China 14 October 2010 Hebei High People's Court [Appellate Court] (Sheet glass case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/101014c1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: (2010) Ji Min San Zhong Zi No. 59
CASE HISTORY: 1st instance Shijiazhuang Intermediate People's Court 2010 (reversed)
SELLER'S COUNTRY: China (1st instance: Defendant; 2nd instance: Appellant)
BUYER'S COUNTRY: Egypt (1st instance: Plaintiff; 2nd instance: Appellee)
GOODS INVOLVED: Sheet glass
APPLICATION OF CISG: No (although it was applied at 1st instance)
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
11 [Formal Requirements]; 35 [Conformity of Goods to Contract]; 36 [Time for Assessing Conformity of Goods]; 49 [Buyer's Right to Avoid Contract]; 81 [Effect of Avoidance on Obligations: Arbitration, Restitution]; 84 [Restitution of Benefits Received]
11 [Formal Requirements];
35 [Conformity of Goods to Contract];
36 [Time for Assessing Conformity of Goods];
49 [Buyer's Right to Avoid Contract];
81 [Effect of Avoidance on Obligations: Arbitration, Restitution];
84 [Restitution of Benefits Received]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (Chinese): CISG-China database <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=146>
Translation: (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Case text (English translation) [first draft]
Queen Mary Case Translation Programme
14 October 2010
Translation [*] by Mina Wang [**]
The appellant [Seller] 2 appealed the Shijiazhuang Intermediate People’s Court decision on the dispute in international sale of goods between [Buyer] at the first instance and [Seller] 1, defendant at the first instance.
The first instance judge(s) at the Intermediate People’s Court found that [Buyer] and [Seller] 2 agreed in the form of an English “pro-forma invoice” to purchase sheet glass FOB. [Buyer] purchased sheet glass of 4mm and 2.7mm thicknesses from [Seller] 2. The total area of sheet glass was 183,285 square meters packed in 50 containers. The total cost was US$213,894. It was agreed that:
|Package:||in wood crates with paddings between every sheet|
|Transport:||load onto ship within 25 days of receiving 30% down payment|
|Uploading Port:||Tianjin, China|
|Offloading Port:||Sokhna, Egypt|
|Payment:||30% down payment through electronic transfer within 7 days of signing the pro-form invoice, made payable to Shijiazhuang [Seller] 1; the balance is to be paid before the goods leave the factory.|
The pro-forma invoice was signed “Geng” where the seller signature was to appear. There was no official stamp or Chinese signature.
In total, [Buyer] paid to [Seller] 1 and [Seller] 2 US$226,782.45 in the following installments:
|21 Feb 2007||- US$ 64,048 was paid to [Seller] 1|
|26 Mar 2007||- US$ 17,436.25 was paid to [Seller] 1|
|15 Apr 2007||- US$ 17,456.20 was paid to [Seller] 1|
|16 Apr 2007||- US$ 42,880 was paid to [Seller] 1|
|3 May 2007||- US$ 25,416.25 was paid to [Seller] 1|
|16 May 2007||- US$ 54,625.55 was paid to [Seller] 1|
|5 Jul 2007||- US$ 4,920 was paid to [Seller] 2|
Upon receiving the payments, [Seller] 1 made a total of RMB 1,758,839.61 to [Seller] 2 in the following installments:
|27 Feb 2007||- RMB 494,354.54|
|5 Mar 2007||- RMB 52,898.57|
|29 Mar 2007||- RMB 134,249.06|
|18 Apr 2007||- RMB 330,273.1|
|19 Apr 2007||- RMB 134,227.22|
|12 May 2007||- RMB 194,587.04|
|19 May 2007||- RMB 418,250.08|
On 16 Apr 2007, 10 May 2007, 5 July 2007, and 19 July 2007, [Seller] 1 and [Seller] 2 shipped to [Buyer] a total of 181,125 m2 of sheet glass packed in 500 crates in 55 containers.
When the abovementioned shipments arrived at the destination port, [Buyer] discovered that the packaging was of poor quality. And the glass sheets were broken and did not meet the specifications under the contract. On 13 Aug 2007, [Buyer] reported the incident to the local police at the port.
On 8 Jul, 16 Jul and 18 Aug 2007, the Egyptian port authority issued three “Notice of Rejection of Goods” to [Buyer] informing the company that upon laboratory testing the goods were rejected because of their non-compliance with relevant national requirements and Egyptian standards.
From 13 to 16 Sep 2007, [Buyer] requested SGS Egypt to test all goods. On 17 Sep 2007, SGS Egypt issued a test report stating:
|(1)||The total defect rate was 91.3276%|
|(2)||The thicknesses of the sheet glass were 2.1mm, 22mm, 2.5mm, 3.1mm and 3.2mm, whereas [Buyer] purchased glass of 2.7mm and 4mm thicknesses. The difference exceeds an allowable margin of error of 0.02mm.|
|(3)||Failed the deformation test.|
|(5,6)||Failed wave band index and corrugation test.|
|(7)||The glass contained AZS stone and nepheline that could cause the glass to shatter. The glass surface showed signs of corrosion.|
[Buyer] emailed [Seller] 2 on 12 Sep 2007 and 16 Dec 2007 regarding the above matter. [Buyer] also sent photos showing product defects and SGS test reports to [Seller] 1 and [Seller] 2. [Buyer] brought proceedings in the Intermediate People’s Court after the parties failed to reach a negotiated settlement.
Further, [Seller] 2 testified that “I, together with Meng Liu, being the agent of [Buyer], prepared export documents for the four batches of shipments. All documents and data were prepared by Meng Liu and me before sending to [Seller] 1 for them to stamp before export. We received all payments from [Buyer] and shipped the goods as required by them.”
The Intermediate People’s Court found at the first instance:
1. Applicable law.
The claimant and respondent reside and operate their businesses respectively in Egypt and the People’s Republic of China, both of which are contracting states to the UN Convention on International Sale of Goods (‘CISG’). The parties have not agreed on the applicable law. Further, this case concerns disputes arising from international sale of goods. Therefore, CISG applies to this case.
2. The parties are in a binding agreement regarding the sale of goods.
Whilst [Seller] 2 denied that he signed the “pro-forma invoice” and [Buyer] did not sign it, this is immaterial to the finding of a binding agreement in this case for the following reasons:
|(1)||Art 11 CISG provides that “A contract of sale need not be concluded in or evidenced by writing and is not subject to any other requirement as to form. It may be proved by any means, including witnesses.” Whether a contract for sale exists in this case does not depend on whether the contract is in writing.|
|(2)||Both parties have performed their obligations under the agreement with the goods having been delivered and full payment for the goods made.|
|(3)||Both parties have agreed on the terms of the “pro-forma invoice”. The bill of lading, container load plan, commercial invoice and manufacturer’s certificate were admitted into evidence. The evidence showed the quantity, the price, the number of packages and the type of the goods are essentially the same as those agreed on the face of the “pro-forma invoice”. The sum of [Buyer]’s first payment to [Seller] 1 was equal to the 30% down payment required by the “pro-forma invoice”. [Buyer] and [Seller] 2 also delivered their respective performance in the similar manner as described on the “pro-forma invoice”.|
3. The court supports [Seller] 1’s claim that it should not be held responsible because it was an export agent.
[Seller] 1 did not sign the “pro-forma invoice”. The “pro-form invoice” only specified the seller Great Wall Glass Co Ltd (signed Geng) and the buyer [Buyer]. Both [Seller] 1 and [Buyer] knew that [Seller] 1 was the export agent of the seller. [Buyer] contended that [Seller] 1 was not an agent because it did not provide a written agency agreement. The court does not find this contention to be well supported.
4. The goods delivered by [Seller] 2 did not conform to the quality and specifications the parties had agreed upon.
The parties specifically agreed that the thicknesses of the sheet glass were to be 2.7mm and 4mm. However, SGS’ test report revealed that the variation of thicknesses in the delivered sheet glass exceeded the allowable margin of error. Therefore, the goods delivered did not fit the description. [Buyer] also adduced into evidence the notices of rejection of goods issued by Egyptian port authority, which showed non-compliance with relevant Egyptian standards and national requirements. [Seller] 2 did not rebut the above evidence. Therefore, it was satisfactorily proved to the court that the goods delivered had serious quality defects and did not meet the requisite standards.
[Seller] 2 and [Seller] 1 contended the validity of the test results on the basis that [Buyer] conducted the test unilaterally. To this, [Buyer] argued that the parties had no prior agreement on which testing authority to use or whether testing must be done jointly. Nor does CISG impose any specific requirement on this matter. Therefore, [Buyer] was entitled to engage a globally recognized testing authority such as SGS. The court agrees with [Buyer] on this point.
5. The seller’s liability in lack of conformity.
Art 36 CISG provides that:
“(1) The seller is liable in accordance with the contract and this Convention for any lack of conformity which exists at the time when the risk passes to the buyer, even though the lack of conformity becomes apparent only after that time.
(2) The seller is also liable for any lack of conformity which occurs after the time indicated in the preceding paragraph and which is due to a breach of any of his obligations, including a breach of any guarantee that for a period of time the goods will remain fit for their ordinary purpose or for some particular purpose or will retain specified qualities or characteristics.”
It is clear under this article that [Seller] 2 ‘s liability to losses caused by delivering non-conforming goods does not dissolve at the time the risk passes to the buyer. [Buyer] sought compensation for shipment cost of US$88,700. The court cannot support this claim because the documentary evidence was not certified or notarized, thus containing formal defect. [Buyer] also sought to recover the loss on purchase price caused by fluctuation in exchange rates, which the court supports.
According to CISG Articles 35, 36, 49, 81 and 84, the court has made a decision as follows:
|(i)||The defendant [Seller] 2 is to return all purchase price US$226,782.45 (that is RMB1,548,924.13 at the exchange rate of USD 1 = RMB 6.83, being the rate on the day on which the proceeding commenced);|
|(ii)||The defendant [Seller] 2 is to compensate the plaintiff [Buyer] the loss caused by fluctuation in exchange rates, being RMB 156,479.89 (based on the difference between the exchange rate on 17 September 2007 and that on the day on which the proceeding commenced).|
|(iii)||[Seller] 2 is to pay for the translation cost for this matter, being the sum of RMB1,617 which the plaintiff had paid.|
|(iv)||The court does not support any other claims [Buyer] has made.|
* All translations should be verified by cross-checking against the original text. [Translator’s Note: This translation only contains the first-instance judgment. The appellate court later found that Article 11 CISG did not apply as China has made a reservation pursuant to Articles 12 and 96 CISG to vary the effects of Article 11. The appellate court further found that the applicable law was the Chinese law.]
** Mina Wang is an Australian qualified lawyer and translator. She is currently undertaking LLM study at the University of Sydney with a focus on international commercial arbitration and litigation.Go to Case Table of Contents