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CISG CASE PRESENTATION

China 4 August 1988 CIETAC Arbitration proceeding (Calculator assembly parts case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/880804c1.html]

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

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Case identification

DATE OF DECISION: 19880804 (4 August 1988)

JURISDICTION: Arbitration ; China

TRIBUNAL: China International Economic and Trade Arbitration Commission [CIETAC] (PRC)

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1988/01

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Unavailable (claimant)

BUYER'S COUNTRY: China (respondent)

GOODS INVOLVED: Calculator assembly parts


Case Summary

Prepared by Anastasia Butler

A buyer from China and seller (from an unidentified State) entered into a purchase agreement for the sale of calculator assembly parts. The Tribunal addressed the following issues (1) whether the buyer waived its right to rely on the alleged non-conformity for failure to inspect the goods as required under the contract; and (2) whether the buyer timely notified seller of the non-conformity of goods. Applying CISG article 39, the Tribunal determined, in relevant part, that (1) the buyer waived its right to rely on the alleged non-conformity as it failed to inspect the goods as required under the contract; and (2) the buyer lost its right to rely on the non-conformity due to its failure to notify the seller of the non-conformity of the goods within a reasonable period of time.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 39

Classification of issues using UNCITRAL classification code numbers:

39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time]

Descriptors: Lack of conformity notice, timeliness

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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): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.75, Nordic Journal of Commercial Law (2/2005); CISG-AC advisory opinion on Examination of the Goods and Notice of Non-Conformity [7 June 2004] (this case and related cases cited in addendum to opinion)

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC Arbitration Award

Calculator assembly parts case (claim filed 4 August 1988)

Translation by Wei Huo [*]

Translator's outline

Neither the date of the award, nor a case/docket number for the proceedings are available. The seller appeared as Claimant and the buyer appeared as Respondent in these proceedings. The parties are kept anonymous. The United Nations Convention on Contracts for the International Sale of Goods (1980) was held to be applicable; application of CISG Article 39.

I. Details of the case

On 5 March 1985, buyer and seller entered into a purchase agreement, which provided that:

After the signing of the contract, the buyer issued the letter of credit for the first batch of 50,000 sets of goods. The seller then delivered the goods and accepted the payment. However, although the buyer did not issue the letter of credit for the second batch of goods, the seller delivered the second batch of 50,000 sets of goods. The value of the second batch of goods is US $92,500. The buyer did not dispute the quality, specification and quantity of the goods. Instead, the buyer assembled the goods into calculators.

On 23 August and 15 September 1985, the buyer took the two batches of assembled calculators to CCIB Guangzhou. The result of the inspection was that the rates of defective goods in the two batches of calculators, were as high as 77.25% and 84.75%, respectively. The defects were due to the bad quality of the parts buyer had bought from the seller. Therefore, the buyer refused to pay for the goods and requested to return the goods to the seller. The seller was of the opinion that there were no problems with the goods taken to the inspection and asked for re-inspection of the goods. The parties reached an agreement on 22 April 1986, that re-inspection was to take place in relation to the goods that the buyer had already received. If the results of the re-inspection were positive, the buyer would accept the goods and pay for the goods as provided by the contract. Otherwise, the buyer should return the goods to the seller and the seller would return the payment it received for the first batch of the goods.

After reaching the agreement, the buyer did not take the goods to CCIB, nor did the buyer make a payment for the goods to the seller. From December 1986, the buyer re-exported the goods. Dispute arose between the parties for the payment of the goods. There was no result achieved through negotiation. The seller filed application for arbitration on 4 April 1988.

II. Main points of contention between the parties

[Seller's claim] The seller stated that after the receipt of the first batch of goods, the buyer had said that there was not enough time to issue the second letter of credit and asked the seller to deliver the second batch of goods as soon as possible. The buyer promised to pay the seller as soon as the goods arrived in Guangzhou. Thus, the seller delivered the second batch of goods without receipt of the letter of credit. Although the time limit and basis of the buyer's claim violated the contract's provision, the seller agreed to have the goods re-inspected in order to determine the quality of the goods. However, the buyer did not re-inspect the goods, even though buyer was repeatedly pressed by the seller to re-inspect the goods. Due to the buyer's willful delay, the seller has not received the second payment of the goods.

The seller made a claim for the payment of US $92,500 with interest from the buyer, and also asked that the buyer pay any arbitration fees.

[Buyer's position] The buyer maintained in its answer that, it was discovered that there were material quality defects in the two batches of goods during the process of assembling the goods. The inspection certificates of August and September 1985 also proved this. The buyer requested to return the goods but the seller made no reply. In order to mitigate the damages, the buyer re-exported the goods after notifying the seller in December 1986.

The buyer answered that it cannot pay for the goods, or to bear any interest and any arbitration fees, because of the material quality defects in the goods tendered.

III. Ruling of the Arbitration Tribunal

       1. After receiving the goods, the buyer did not conduct inspection within the time limit provided in the contract, but assembled the goods. The buyer inspected the assembled calculators four months afterwards. The buyer waived its contract right to a claim against the seller. The inspection certificate could not illustrate the actual condition of the goods upon their arrival at the loading port.

       2. The buyer did not perform the agreement reached by the parties in April 1986, for re-inspection of the goods. Again, the buyer waived the opportunity to inspect the goods. The buyer, in fact, had accepted the goods and disposed of them. The buyer's argument for refusing to pay for the goods could not be established.

       3. The seller sent the second batch of goods without receiving the letter of credit. This is not in compliance with the contract. Additionally, the parties did not clarify the specific date for payment. Therefore, the arbitration tribunal cannot sustain the seller's request for interest.

IV. The Award

       1. The buyer shall pay to the seller US $92,500. This sum of money shall be remitted to the seller within 45 days after the award.

       2. The buyer shall bear the arbitration fees and case handling fees.

This award is final.

V. Comments and Analysis

       [In relation to the inspection of goods by buyer] The right to inspect [the goods] is directly connected with the right to reject [the goods] and the right to claim [damages for non-conformity of the goods with the contract]. During the course of an international sale of goods transaction, inspection is a crucial stage. The inspection clause is an important part in the international sale of goods contract. In the absence of the parties' agreement to the contrary, the buyer's inspection cannot be regarded as an acceptance of the goods. However, within a reasonable period of time after the buyer has inspected the goods, if the buyer keeps the goods and does not reject the goods, it shall be deemed as acceptance of the goods. The two parties shall stipulate the reasonable time for inspection. Absent stipulation, if there is dispute arising over this matter, the reasonable time shall be construed by recourse to the relevant law or practice.

In the current case, the contract provides that the inspection shall be conducted within 60 days after the goods' arrival at the loading port. The buyer may claim against the seller based on the inspection certificate if buyer finds out that the goods' quality, specification or quantity are not in conformity with the contract. The buyer in this case, received two batches of goods on 17 April and 2 May 1985. However, the buyer did not obtain the inspection certificate issued by CCIB Guangzhou, until 15 September 1985. The inspections were conducted more than two months beyond the inspection time limit specified by the contract. It is clear that the goods had been assembled before the inspection. Under those circumstances, the buyer should be regarded as having accepted the goods; therefore, the buyer had waived its right to claim [against the seller for alleged nonconformity].

It is important that a prudent buyer should inspect the goods and make its decision to accept or to reject the goods within a reasonable time after the goods' arrival at the inspection place, or at the loading port. Generally, the seller will not be liable for any non-conformity after the goods are accepted by the buyer and, subsequently, the seller has the right to require payment.

       [In relation to CISG Article 39] CISG Article 39, provides that, regarding any non-conformity of the goods with the contact, the buyer must notify the seller within a reasonable time after the buyer discovers or should have discovered the non-conformity. The buyer must specify the nature of the non-conformity to the seller; otherwise, the buyer loses the right to rely on that non-conformity of the goods. That occurs because the seller has the capacity to remedy the performance, or to take any other measures to mitigate the losses caused by the non-conformity, only after receipt of the buyer's notification concerning the non-conformity. Conversely, if the buyer does not conduct the inspection of the goods within a reasonable time and does not notify the seller about non-conformity of the goods, the seller has reason to believe that the delivered goods were in conformity with the contract. Likewise, the seller has reason to believe that the non-conformity, if any, was not caused by any factors attributable to the seller. Under these circumstances, the buyer could not make a claim for damages against the seller.


FOOTNOTES

* Wei Huo, Senior Attorney with the Junzejun Law Offices, Beijing, China, LL.M. University of Iowa College of Law, has handled numerous cases before the China International Economic and Trade Arbitration Committee (CIETAC) as well as other China foreign trade matters, including representation of the Chinese industry in the first antidumping case against foreign products in China.

The second-iteration redaction of this translation was by Dr. John Felemegas of Australia.

All translations should be verified by cross-checking against the original text.

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Pace Law School Institute of International Commercial Law - Last updated November 9, 2011
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