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CISG CASE PRESENTATION

China post-1989 CIETAC Arbitration proceedings (Cloth wind coats case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/900000c1.html]

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

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Case identification

DATE OF DECISION: 19900000 (although currently dated 1990, precise date of proceeding not yet available)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1990/01

CASE NAME: Proceeding involving Contract #QFD890011

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Unavailable (respondent)

GOODS INVOLVED: Cloth wind coats


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 9 ; 53 ; 60 ; 74 ; 77

Classification of issues using UNCITRAL classification code numbers:

9C [Practices established by the parties];

53B [Obligation of buyer to take delivery of goods];

60A [Buyer's obligation to take delivery includes acts reasonably expected to aid seller];

74A [General rules for measuring damages: loss suffered as consequence of breach];

77A [Obligation to take reasonable measures to mitigate damages]

Descriptors: Delivery ; Usages and practices ; Damages ; Mitigation of loss

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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; see also <http://www.sccietac.org/cietac/en/content/content.jsp?id=902>

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.43, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation)

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC Arbitration Award [1989 Contract #QFD890011]

Cloth wind coats case

Translation by Wei Huo [*]

Translation edited by Wang Heng [**]

Translator's outline

Neither the date of the award nor the docket number of the proceedings are available; the seller appeared as Claimant and the buyer appeared as Respondent; the parties are kept anonymous. It is held that the provisions of the CISG are applicable; application of CISG Art. 9(1). Although not referred to by the Arbitration Tribunal, CISG Arts. 53, 60, 74 and 77 also appear relevant.

Details of the case

Buyer and seller entered into Contract # QFD890011, which provided that:

[Seller's position] In its claim, seller maintained that after the signing of the contract, seller asked for confirmation of the cloth materials by Mr. Wu, manager of buyer's department of manufacturing. Subsequently, seller commenced production of the goods immediately. However, Mr. Yang, buyer's executive director, called seller to repudiate the contract due to a rejection of the cloth materials. Buyer refused to either inspect or accept the goods, despite seller's repeated requests, which entailed that the goods were stocked in the warehouse for an extra long term and seller suffered serious economic losses. Seller made a claim for damages that resulted from the extra long stocking of the finished products due to buyer's repudiation of Contract # QFD890011, as well as other damages for warehousing, and for interest on the payment of the purchase price.

[Buyer's position] In its response, buyer argued that Contract # QFD890011 was a processing contract. Seller and NH Company, an American company, negotiated and arranged the contract; therefore, NH Company should be the respondent to seller's claim. Both seller and buyer understood that the goods would be delivered to NH Company; therefore, NH Company confirmed the specifications, price, quantity and quality. After signing the contract, buyer provided the cloth specimen. But seller selected non-conforming materials and delivered them to the production factory. On 10 October 1989, when buyer learned that the color was not in conformity with the contract, it notified seller that the goods were unacceptable. However, seller continued the production on the excuse that all materials had been disposed and delivered to the factory. On 16 October, seller sent the cloth sample to buyer. Buyer replied that it had received the sample and it would send it to NH Company for evaluation. Buyer stated that the sample was not in conformity with the specimen, therefore the materials should not be used in production. Otherwise, NH Company would not accept them. After the goods were manufactured, buyer found them totally unacceptable and refused to accept them.

Buyer also maintained that the so-called "specimen by Mr. Wu" is irrelevant because Mr. Wu is merely an ordinary business associate of buyer, not the "manager of Buyer's department of manufacturing". Buyer never authorized Mr. Wu to sign any "specimen confirmation". Besides, the specimen provided by seller was not sealed and there was no writing of confirmation on or inside it; therefore, it was worthless.

Buyer counterclaimed in its response and requested the return of the supplementary materials. However, buyer failed to go through the counterclaim formalities in accordance with the Arbitration Rules of the China International Economic and Trade Arbitration Committee [CIETAC]. Therefore, the buyer's counterclaim is not admissible.

The Opinion of the Arbitration Tribunal

I. The central issue of the dispute is the quality of the goods.

      1) Art. 6, the Quality Clause of Contract # QFD890011, provides that seller guarantee that the quality, specifications and technical requirement of the goods should be in conformity with the contract; otherwise, seller shall be responsible for all the consequences of the lack of conformity. However, the two parties only specified "Name and specifications" in the contract as "referred to production list". According to the documents provided by seller, the production list was the "Confirmation of Transaction" between buyer and the manufacturing factory. In the column of "Name and specifications" of the Confirmation of Transaction, it was only written "Wind coats, N2811, N2812", no specific description. In the letter of credit issued by buyer, buyer's description of the goods did not relate to the disputed cloth specimen.

      2) In the actual performance, the two parties resorted to confirming the specimen after the signing of the contract. According to the documents provided by seller, seller had taken the cloth material under the contract to Mr. Wu for confirmation. After Mr. Wu's confirmation by his signature on the cloth sample, seller then gave the sample to the manufacturing factory for production. Buyer denied that Mr. Wu was the manager of buyer's manufacturing department and rejected the cloth sample with Mr. Wu's confirmation signature. However, there were words like "the manager of the manufacturing department" on Mr. Wu's business card. And it was known that Mr. Wu had his residence in Fuzhou to supervise the manufacturing of clothes. Therefore, seller had reason to believe that Mr. Wu represented buyer in confirming the cloth sample.

Buyer argued that it had provided cloth sample immediately after the signing of the contract. However, buyer's argument was put forward only after the hearing of the arbitration. And its so-called "sample" had no any signature confirmation. Therefore, the Arbitration Tribunal is of the opinion that the sample confirmed by Mr. Wu's signature should be the basis of production.

      3) After seller had commenced production in accordance with the confirmed cloth sample, buyer notified seller on 10 October 1989 that the cloth sample in the color blue was unacceptable (buyer did not dispute samples in other colors). Buyer then faxed seller, on 16 October, rejecting all cloth samples on the grounds that buyer's customer refused to accept the goods. Under the contract, the latest shipment date for the goods shall be prior to 25 October 1989. Thus, buyer repudiated its confirmed sample only eight days before the latest date for shipment. This constitutes a breach of contract.

II. The trade term under the contract is "FOB Fuzhou". The buyer's responsibility under the trade term is to hire the ship with cost, or book the space on the ship and notify the name of the ship along with loading date to the seller, and bear all cost and risks after the goods are loaded onto the ship. Thus, under an FOB contract, the buyer's obligation to hire the ship or book the ship space is the precondition of the seller's obligation to load the goods. In the present case, buyer refused to hire the ship or book ship space in order to take delivery of the goods. Buyer violated the provisions of the contract; therefore, buyer is liable for breach of contract.

III. After reviewing the documents provided by seller, the Arbitration Tribunal is of the opinion that the losses suffered by seller as a result of the extra long stocking of the goods are established. Because the goods under the contract were manufactured in accordance with the specification provided by buyer, it is not easy for seller to sell the goods to mitigate the losses. Therefore, the Arbitration Tribunal is of the opinion that the amount of damages and the interest claimed by seller are reasonable. Buyer should take back the goods as provided by the contract within a reasonable time after compensating seller for its losses.

With regard to seller's claim of damages for stocking the goods, seller did not provide any specific amount or present evidence; therefore, the Arbitration Tribunal cannot consider it.

Award

Based on the above analysis, the Arbitration tribunal has made the following award:

Analysis

The major issue in the present case is whether the practice established between the two parties is binding on them if there is no specific description of the goods in the sales contract.

It is well recognized that if the contract failed to make provision on the quality of the goods, or the provision is not specific, the trade usage or practice between the two parties should be the principle to resolve any disputes.

From the analysis and decision of the Arbitration Tribunal, we see that the contract in the present case is extremely simple. This is because prior to signing the contract, the two parties had signed a "general" contract for 64,000 pieces of the goods, the majority of which had been delivered. Previously, the goods in dispute numbered "N2811, N2812" were included in the "general" contract. Later the two parties signed contract # QFD890011 separately, because for some reason they needed to change the price of these above-mentioned goods in dispute of the "general" contract. However, the parties made extremely simple provisions in the "general" contract, too. There was no provision on the specification of the materials to be used for the production of the goods. But we found detailed descriptions of the goods contained in the letter of credit issued by the buyer.

It is a complex problem to discuss whether the letter of credit constitutes supplementation or modification of the original contract. However, the two parties did perform the other installments of the "general" contract before the performance of the contract in dispute. Therefore, it is recognized that the two parties had established some practice with regard to the quality issue in the process of performing the "general" contract, although the contracts themselves were silent, and the practice should be binding on both parties.

Specifically, from the facts of the case, it is clear that the two parties adopted the practice of confirming the sample of the cloth. It is known that the two parties adopted the same practice for the previously delivered goods. There exists some evidence. For example, the "specimen by Mr. Wu" contains the wording "The sample of brown cloth has been confirmed previously", which indicates that the two parties had established between themselves the practices of confirming the cloth sample. What is the legal effect of the established practice? There is no relevant provision in the Foreign-related Economic Contract Law of the People's Republic of China [FECL]. However, FECL Art. 5 stipulates that the international practice could be adopted when there is no provision in the domestic laws of the PRC. Thus, reference could be made to CISG Art. 9(1), which provides that the parties are bound by any usage to which they have agreed and by any practices which they have established between themselves.

Therefore, regarding the quality of the goods in the process of performance of the contract QFD890011, the two parties adopted a practice that is something like both sample and description at the same time. But the sample is only part of the goods; in the case at bar it is the sample of the cloth, not the entire quantity of the goods. Also, the sample was provided by seller and subsequently was confirmed by buyer. So, there should be no dispute about the goods having been manufactured by seller according to the cloth sample. Buyer denied Mr. Wu's position as manager of buyer's manufacturing department. On the contrary, buyer maintained that it had provided cloth sample to seller in order to prove that the delivered goods provided by seller were not in conformity with the cloth sample. However, the Arbitration Tribunal dismissed buyer's arguments based on the facts determined by investigation conducted during the hearing, and ruled that the cloth sample bearing Mr. Wu's signature should be the basis of manufacturing.

In the present case, the Tribunal's determination that the cloth sample bearing Mr. Wu's signature was the basis for the manufacture of the goods has resolved all the following issues. Therefore, buyer could not reject the goods for alleged lack of conformity with the cloth sample. And seller has the right to claim against buyer when buyer refused to rent ship or book cargo space and take the delivery of the goods.


FOOTNOTES

* Wei Huo, LL.M. University of Iowa College of Law, is with the law firm of Coudert Brothers in Beijing, China. He 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.

** Wang Heng, LL.M. candidate China Southwest University of Political Science and Law (China Southwest Zhengfa University), China, has taken part in the Ninth Willem C. Vis International Commercial Arbitration Moot and is a team member of the Champion of the Second CIETAC Cup, International Commercial Arbitration Moot. He has handled cases before the China International Economic and Trade Arbitration Committee (CIETAC) as well as other international business matters, including representation of the Chinese corporation in the first export to U.S. and Europe of Chinese advanced large-scale medical equipment.

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 July 10, 2006
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