China 25 February 1993 CIETAC Arbitration proceeding (Terylene texturing machine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/930225c1.html]
DATE OF DECISION:
DATABASE ASSIGNED DOCKET NUMBER: CISG/1993/05
CASE HISTORY: Unavailable
SELLER'S COUNTRY: United States (respondent)
BUYER'S COUNTRY: People's Republic of China (claimant)
GOODS INVOLVED: Terylene texturing machine
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
25B [Definition of fundamental breach: substantial deprivation of expectations, etc.]; 74A ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Foreseeability of loss] 84A [Seller bound to refund price must pay interest]
25B [Definition of fundamental breach: substantial deprivation of expectations, etc.];
74A ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Foreseeability of loss] 84A [Seller bound to refund price must pay interest]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
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. 197-199
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
English: Dong WU, CIETAC's Practice on the CISG, at nn.90, 2004, Nordic Journal of Commercial Law (2/2005)Go to Case Table of Contents
|Case text (English translation)|
Terylene texturing machine case (25 February 1993)
Translation [*] by CHEN Gang [**]
Translation edited by Meihua Xu [***]
In accordance with the arbitration provisions of Contract NTRECL-(91)001 concluded between Claimant Ningbo XX Feather & Down Ltd. Co. of China [Buyer] and Respondent XX Father & Son Co. of the U.S. [Seller] on 1 March 1991 (hereinafter referred to as the ontract , and the written application for arbitration filed by the [Buyer] on 24 December 1991, the China International Economic & Trade Arbitration Commission (formerly known as hina Council for the Promotion of International Trade Foreign Economic and Trade Arbitration Sub-commission hereinafter referred to as he Arbitration Commission accepted this arbitration case concerning the dispute on the claim for compensation arising out of the Contract aforesaid.
On 14 February 1992, the Arbitration Commission sent the [Seller] the arbitration notice. However, the [Seller] did not designate the arbitrator within the time limit as required in the aforesaid notice, neither did he submit a statement of response. In accordance with the applicable arbitration rules, the Chairman of the Arbitration Commission appointed Ms. D as the arbitrator on the [Seller] behalf and Mr. P as the chief arbitrator, who constituted the Arbitration Tribunal together with Mr. A appointed by the [Buyer] as the arbitrator.
On 11 May and 29 July 1992, the Secretariat of the Arbitration Commission sent the notice regarding the formation of the Arbitration Tribunal and the notice regarding the hearing to be held separately. On 5 October 1992, the hearing was held in Beijing, where the [Buyer] appeared on schedule whereas the [Seller] was absent. The [Buyer] made an oral statement and answered queries from the Arbitration Tribunal. After this hearing, on 21 November 1992 the Arbitration Commission mailed the [Seller] materials concerning the hearing along with the supplemental evidence supplied by the [Buyer] by express, and furthermore notified that any reply from the [Seller] should not be later than 21 December 1992 stating whether it was necessary to hold another hearing or whether written materials would be submitted. The [Seller] failed to make any response before the above-mentioned deadline.
The Arbitration Tribunal concluded this case by rendering an award in view of the facts verified and the law applicable hereto. The facts of the case, the opinion of the arbitrator and the award are presented as follows.
PART I: FACTS OF THE CASE
On 1 March 1991, the Claimant [Buyer] and the Respondent [Seller] concluded a Contract for the purchase of one SDS-II Terylene texturing machine. The total Contract price was US $90,000 CIF London. Packing for the goods was specified in Article 4 of the Contract:
The package should be suitable and safe for exports in response to fear of damages during shipping and handling; the packing should suffice to withstand long-distance marine, air and inland transport; moreover, the goods should be well protected against moisture, damp, collision and so on, otherwise, the [Seller] is obliged to assume the damages and compensation incurred thereby.
On 25 March 1991, [Buyer] opened an irrevocable Letter of Credit [L/C] in favor of the [Seller] as agreed by the parties. On 22 May 1991, the [Seller] shipped the SDS-II Terylene texturing machine packed in two containers by the ship OCL FAIR from Charleston port to Hong Kong for transshipment to the ship ZHE LI. When it reached the destination part of Ningbo on 15 July 1991, four sides of the containers all had been seriously damaged and broken according to the remarks in the handing-over forms for the equipment entering or exiting the port issued by China Ocean Shipping Agency Ningbo branch. The [Buyer] submitted a claim for damages to the People Insurance Company of China Ningbo Branch as the agent in China of the insurance company with which the [Seller] took out a cargo insurance policy on the goods under the Contract and asked the Bureau of Commodity Inspection and Quarantine to make an inspection in accordance with Article 16 of the Contract signed by the [Buyer] and the [Seller]. After an investigation, the insurance company concluded that it was not obliged to settle such damages for the following reasons.
On 12 September 1991, the inspection certificate issued by Ningbo Municipal Inspection and Quarantine of China verified that the damage and breakage of the goods should be imputed to their shifting, toppling and collision during the voyage due to poor bundling, supporting and fixing of the goods inside the containers. The damages were explained in detail as below.
On 23 September, 21 October, 22 October and 6 November 1991, the [Buyer] mailed the inspection certificate and photographs to the [Seller] for claiming damages. However, the [Seller] did not settle this claim on the pretext of finding out the responsibility of the insurance company.
PART II: CLAIMANT [BUYER] POSITION
Undoubtedly, the [Seller] should be held responsible for the damage and shortage of the goods since he did not pack the goods in compliance with Article 4 of the Contract, and therefore the [Buyer] is fully entitled to claim damages against the [Seller] according to the Contract. In addition, the [Seller] did not send any skilled workers to install and debug the SDS-II Terylene texturing machine after its arrival as required by the Contract. In view of the above, the [Seller] has not performed his obligations under the Contract from beginning to end. On these grounds, on 24 December 1991, the [Buyer] filed the application to the Arbitration Commission for arbitration.
As per the above-mentioned facts, the [Seller] did not fully perform his obligations under the Contract, which constituted a fundamental breach of the Contract and caused the [Buyer] significant financial loss.
The [Buyer] arbitration claims are:
1. The [Seller] should return the total price of the machine, US $90,000 and pay interest on the aforesaid sum during the period from 25 March 1991 to the date of actual refund;
2. The [Seller] should pay for costs of opening the L/C, customs declaration, loading and unloading, handling and transporting, storage and commodity inspection; this amounts to US $2,200;
3. The [Seller] should compensate for losses suffered by the [Buyer] including costs of a tour of investigation to the U.S., training of recruits, idling of newly-built workshops and anticipated profits based on half a year; this amounts to US $85,000; and
4. The [Seller] should bear the cost of the arbitration fees and the attorneys fees and allowance for business trips for the [Buyer].
PART III: RESPONDENT [SELLER] POSITION
As the [Seller] neither attended the hearing nor responded to the issues; the [Seller] position could not be ascertained.
PART IV: OPINION OF THE ARBITRATION TRIBUNAL
1. The Arbitration Tribunal noted the fact that both China, where the [Buyer] did business and the U.S., where the [Seller] did business have cited the United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as the ISG . Therefore, the settlement of the dispute under the case can refer to the CISG.
2. According to the CISG, the act of the [Seller] constituted a fundamental breach of the Contract; therefore the [Buyer] was entitled to refuse to accept the goods and ask for a refund. The [Seller] was liable to bear the costs arising out of returning the goods.
3. Pursuant to Article 74 of the CISG, damages for breach of contract may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract in the light of the facts and matters of which he then knew or ought to has known, as a possible consequence of the breach of the contract. In this case, the Arbitration Tribunal held that the losses claimed by the [Buyer] including costs of a tour of investigation to the U.S., training of recruits, idling of newly-built workshops and anticipated profits should be dismissed because it was hard for the [Seller] to foresee such indirect losses at the time of the conclusion of the contract, and besides, the [Buyer] failed to provide sufficient and sound reasons and evidence to support these claims.
PART V: AWARD
The Arbitration Tribunal hereby decides:
1. The goods delivered under the Contract shall be returned. The [Seller] shall refund to the [Buyer] the total price of the SDS-II Terylene texturing machine, US $90,000, with interest at the annual rate of 8% during the period from 25 March 1991 to the date of actual refund;
2. The [Seller] shall pay for costs of opening the L/C, customs declaration, loading and unloading, storage and commodity inspection; this amounts to US $2,200;
3. The [Seller] shall bear the attorneys fees and allowance for business trips for the [Buyer] in this case; this amounts to US $3,000;
4. The sums listed in the above three items payable shall be settled in total by the [Seller] within 45 days after the conclusion of the arbitration. Interest on any sum in arrears will be paid at the annual rate of 8%.
5. The [Seller] is liable to take back the goods for resale or shipping back home. If the [Seller] fails to do this within three months after the conclusion of the arbitration, the [Buyer] has the right to sell the goods at auction, and shall mail the [Seller] the earning from the auction after deducting service charges.
6. The arbitration fees for the case should be totally borne by the [Seller], which have been covered by the fee paid by the [Buyer] to the Arbitration Tribunal in advance. Therefore, the [Seller] shall pay this sum advanced by the [Buyer] along with the aforesaid sums within the same period as the sum mentioned in the fourth item of this Award.
This Award is final.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the People Republic of China is referred to as [Buyer]; Respondent of the United States is referred to as [Seller]. Amounts in the currency of the United States (dollars) are indicated as [US $].
** CHEN Gang LL.M. University of International Business and Economics; LL.B. Shanxi Finance and Economics University.
*** 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.Go to Case Table of Contents