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CISG CASE PRESENTATION

China 18 April 1991 CIETAC-Shenzhen Arbitration (Silicate-iron case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/910418c1.html]

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

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Case identification

DATE OF DECISION: 19910418 (18 April 1991) [date arbitration claim filed]

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1991/01

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: China (respondent)

BUYER'S COUNTRY: U.S. (claimant)

GOODS INVOLVED: Silicate-iron


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 76(1)

Classification of issues using UNCITRAL classification code numbers:

76B [Damages recoverable based on current price]

Descriptors: Damages

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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): <http://www.cietac-sz.org.cn/cietac/alfx/Case/My_03.htm> [Homepage of Shenzhen Commission of CIETAC]

Translation (English): Text presented below; see also <http://www.sccietac.org/cietac/en/content/content.jsp?id=915>

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.57, 155, 156, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC - Shenzhen Arbitration Award

Silicate-iron case (claim filed 18 April 1991)

Translation [*] by Xiaojie Lu [**]

[We do not at this time have the date of the award.
For identification, in this presentation the award was
assigned the date the claim for arbitration was filed.]

A. Facts of the case

The Claimant [buyer], an American company, concluded a contract, Contract No. [91]GTCVMC002, with Respondent [seller], a Chinese company, by fax on 10 December 1990, whereby [seller] was to sell 3,000 metric tons of silicate-iron at US $462.00 / MT [per metric ton]; the delivery term was FOB-ST (Ba Suo port, Hainan Province, P.R. China). The goods with the total price US $1,386,000 were to be shipped during the period from 15 January 1991 to 15 February 1991. [Buyer] was to pay 90% of total purchase price by a letter of credit, which was to be opened by American Carbon & Metals Corp. for [buyer]. The remaining 10% of the price should be remitted by telegram within 30 days after the delivery of the goods. If [seller] fails to deliver the goods pursuant to the contract, [buyer] shall be compensated by [seller] for the purchase of substitute goods. Furthermore, [seller] shall pay the difference between the contract price and the price of the substitute goods. The parties agreed to apply Chinese law to resolve any disputes in the contract.

After the conclusion of the contract, the parties amended the contract by facsimiles and agreed to increase the unit price to US $468 / MT. On 9 January 1991, a letter of credit, the beneficiary of which was [seller], was opened pursuant to the application of [buyer]. However, [seller] could not make sure of the goods source for a long time. Therefore, the delivery of goods could not be performed though the [buyer] and [seller] negotiated several times.

[Buyer's pleadings]

[Buyer] requests the arbitral tribunal:

  1. To order [seller] to compensate all the losses suffered by [buyer] as a result of [seller's] non-performance.

  2. To order [seller] to pay all costs of the arbitration.

The total damages claimed by [buyer] in the attachment of memorandum are US $404,813.11 consisting of:

  1. US $108,000.00 as damages for the avoidance of the contract between American Carbon & Metals Corp., partner of [buyer], and TubeCity, Inc.

  2. US $102,000.00 as damages for the avoidance of the contract between American Carbon & Metals Corp., partner of [buyer], and Northcoast Minerals & Metals, Inc.

  3. US $64,063.11 as damages for the avoidance of the Charter Party signed between American Carbon & Metals Corp. and a transport shipping company.

  4. US $114,750.00 in interest.

  5. US $16,000.00 as damages for additional loss suffered, including handling fees for the letter of credit, transportation fee and travel expenses for arbitration, etc.

D. Arguments of the parties

[Buyer's arguments]

[Buyer] further submitted a supplementary document concerning the claim of damages on 26 May 1992. In the supplementary document, [buyer] explained the calculation methods for the difference in the price of substitute goods and the loss in interest on the price. [Buyer] also stated that, regarding the United Nations Convention on Contracts for the International Sale of Goods (hereinafter: CISG), if buyer has not made a purchase for substitute goods and there is a current price unequal to the contract price, the party claiming damages may recover the difference between the price fixed by the contract and the current price at the time of avoidance. [Art. 76(1) CISG]

[Buyer] alleged that the time of avoidance, which is the time that the parties to the contract clearly got to know the fact that the contract could not be performed, should be the date of 2 February 1991. On that day, the difference between the current price of #75 silicon-iron of American Market and the contract price was US $292,890.00. Therefore, [buyer] argued that the recovery of the price difference as damages is acceptable.

[Seller's] arguments

[Seller] argued that:

  1. [Seller] did not deny the fact of non-delivery of the goods in the contract. [Seller] was ready to reasonably compensate [buyer] for the losses [buyer] suffered as a consequence of the breach of contract. However, [seller] found that the evidence rendered by [buyer] regarding the loss in the purchase of substitute goods was irrelevant to this case. Conversely, that evidence proved that [buyer] did not in fact make a purchase of substitute goods.

  2. Regarding the contract, the damages recovered by [buyer] can only consist of the loss suffered by [buyer] in the price difference in the purchase of substitute goods plus other expenses incurred in the performance of the contract. But the submission of the [buyer] did not conform to either the contract or to the international trade usages.

  3. The CISG is not applicable to the present case. The applicable law of the contract is Chinese law. According to the judicial interpretations by the Supreme Court of the People's Republic of China, the applicable law chosen by the contracting parties to resolve the contractual disputes refers to the current substantive law, not the rules of conflict of laws or the procedural law.

[Seller] further argued that, the contractual dispute should be resolved in accordance with the substantive rules on damages provided by the People's Republic of China Law on Economic Contracts Involving Foreign Interests, which should be applied to determine the liability and the methods of compensation. Therefore, the rules of conflict of laws on the how to apply Chinese law and international conventions could not be used to determine the application of the CISG. The CISG could not forcibly bind parties of Contracting States because the parties have the right to choose the application of the CISG or to exclude it.

C. Opinion of the arbitration tribunal

1. The applicable law (CISG)

Clause 14 of the contract states that Chinese law should be applied to the contractual disputes between the parties. [Buyer's] place of business is in the United States. [Seller's] place of business is in China. The two parties are located in different Contracting States to the CISG. Pursuant to Article 6 of the People's Republic of China Law on Economic Contracts Involving Foreign Interests, the CISG is applicable to this case together with Chinese domestic law.

2. [Seller's] liability for breach of contract

The facts show that [seller] was unable to deliver the goods to [buyer] and breached the contract. [Seller] shall bear the liability of the breach of contract. [Buyer] may take reasonable measures to mitigate damages and claim damages from [seller]. In the facsimiles of 22 January 1991 sent to [buyer], [seller] also apologized for non-delivery and [seller] expressly consented to pay damages to [buyer] and to settle the contractual dispute through legal procedures.

3. Remedies and calculation of damages in accordance with the contract and the applicable law

Article 20 of the People's Republic of China Law on Economic Contracts Involving Foreign Interests provides that the parties may agree in a contract that, if one party breaches the contract, it shall pay a certain amount of damages to the other party for the breach of contract; the parties may also agree upon a method for calculating the damages resulting from such a breach.

The two parties have agreed upon the method for calculating the damages resulting from a breach of contract; Article 10 of the People's Republic of China Law on Economic Contracts Involving Foreign Interests provides that if [seller] fails to deliver the goods in accordance with the contract and the [buyer] has bought goods in replacement, the [seller] shall pay the difference between the price fixed by the contract and the price of the substitute transaction.

4. The evidence rendered by [buyer] for claiming damages

Among the evidence rendered by [buyer], no evidence proved that [buyer] had purchased substitute goods due to the non-delivery by [seller]. [Buyer] submitted as evidence the compensation agreement on the avoidance of contract between American Carbon & Metals Corp. and its two clients Tube City, Inc. and Northcoast Mineral, Inc. [Buyer] also submitted the compensation agreement on the avoidance of the Charter Party between American Carbon & Metals Corp. and a transport shipping company. However, American Carbon & Metals Corp. is not the legal party in the contract between [seller] and [buyer] (Contract No. [91]GTCVMC002). Furthermore, during the arbitration, [buyer] failed to submit to this tribunal a reasonable interpretation that can verify the above documents as evidence for claiming damages from [seller].

On 26 May 1992, [buyer] submitted, as a supplementary document, a certificate signed by American Carbon & Metals Corp. and [buyer] which proved the existence of an oral agreement between American Carbon & Metals Corp. and [buyer] to collaborate in purchasing 3,000 tons of silicate iron from [seller]. However, this tribunal found that in the contract between [seller] and [buyer] (Contract No. [91] GTCVMC002) there was no clause referring to that oral agreement. Furthermore, the date of the signing of that certificate is three and a half months after 18 April 1991, on which date [buyer] commenced the arbitration proceedings against [seller]. [Buyer] failed to prove that the [buyer's] operating partnership-relationship with American Carbon & Metals Corp. was known to the [seller].

This tribunal concludes that the two compensation agreements on the avoidance of contracts between American Carbon & Metals Corp. and its business partners had no legal binding effect on [seller]. These agreements could not be deemed as evidence in the [buyer's] claim of damages against [seller].

[Buyer] also claimed three further items of damages, in the total amount of US $16,000. After investigation, this tribunal concluded that the above costs, paid by [buyer] in the performance of its contractual obligation and included in its claim of damages against [seller], should be borne by [seller].

5. The determination of the current price and further damages amount to the difference between the current price and the contract price (Art. 76(1) CISG)

The tribunal held that the [buyer's] claim of damages that amount to the difference between the current price and the contract price, argued by [buyer] in [buyer's] supplementary explanation of damages, is an alternative claim to the claim of damages amounting to the difference in the price of purchase of substitute goods.

As [buyer] has stated, pursuant to Article 76(1) CISG, if buyer has not made a substitute purchase and there is a current price unequal to the contract price, the party claiming damages may recover the difference between the price fixed by the contract and the current price at the time of avoidance. However, this tribunal could not agree with the time of avoidance and the determination of the current price submitted by [buyer].

     (1) The date of avoidance of the contract is not 8 February 1991. The evidence rendered by [buyer] showed that, on 8 February 1991, [buyer] sent to [seller] a fax, which noted [buyer's] failure to purchase substitute goods from other Chinese companies and requested [seller] to send [buyer] the contract and the cancellation notice of L/C.

On 28 January 1991, [buyer] requested [seller] to reply no later than 5 p.m. (Chinese local time) on 29 January 1991, whether [seller] would agree with [buyer's] decision to conclude a contract with Hannan Xingye Trade Company to buy substitute goods and to change the L/C to the assignable L/C. [Seller] replied to [buyer] on 29 January, expressing clearly [seller's] inability to deliver and consenting to [buyer's] request. Therefore, the conclusion could be drawn that the parties had declared the avoidance of the contract on that date and the fax on 8 February was only a notification of [buyer's] failure in purchasing substitute goods.

     (2) The current price could not be determined by the information published in Metals Week. Metals Week releases the normal price of Silicon Metal in the American market in a specific period. However, the contract price of the goods in dispute is the delivery price with the delivery trade term FOB (Chinese Port). The current price shall be determined under the same delivery conditions in the contract. Although [buyer] has adjusted the information of Metals Week compared with the delivery conditions in a Chinese port, it could not be used as evidence of the current price because it could not reflect the delivery conditions in the contract. The evidence rendered by [buyer] showed that China National Metals and Minerals Import & Export Corporation offered to sell 1,000 tons silicon steel at the price of US $522 FOB to [seller] on 4 February 1991, with the same conditions as the contract in dispute. [Seller] claimed during the arbitration that [seller] defaulted in the transaction because of other business affairs. The tribunal holds that the above offer can be used as the criterion of the current price because the date of the above offer was near to the date of the avoidance of the contract.

     (3) In conclusion, the difference between the current price of the goods and the contract price should be calculated as follows: 3000 MT x ($522 - $468) / MT = US $162,000.00

6. Payment of the cost of arbitration

[Seller] should pay the cost of the arbitration due to [seller's] breach of contract.

E. Arbitration award

In respect to the facts and the reasoning of the tribunal, the tribunal concludes that:

  1. [Seller] shall pay US $178,000.00 to [buyer] within 60 days of this award. The delay of the payment will result in additional interest on the amount of the award.

  2. [Seller] should pay all the costs of the arbitration.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of U.S. is referred to as [buyer] and Respondent of China is referred to as [seller].

** Xiaojie Lu of China attends Kyushu University Graduate School of Law in Japan. The second-iteration redaction of this translation was by Dr. John Felemegas of Australia.

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Pace Law School Institute of International Commercial Law - Last updated June 2, 2006
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