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CISG CASE PRESENTATION

China 19 March 2009 Shanghai First Immediate People's Court [District Court sitting as Appellate Court] (Salem Street North American LLC v. Shang Shang Stainless Steel Pipe Co. Ltd.) [Case 1] [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/090319c1.html]

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

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Case identification

DATE OF DECISION: 20090319 (19 March 2009)

JURISDICTION: People's Republic of China

TRIBUNAL: Shanghai First Immediate People's Court [District Court]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Salem Street North American LLC v. Shang Shang Stainless Steel Pipe Co. Ltd.

CASE HISTORY: Unavailable [Lower court affirmed]

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

BUYER'S COUNTRY: United States (defendant)

GOODS INVOLVED: Stainless steel pipe


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 53 ; 62 ; 78

Classification of issues using UNCITRAL classification code numbers:

53A [Seller's right to require payment of price of goods];

62A [Seller may require performance of any of buyer's obligations];

78B [Rate of interest]

Descriptors: Burden of proof ; 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

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1499&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Click here for Chinese text of case; see also CISG-China (No. 1) [IPC/39] <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=128>

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 First Intermediate People's Court

Salem Steel North America LLC
v.
Shanghai Shang Shang Stainless Steel Pipe Co. Ltd.

19 March 2009 [Case 1]

Translation [*] by Jing Li [**]

Appellant (the original Defendant, hereinafter the "[Buyer]"), Salem Steel North America, LLC [of the United States of America] refused to accept the Civil Judgment by the Shanghai Pudong New Area People's Court's (2007) Pu Min Er Shang Chu Zi No. 4723 on the dispute arising out of the sales contract with the Appellee, Shanghai Shang Shang Stainless Steel Pipe Co. Ltd. (the original Plaintiff, hereinafter the "[Seller]"), and appealed to this Court. On 6 January 2009, this Court accepted the case and a collegial bench was formed according to the relevant law. A public court session was held on 18 February 2009. All parties and their respective representatives were present at the court session. This case is now closed.

RULING OF THE COURT OF FIRST INSTANCE

The Court of First Instance ascertained the following facts:

      On 5 January 2007, the [Seller] received Order No. SH07004 (hereinafter, the "Contract") from the [Buyer] with the latter's signature. After sealing, the [Seller] returned the Contract via facsimile to the [Buyer]. The Contract provided that the [Buyer] purchased Seamless stainless steel pipes from the [Seller]. The Contract included the following terms.

   -    Quantity: 120,000 pounds;
   -    Unit price: US $2.53 per pound;
   -    Total Contract price: US $303,600;
   -    Overload: 10% overload allowed;
   -    Delivery terms: FOB Shanghai;
   -    Port of destination: Long Beach, California;
   -    Delivery date: Between 1 June 2007 and 15 June 2007;
   -    Payment terms: 60% of the contract price shall be paid upon presentation of documents, with the remaining 40% paid within thirty days after arrival of the goods;
   -    Quality standard: ASTM-A312/ASME-SA-312;
   -    Inspection reports required: Three copies of inspection reports identifying the chemical composition and chemical property of the pipes, results from extension, pressure, yield strength, hardness, and nondestructive testing.

On 28 February 2007, the [Buyer] modified the Contract, adding a clause stating that "according to Article 12.1 of ASTM A312, every pipe requires an ultrasonic testing."

On 7 June 2007, the [Seller] shipped the goods under the Contract from Shanghai. The actual quantity shipped was 122,641.90 pounds. On 13 June 2007, the [Seller] sent the [Buyer] the relevant bill of lading, invoice, packing list, and inspection reports via express mail. The price shown on the invoice was US $310,284. The inspection reports indicated that the pipes passed the nondestructive testing - ultrasonic testing. The containers with the above-mentioned goods arrived in Long Beach, California on 18 June 2007.

In June and July of 2007, the President of the [Seller]'s firm and its employee Harrison Yu went to the U.S. to negotiate with the [Buyer] on lamination problems with the pipes under other Orders claimed by the [Buyer]'s clients (Greenville Tube Corp. and Plymouth Tube Co.).

On 6 July 2007, the [Buyer] sent an e-mail titled "Payment" to Harrison Yu of the [Seller] stating that the [Buyer] sent US $309,257.74 to the [Seller] via wireless transfer under Order No. SH07003, and that this payment was 100% instead of 60% of the contract price [under Order No. SH07003]. The [Buyer] also stated that it would make payments of the transportation expense under the Contract [i.e., Order No. SH07004] the following week. On 19 July 2007, the [Buyer] sent an e-mail titled "Greenville Tube Corp." to Harrison Yu of the [Seller] stating that due to lamination of many pipes under Order No. SH07003 and Order No. SH07004 [i.e., the Contract], Greenville Tube Corp. rejected the goods. The proportion of rejection was the same as with Plymouth Tube Co. The lamination was caused by either errors the [Seller] made during processing, or because of problems associated with the raw materials. Greenville wished to return all the goods from the [Seller] that were not processed. The pipes under Order Nos. SH07002, SH07003, and SH07004 were required to go through ultrasonic testing. Even if the inspection reports indicated that ultrasonic testing was performed, in actuality, it was not.

The [Buyer] refused to pay the contract price under the Contract because the goods provided by the [Seller] were defective. The parties did not reach any agreement regarding the quality of the pipes or the compensation. The [Seller] filed a lawsuit with the Court of First Instance on 21 November 2007.

The Court of First Instance found that:

      The present dispute was an international commercial dispute between parties from China and the United States. These two countries are Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereinafter, the "CISG"). Therefore, the CISG applied to the dispute. The [Seller] had performed its obligation of delivery under the Contract, and thus, the [Buyer] was required to make payment of the contract price. Moreover, the [Seller] was entitled to interest on the unpaid contract price. As for the loss of the interest, the [Seller] claimed that it should be calculated at the rate on the equivalent amount converted into renminbi at the exchange rate for the date on which the payment should have been made. The Court of First Instance found that the parties agreed on payment in U.S. dollars in the Contract, and hence, the [Seller] was only authorized to require the [Buyer] to pay in U.S. dollars, and the loss of interest on the deferred payment should be calculated according to the interest rate for U.S. dollars.

With regard to the quality issues of the pipes provided by the [Seller] and the damages arising thereof, the Court of First Instance found that the [Buyer] failed to submit an inspection report from an independent third party. Moreover, the Client and Factory Complaint Form did not include seals of any client or factory, without which the authenticity could not be verified. The [Buyer] claimed that the parties negotiated in the U.S. on the quality issues of the pipes. However, according to the evidence on hand, there were no minutes of such negotiation between the [Seller] and the [Buyer] or the [Buyer]'s clients. The [Buyer] submitted a copy of the e-mail sent by Harrison Yu of the [Seller] on 20 July 2007 titled "Opinion", with the last sentence stating "please see attachment for Mr. Ji's opinion." The attachment provided by the [Buyer] was a copy of the letter written by Harrison Yu on behalf of Xuewen Ji, President of the [Seller]'s firm addressed to Ronald Herman, President of the [Buyer]'s firm. The [Buyer] alleged that in this attachment, the [Buyer] agreed to bear responsibility arising out of the non-conformity of the goods as well as the relevant and reasonable compensation. However, this e-mail titled "Opinion" did not include the "attachment" button. The [Buyer] failed to notarize the formation of the e-mail and that the e-mail was not modified. Instead, the [Buyer] merely provided a copy of the Certification of Document Custodian by Ronald Herman. The [Seller] objected to the authenticity of this e-mail and its attachment. The authenticity of this e-mail and its attachment was not verified for the Court of First Instance. All of the other e-mails submitted by the [Buyer] had the same problem. In addition, the affidavits provided by Ronald Herman and Kevin Campbell were similar to the [Buyer]'s statement, which lacked supportive evidence. Thus, the Court of First Instance did not uphold the [Buyer]'s position.

In conclusion, based on the available evidence submitted by the [Buyer], the Court of First Instance could not verify that the goods in dispute were defective. If, however, the pipes were not in conformity as claimed by the [Buyer], the [Buyer] could have been able to claim damages under the CISG. The CISG, on the other hand, does not authorize the [Buyer] to refuse to pay for the goods due to their non-conformity. Therefore, pursuant to Article 142(2) of the General Principles of the Civil Law of the People's Republic of China and Articles 62 and 78 of the CISG, the Court of First Instance handed down the following ruling:

1.   The [Buyer] is responsible to make payment of the contract price in the amount of US $310,284 within ten days after this ruling takes effect;
 
2.   The [Buyer] is responsible to make payment of the interest on the deferred payment calculated from 18 July 2007 to the date on which the payment is made within ten days after this ruling takes effect; the interest rate shall be calculated at the LIBOR (London Inter-Bank Offered Rate) for one-year US dollars (closing price up by 3%) as of the date on which this ruling takes effect.

Should the [Buyer] fail to make payments within the time limit, the [Buyer] shall be responsible for paying a multiple interest for the period of delay under Article 229 of the Civil Procedure Law of the People's Republic of China [hereinafter, "Chinese Civil Procedure Law"].

The [Buyer] is responsible for the litigation fee of RMB 25,980 and application fee for the pre-trial custody of property of RMB 5,000, totaling RMB 30,980, which was paid in advance by the [Seller].

POSITIONS OF THE PARTIES ON APPEAL

[Buyer]'s position

      The [Buyer] refused to accept the judgment by the Court of First Instance, and appealed to this Court. In support of its appeal, the [Buyer] claimed that:

1. The Court of First Instance was in error ascertaining the facts

With regard to the material evidence submitted by the [Buyer], i.e., the e-mails, if the Court of First Instance found that it could not verify their authenticity, it should have required the [Buyer] to submit supplementary evidence; besides, the original copies of these e-mails shall be submitted by the [Seller]. As for the inspection reports provided by the [Seller], the Court of First Instance should have required the [Seller] to submit more detailed data to support its allegation that ultrasonic testing was performed on the pipes. Moreover, the Court of First Instance should have approved the [Buyer]'s application to extend the time period for adducing evidence in order for the [Buyer] to submit the third party testing report. Therefore, it is the [Buyer]'s position that the Court of First Instance erred in ascertaining the evidence, assigned the burden of proof inappropriately, and did not provide enough time for the [Buyer] to produce evidence.

2. The Court of First Instance was in error applying the law

The [Seller] sealed the Contract with an unregistered chop. Therefore, this order was not binding upon the [Buyer]. The pipes delivered by the [Seller] did not go through ultrasonic testing as required, and had severe quality problems. This non-conformity constituted a fundamental breach of the Contract. Therefore, pursuant to the CISG, the [Buyer] was entitled to reduce the price of the goods. On 20 July 2007, the [Seller] agreed in its e-mail to the [Buyer] to compensate the [Buyer]'s loss. This agreement was a supplement and a modification to the Contract.

3. The [Buyer] had filed a lawsuit against the [Seller] in December 2008 in the United States on the quality problems of the pipes at issue seeking compensation for damages; the [Buyer]'s client Plymouth Tube Co. had filed a lawsuit against the [Buyer] in December 2008 in the United States on the quality problems of the pipes at issue, and thus, the [Buyer] requested the Court of First Instance to suspend the hearing. In conclusion, the [Buyer] requests this Court to overrule the original judgment and to dismiss the [Seller]'s action or to remand for new trial at the [Seller]'s cost.

[Seller]'s position

In response, the [Seller] alleged that

      The Court of First Instance clearly ascertained the facts and correctly applied the laws. The [Buyer] failed to prove that the pipes in dispute were defective. Moreover, such defectiveness was not relevant to the present case. The [Buyer]'s application to suspend the hearing does not conform to the law.

Supplementary evidence submitted by the [Buyer] on appeal

The [Buyer] submitted the following supplementary evidence in support of its position:

1. Testimony presented by the [Buyer]'s employee, Dong Sun, with his presence at court, proving that he received e-mails from Harrison Yu [on behalf of the Seller] on 20 June 2007 and 20 July 2007, respectively, and that these e-mails were not modified.

The [Seller] argued that this testimony was a statement of an interested party, that it lacked evidentiary effect, and that it could not prove that the problematic pipes after processing by the [Buyer]'s clients were the ones delivered by the [Seller].

2. Report of Judicial Appraisal, proving that on 4 November 2008, Shanghai Stars Digital Forensic Center preserved the saved e-mails in Dong Sun's computer hard drive, proving that Dong Sun had received the e-mails on 20 June 2007 and 20 July 2007, respectively.

The [Seller] argued that this Appraisal was merely a preservation of the e-mails. It could not prove that the e-mails and their attachments were authentic. Moreover, after consulting the relevant institution by telephone, the [Seller] confirmed that whether or not the e-mails had been revised could not be verified.

3. Voice mail record of Harrison Yu and a notarized affidavit of Hua Xu, a telephone interviewer, proving that the e-mail dated 20 July 2007 was sent to the [Buyer] by Harrison Yu on behalf of the [Seller], who admitted that the pipes had severe quality problems.

The [Seller] verified that Harrison Yu had received this telephone call. However, the [Seller] did not confirm the authenticity of the conversation; moreover, the [Seller] argued that the measure taken by the [Buyer] to obtain this evidence was not legal, and that the evidence was formally invalid.

4. The affidavit by Ronald Herman, the President of the [Buyer]'s firm, proving that the pipes were defective and that the [Buyer] was not able to obtain samples for a third party testing.

The [Seller] alleged that this evidence was a statement of an interested party and that it lacked evidentiary effect.

5. Letters from Greenville Tube Corp., the [Buyer]'s client, proving that the steel pipes were rejected due to the fact that they were defective, and thus, they were treated as waste products.

The [Seller] claimed that this evidence was not relevant.

6. The Statement of Complaint and the respective Affidavit of Service, proving that the [Buyer] had filed a lawsuit against the [Seller] in the United States on the defective pipes.

The [Seller] claimed that this evidence was not relevant.

7. The Statement of Complaint in the case Plymouth Tube Co. v. Salem Steel North America LLC, proving that the [Buyer]'s client, Plymouth Tube Co. had filed a lawsuit against the [Buyer] for damages.

The [Seller] claimed that this evidence was not relevant, and its authenticity could not be confirmed.

Supplementary evidence submitted by the [Seller] on appeal

The [Seller] did not submit supplementary evidence on appeal.

REASONING OF THE APPELLATE COURT

With regard to the supplementary evidence submitted by the [Buyer], this Court finds that

Item 1: Dong Sun, an employee of the [Buyer] is legally interested, and therefore, this Court does not admit this evidence;

Item 2: The e-mails that were preserved were the ones downloaded by Dong Sun from the public mailbox to his computer hard drive. The [Buyer] could not prove that the e-mails and their attachments were not revised. Thus, this Court does not admit this evidence;

Item 3: The authenticity of this evidence could not be verified; moreover, even if it was authentic, it was not proven that the condition of the pipes constituted a fundamental breach of the Contract along with other evidence in this case. Therefore, this Court does not admit this evidence;

Item 4: This was a statement of an interested party. Moreover, it was not supported by other evidence. Hence, this Court does not admit this evidence;

Item 5: The letter did not contain the seal or signature by Greenville Tube Corp. This Court is not able to verify its authenticity or confirm its relevance, and thus, this Court does not admit this evidence;

Item 6: This evidence is relevant to the present case, and it is new evidence submitted after the judgment by the Court of First Instance. Therefore, this Court admits this evidence;

Item 7: The [Seller] [Translator's note: It was obviously the intent of the Court to refer here to the "[Buyer]"] could not prove the relevance of this evidence, and thus, this Court does not admit this evidence.

After investigation, this Court verifies that the Court of First Instance was correct in ascertaining the facts.

In addition, this Court finds that:

      [1] On 26 September 2008, the [Buyer] filed a lawsuit against the [Seller] with the U.S. District Court for the District of New Jersey on the quality issues with the steel pipes under Order Nos. SH07002, SH07003, SH07004, SH07005, and SH07006, and claimed damages.

      [2] The issue in dispute is whether the goods under Order No. SH07004, i.e., the Contract were in conformity, and whether the [Buyer] was entitled to refuse paying for the goods.

      [3] Order No. SH07004 was formed after the [Buyer]'s President Ronald Herman signed the Contract and the [Seller] sealed the Contract via facsimile. This Contract is valid. The [Seller] performed its delivery obligation under the Contract, and the [Buyer] took delivery of the goods. Therefore, the [Buyer] was responsible for paying the contract price and the interest thereon for the delay period.

      [4] The [Buyer] alleged that the goods had severe quality problems which constituted a fundamental breach of the Contract, and thus, it refused to pay for the goods. The [Seller] has already provided inspection reports stating that the goods passed the ultrasonic testing required by the Contract. According to the Principle of "He who is affirming must prove," the [Buyer] was required to provide evidence proving that the goods were defective. The e-mails, Client and Factory Complaint Form, and the affidavits submitted by the [Buyer] were unilateral statements of the [Buyer] in the course of correspondence between the parties. The [Buyer] failed to prove that the goods were defective.

      [5] After the first instance, the [Buyer] appointed Shanghai Stars Digital Forensic Center to preserve the e-mails dated 20 June 2007 and 20 July 2007. However, it failed to identify or prove that the e-mails and their attachments were not modified. Moreover, these two e-mails concerned merely the goods under Order Nos. SH07005 and SH07006, which were irrelevant to the present case.

      [6] The authenticity of the voice mail record of Harrison Yu could not be verified. This evidence does not prove that the goods provided by the [Seller] were defective and that the [Seller] fundamentally breached the Contract. In accordance with the facts ascertained by the Court of First Instance, the [Buyer] had communicated with the [Seller] through e-mails and in-person negotiations about the quality issues that the pipes had in the course of processing by the [Buyer]'s clients. However, the [Buyer] did not perform timely testing or appoint a third party to perform testing on the goods in dispute. In addition, the [Buyer] failed to submit evidence or written confirmation by both parties proving that the problems arising out of the processing were caused by the pipes delivered by the [Seller]. Moreover, this Court finds that the [Buyer] did not counterclaim on the defectiveness of the goods even after the Court of First Instance's explanation to the [Buyer] about its rights. Since the [Buyer] failed to submit direct evidence proving that the goods delivered by the [Seller] were defective, and that it resulted in a fundamental breach to the Contract, which authorized the [Buyer] to refuse to pay the contract price, this Court does not support the [Buyer]'s allegation that the goods in dispute were defective. Consequently, the [Buyer] was not authorized to refuse to pay the contract price based on the allegation that the goods were defective.

RULING OF THE APPELLATE COURT

To sum up, the [Buyer]'s reasoning on appeal is not valid. This Court does not support that reasoning. This Court affirms that the Court of First Instance clearly ascertained the facts and applied the laws correctly. In conclusion, according to Item 1 of the first paragraph of Article 153, Chinese Civil Procedure Law, this Court:

            (1) Affirms the original judgment; and

            (2) Dismisses the [Buyer]'s appeal.

The [Buyer] shall pay the litigation fee of the second instance totaling RMB 25,980.

This is the final judgment.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Appellant (the original Defendant) Salem Steel North America, LLC, is referred to as [Buyer] and Appellee (the original Plaintiff), Shanghai Shang Shang Stainless Steel Pipe Co. Ltd. is referred to as [Seller]. 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].

** Jing Li, LL.M., University of Texas at Austin, School of Law; Master of Law, Sun Yat-Sen University School of Law, China; LL.B., Sun Yat-Sen University School of Law, China; Associate, Institute of International Commercial Law, Pace University School of Law.

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