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CISG CASE PRESENTATION

China 20 April 1993 Xiamen Intermediate People's Court [District Court] of Fujian (Lianzhong Enterprise Resources (Hong Kong) Ltd. v. Xiamen International Trade & Trust Co.) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/930420c1.html]

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

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Case identification

DATE OF DECISION: 19930420 (20 April 1993)

JURISDICTION: People's Republic of China

TRIBUNAL: Xiamen Intermediate People's Court [District Court] of Fujian

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Lianzhong Enterprise Resources (Hong Kong) Ltd. v. Xiamen International Trade & Trust Co.

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Hong Kong (plaintiff)

GOODS INVOLVED: Fish powder


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 78

Classification of issues using UNCITRAL classification code numbers:

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

78B [Rate of interest]

Descriptors: Damages ; Interest

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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): Click here for Chinese text of case; see also CISG-China Case [IPC/02]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=76>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Xiamen Intermediate People's Court
Lianzhong Enterprise v. Xiamen International

20 April 1993

Translation [*] by Zheng Xie [**]

On 6 March 1989, Lianzhong Enterprise Resources (Hong Kong) Ltd. (the [Seller]) and. Xiamen International Trade & Trust Co.(the [Buyer]) signed a draft of Contract No. F8-9GDTI)/9261031cK (the "Contract") for the sale of fish powder. After revising the draft several times, the parties officially signed the Contract on 6 April. The Contract stipulates:

   -    Goods: The [Seller] shall supply 5,000 tons of Peruvian or Chilean fish powder to the [Buyer].
   -    Specifications: The fish powder shall be processed by antioxidant ethoxy. When the goods are produced, the content shall not be less than 40 DPPM; when the goods are loaded, the content shall be less than 150 PPM. The fish powder shall not contain any insect, Salmonella, or Shigella.
   -    Quantity: 5,000 tons; 5% more or less decided by the [Seller], and paid according to the contract price.
   -    Unit price: US $506.50/ton cnFFo Xianmen or Shanghai;
   -    Total contract price: US $2,532,500.
   -    Shipping time and destination port: 3,000 tons shall be delivered to Xiamen port in April and May 1989; 2,000 tons shall be delivered to Shanghai port in May and June 1989.
   -    Payment terms: The [Buyer] shall issue an irrevocable sight documentary L/C with the [Seller] as the beneficiary before 12 April 1989. The valid period of the L/C is 35 days after the B/L is issued; the documents shall be presented for negotiation 30 days after the B/L is issued, which shall be within the valid period of the L/C.

On 8 March 1989, the [Seller] and Toefl (Hong Kong) Ltd. signed a contract with the same stipulations on quantity, name of merchandise, specification, shipping time, destination port, etc. with those of the above Contract. The unit price was US $486/ton cnFFo Xiamen or Shanghai, and an irrevocable L/C should be issued before 20 April 1989.

On 12 April 1989, the [Buyer] through Bank of China Xiamen Branch issued an irrevocable L/C for 3,000 tons fish powder totaling US $1,519,500 with the [Seller] as the beneficiary; the L/C No. is LC7109031D. The terms and conditions stipulated in the L/C are similar to those in the Contract. The goods shall be shipped from a port in Peru or Chile to Dumen, China no later than 31 May 1989. The L/C shall be negotiated before 30 June 1989. The documents shall be presented for payment within 30 days after the B/L is issued and within the valid period of the L/C.

On 12 May 1989, because of a change in the domestic market, the [Seller] and the [Buyer] signed an agreement as an indivisible part of Contract No. F89GDTD/926103lcK to revise three clauses as follows:

   (1)   The[Buyer] has issued the L/C for 3,000 tons of fish power, and shall issue the other L/C for the remaining 2,000 tons before 20 May 1989;
 
   (2)   The [Seller] agreed to decrease the unit price of the 2,000 tons of fish power by US $10/ton, i.e., US $496.50/ton cnPFo in order to share the [Buyer]'s difficulty in sales;
 
   (3)   The shipping time for the 2,000 tons of fish powder is postponed to 15 June 1989 and 31 July 1989, and Article 9 "PENALTY FOR DELAYED SHIPPING" in Appendix of the original Contract is revoked.

However, the [Buyer] failed to issue the L/C for the 2,000 tons of fish powder before the deadline, i.e., 20 May 1989.

On 31 May 1989, the [Seller] loaded 3,150 tons of Chilean fish powder on the ship "Challenger" at a Chilean port, obtained a master B/L, and presented the full set of documents to Po Song Bank (Hong Kong) for negotiation. On 26 May, the [Seller] forwarded a copy of the full set of negotiation documents to the [Buyer]. On 29 June, Bank of China Xiamen Branch notified Pong Song Bank (Hong Kong) that the [Buyer] had rejected the inconsistent documents. On 30 June, Bank of China Xiamen Branch informed Po Song Bank (Hong Kong) of the following two reasons for the [Buyer]'s rejection, i.e.,

   (1)   The modification of the B/L was not made by the carrier; and

   (2)   The destination was not recorded in the B/L.

Thereafter, the [Seller] changed the B/L, and the [Buyer] insisted on making the payment only after receiving the original B/L. Po Song Bank (Hong Kong) forwarded the full set of original documents on 11 July 1989. After receiving and reviewing the full set of original documents, on 11 July 1989 Bank of China Xiamen Branch notified Po Song Bank (Hong Kong) that there were five nonconformities in the documents. On 19 and 20 July, when the ship "Challenger" arrived at Xiamen Port, Gu Bo, the legal representative of the [Seller] went to Xiamen to negotiate with the [Buyer], but failed to reach any written agreement. On 21 July, the [Buyer] notified Bank of China Xiamen Branch that the [Seller] had accepted its request that the [Buyer] should make the payment of US $1,276,380, i.e., 80% of the L/C amount, against the documents, and that the issuing party and the beneficiary should negotiate the remaining 20%, i.e., US $319,095. According to this, Bank of China noticed Pu Song Bank (Hong Kong).

On 1 August, the [Seller] faxed to the [Buyer] proposing that the [Buyer] could deduct 20% of the contract price, pointing out, however, that it was unreasonable to expect the export Department of the [Seller] to deduct the outstanding amount from this 20% of the contract price, and also proposing that:

   (1)   The [Buyer] should pay off the outstanding amount to the Export Department of the [Seller] before 8 August 1989;
 
   (2)   Before 8 August 1989 the [Buyer] should pay off the remaining 20% of the contract price for 3,150 tons of fish powder, which was deducted by the Import Department of the [Buyer], and that the [Buyer] should also issue a L/C for the remaining 2,000 tons of fish power;
   (3)   Each party's claims should go the normal process.

On 9 August, the [Buyer] notified the [Seller] by fax that the [Buyer] would not reject the payment of 80% of the contract price against documents because of the severe nonconformity between the L/C and the documents on the condition that:

   (1)   The parties revoke the order for 2,000 tons of colored fish powder;
 
   (2)   The colored fish powder should be supported by inspection certificates issued by Xiamen Entry and Exit Animal and Plant Quarantine Agency and Xiamen Commodities Inspection Bureau.

On 10 August, the [Seller] responded to the [Buyer] denying that the [Seller] agreed that the [Buyer] could only pay 80% of the contract price and that the order for 2,000 tons of colored fish powder would be revoked. It was with regarding to this that the disputes arose between the parties.

On 20 July 1989, the ship "Challenger" carrying 3,150 tons of fish powder arrived at Xiamen Port. On 22 July, the Xiamen Entry and Exit Animal and Plant Quarantine Agency inspected the goods on board, and did not find any living insect, and agreed to have the goods unloaded. When the goods were unloaded, on 27 July Xiamen Entry and Exit Animal and Plant Quarantine Agency inspected the goods again, and found some living insects in the colored fish powder, and issued an inspection notice suggesting killing the insects by smoking. On 31 July, the [Buyer] informed the [Seller] of this. The parties did not reach any agreement by correspondence. The [Seller] alleged that the [Buyer]'s claims and obligations to make the payment were separate matters, so the [Buyer] should pay off the 20% of the contract price. The [Seller] also alleged that the [Buyer] should claim damages from the obligated party due to the insects after the liability was identified. The [Buyer] objected to this, and the parties did not reach any agreement after negotiation. On 16 October 1996, the [Seller] filed this lawsuit with Xiamen Intermediate People's Court.

THE [SELLER]'S POSITION

The [Seller] and the [Buyer] negotiated and agreed on the essential terms to import fish powder from February to March 1989 in Hong Kong. After several modifications, they signed the official Contract on 6 April 1989. The Contract stipulates that the price term is US $506.50/ton cNFFo Xiamen/Shanghai; the delivery date is April/ May for 3,000 tons, and May/June for 2,000 tons; and the L/C for 5,000 tons shall be issued before 12 April 1989.

On 12 April the [Buyer] breached the Contract and issued the L/C for only 3,000 tons of fish powder. In good faith, the [Seller] voluntarily proposed to reduce the unit price by US $10/ton. The [Buyer] promised to issue the L/C for the 2,000 tons of colored fish powder before 20 May. On 12 May, the parties signed an agreement to revise the original Contract, but the [Buyer] breached the agreement again. The [Seller] urged the [Buyer] many times, but the [Buyer] still failed to issue the L/C, which caused the [Seller] to suffer severe economic and reputation damages.

At the beginning of May 1989, the [Seller] shipped the 3,150 tons of fish powder by the vessel "Challenger" and delivered the full set of negotiation documents. However, the [Buyer] refused to make the payment by alleging nonconformity between the L/C and the documents, and also refused to unload the goods at the destination port. The [Seller] had to accept the [Buyer]'s unjustifiable request to pay 80% of the contract price first. When the goods were safely transported to the warehouse and the [Seller] refused to provide the insurance policy to the [Buyer], the [Buyer] unreasonably held the 20% of the contract price by alleging that some insects were found in the warehouse on 27 July.

The [Seller] requests the Court according to the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, the United Nations Convention on Contracts for the International Sales of Goods 1980 (CISG), and international customs to rule that

   (1)   The [Buyer] should pay off the remaining contract price plus interest, totaling US $363,768.30;
 
   (2)   The [Buyer] should compensate the [Seller] for damages of US $271,460 due to the non-performance of the 2,000 tons of colored fish powder;
 
   (3)   The [Buyer] should bear all of the litigation fee.

THE [BUYER]'S POSITION

The [Buyer] alleged that:

   (1)   The parties signed the final contract for sale of fish powder on 6 April 1989 in Xiamen;
 
   (2)   The parties stipulated the special requirements of the quality of colored fish powder; whatever the price term and the transferring of risk is, the [Seller]'s liability for the non-complying goods should not be exempted;
 
   (3)   The [Buyer] had the right to re-inspect the goods at the destination port;
 
   (4)   Some insects were found in the delivered fish powder, and the [Seller] should be liable for this;
 
   (5)   The L/C for the 2,000 tons fish powder should be issued according to the parties' oral agreement;
 
   (6)   The parties did not stipulate the applicable law in the Contract, so the laws of the People's Republic of China and international conventions to which China is a member should apply; international customs can apply only when the laws of the PRC lack the relevant stipulations.

[SELLER]'S REVISED CLAIMS

At the court session, the [Seller] revised its litigation claims as follows:

   (1)   The [Buyer] shall pay the [Seller] the 20% of the contract price for the 3,150 tons of colored fish powder, totaling US $319,095, plus interest calculated at the rate for export foreign currency of Po Sang Bank (Hong Kong) at the same time from 1 July 1989 to the day when the payment is actually made;
 
   (2)   The [Buyer] shall compensate the [Seller] for the loss of anticipated profits, totaling US $21,000, caused by the [Buyer]'s non-performance of the 2,000 tons of fish powder, plus interest calculated at the US dollar annual deposit rate of 10.4375% from 1 September 1989 to the day when the payment is actually made;
 
   (3)   The [Buyer] shall compensate the [Seller] for the loss of warehouse charge for storage of the 2,000 tons of fish powder in Chile for two months at 4% per month, totaling US $77,760;
 
   (4)   The [Buyer] shall compensate the [Seller] for the loss due to the drop of price for the 2,000 tons of fish powder, calculated at US $10/ton and totaling US $20,000, plus interest at the annual rate of 10.4375% from 9 August 1989 to the day when the payment is actually made.

RULING OF THE COURT

After hearing this case, the Xiamen Intermediate People's Court notes that on 17 April 1989 the [Seller] through Po Sang Bank (Hong Kong) issued an irrevocable L/C with "AI'FRED. C. T02PFERINTER-NATIONAI, GmbH" as the beneficiary, and that the goods described in the L/C were 3,000 tons of colored fish powder. On 2 May 1989, the [Seller] through Po Sang Bank (Hong Kong) modified the above L/C and increased the quantity by 2,000 tons, so the total quantity under the L/C was 5,000 tons, and the price was accordingly increased.

Xiamen Intermediate People's Court holds that the Court permits the Law of the People's Republic of China on Contracts Involving Foreign Interest, the CISG and international customs to apply to this case, as the parties decided at the court session.

The Contract in this case was concluded by the parties after negotiation, and complies with the laws of the People's Republic of China, and is not inconsistent with the public interest, so the Contract is valid.

According to international trade customs regarding letters of credit, the [Buyer] should make the payment after receiving the full set of documents. The [Buyer] only paid 80% of the contract price after receiving the full set of documents from the [Seller], and failed to pay the remaining 20% even after the goods were released after inspection; therefore, the [Buyer] breached the Contract. The Contract was legally concluded, and was legally binding on the parties, so the parties should perform the obligations according to the Contract, and a party should not arbitrarily modify or revoke the Contract.

The [Buyer] issued the L/C only for the 3,000 tons of colored fish powder and failed to issue a L/C for the remaining 2,000 tons within the stipulated period; in addition, the [Buyer] failed to the issue a L/C for the remaining 2,000 tons within the revised period. Although the [Seller] urged the [Buyer] many times, the [Buyer] still failed to perform and breached the Contract again. The [Buyer] did not submit sufficient evidence to support its defense, and also violated Article 32 of the Law of the People's Republic of China on Contracts Involving Foreign Interests, so the [Buyer]'s defense is not established. The [Buyer]'s breach caused the [Seller] to suffer severe economic loss; therefore, the [Buyer] should compensate the [Seller] for this loss. The [Seller]'s other claims lack evidence to sustain them, so the Court does not sustain these claims.

According to Articles 16, 18, 19 23, 32 and 34 of the Law of the People's Republic of China, and Articles 74 and 78 of the CISG, on 20 April 1993 the Court ruled as follows:

1. The [Buyer] should pay the [Seller] the remaining 20% of the contract price, totaling US $319,095, plus interest, within 15 days of the effective date of this ruling. Interest should be calculated at the export foreign currency rate of Po Sang Bank (Hong Kong) from 1 August 1989 to the day when the payment was actually made.

2. The [Buyer] should compensate the [Seller] for the loss of anticipated profits for the 2,000 tons of fish powder, totaling US $21,000, plus interest, calculated at the annual US dollar deposit rate of 10.4375% from 1 September 1989 to the day when the payment is actually made.

3. The [Seller]'s other claims are dismissed.

4. If the [Buyer] fails to pay the amounts stipulated in the above Items 1 and 2, Article 232 of the Law of Civil Procedure of the People's Republic of China should apply.

The litigation fee for this case is US $4,910, of which the [Seller] should pay US $932, and the [Buyer] should pay US $3,928.

After this ruling, neither party appealed, so the ruling took legal effect.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of Hong King is referred to as [Buyer]; Defendant 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 $].

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

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Pace Law School Institute of International Commercial Law - Last updated May 11, 2010
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