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CISG CASE PRESENTATION

China 5 July 1993 CIETAC Arbitration proceeding (Copperized steel tubes case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/930705c1.html]

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

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Case identification

DATE OF DECISION: 19930705 (5 July 1993)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1993/08

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (respondent)

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

GOODS INVOLVED: Copperized steel tubes


Classification of issues present

APPLICATION OF CISG: Yes. Tribunal held PRC domestic law and CISG applicable

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 77 ; 78 [Also cited: Article 38 ]

Classification of issues using UNCITRAL classification code numbers:

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

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

78A [Interest on delay in receiving price or any other sum in arrears]

Descriptors: Damages ; Mitigation of loss ; 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): 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. 372-380

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.83, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation)

Joint translation project:
New York University School of Law
and Pace University School of Law


 

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

Copperized steel tubes case (5 July 1993)

Translation [*] by Taotao Ling [**]

Translation edited by Meihua Xu [***]

China International Economic and Trade Arbitration Commission [originally named the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade, and hereinafter referred to as CIETAC] accepted this case according to:

     (1)    The arbitration clause in Contracts No. 88YRNS/062100MR, No. 88YRNS/062101MR and No. 88YRNS/062102MR signed on 5 October 1988 by the Claimant [Buyer] Anhui ** Company and the Respondent [Seller] American ** Company Ltd.; and
 
     (2) The written arbitration application submitted by the [Buyer] to CIETAC on 21 July 1990.

The [Buyer] appointed Mr. A as arbitrator; the [Seller] appointed Mr. D as arbitrator; the Chairman of CIETAC appointed Mr. P as presiding arbitrator. The above three arbitrators formed the Arbitration Tribunal to hear this case.

The Arbitration Tribunal reviewed all of the petition and reply materials submitted by the [Buyer] and [Seller], and scheduled a court session on 27 March 1991 in Beijing. Representatives of both parties attended the court session, made oral statements and arguments, and answered questions posted by the Arbitration Tribunal.

Upon joint discussion, the Arbitration Tribunal issued this award. The following are the facts, the opinion of the Arbitration Tribunal and the award.

I. FACTS

On 5 October 1988, the [Buyer] and [Seller] signed three contracts to purchase copperized steel tubes of two different specifications:

   -    Contract No. 88YRNS/062100MR sets forth that the [Seller] provides to the [Buyer] 36 tons of 4.76mm * 0.7mm copperized steel tubes and 156 tons of 8mm * 0.7mm copperized steel tubes;
 
   -    Contract No. 88YRNS/062101MR sets forth that the [Seller] provides to the [Buyer] 36 tons of 4.76mm * 0.7mm copperized steel tubes and 156 tons of 8mm * 0.7mm copperized steel tubes;
 
   -    Contract No. 88YRNS/062102MR sets forth that the [Seller] provides to the [Buyer] 36 tons of 4.76mm*0.7mm copperized steel tubes and 117 tons of 8mm * 0.7mm copperized steel tubes.

Among the goods under the above three contracts, the price per 4.76mm * 0.7mm copperized steel tube is CIF Shanghai US $1,910/ton including the packing fee, the price per 8mm * 0.7mm copperized steel tube is CIF Shanghai US $1,890/ton including the packing fee, and the total amounts of the three contracts are respectively US $363,600, US $363,600 and US $289,890.

The product manufacturer of the goods under all three contracts is the United States Indiana Tube Corp., the client of the [Buyer] is ** Refrigerator Factory.

   -    It is provided in the Name of Product and Specifications clauses of the three contracts that the copperized steel tube shall be used for the manufacture of refrigerators, the layer of the tube shall be daubed with N2 oil; the copperized steel tube shall be packed with plastic cloth and put in the wood box along with desiccant.
 
   -    Article 10 of the three contracts, concerning "Package," provides that the package shall use solid new wood box / paper box which is suitable for long-distance sea transportation, and is moistureproof, quakeproof, rustproof, and proof of rough portage; the [Seller] shall be liable for all expenses and/or losses incurred by the loss of improper packaging and any rust loss caused by inappropriate or improper protective measures.
 
   -    The Article 17 "Warranty" of the three contracts provides that, the [Seller] warrants that the goods are produced with the best materials and techniques, are brand new and completely conform to the quality, specification and capacity stipulated in the contract; the [Seller] further warrants that in the circumstances of accurate installation, normal use and maintenance, the goods will perform satisfactorily for 12 months from the date of arrival at the destination port.
 
   -    Article 18 of the three contracts, concerning "Inspection and Damage Claim" provides that:

(i)     Prior to delivery, the manufacturer shall accurately and completely inspect the quality, specification, capacity and quantity / weight of the goods, and shall issue a certificate to prove that the goods conform to the contract; the certificate is part of the instruments to be submitted to bank for the payment / collection of the goods' price, but should not be used as the final evidence of the quality, specification, capacity and quantity / weight of the goods; the manufacturer shall include the written record of the detail and result of the test in the quality certificate.
(ii) After the goods arrive at the destination port, the [Buyer] shall apply to the China Commodity Inspection Bureau (hereinafter referred to as the Commodity Inspection Bureau) for a preliminary inspection of the quality, specification and quantity / weight of the goods. If the specification or quantity / weight does not conform to the contract, in addition to seeking damages from the insurance company or shipping company, the [Buyer] may claim damages from the [Seller] within 120 days of the unloading of the goods at the destination port and with the inspection certificate issued by the Commodity Inspection Bureau.
(iii) Within the warranty period of Article 17 of the contract, upon discovery of the non-conformity of the quality and/or specification of the goods from the contract or the defects of the goods are caused by any reason including intrinsic defects or inferior raw materials, the [Buyer] shall apply to the Commodity Inspection Bureau for inspection and is entitled to claim damages from the [Seller] in accordance with the inspection certificate.

In accordance with Articles 6, 7 and 8 in all the Contracts No. 88YRNS/062100MR, No. 88YRNS/062101MR and No. 88YRNS/062102MR respectively, the shipping port of the goods under the contracts is the port in the United States, the destination port is Shanghai port, China; goods under all three contracts are to be shipped in two batches, with the goods of 8mm * 0.7mm specification and 4.76mm * 0.7mm specification shipped in each batch. The shipment date and quantity shall be:

   -    The 1st Batch: 78 tons of 8mm * 0.7mm tube and 18 tons of 4.76mm * 0.7mm tube under Contract No. 88YRNS/062100MR, and the shipment date was 30 November 1988;
 
   -    The 2nd Batch: 78 tons of 8mm * 0.7mm tube and 18 tons of 4.76mm * 0.7mm tube under Contract No. 88YRNS/062100MR, and the shipment date was 31 December 1988;
 
   -    The 3rd Batch: 78 tons of 8mm * 0.7mm tube and 18 tons of 4.76mm * 0.7mm tube under Contract No. 88YRNS/062101MR, and the shipment date was 31 January 1989;
 
   -    The 4th Batch: 78 tons of 8mm * 0.7mm tube and 18 tons of 4.76mm * 0.7mm tube under Contract No. 88YRNS/062101MR, and the shipment date was 28 February 1989;
 
   -    The 5th Batch: 78 tons of 8mm * 0.7mm tube and 18 tons of 4.76mm * 0.7mm tube under Contract No. 88YRNS/062102MR, and the shipment date was 31 March 1989;
 
   -    The 6th Batch: 39 tons of 8mm * 0.7mm tube and 18 tons of 4.76mm * 0.7mm tube under Contract No. 88YRNS/062102MR and the shipment date was 30 April 1989;

The delivery dates of the above six batches at the Shanghai destination port are respectively:

   -    The 1st Batch: 15 January 1989;
   -    The 2nd Batch: 15 March 1989;
   -    The 3rd Batch: 15 March 1989;
   -    The 4th Batch: 17 April 1989;
   -    The 5th Batch: 4 May 1989;
   -    The 6th Batch: 14 June 1989.

These six batches of goods arrived at the [Buyer]'s client, ** Refrigerator Factory, during the period from 28 January 1989 to 3 July 1989. At the [Buyer]'s request, the China Anhui Import and Export Commodity Inspection Bureau (Anhui Commodity Inspection Bureau) inspected samples of the goods and issued six inspection certificates on the following six dates:

   -    The 1st Batch: 10 June 1989 (six months after the goods arrived at Shanghai);
   -    The 2nd Batch: 10 June 1989 (three months after the goods arrived at Shanghai);
   -    The 3rd Batch: 10 June 1989 (three months after the goods arrived at Shanghai);
   -    The 4th Batch: 19 September 1989 (five months after the goods arrived at Shanghai);
   -    The 5th Batch: 31 August 1989 (four months after the goods arrived at Shanghai);
   -    The 6th Batch: 31 * 1989 (two months after the goods arrived at Shanghai).

According to the above inspection certificates issued by the Anhui Commodity Inspection Bureau, the six batches of goods were all packed with plastic cloth and put in wood boxes along with desiccant, the packages were fine, but the 8mm * 0.7mm copperized steel tubes in each batch were "partly rusted" or "slightly partly rusted" to different degrees. The rusty degrees are as follows:

No. of Batch Quantity of the goods (8mm * 0.7mm tubes) arrived Rust ratio of the samples inspected
1st 77.01 tons 33.32%
2nd 77.34 tons 80.70%
3rd 77.28 tons 9.78%
4th 77.62 tons 44.85%
5th 77.29 tons 39.31%
6th 38.76 tons 25.08%

The above six inspection certificates confirmed that there were defects on the surface of the goods and that the goods therefore did not conform to the contracts, but did not explain the reason for the rust.

On 26 April 1989, the [Buyer] telefaxed the [Seller] at its Shanghai representative's office pointing out for the first time that the first batch of goods had the rust problem and requested that the [Seller] agree to extend the damage claim period. On 21 May 1989, the [Buyer]'s client, ** Refrigerator Factory called the [Seller]'s Shanghai representative's office complaining that the goods that arrived had become rusted and there could be serious problems with the producing quality. On 19 June 1989, the [Buyer] sent the inspection certificates for the first 3 batches of goods to the [Seller]; and on 14 August 1989, the [Buyer] notified the [Seller]'s Shanghai representative's office about the serious and common rust problems found in the 4th, 5th and 6th batches of goods and requested the [Seller] to provide indemnification for the rust problem with respect to the six batches of goods. On 2 September 1989, the [Seller]'s Shanghai representative's office telefaxed the [Buyer] to confirm the receipt of the letter dated 14 August 1989 and agreed to extend the damage claim period of the last three batches (i.e., the 4th, 5th and 6th batches) of goods until the claim was solved. On 23 September 1989, the [Buyer] sent the inspection certificates of the 4th, 5th and 6th batches of goods to the [Seller]. From then on, at the request of the [Buyer], the [Seller] sent five people, including the administrative staff of the product manufacturer and the experts of the shipping investigation company, to ** Refrigerator Factory to check the rust situation on 13 November 1989. On 11 May 1990, the [Seller] sent a letter to the [Buyer] along with the report of the inspection at the ** Refrigerator Factory dated 13 November 1989. The report concluded that the rust was caused by contingent accidents after the goods left the Shanghai port, and the problem was not within either the [Seller]'s or the manufacturer's responsibility, so that the [Seller] could not accept the damage claim request raised by the [Buyer]. However, to express friendship and good will of the [Seller], the [Seller] could provide US $10,000 to the [Buyer] to help to pay for the costs of clearing the rust since it all could be cleared with sand paper. The [Buyer] refused this suggestion of the [Seller]. Afterwards, the parties exchanged messages several times to discuss the reason of the rust and the degree of the damage of the goods. The [Buyer] then sent to the [Seller] the Wan Jin Zi No.*** Inspection Notice issued on 3 August 1990 by Anhui Commodity Inspection Bureau with the title "Explanation Regarding the Issuance of the Inspection Certificate on the Damages of the Imported Copperized Steel Tube" (hereinafter referred to as Inspection Explanation). The Inspection Explanation set forth the inspection results and analyses of the 120 boxes of 106.48 tons of the 4.76mm * 0.7mm copperized steel tubes and the 660 boxes of 425.30 tons of the 8mm * 0.7mm copperized steel tubes as follows:

A. Inspection Results

     1. Package and Storage

Copperized steel tubes of two specifications were both put in wooden boxes with plastic bags, and there was 10mm space between the goods and the walls of boxes. The boxes were hammered with integrated veneers except the bottom plates, and the bottom plates of the goods that arrived in the last three batches were further packaged with integrated weaving bands. Desiccant was placed in the plastic bags inside the boxes and the bags were bundled with strings. The bottoms of very few boxes were affected with dampness, but it was dry inside the boxes, the walls inside the boxes were not affected with dampness, and the entire packaging was satisfactory. After the goods arrived at the factory, the first three batches of goods were stored in the Chu Zhou food supplies transferring warehouse, the last three batches of goods were stored in the [ ] workshop and warehouse of the ** Refrigerator Factory, and the storage conditions were good.

     2. Damages

          (1) The surfaces of copperized steel tubes of two specifications are both oiled. The oil layer of the steel tube with the diameter of 4.76mm is even, while the oil layer of the steel tube with the diameter of 8.0mm is not even. Part of it is thinner or unoiled.

          (2) The copperized steel tube with the diameter of 4.76mm has a darker surface, while the copperized steel tube with the diameter of 8mm has a brighter surface but part of it was not copperized.

          (3) The surface of the copperized steel tube with the diameter of 4.76mm does not have rust, while the surface of the copperized steel tube with the diameter of 8.0mm does have brown rust. The degree of rust on the first three batches is higher, and there is corrosion or pitting in the surface after the rust is cleared; the degree of rust of the last three batches is lower, and there is lighter corrosion or pitting or no corrosion or pitting in the surface after the rust is cleared. The appraisal of the rust part shows that no damage was caused by seawater.

          (4) Rust corrosions appear on the surfaces of copperized steel tubes where there is no oil or has thinner oil layers, and more on uncopperized parts. Some corrosions form blocks and some are dots. Rust corrosions appear on the goods randomly.

          (5) Some goods are not equipped with desiccant, but the surface is fine and no rust corrosion appears.

          (6) The 4th Batch reached the ** Refrigerator Factory by truck on 18 May. At that time, the weather was fine, no packages were drenched; the goods were discovered to be partly rust corroded in the preliminary inspection conducted by the commodity inspection staff before unloading.

          (7) Rust corrosion did not appear in the copperized steel tube with the diameter of 4.76mm packed in the wood box affected with dampness, while rust corrosion did appear on the surface of the copperized steel tube with the diameter of 8.0mm, although some are fine.

B. Analyses

In sum, under the same transportation condition and good storage conditions, the goods with the diameter of 4.76mm appeared to be fine, while the partly rust corrosion of the surface of goods with the diameter of 8.0mm were cause by improper surface processing and protection measures. Considering the degree of rust corrosions, the rust corrosions already existed before arriving at Shanghai port and were not caused by the improper storage by the party who accepted the goods. Goods with rust corrosions on the surface do not conform to the contract and the seller should be responsible for it.

The [Seller] did not agree with the above "Inspection Explanation", nor did it agree to indemnify to the [Buyer]. The [Buyer] therefore applied to the Arbitration Commission in writing for arbitration on 31 July 1990.

The [Buyer] alleged in the arbitration application that, the 8mm * 0.7mm copperized steel tubes provided by the [Seller] were 40% rust corroded. The surface of the steel tubes showed brown rust corrosions. After the rust was cleared, the steel base substance appeared with pitting . Rust corrosions are randomly distributed on the steel tubes. Although copperized steel tubes were named, some of the tubes were not copperized, and the rust corrosions were from inside to outside and the rust spots were not green steel rusts but were brown iron rusts. Thus it is proved that the 8mm * 0.7mm copperized steel tubes provided by the [Seller] breached the quality warranty stipulated in Article 17 of the contract. Although the 8mm * 0.7mm copperized steel tubes sold by the [Seller] were packed well outside, the packages inside were simple and modest, many plastic bags inside were broken, and surfaces of many steel tubes lacked protective oil. Therefore, regardless of whether the rust corrosions of the 8mm * 0.7mm copperized steel tubes were caused by intrinsic quality defects or improper packing, the [Seller] should be liable for it. The [Buyer] pointed that, in order to reduce the loss caused by the [Seller], the [Buyer] voluntarily selected steel tubes that were 14m or longer and were not rust corroded from the 170 tons of rust corroded steel tubes. Nevertheless, the usable part only covered 25% of the 170 tons of steel tubes. In order to reduce the occupancy of funds and warehouse, in the circumstance that the goods could not be returned, the [Buyer] disposed of unusable trash materials at a price of RMB 80 Yuan per ton and recovered RMB 27,059 Yuan in total, and reduced the warehouse expenses accordingly. However, the [Buyer] still suffered a significant loss. The [Buyer] requested the [Seller] to indemnify the following losses:

     1. Depreciation loss

Loss of the 170.55 tons of rust corroded steel tubes excluding the 25% usable part: 170.55 * 75% * US $1,890/ton = US $241,754.63;

The interest on the loan for useless trash materials was US $49,446.38 (the annual interest was 11.6875%, the interest period was from 1 November 1988 to 31 July 1990, the letter of credit was issued in October 1988)

The two items in total: 241,754.63 + 49,446.38 = US $291,201.01

     2. Additional expenses incurred by useless trash materials

          (1) Bank processing fee loss: RMB 1353.12 Yuan; (2) Customs duty and value added tax, etc.: RMB 272,723.14 Yuan; (3) Domestic transportation fee and loading fee of RMB 120 Yuan/ton loss: RMB 15,349.50 Yuan; (4) Food storage management fee 120 m² * 0.10/m² * 240 days = RMB 2,880 Yuan; (5) Additional bank interest (1) + (2) + (3) + (4) = 292,305.76 * 9.6 * 16 months = RMB 44,898.16 Yuan.

     3. Commodity inspection fee: RMB 17,875.00 Yuan.

     4. Attorneys' fee, etc.: RMB 60,000 Yuan.

The total amounts of the above four items were US $291,201.01 and RMB 415,078.92 Yuan.

[Seller's response to Buyer's claims]

The [Seller] denied that it was liable for the damages claimed by the [Buyer] in the arbitration application, and the points of its reply are as follows:

1. Most of the [Buyer]'s claims for damages were not timely raised and thus the [Buyer] was not entitled to claim damages. The [Seller] contended that in accordance with Article 18(b) of the three contracts in this case, the [Buyer] should have claimed damages for the quality, specification and quantity / weight of the goods within 120 days upon the arrival of the goods at the destination port holding the inspection certificate issued by the Commodity Inspection Bureau. In this case, the arrival dates of the 1st and the 4th batches of goods are respectively 15 January 1989 and 17 April 1989, and the commodity inspection certificates issued by the Anhui Commodity Inspection Bureau were dated respectively 10 June 1989 and 19 September 1989. Thus the commodity inspection certificates of the two batches of goods were both issued after 120 days after the goods arrived at Shanghai port, and therefore the [Buyer]'s claim dates in accordance with the inspection certificates of the 1st and 4th batches of goods both exceeded 120 days after the goods arrived at the destination port. Since the [Buyer] did not comply with the deadline of damage claims for the 1st and 4th batches of goods, the [Buyer] was not entitled to claim damages for those goods.

2. The 12-month quality warranty clause was not applicable in this case. According to the [Seller], the capacity warranty clauses set forth in the second sentence of Article 17 and the Article 18(c) were only applicable in the event that the goods displayed latent quality problems after installation and use. However, the rust problem of the copperized steel tube was an exterior defect that can be found during the inspection upon the arrival of the goods at the destination port, but was not the quality problem that could only be found after use. Therefore, the capacity warranty clause in the contract was not applicable to the rust problem of the copperized steel tubes.

3. Even if the [Buyer] is entitled to claim damages, the [Seller] is not liable. The [Seller] contended that the [Buyer] did not provide evidence to prove that the rust corrosion occurred before the goods were loaded in the United States. In fact, evidence showed that the rust corrosion occurred after the goods arrived at China due to the improper arrangement of goods by the [Buyer]. The [Seller] pointed out that:

     (1) According to the contract, the [Seller] was not obligated to provide absolutely sealed packages. However, the goods provided by the [Seller] were packed in accordance with the contract, the inspection certificate issued by the Anhui Commodity Inspection Bureau proved that the packages were fine and conformed to the contract, and the manufacturer inspected the goods before the goods departed the factory. The testimony of Mr. S of the Indiana Tube Corp. showed that, the goods had no rust when they delivered the goods to the [Seller].

     (2) According to Incoterms, under a CIF contract, the risk of loss transfers to the [Buyer] when the goods are handed over to the carrier as required in the contract. In fact, there was no evidence showing that the goods were damaged during the sea shipping.

     (3) However, the pictures taken by the [Seller] in November 1989 at the warehouse of the terminal user ** Refrigerator Factory clearly showed that there were marks of dampness and mildew on the wood boxes, proving that "the boxes were immersed in water for a long time, and remained in a damp and exposed environment". The picture further showed there was water on the floor of the factory of the terminal user. The testimony of the representative of the shipping investigation company who participated in the goods investigation in November 1989 also briefly stated that the reason of the rust corrosion was because the boxes were immersed in water during the period between when the goods were shipped from the Shanghai container port until the inspection in November 1989. All of this evidence proved that the rust corrosion of the goods was caused by water after the goods arrived in China and therefore the [Seller] was not liable for this at all.

     (4) The [Buyer] did not inspect the goods in accordance with the contract and the inspection certificate was not sufficient to be relied on. The [Seller] alleged that, according to Article 18 of the contract, the [Buyer] shall apply to the commodity inspection bureau for inspection upon the goods' arrival at Shanghai. But the [Buyer] did not immediately apply for inspection when the goods arrived at the destination port but did the inspection at the factory of the [Buyer]'s client after almost half a year, therefore the inspection result did not reflect the real condition of the goods at the time of arrival. The damage situation described in the Inspection Notice issued by the Anhui Commodity Inspection Bureau dated 3 August 1990 greatly exceeded the scope of content in the above six inspection certificates and was no longer a description of the inspection certificates but was the exaggeration and expansion of facts without basis. Therefore, the six inspection certificates and the Inspection Notice relied on by the [Buyer] for the damage claim could not prove the condition of goods at the time of the goods' arrival at the destination port, therefore the damage claim of the [Buyer] had no basis. The [Seller] respectfully requests the Arbitration Tribunal to reject the [Buyer]'s arbitration requests.

4. The damage claim requested by the [Buyer] had no basis and was purely speculative and arbitrary. The [Buyer] did not provide evidence proving that there were 170.55 tons of goods having rust among the 537 tons of goods delivered in accordance with the contract; similarly, the [Buyer] did not provide evidence proving that the 75% of the 175 tons of goods were unusable. The [Buyer] did not take measures to prevent the damages from expanding upon finding the rust corrosion of the goods. Besides, there was no evidence showing that the damage claimed by the [Buyer] was foreseeable and was caused by the breach of contract by the breaching party.

Based on the above reasoning, the [Seller] requests the Arbitration Tribunal to reject all arbitration requests raised by the [Buyer], and to require the [Buyer] to pay for all of the [Seller]'s reasonable expenses and costs incurred in this procedure, including (but not limited to) copy fees, delivery and mailing fees, travel expenses, translation expenses and the costs and expenses incurred by the [Seller]'s appointing translators, expert appraisers, attorneys and other professionals.

[Buyer's counterstatements]

In response to the reply of the [Seller], the [Buyer] presented the following counterstatements:

1. The 4.76mm * 0.7mm copperized steel tubes and the 8mm * 0.7mm copperized steel tubes under the three contracts were shipped under the same transportation conditions and were stored under the same storage condition, while the 4.76mm * 0.7mm copperized steel tubes were not rust corroded at all, but the 8mm * 0.7mm copperized steel tubes were rust corroded. This only proved that the 8mm * 0.7mm copperized steel tubes provided by the [Seller] had quality defects.

2. The 120-day period set forth in Article 18(b) meant the commodity inspection period of the specification, quantity and weight of the goods, and the 12-month period set forth in Article 18(c) meant the commodity inspection period of the quality of the goods. The goods provided by the [Seller] had quality defects, and the Anhui Commodity Inspection Bureau inspected the goods and issued the inspection certificates of the goods within 12 months since the goods reached the destination port, therefore the inspection certificates issued by the Anhui Commodity Inspection Bureau were effective.

3. The goods did not suffer water corrosion during the period when they were sent from the Shanghai port to the client's factory. The storage condition at the terminal client's was dry and good. Regarding the issue alleged by the [Seller] that there was water on the floor shown in the picture taken in November 1989, the fact was that since the room was too dry when the five people of the [Seller] came to check the goods status, the [Buyer] watered the floor in order to reduce dust.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. Applicable law

Neither Contract No. 88YRNS/062100MR, Contract No. 88YRNS/062101MR nor Contract No. 88YRNS/062102MR contract signed between the [Buyer] and [Seller] provided the applicable law of this case. In accordance with the most frequent contact principle and the laws adopted by the [Buyer] and [Seller] in their written statements, the Arbitration Tribunal held the applicable law in this case should be the domestic law of the People's Republic of China (the PRC) and the United Nations Convention on Contracts for the International Sale of Goods (1980 Vienna Convention or CISG).

2. The place of inspection

The Arbitration Tribunal noted that the [Seller] asserted that the goods under all the three contracts of this case should be inspected immediately after they reached the Shanghai port. However, Article 18(b) does not explicitly require the goods to be inspected immediately upon arrival at the destination port, but requires that the [Buyer] carry out the initial inspection regarding the non-conformity of the specification or quantity / weight of the goods within 120 days after they arrive at the destination port. According to Article 9 of the PRC Commodity Inspection Law and Article 38(3) of the CISG, the goods can be inspected at the unloading port or at the final destination. There was no breach of Article 18 of the contract caused by inspection of the goods at the ** Refrigerator Factory of the terminal client by the Anhui Commodity Inspection Bureau.

3. The period for filing a damage claim

The Arbitration Tribunal noted that the damage claim periods set forth in the subsections (2) and (3) of Article 18 ("Inspection and Damage Claim") of the three contracts are different in nature. Article 18(2) means if it is found that the specification or quantity / weight of the goods do not conform to the contract, the [Buyer] should claim damages based on the inspection certificate from the [Seller] within 120 days after the goods arrive at the destination port; while Article 18(3) means if it is found that the quality and/or specification does not conform to the contract, the [Buyer] should claim damages from the [Seller] based on the inspection certificate within 12 months after the goods arrive at the destination port. When the copperized steel tubes appeared to be rust corroded, a quality problem of the goods was involved, but the parties did not have any dispute on the specification or quantity / weight of the goods. Therefore, the damage claim period set forth in Article 18(3), which requires that the damage claim period of quality defects of the goods should be within 12 months from the date of the goods' arrival at the destination port, is the applicable period in this case.

4. The effectiveness of the inspection certificates

The six inspection certificates issued by the Anhui Commodity Inspection Bureau dated 10 June, 31 August and 19 September 1989 were all issued within 12 months since the goods arrived at the destination port, so the issuance of these six inspection certificates did not exceed the damage claim period provided in the contracts. According to Article 11 of the PRC Commodity Inspection Law, the inspection certificates issued in the contracted damage claim periods are legal and valid.

The Arbitration Tribunal noted that the Wan Jin Zi No.*** Inspection Notice issued on 3 August 1990 by Anhui Commodity Inspection Bureau ("Inspection Explanation") apparently was issued after 12 months after the six batches of goods arrived at the destination port, but it did not exceed the extended damage claim period agreed by the [Seller] in the telefax sent to the [Buyer] on 2 September 1989 (i.e., the damage claim period was extended until the claim damage was settled). Further, the Inspection Explanation was the explanation of the inspection situation of the damage to the goods and the evaluation of the reason for the damage to the goods which was included in the above six commodity inspection certificates issued by Anhui Commodity Inspection Bureau on 9 June 1989, therefore it should be deemed as part of the above six inspection certificates.

5. The rust corrosion of the copperized steel tubes

In accordance with the six inspection certificates dated 10 June, 3 August and 19 September 1989 and the Inspection Explanation dated 3 August 1990 issued by Anhui Commodity Inspection Bureau, the Arbitration Tribunal held that the partly rust corrosion of the 8mm * 0.7mm copperized steel tubes under the three contracts was because some of the steel tubes were not copperized and the oil layer of the steel tubes was not even or the steel tubes were unoiled. The [Seller] alleged that the rust corrosion was caused by water after the copperized steel tubes arrived at Shanghai, but the evidence (pictures and testimony) provided by the [Seller] could not prove this statement of the [Seller]. The 8mm * 0.7mm copperized steel tubes and the 4.76mm * 0.7mm copperized steel tubes were shipped and stored under the same conditions, while the 4.76mm * 0.7mm copperized steel tubes were not rust corroded at all. This is sufficient to prove that the rust corrosion of the 8mm * 0.7mm copperized steel tubes was not caused by the storage or shipment after the goods arrived at Shanghai, but occurred before the goods were sent out by the [Seller].

By virtue of the above reasons, the Arbitration Tribunal held that the [Seller] should be liable for the rust corrosion of the 8mm * 0.7mm copperized steel tubes under the contracts in this case, and should indemnify the losses suffered by the [Buyer] incurred hereby.

6. The amount of the damage indemnification

     (1) It was shown by the rust corrosion rate of the samples inspection stated in the six inspection certificates issued by Anhui Commodity Inspection Bureau that, there were in total 77.01 * 33.32% + 77.34 * 80.7% + 77.28 * 9.78% + 77.62 * 44.85% + 77.29 * 39.31% + 38.76 * 25.08% = 170.55 tons of rust corroded copperized steel tubes in the six batches of 8mm * 0.7mm copperized steel tubes under the three contracts in this case, and the total amount was 170.55 tons * US $1,890/ton = US $322,339.50.

The [Buyer] alleged that of the above 170.55 tons of copperized steel tubes with rust corrosion only 25% of the steel tubes could be used, but the [Buyer] did not provide solid evidence to support this claim. The Arbitration Tribunal noted that, there was the following statement in the letter sent by the [Buyer] to the [Seller]'s Shanghai representative's office dated 2 December 1989 as attached in Appendices C-9 of the arbitration application that, regarding the partly lightly rust corroded coils, the factory did not treat the entire coils as useless materials, but made use of the non-rusted corroded section in them. According to the actual manufacturing situation, the rate of usage is only 50% at most. Therefore the degree of depreciation mentioned in the table on the first page is 50%. The Arbitration Tribunal held that 50% of the steel tubes are usable seen from the above letter.

Article 22 of the PRC Foreign Economic Contract Law provides that, one party who suffers loss from the other party's breaching contract should take appropriate measures in time to prevent the loss from spreading. In this case, in order to prevent the loss from spreading, the [Buyer] is responsible for making full use of usable copperized steel tubes. Therefore, the Arbitration Tribunal held that, calculated by the 50% unusable rate in the 170.55 tons of rust corroded 8mm * 0.7mm copperized steel tubes, the [Seller] should indemnify the [Buyer] an amount of US $161,169.75 (US $322,339.50 times 50%) for the rust corrosion of the copperized steel tubes provided by it, and that interest shall be calculated at an 8% annual rate from the date the [Buyer] paid for the price of the goods, i.e., 1 November 1988.

     (2) In the second item of the arbitration requests, the [Buyer] requested the [Seller] to indemnify the bank processing fee, customs duty, value added tax, domestic transportation fee, unloading fee, warehouse storage fee, and additional bank interests. The Arbitration Tribunal held that, since the [Buyer] accepted and used most of the goods provided by the [Seller], and only a small portion of the goods were damaged, therefore the [Seller] should not be liable for other fees except the customs duty and value added tax. As the result of checking, the amount of the customs duty and value added tax actually paid by the [Buyer] is RMB 217,858.91 Yuan, and the [Seller] should indemnify the [Buyer] for 50% of the amount, i.e., RMB 108,929.45 Yuan.

     (3) The [Seller] should compensate the [Buyer] RMB 17,875 Yuan for the commodity inspection fee.

     (4) The [Buyer] did not provide the receipt of the attorneys' fee paid by it, thus the Arbitration Tribunal could not support the [Buyer]'s claim to request the [Seller] to pay for the RMB 60,000 Yuan attorneys' fee.

     (5) The amount collected by the [Buyer] from the sale of unusable rust corroded copperized steel tubes (170.55 * 50% * 80 = RMB 6,822 Yuan) should be set-off from the amount indemnified by the [Seller] to the [Buyer].

7. The Arbitration Tribunal does not support any and of the arbitration requests raised by the [Seller].

III. THE AWARD

The Arbitration Tribunal renders the following award:

1. The [Seller] should indemnify the [Buyer] an amount of US $161,169.75 for the loss suffered by the [Buyer] because of the rust corrosion of the copperized steel tubes, as well as interest on it in the amount of US $60,170.04 calculated at an annual rate of 8% from 1 November 1988 to the date of this award. The amount of the two items is US $221,339.79 in total.

2. The [Seller] should indemnify the [Buyer] an amount of US $108,929.45 for part of the losses of customs duty and value added tax.

3. The [Seller] should indemnify the [Buyer] an amount of RMB 17,875 Yuan for the commodity inspection fee.

4. When the [Seller] pays the amounts of fees in Item 2 and 3, an amount of RMB 6,822 Yuan can be deducted.

5. Other arbitration requests raised by the [Buyer] and the [Seller] are dismissed.

6. The [Seller] shall pay for the arbitration fee of this case.

7. All of the amounts payable in the above Items 1, 2, 3, 4 and 6 should be paid before 16 August 1993; if they are not paid by then, the [Seller] should pay interest for the delay at a monthly rate of 0.67%.

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 [Buyer] and Respondent of United States 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].

** Taotao Ling, LL.M. New York University School of Law on the Arthur T. Vanderbilt Scholarship. She received her Bachelor of Law degree and Bachelor of Economics degree from Peking University, Beijing, China. Her focus is on corporate and commercial law.

*** 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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Pace Law School Institute of International Commercial Law - Last updated April 5, 2006
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