ô[Buyer]ö); Legal Representative: Robin Colsman, General Manager; Attorney: Xu, Shifen, Lawyer with the Guangdong Hengyi Law Firm; Defendant (Counterclaim Plaintiff): Guangzhou Qingchu Group Ltd [of the People's Republic of China] (hereafter, ô[Seller]ö); Legal Representative: Lu, Yegan, Chairman of the Board; Attorney: Deng, Wenxing, lawyer with the Guangdong Bangda Law Firm.

This Court accepted the case involving a dispute between the [Buyer] and the [Seller] and, in accordance with the law, the Court formed a collegial bench to hear the case in public on 11 December 2007. The attorney for the [Buyer], Xu, Shifen, and the attorney for the [Seller], Deng, Wenxing, attended the Court session. This case has been concluded.

POSITION OF THE PARTIES

[Buyer]'s position

[Buyer] alleges that:

The [Buyer] and the [Seller] signed a contract in October 2006, stipulating that:

      The [Buyer] is to purchase 120,022 sets of barbecue utensils from the [Seller];

      The [Buyer] shall prepay 10% of the total contract price as deposit.

After the negotiation by the parties, the [Buyer] paid US $96,497.60 to the [Seller] and the [Seller] then started manufacturing the barbecue utensils. However, the [Seller] failed to deliver the goods by the date specified in the contract. Subsequently, the [Seller] and the [Buyer] reached a Supplemental Agreement [hereafter, the ôAgreementö], in which the parties changed the quantity and delivery date of the goods provided in the original contract. And the parties agreed that if there was a discrepancy between the original contract and the Agreement, the Agreement should prevail. After the conclusion of the Agreement, the [Seller] delivered 22,580 sets of barbecue utensils to the [Buyer] within the period as stipulated in the Agreement, and accordingly the [Buyer] paid the entire price for the goods without any deduction from the deposit. The [Buyer] contends that both the original contract and the Agreement are lawful and valid, and since the Agreement made changes in the quantity and payment of the original contract, the both parties should perform the Agreement. The [Seller] has delivered the goods as stipulated in the Agreement, and the [Buyer] accepted and then made the payment of the goods actually delivered. Although the quantity of the goods was not the same as the requirement of the Agreement, the obligations of the both parties have already been fulfilled. Consequently, the [Seller] should refund to the [Buyer] the overpaid amount of money, i.e., US $96,497.60. The [Buyer] demanded the refund several times, but the [Seller] refused to make this payment. Based on that, the [Buyer] asks the Court to rule that the [Seller] shall refund the down payment, totaling US $96,497.60.

Evidence submitted by the [Buyer]

To support its claim, the [Buyer] submitted the following evidence.

      1. The Sales Contract signed by the [Buyer] and the [Seller], proving that the parties had a contractual relationship for the sale of goods;

      2. The Supplemental Agreement signed by the [Buyer] and the [Seller], proving that the parties agreed to modify the quantity, the price and the date of loading terms of the original contract;

      3. Copies of the printed e-mails between the parties, proving that the Agreement was reached by consensus and has legal effect;

      4. The remittance documents, proving that the [Buyer] paid the price for the goods.

[Seller]'s position

The [Seller]'s defense in the principal action

The [Seller] alleges that the [Buyer]'s claim has no factual and legal basis at all, based on the following reasons: first, the payment which the [Buyer] received was a deposit and not the down payment; second, the appendix to the contract, i.e., the Agreement was a separate new contract which had not replaced the quantity of the goods of the original Sales Contract. Consequently, the Sales Contract is still legally valid and is not yet fulfilled owing to the [Buyer]'s fault. In according with the Article 115 of the Contract Law of the PRC (i.e., penalty clause of deposit), it is lawful for the [Seller] to refuse to reimburse the deposit paid by the [Buyer].

[Seller]'s counterclaim

The [Seller] filed a counterclaim alleging that the [Buyer] and the [Seller] signed the Sales Contract on 1 October 2006, by which the [Seller] was to provide to the [Buyer] 120,022 sets of ô10-piece ganged barbecue utensilsö at a unit price of US $7.88/set, totaling US $945,773.36 and the price term was FOB Guangzhou, China. On 15 November, the [Seller] received US $96497.60 paid by the [Buyer] as the deposit. After signing the Sales Contract, the [Seller] placed the order with the outsider in this case, i.e., Qiangfeng Metal Products Company Ltd (hereafter, "Qiangfeng Metal Products Company") located in Shunde District of Foshan City, for 120,022 sets of ô10-piece ganged barbecue utensilsö at a unit price of renminbi [RMB] 60.50, amounting to RMB 7,261,331. On 28 November, the [Seller] paid RMB 738,735.41 to Qiangfeng Metal Products Company as a deposit under its purchase contract. The [Buyer]'s failure to perform the Sales Contract after paying the deposit to the [Seller] led to the loss of an expectation profit of RMB 850,522.01 and the loss of the deposit, i.e., RMB 738,735.41, that [Seller] paid to its supplier, which totaled RMB 1,589,257.42. Consequently, the [Seller] asks the Court to cancel the 6008DE Sales Contract signed by the [Seller] and the [Buyer] and direct the [Buyer] to compensate for the [Seller]'s losses, amounting to RMB 1,589,257.42.

[Seller]'s evidence

To support its defense and counterclaim, the [Seller] submitted the following evidence:

      1. The Sales Contract and the Supplemental Agreement signed by the [Buyer] and the [Seller], proving that the parties had a contractual relationship for the sale of goods;

      2. Copies of the printed e-mails proving that the [Seller] has paid the deposit to Qiangfeng Metal Products Company;

      3. The Assessment Report issued by Hengyuan public accounting firm, proving the loss of expected profits suffered by the [Seller];

      4. The contract for purchase, bank documents and photographs, proving the losses suffered by the [Seller] fulfilling the obligations under the contract in dispute.

[Buyer]'s defense to the counterclaim

The [Buyer] argues that:

      First, it lacks factual and legal basis for the [Buyer] to submit that the [Buyer]'s failure to ôperform the Sales Contractö caused the [Seller]'s losses. The [Buyer] paid the down payment after signing the Sales Contract, totaling US $96,497.60. When performing the Sales Contract, the both parties agreed to modify the terms of the quantity, price and delivery date of the original contract by signing a Supplemental Agreement by consensus. Afterwards, the [Buyer] performed its obligations of accepting the goods and making payment in accordance with the Agreement. All of the obligations under contract have already been fulfilled. As the [Buyer]'s performance of obligations was in strict accordance with the contracts, the [Buyer] has not breached the contract in any case. Consequently, there is no basis for the [Seller] to claim losses caused by the [Buyer]'s failure to ôperform the Sales Contract.ö

      Second, the contract for purchase signed by the [Seller] and Qiangfeng Metal Products Company is not relevant to this case. The transaction between the [Seller] and Qiangfeng Metal Products Company has no connection with this case. Besides, the [Buyer] cannot confirm that the contract for purchase is true and was actually concluded and hence the [Buyer] objects to the authenticity, legitimacy and relevance of the evidence submitted on this account by the [Seller]. In addition, even if the contract for purchase signed by the [Seller] and Qiangfeng Metal Products Company actually exists, the [Buyer] should not bear the liability to compensate the [Seller]. That contract for purchase is effective just between the parties, i.e., the [Seller] and Qiangfeng Metal Products Company. The [Buyer] is not a party to that contract for purchase and hence the [Buyer] should not assume any responsibility for this contract. The Agreement between the [Buyer] and the [Seller], which was signed by consensus, did not impose any further responsibility for the [Buyer] and there is no legal basis for the [Seller] to claim that the [Buyer] should indemnify the [Seller] for the losses resulting from the [Seller]'s contract for purchase.

The [Buyer] did not submit any additional evidence in its response to the [Seller]'s counterclaim.

The [Buyer]'s and the [Seller]'s opinions on the aforesaid evidence:

Based on the parties' verification opinions, the [Seller] does not object to the aforesaid evidence submitted by the [Buyer].

The [Buyer] does not object to the aforesaid evidence items 1, 2, 3 and 4, but denies the [Seller]'s evidence items 5, 6, 7 and 8.

The [Seller] submitted the original document of items 5, 6 and 8, but failed to submit that as to item 7.

FINDINGS OF THE COURT

A. On 1 October 2006, [Buyer] and [Seller] signed Sales Contract No. 6008DE in Guangzhou. The original version of the contract is in English. [Buyer] submitted the Chinese version translated by Guangzhou Municipal Notary Office while [Seller] submitted another Chinese version translated by Guangdong Provincial Notary Office. The main dispute is the Chinese translation of the English word ôdepositö in the payment clause and default clause. Other agreed parts of Chinese translation of the contract are: 1) Price clause: [Buyer] purchases 120,022 units of 10-piece ganged barbecue utensils is US $7.88 per unit, totaling US $945,773.36, FOB Guangzhou. 2) Delivery clause: the first installment of 21,780 units will be shipped on 25 December 2006, the second installment of 50,830 units will be shipped on 15 January 2007, the third installment of 43,560 units will be shipped on 31 January 2007. 3) Payment clause: [Buyer] shall pay by T/T 10% of the total price by 10 November 2006, and issue irrevocable L/C for the remaining 90% of the total price at the same time. If [Buyer] fails to pay the deposit and issue L/C, the shipping date may be postponed. 4) Quality clause: Examination standards of the goods shall be the sample confirmed by the two parties. In case of any quality issue, [Buyer] is entitled to demand reasonable compensation in Four months after shipping. 5) Default clause: if there is defect in the goods compared with the sample, [Seller] should cure the defect at its own cost in accordance with the agreed standards. The parties shall continue to perform the contract. If there is serious non-conformity, [Buyer] gains the right to avoid the contract. After the examination report of non-conformity issued by [Buyer], the [Seller] should return the deposit paid by [Buyer] and damages of Ç250,000 in 15 days. In regard to the controversial Chinese translation of the word ôdepositö, [Buyer] interpreted it as ôMoney paidö while [Seller] understood it as ôdown paymentö.

B. After the conclusion of the contract, [Buyer] paid [Seller] 10% of the entire price as promised. But [Seller] did not deliver goods by the contractual date. So the parties signed a Supplemental Agreement on 25 January 2007 which stated that: 1) this Supplemental Agreement is drafted and agreed to by the seller and buyer. The Supplemental Agreement is subject to performance in case of any difference between the Sales Contract and the Supplemental Agreement. 2) If [Seller] loads the goods prior to Bejing time 6 o'clock a.m. of 3 February 2007 and, before 25 January 2007. books the liner ship ôEVER CHAMPION ETDö departing on 6 February 2007, the 25,000 units of barbecue utensils agreed in this Supplemental Agreement should be delivered under the clauses as follows. If carried by ships of ETD on 4 February 2007 and ETA Hamburg on 1 March 2007, and commenced to be loaded before Beijing time 6 o'clock a.m. of 4 February 2007, the 27,120 units of barbecue utensils in this Agreement should be delivered under the clauses as follows. Besides, 2,000 units of barbeque utensils should be ready for air-transportation at Guangzhou Airport before 9 February 2007. 3) Quality clause: quality of the goods should be the same with the sample received by [Buyer] on 31 December 2006. 4) Payment clause: [Buyer] should pay by T/T the price of 20,304 units of the barbeque utensils before 5 February 2007. The buyer should pay the remaining price by T/T if the goods are in conformity after examination. The remained price should be paid on the basis of the quantity of goods delivered. [Buyer] should pay by T/T the price of 2,000 units of the barbeque utensils before 5 February 2007. 6) Quality clause: the barbeque utensils should be the same with the structures of the samples sent to [Buyer] on 31 December 2006. Little dents on the handle should be avoided. The belt which fixes the instrument on the box should be immune from rapture. 7) Delivery date: goods transported by maritime liner ship "EVER CHAMPION ETD" should be delivered on 6 February 2007; by liner ship "ETD", be delivered on 7 February 2007; by liner ship "ETA Hamburg", be delivered on 1 Mar. 2007; goods transported by air should arrive at Guangzhou Airport by 9 February 2007. [Buyer] shall provide transportation information, and shall conduct the examination of all goods before 2 February 2007, and inform [Seller] the results of examination. This Supplemental Agreement should be the component of the standards of production and examination of the goods.

C. After the conclusion of the above Supplemental Agreement, [Seller] delivered 22,580 units of barbeque utensils to [Buyer] in the agreed period. [Buyer] paid {Seller] the total price of US $180,979.52 on 25 January 2007 and 8 February 2007 respectively. But the already paid 10% of the total price of US $96,497.60 was not used to offset the total price. Thus [Buyer] sued [Seller] for return of this price.

D. The Court further found that, after the conclusion of the Sales Contract between [Buyer] and [Seller] on 1 October 2006, [Seller], for the performance of the Sales Contract, entered into a procurement contract with Qiangfeng Metal Products Ltd on 14 Nov. 2006. It provided that [Seller] is to purchase 120,022 units of 10-piece ganged barbecue utensils which shall be delivered to [Buyer] at the price of RMB 60.50 per unit, totaling RMB 7,261,331. On 28 November 2006, [Seller] paid Qiangfeng Metal Products Ltd a down payment of RMB 738,735.41. But the procurement contract has not been performed by now. [Seller] alleged the reason for such adverse consequence was [Buyer]'s failure to perform the Sales Contract, thus [Seller] lodged a counterclaim requesting that the resulting loss be compensated by [Buyer]. For the proof of its loss, the [Seller] entrusted unilaterally Guangzhou Hengyuan Accounting Firm to assess the loss. This Accounting Firm issued a report on 27 November 2007 holding that the loss resulted from [Seller]'s failure to perform the procurement contract with Qiangfeng Metal Products Ltd is as follows: 1) loss of expecting interest of RMB 850,522.01; 2) loss of down payment of RMB 738,735.41.

[ISSUES PRESENT AND THE COURT'S RESOLUTION OF THESE ISSUES]

E. Applicable law (parties' position)

[Buyer] and [Seller] agreed to the application of Chinese law to the counterclaim issue. [Buyer] asserted the original claim should be governed by Chinese law, if not explicitly stipulated, the CISG was also acceptable. [Seller] asserted the original claim should be governed by Chinese law and the CISG.

F. Applicable law (ruling of the Court)

The Court found that, Plaintiff [Buyer] is a foreign enterprise and that this case involves a foreign contract dispute. Pursuant to Art. 24 of the PRC Civil Procedure Law:

"A lawsuit brought on a contract dispute shall be under the jurisdiction of the people's court of the place where the defendant has his domicile or where the contract is performed."

In the case at hand, the place of performance of the contract and the Defendant [Seller]'s domicile are both Guangzhou City. This Court has competent jurisdiction over this case. Art. 126 of the PRC Contract Law grants parties to foreign contractual parties the right to choose the applicable law for settlement of disputes. Plaintiff [Buyer] and Defendant [Seller] in this case both agreed to be governed by Chinese law, thus this Court considers Chinese law is the applicable law of this dispute. In regard to the CISG, as there is no agreement on its application in the contract, and no such agreement post-contract, the Court declines the application of the CISG.

Ruling of the Court on the merits of the dispute

G. The conclusion of the Sales Contract and Supplemental Agreement between [Buyer] and [Seller] was based on genuine intention and legitimate content, they are valid. In regard to the relationship between the Supplemental Agreement and the Sales Contract, as the parties have agreed in the Supplemental Agreement expressly that "This Supplement is drafted by buyer and seller. The parties agree the following modifications as to the components of the Sales Contract numbered 6008DE. The Supplemental Agreement is subject to performance in case of any difference between the Sales Contract and the Supplemental Agreement.", and moreover, the quantity, quality, delivery date and delivery methods etc. are different from those in the Sales Contract while the parties did act according to the Supplemental Agreement, so it is sufficient to prove that the Supplemental Agreement is the component of the Sales Contract rather than a new contract independent of the Sales Contract. Thus the parties have modified by the Supplemental Agreement the quantity, quality, means of delivery, etc. originally agreed in the Sales Contract; they should pay the price, deliver goods in line with the Supplemental Agreement. The Court rejects [Seller]'s argument that the Supplemental Agreement is an independent new contract, that the parties did not modify the content of the Sales Contract. During the trial proceeding, the parties' lack of dissent on the completion of performance under the Supplemental Agreement proves that the Sales Contract and Supplemental Agreement were fully performed thus properly terminated, and no breach existed. In regard to the price in dispute US $96,497.60, designated in the contract as "deposit", means "down payment", without reference to "money paid". [Buyer] has paid the total price of the goods during the performance of the contracts, the down payment US $96,497.60 was not used to offset the price of the goods, and [Buyer] did not breach any of its obligation. According to Art. 115 PRC Contract Law that "The parties to a contract may, according to the Guaranty Law of the People's Republic of China, agree that one party pays a deposit to the other party as the guaranty for the creditor's rights. After the debt obligations are performed by the obligor, the deposit shall be returned or offset against the price." [Buyer]'s request to return the deposit is supported by the Court. In regard to the [Seller]'s counterclaim, as stated above, the contracts in dispute have been fully performed and no breach was committed by [Buyer], thus [Seller]'s allegation that [Buyer] was in breach for non-performance of the Sales Contract, that the contract should be cancelled and [Buyer] should pay the resulted loss is declined by the Court for lack of factual and legal support.

JUDGMENT

H. In conclusion, according to Art. 24 of the PRC Civil Procedure Law, Art. 91(1), Art. 115 and Art. 126(1) of the PRC Contract Law, the Court decides:

      1. [Seller], should return the down payment of US $96,497.60 to the [Buyer] in ten days after this judgment comes into effect.

      2. Dismiss the [Seller]'s counterclaim.

If [Seller] does not perform payment of money imposed by this judgment, it should double the interest on the debt for delay pursuant to Art. 232 of the PRC Civil Procedure Law.

The litigation fee of the original claim RMB 11,065 and counterclaim RMB 9,552 should be borne by [Seller].

[Buyer], in thirty days after the receipt of the judgment, and [Seller], in fifteen days after the receipt of the judgment, can submit petition for appeal to this Court with copies equal to the number of persons of the other party. The appeal shall be lodged with the Guangdong Provincial High Court. The appellant should pay in advance the litigation fee to Guangdong Provincial High Court in terms of the requested appellate amount in seven days after the submission of petition of appeal. Case of failure to pay would be regarded and dealt with as withdrawal of appeal.

Chief Judge: Zhao Jiang-wen>
Judge: Wang Mei-ying
Acting Judge: Liu Zhi-jie

Court Clerk: Xu Yu-bao
2008


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff Enders Colsman AG of Germany is referred to as [Buyer] and Defendant Guangzhou Qingehu Group Ltd of the People's Republic of China is referred to as [Seller].

** Xia Lu is a graduate students studying International Economic Law at the School of Law, Xiamen University, Xiamen. Wu Qinn is a graduate student studying International Commercial Law at the School of Law, Xiamen University, Xiamen. They have participated in the 17th annual Willem C. Vis International Commercial Arbitration Moot.

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