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CISG CASE PRESENTATION

China 20 January 1993 CIETAC Arbitration proceeding (Ferrosilicon case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/930120c1.html]

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

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Case identification

DATE OF DECISION: 19930120 (20 January 1993)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1993/04

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: United States (claimant)

GOODS INVOLVED: Ferrosilicon


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 76

Classification of issues using UNCITRAL classification code numbers:

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

76B1 [Avoidance without purchase or resale under article 74: damages based on current price at time of avoidance]

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): 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., pp. 191-194

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC (PRC) Arbitration Award

Ferrosilicon case (20 January 1993)

Translation [*] by Meihua Xu [**]

Edited by John W. Zhu [***]

The China's International Trade and Economic Arbitration Commission Shenzhen Sub-Commission (hereafter, the "Shenzhen Commission") accepted the case on 18 April 1991 according to:

   -    The arbitration clause in Sales Confirmation No. (91) GTCVMC002 signed by Claimant [Buyer], the United States of America __ Company, and Respondent [Seller], China Hainan __ Trade Company on 10 December 1990 (both parties agreed to settle disputes by arbitration);
 
   -    The arbitration agreement signed by the [Buyer] and the [Seller] on 2 March 1991 (both parties agreed that any dispute arising from the contract should be submitted to the Shenzhen Commission following its Arbitration Rules); and
 
   -    The written arbitration application submitted by [Buyer].

The [Buyer] appointed Mr. A as an arbitrator. The [Seller] did not appoint an arbitrator in accordance with the Arbitration Rules after receiving the arbitration application forwarded by the Shenzhen Commission. Therefore, the Chairman of the Shenzhen Commission appointed Mr. D as an arbitrator, and appointed Mr. P as the Presiding Arbitrator. Mr. P, Mr. A, and Mr. D formed the Arbitration Tribal to hear this case.

The Arbitration Tribunal examined the arbitration application and evidence submitted by the [Buyer]. The [Seller] did not submit defense to the arbitration application forwarded by the Shenzhen Commission. Two court sessions were held on 2 August 1991 and 12 October 1992. The [Buyer] attended the court sessions and answered the Arbitration Tribunal's questions, however, the [Seller] did not present in either court session.

According to the Arbitration Rules, the Arbitration Tribunal issued an award by default. On 9 December 1992, the Arbitration Tribunal notified both parties by written document that the arbitration process had been finished. On 20 January 1993, the Arbitration Tribunal handed down its award.

The following are the facts, the Tribunal's opinion and award.

I. FACTS

On 10 December 1990, the [Buyer] and the [Seller] signed Contract No. (91) GTCVMC002 for the sale of 3,000 MT Ferrosilicon. The terms of the contract are:

Contract goods: 3,000 MT Ferrosilicon.
Loading: Between 15 January 1991 and 15 February.
Price: US $462/MT.
Shipping: FOBST eight ports in Hainan, China.
Total price: US $1,386,000.00
Payment: 90% of the price should be paid by L/C issued by American Carbon & Metals Corp, and 10% should be paid by telegraph transfer within 30 days after receiving the goods.
Liquidated damages: If the [Seller] does not deliver the goods as determined in the contract, the [Buyer] is entitled to recover the price difference between the cover price (the price for buying substitute goods) and the contract price.
Applicable law: Chinese law.

After signing the contract, both parties agreed to raise the price to US $468/MT without changing other terms and conditions in the contract. On 9 January 1991, the [Buyer] issued an L/C at the aforesaid price, however, after negotiating repeatedly, the [Seller] still did not deliver the goods.

The [Buyer] asks the court to order:

  1. The [Seller] to pay all of the [Buyer]' s damages resulting from the [Seller]'s violation of the contract; and
  2. The [Seller] to bear the arbitration fee.

The total damages stated in the [Buyer]'s attachment to arbitration application are US $404,813.11. This includes:

      (1) US $108,000.00, the contract cancellation fee the [Buyer]'s partner, American Carbon & Metals Corp. paid to its customer, Tube City, Inc.

      (2) US $102,000.00, the contract cancellation fee the [Buyer]'s partner, American Carbon & Metals Corp. paid to its customer, North-coast Minerals & Metals, Inc.

      (3) US $64,063.11, the Charter Party cancellation fee the [Buyer]'s partner, American Carbon & Metals Corp. paid to the shipping company.

      (4) US $114,750.00, loss of profit.

      (5) US $16,000.00, other losses including the L/C issuing fee, transportation fee, and traveling fee for arbitration.

The [Buyer] provided a supplementary explanation to its claim in the material submitted on 26 May 1992. In its supplementary explanation, the [Buyer] stated how to calculate the price difference and loss of profit, and said that according to the United Nations Convention on Contracts for the International Sales of Goods (hereafter the "CISG"), if the [Buyer] does not purchase goods in replacement, and if the goods have a current price, the party claiming damages is entitled to recover the difference between the contract price and the current price at the time of avoidance.

The [Buyer] asserts that the time of avoidance of the contract was the time when both parties knew the contract was impossible to perform, which should be 8 February 1991. On 8 February, the difference between the contract price and the price for Ferrosilicon in the American market was US $292,890.00, therefore, this claim should be accepted.

II. ANALYSIS AND JUDGMENT

From the evidence and the facts in this case, the Arbitration Tribunal's opinions and judgment are as follows:

1. Applicable law

According to Article 14 of the contract, the applicable law for dispute resolution is Chinese law. Considering that both the [Buyer]'s State, the United States of America, and the [Seller]'s State, China are Contracting States of the CISG, according to Article 6 of the Law of the Peoples' Republic of China on Economic Contracts Involving Foreign Interest, the CISG should also be applied here together with Chinese law.

2. [Seller]'s responsibility for contract violation

The facts in this case indicate that the [Seller] did not deliver the goods, which is a violation of the contract; therefore, the [Seller] should take responsibility for this. The [Buyer] has the right to remedy and to claim damages. In its fax sent to the [Buyer] on 22 January 1991, the [Seller] apologized for failing to deliver the goods, and agreed to compensate the [Buyer] as determined by law.

3. Remedy and compensation determined by law and the contract

Article 20 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest provides that "the parties may stipulate in their contract that when one party violates the contract, it should pay the other party a certain amount of liquidated damages. They may also determine how to calculate the damage resulting from contract violation in their contract".

The parties in this case stipulated how to calculate damages, which is in article 10 of the contract, stating:

"If the [Seller] does not deliver the goods as determined in the contract, the [Buyer] is entitled to recover the price difference between the cover price (the price for buying goods in replacement) and the contract price."

4. [Buyer]'s evidence for compensation

The [Buyer] did not provide any evidence to show that it has bought substitute goods because of the [Seller]'s failing to deliver the goods. The [Buyer] only provided the agreements of compensation for contract cancellation between American Carbon & Metals Corp. and its customers, Tube City, Inc. and American North-coast Minerals & Metals, and the agreement of compensation for the Charter Party cancellation between American Carbon & Metals Corp and the shipping company. American Carbon & Metals Corp. is not a party to Contract No. (91) GTCVMC002, and the [Buyer] did not provide a reasonable explanation for why the aforesaid documents could be the basis for compensation.

In the supplementary documents submitted by the [Buyer] on 26 May 1992, there was a document signed by American Carbon & Metal Corp. and Gulf Trading Group, Inc, stating that they orally agreed to cooperate and buy 3,000/MT Ferrosilicon from the [Seller].

The Arbitration Tribunal noticed that there was no stipulation in Contract No. (91) GTCVMC002 regarding the aforesaid oral agreement. Furthermore, that document was submitted by the [Buyer] on 18 April 1991, which was three months after the [Buyer] submitted its arbitration application. The [Buyer] could not prove that the [Seller] had known of [Buyer]'s business relationship with American Carbon & Metals Corp.

The Arbitration Tribunal deems that the compensation agreements for contract cancellation between American Carbon & Metals and its customers, Tube City Inc., American North-coast Minerals, and the shipping company have no binding effect on the [Seller], and they cannot be used as a basis for claiming compensation.

The [Buyer] also claims other losses of US $16,000. After investigating, the Arbitration Tribunal notes that the aforesaid fees were the actual cost paid by the [Buyer], therefore, the [Seller] should pay them to the [Buyer].

5. Determination of the current price and compensation for the difference between the current price and the contract price

The Arbitration Tribunal deems that the [Buyer]'s claim for the difference between the current price and the contract price is an alternative to the difference between the contract price and the price for replacement. As stated by the [Buyer], according to Article 76 of the CISG:

"If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase … [for replacement], recover the difference between the price fixed by contract and the current price at the time of avoidance …"

However, the time of avoidance and the current price asserted by the [Buyer] were erroneous.

      (1) The time of contract avoidance was not 8 February 1991. The [Buyer]'s evidence indicates that on 8 February 1991, the [Buyer] sent a fax to the [Seller] saying that it had failed to buy replacement goods from other Chinese companies, and asked the [Seller] to immediately send the contract and the L/C cancellation notice. However, at an earlier time, 28 January 1991, the [Buyer] had already asked for the [Seller]'s response before 5 o'clock on 29 January 1991 (Chinese time) for whether it agreed with the [Buyer]'s purchasing replacement goods from Hainan Huiye Trade Company, which would enable the [Buyer] to change the L/C to transferable after receiving the [Seller]'s contract avoidance notice.

The [Seller] responded on 29 January 1991 saying that it could not deliver the goods on time, and agreed that the [Buyer] could change the [Seller] of the contract to Hainan Huiye Trade Company and change the L/C into transferable.

The aforesaid fact indicates that both parties avoided the contract on 29 January 1991, and the fax on 8 February was only a notice of failing to replace the goods.

      (2) [Buyer]'s using material from METALS WEEK as evidence for the current price is not acceptable. The prices in METAL WEEK indicate the normal price for Ferrosilicon in the American market in a certain period. The price in the instant contract was the price for FOB delivery at a Chinese port. The current price should be decided at the same delivery terms and conditions. Even though the [Buyer] converted the price as if the goods were delivered at a Chinese port, it does not reflect the delivery term in the original contract, therefore, it should not be the basis for the current price.

According to the evidence submitted by the [Buyer], on 4 February 1991, China Nonferrous Metal Mining International Trade Company sent an offer to sell 1,000MT Ferrosilicon to the [Buyer]. The price was US $522/MT, and the other terms in the offer were similar to the terms in this contract. The [Buyer]'s representative, Mr. Yang stated in the court session that it had missed that business opportunity because he was on a business trip at that time.

The Arbitration Tribunal deems that the time of the offer is near the time of contract avoidance in this case, therefore, it should be considered as a basis for deciding the current price.

      (3) Following the above analysis, the difference the [Buyer] can recover is 3,000/MTS × (522 - 468) = US $162,000.00.

6. Considering the [Seller] is liable for contract violation, the arbitration fee should be borne by the [Seller].

III. THE AWARD

According to the facts and the Arbitration Tribunal's opinions above, the award is as follows:

The [Seller] shall pay US $178,000.00 within 60 days after this award takes effect. Otherwise an 8% annual interest shall be added.

The [Seller] shall bear the arbitration fee of US $ __ and procedure fee of renminbi [RMB] __. The [Buyer] has paid arbitration fee of US $__ and procedure fee of RMB __ in advance, therefore, the [Seller] shall pay back the [Buyer] the aforesaid sum within 60 days to the [Buyer].

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 United States of America is referred to as [Buyer] and Respondent of the People's Republic of China is referred to as [Seller]. 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].

** 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.

*** John W. Zhu, LL.M. China University of Political Science and Law (National Graduate Scholarship); Bachelor of Law, Southwest University of Political Science and Law; Double Degree, English Literature, Sichuan International Studies University, Chongqing, China. Focus: International Economic Law.

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