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CISG CASE PRESENTATION

China 9 January 1993 CIETAC Arbitration proceeding (Linseed cake case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/930109c1.html]

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

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Case identification

DATE OF DECISION: 19930109 (9 January 1993)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1993/03

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: New Zealand (respondent)

GOODS INVOLVED: Linseed cakes


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 35 ; 63 ; 64 ; 74 ; 77 ; 78 ; 88 [Also cited: Article 61(2) ]

Classification of issues using UNCITRAL classification code numbers:

35A ; 35B [Conformity of goods to contract: quality, quantity and description required by contract; Requirements implied by law];

63A [Notice fixing additional final period for buyer's performance];

64A [Seller's right to avoid contract: grounds for avoidance];

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

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

78B [Rate of interest];

88A [Party obliged to preserve goods may resell them]

Descriptors: Conformity of goods ; Nachfrist ; Avoidance ; Damages ; Mitigation of loss ; Interest ; Preservation of goods ; Resale of goods

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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): Zhong Guo Guo Ji Jing Ji Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 1993 vol., p. 187-191

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.184, 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 (PRC) Arbitration Award

Linseed cake case (9 January 1993)

Translation [*] by Zheng Xie [**]

Translation edited by Meihua Xu [***]

China's International Trade and Economic Arbitration Commission (hereafter, "the Arbitration Commission") accepts the case, according to the arbitration clause in the Sales Confirmation No. HSS-01 signed by Claimant XX Trade Company, Shanxi [Seller], and Respondent XX Private Ltd. Company, Singapore [Buyer], on 17 November 1990 and the written arbitration application submitted by [Seller] on 4 January 1992.

[Seller] appointed as Arbitrator Mr. A. The Chairman of the Arbitration Commission appointed as Arbitrator Ms. D for [Buyer] in accordance with Article 16 of the Arbitration Rules. The Chairman appointed Mr. P as the Presiding Arbitrator in accordance with the Arbitration Rules. The three arbitrators formed the Arbitration Tribunal and heard the present case.

The Arbitration Tribunal thoroughly examined the arbitration application, bill of defense and evidence submitted by both parties and opened a court session in Beijing on 15 August 1992. [Seller] presented, made oral statements and answered the Tribunal's questions. [Buyer] received the notice of court session, but did not present. The Arbitration Tribunal held the session by default according to Article 29 of the Arbitration Rules. [Seller] submitted supplementary materials and evidence after the session. The Tribunal noticed [Buyer] about the information on the session and sent [Seller]'s supplementary materials to [Buyer]. [Buyer] submitted a further defense.

The Arbitration Tribunal concluded the case, and made the award on the basis of facts and law. The following are the facts, the Arbitration Tribunal's opinion and the award.

I. THE FACTS

On 17 November 1990, [Seller] and [Buyer] signed Sales Confirmation No. HSS-01, which stipulates that [Seller] will provide to [Buyer] 3,000 M/T Linseed cake. The quality requirements are: PROFAT (ON DRY BASIS)- 42% MIN, MOISTURE-12.5% MAX. The price term is: US $118 per ton, FOB, Xin Gang, Tianjin. Because, at the time the contract was signed, Seller needed to find a provider of the goods, the memorandum clause states that the contract is "SUBJECT TO TELEX CONFIRMATION BY SELLERS LATEST 30-11-90". The time of shipment is: within sixty days after receiving Buyer's Letter of Credit.

On 30 November 1990, [Seller] made a telex confirmation of this contract. On the same day, [Buyer] expressed that it would open the L/C in the middle of December or twenty days before the time of shipment.

On 17 December 1990, [Buyer] required [Seller] provide the detailed data about the content of protein and fat. On the same day, [Seller] informed [Buyer] that it had mailed the commodity inspection certificate and the sample of Linseed cake, and it had obtained 3,000 M/T goods.

[Buyer] resold the goods to a European client. Because the Gulf War broke out and the European client could not send a ship to transport the goods, on 29 January 1991 [Buyer] asked [Seller] to either cancel the contract and accept compensation of US $2.00 per ton, or to change the time of shipment to March or April 1991. On 31 January 1991, [Seller] agreed to delay the time of shipment to April 1991. [Buyer] expressed thanks and promised to try its best to have the goods shipped at the earliest time (March 1991) and to open the L/C in time.

On 7 February 1991, [Buyer] opened an irrevocable sight L/C with the total value of US $354,000, which stipulated that the time of shipment was 31 March 1991. The expiration date of the L/C was 21 April 1991. On 10 April 1991, [Buyer] altered the time of shipment to 31 May 1991 and the expiration date of the L/C to 21 June 1991.

On 14 May 1991, [Buyer] sent a letter to [Seller] stating that because of the European vacation its European client could not find persons to take charge of the goods at the port. Thus, it could not send the ship and expressed regret for the delay.

On 7 June 1991, [Buyer] informed [Seller] that Minermet Company; Lausanne Swiss would accept the goods on the condition that the goods be inspected before loading. The next day, [Seller] advised of the storage place of the goods and [Seller]'s representative's name and telephone number, at [Buyer]'s request.

On 1 July 1991, [Buyer] notified [Seller] that, after inspecting the goods, Minermet Company found the goods contained too high a level of erucic acid and would not accept the goods, so [Buyer] could not perform the contract. On 1 July 1991, [Seller] stated its objection to this. [Buyer] did not arrange the shipment, although [Seller] urged it to many times.

On 4 January 1992, [Seller] submitted the arbitration application to the Arbitration Commission. In the arbitration application, [Seller] states that because [Buyer] has not sent a ship for loading, [Seller] stored the goods at Tianjin Port and has suffered a serious loss. According to Clause 2, Article 29 of Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, [Buyer] has committed a fundamental breach of contract, therefore [Seller] has the right to cancel the contract and claim damages.

[Seller]'s claims

[Seller]'s arbitration claims are:

  1. [Seller] executed three contracts with Tianjin Center of Experimental Animals in December 1991, February and March 1992, respectively, to sell the goods at renminbi [RMB] 400 per ton. On the basis of the currency rate of US dollars and RMB (about 1: 5.42), the price difference per ton is US $40. [Seller] claims for US $132,000, the price difference for 3,000 tons;

  2. [Buyer] should pay RMB 156,203.40 in interest from 12 July 1991, the expiration date of the L/C, to the date of receiving the payment after selling the goods;

  3. [Buyer] should pay RMB 203,000, the storage charges including RMB 80,000 from June 1991 to December and RMB 123,000 from January to May 1992;

  4. [Buyer] should bear the arbitration fee, attorneys' fee and other expenses of this case.

[Buyer]'s defenses

[Buyer]'s defenses are:

[Buyer] signed this contract because of [Seller]'s promise that the goods would have no defects. In the past few years, because Linseed cake produced in China was often contaminated by other cheap products mixed in it, [Buyer]'s clients requested compensation for damages many times. Accordingly, when signing the contract, [Buyer] required strictly conforming goods. [Seller] guaranteed the quality of the goods.

However, the goods contain so high an oil content that they could not be sold in the Korean market. At the same time, the Gulf War broke out and [Buyer]'s European client could not send a ship to transport the goods. Under such condition, [Buyer] suggested that he indemnify [Seller] $2.00 per ton and cancel the contract. This suggestion is in conformity with "GOOD FAITH, SINCERE, AND WHOLLY PROFESSIONAL), but [Seller] did not accept this mitigation opportunity, and voluntarily agreed to postpone the time of shipment. Thus [Seller] should bear the damages itself. All information about the negotiation between [Buyer] and its client was sent to [Seller] in a timely manner. [Buyer] could not load and transport the goods because [Seller]'s goods are low quality.

[Seller]'s response

[Seller] submitted supplementary statements in response to [Buyer]'s defense. [Seller] alleges that:

   -   The sales confirmation describes the quality clearly, i.e., PROFAT (ON DRY BASIS)- 42% MIN, MOISTURE-12.5% MAX. In addition, the L/C stipulates that the impure content cannot be above 2%.
   -   The goods were inspected by Shanxi Commodity Import and Export Inspection Bureau. The inspection report shows that all goods comply with the requirements of the contract.
   -   Furthermore, [Seller] had mailed the sample to [Buyer] before it opened the L/C. [Buyer] approved the sample and opened the L/C.
   -   In order to prove the goods are not conforming, [Buyer] provided an inspection certificate issued by China Commodity Import and Export Inspection Company Tianjin Office. The buyer and the seller in that inspection certificate are not the parties of this case. [Buyer] asked [Seller] to communicate a method for inspecting the goods. [Seller] provided it the name of [Seller]'s representative at the port, the place of the goods, and the telephone number. However, no one went there to inspect the goods. Thus, the Tianjin inspection certificate should not be a basis for determining the quality of the goods.

II. THE TRIBUNAL'S OPINION

Sales Confirmation No. HSS-01 does not stipulate the applicable law. According to the theory of proximate connection, the Arbitration Tribunal decides that law of the People's Republic of China, (especially the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest) applies. When [Seller] and [Buyer] executed the contract, both China and Singapore were Parties to the United Nations Convention on Contracts for the International Sale of Goods (CISG). When a rule of the CISG is different from that of the Foreign Economic Contract Law of the People's Republic of China, the rule of the CISG applies.

The Arbitration Tribunal decides:

1. [Buyer] did not send a ship to transport the goods, which constitutes a fundamental breach of contract.

[Seller] had prepared the goods in accordance with the contract in December 1990. The price term is FOB; [Buyer] therefore bears duty to book the space. When [Buyer] suggested cancellation of the contract or to postpone the time of shipment due to the special difficulty, [Seller] chose the latter. The Arbitration Tribunal regards [Seller]'s choice as reasonable. On 7 February 1991, [Buyer] opened the irrevocable sight L/C, which stipulates the time of shipment as 31 March 1991. On 10 April, the L/C was altered and the time of shipment was changed to May 31 1991. [Seller] did not oppose the alteration, so the goods under the contract were to be loaded before 31 May 1991.However, [Buyer] did not send a ship to load and transport the goods. Although during the consultation of the parties [Seller] knew that [Buyer] looked for and negotiated with a client, and provided the address of the communicator for the goods in the telephone conversation on 8 June1991, the Arbitration Tribunal does not find new evidence to prove the parties reached an agreement on the time of the shipment. The fax on 8 July did not mention clearly to postpone the delivery date.

Article 63 of CISG stipulates:

"(1) The seller may fix an additional period of time of reasonable length for performance by the buyer of his obligations.

"(2) Unless the seller has received notice from the buyer that he will not perform within the period so fixed, the seller may not, during that period, resort to any remedy for breach of contract. However, the seller is not deprived thereby of any right he may have to claim damages for delay in performance."

[Seller] continued waiting for [Buyer] to send a ship and agreed to have [Buyer]'s client inspect the goods at the port, which shall be regarded as "fix[ing] an additional period of time of reasonable length for performance by the buyer of his obligations" and as a cooperative action in order to perform the contract as soon as possible. [Buyer]'s obligation is not excused. On 1 July 1991, [Buyer] advised that it would not perform the contract, which constituted a fundamental breach.

2. [Buyer]'s reason for refusing the goods was that the quality was not conforming. This cannot be supported.

  1. [Buyer] asserts that its client, MINERMET Company inspected the goods and showed that [Seller]'s goods are not conforming. It provided the inspection certificate issued by China Commodity Import and Export Inspection Company Tianjin Office. The Arbitration Tribunal examined thoroughly Certificate No. C10836 issued on 3 July 1991 and found that in the certificate the applicant for the inspection, the buyer, is Hong Kong, the seller is China National XX By Products Import and Export Corporation Hebei Nativity Product Branch, and the goods inspected are 3300M/T, all of which are not the same as the parties and the quantity of the goods in this case. The Arbitration Tribunal concludes that this certificate cannot prove the quality of the product that [Seller] had prepared.

  2. [Seller] asserts that [Buyer] inquired about the name, the place of the goods and telephone number, but [Seller]'s manager at Tianjin warehouse had never seen any person sent by [Buyer] for the sample. [Buyer] did not submit any contrary evidence to oppose the facts asserted by [Seller].

  3. On December 1990, [Seller] mailed the sample at the request of [Buyer]. On 7 February 1991, [Buyer] opened the L/C after receiving the sample and did not express any objection.

  4. The Arbitration Tribunal noticed that [Buyer] emphasized that it worried about the quality at the time of signing the contract and after preparing the goods. Eventually, [Buyer] claimed that the goods are not conforming because they contain too high a level of erucic acid. However, in the sales confirmation, the description about quality of the goods is only "PROFAT (ON DRY BASIS)- 42% MIN, MOISTURE-12.5% MAX." On 10 April, when [Buyer] altered the L/C, only "SAND/SILICA-1% MAX" was added, and PROFAT (ON DRY BASIS) MIN was altered to 43%. The erucic acid content was never stipulated. [Buyer] asserted that the high content of erucic acid is attributed to the rapeseed mixed in the goods and complained that in the past it bought Linseed cake which was mixed with other cheap products. The Arbitration Tribunal concludes that [Buyer] should have described the corresponding stipulation about the quality of the goods, since it concerns and worries about it. Otherwise, the Arbitration Tribunal cannot support the assertion that the goods are not conforming to a standard which is not stipulated in the contract when the goods are in accordance with the specification of the contract.

3. [Seller] has the right to cancel the contract, resell the goods and claim for damages. However, [Seller] did not timely take the measure of mitigation, so it is not entitled to the enlarged damages. [Buyer] did not perform its duty of sending a ship and loading the goods, so it is justifiable for [Seller] to cancel the contract and resell the goods. From December 1991 to March 1992 [Seller] signed three contracts with Tianjin Center of Experimental Animals to resell the goods, which constitutes cancellation.

Article 29 of Law of the People's Republic of China on Economic Contracts Involving Foreign Interest provides:

"A party shall have the right to notify the other party that a contract is rescinded in any of the following situations ... two, if the other party fails to perform the contract within the time limit agreed upon in the contract, and again fails to perform it within the reasonable period of time allowed for delayed performance ..."

[Buyer] did not perform its duty of sending a ship and loading the goods. It is therefore justifiable for [Seller] to cancel the contract and resell the goods.

Article 18 stipulates:

"If a party fails to perform the contract or its performance of the contractual obligations does not conform to the agreed terms. Which constitutes a breach of contract, the other party is entitled to claim damages or demand other reasonable remedial measures. If the losses suffered by the other party cannot be completely made up after the adoption of such remedial measures, the other party shall still have the right to claim damages."

Article 61(2) of the CISG stipulates:

"The seller is not deprived of any right he may have to claim damages by exercising his right to other remedies."

Thus, [Seller] can still claim for the difference between contract price and resale price, loss of interest and storage charges, etc. due to [Buyer]'s breach.

However, the Arbitration Tribunal also noticed that in July 1991 it was clear that [Buyer] breached the contract, but [Seller] waited until December 1991 before reselling the goods.. The measure of mitigation was not timely made, so the damages were enlarged.

According to Article 22 of Law of the People's Republic of China on Economic Contracts Involving Foreign Interest:

"A party which suffers losses resulting from a breach of contract by the other party shall promptly take appropriate measures to prevent the losses from becoming severer. If the losses are aggravated as a result of its failure to adopt appropriate measures, it shall not be entitled to claim compensation for the aggravated part of the losses."

And Article 77 of the CISG provides:

"A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated."

The Arbitration Tribunal rules that [Seller] should have sought to resell the goods by July 1991, and allowing two months, which is a reasonable time, should have resold all of the goods before September 1991, so [Seller] should bear the loss after September 1991.

4. Also, the Arbitration Tribunal does not totally support the way of calculating the damages used by [Seller].

  1. Loss of interest in [Seller]'s claim is calculated according to the bank interest rate of loan, i.e., monthly interest rate of 0.645%, and the penalty is 20% for default with 0.774% monthly interest rate. The Arbitration Tribunal does not support this claim. [Seller] has the right to claim for the interest incurred due to [Buyer]'s wrongful withholding payment for the goods. The Arbitration Tribunal decides that a 0.5% monthly interest rate is reasonable.

  2. According to the above clause 3, the interest and storage charges after September 1991 should be deduced from [Seller]'s claim.

Thus the Arbitration Tribunal calculates the loss of interest which should be paid by [Buyer] as (US $132,000 0.5% 2) + US $132,000 0.5% 30 (days) 9 days = US $1,518; and the storage charges as RMB 80,000 7 (months) 3 (months) = RMB 34,285.71.

III. THE AWARD

  1. [Buyer] shall pay to [Seller] US $132,000, the price difference between the contracts;

  2. [Buyer] shall pay to [Seller] US $1,518, the loss of interest;

  3. [Buyer] shall pay to [Seller] RMB 34,285.71 in storage charges;

  4. [Buyer] shall pay RMB ___, the arbitration fee of this case. This fee has been prepaid by[Seller], so [Buyer] shall repay RMB ___ to [Seller].

The above amount shall be paid within sixty days after this award is made. 0.5% interest rate per month shall be added, if the payment is made exceeding the time limit.

This is the final award.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the People's Republic of China is referred to as [Seller]; Respondent of Singapore is referred to as [Buyer]. 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].

** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.

*** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.

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