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CISG CASE PRESENTATION

China 7 August 1993 CIETAC Arbitration proceeding (Semi-automatic weapons case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/930807c1.html]

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

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Case identification

DATE OF DECISION: 19930807 (7 August 1993)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1993/11

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: United States (respondent)

GOODS INVOLVED: Semi-automatic weapons


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 78 ; 79

Classification of issues using UNCITRAL classification code numbers:

74A ; 74A1 [General rules for measuring damages: loss suffered as consequence of breach; Includes loss of profit];

78B [Rate of interest];

79B12 [Impediments excusing party (impediment not foreseeable); failure to get import permit held foreseeable]

Descriptors: Damages ; Profits, loss of ; Interest ; Exemptions or impediments

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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. 419-422

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.162, 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

Semi-automatic weapons case (7 August 1993)

Translation [*] by Zheng Xie [**]

Translation edited by Meihua Xu [***]

China's International Trade and Economic Arbitration Commission, [hereafter, the Arbitration Commission] accepted the present case according to:

   -    The arbitration clause in Contract No. Q870210E signed by Claimant [Seller], China Guangzhou ___ Company, and Respondent [Buyer], U.S. ___ Company, on 10 February 1987; and
 
   -    The written arbitration application submitted by [Seller] on 23 March 1992.

On 15 May 1992, the Secretariat of the Arbitration Commission sent [Buyer] the notice of arbitration, and [Seller]'s application and evidence, and requested [Buyer] to appoint an arbitrator or authorize the Chairman of the Arbitration Commission to appoint one for it, and to submit its defense. According to the acknowledgement, [Buyer] has received the above documents. However, [Buyer] neither appointed an arbitrator, nor did it submit a defense.

According to Article 16 of the Arbitration Rules, the Arbitration Commission appointed Mr. D as the arbitrator for [Buyer]. The Chairman of the Arbitration Commission appointed Mr. P as the presiding arbitrator. Mr. P, Mr. A appointed by [Seller], and Mr. D formed the Arbitration Tribunal and heard the case.

The Arbitration Tribunal reviewed [Seller]'s application and evidence, and held a court session on 6 March 1993 in Beijing. The Secretariat of the Arbitration Commission sent [Buyer] the notice of the court session by registered mail on 7 January 1993. The acknowledgement shows [Buyer] received it on 19 January 1993. When [Buyer] received the notice, it had sufficient time to prepare for the court session, but it did not attend the session, neither did it give any reason. According to Article 29 of the Arbitration Rules, if a party or its representative does not attend the court session, the Arbitration Tribunal can hold a session by default, or hand down a default award. The Arbitration Tribunal heard the session by default. [Seller] attended the session, made an oral statement, and answered the Arbitration Tribunal's questions. After the session, [Seller] submitted supplementary materials. On 26 April 1993, the Secretariat sent [Buyer] the supplementary materials, and asked [Buyer] to submit its position and any objections. However, [Buyer] did not submit any materials. According to Article 29 of the Arbitration Rules, the Arbitration Tribunal handed down the award.

The following are the facts, the opinion of the Arbitration Tribunal and the award.

FACTS

On 2 May 1985, [Seller], [Buyer] and UBC signed Contract No. CFQ850502 and Supplement to Contract SFQ850502. On 10 February 1987, [Seller], [Buyer] and UBC signed Contract No. Q870210E, which substitutes for the above.

Contract No. Q870210E stipulates:

   -    [Seller] sells [Buyer] and UBC 15,000 semi-automatic weapons [hereafter guns] (9mm X 19);
 
   -    Payment terms: [Buyer] and UBC shall pay 40% of the contract price by T/T before loading; 30% by T/T 60 days after the goods are loaded; and 30% by T/T 90 days after the goods loaded, according to Agreement No. Q861019 signed by the parties on 19 October 1986;
 
   -    Delivery period: The contract is effective for three years; 5,000 guns shall be delivered each year. The specific time and quantity of delivery shall be decided by the parties;
 
   -    The goods are to be produced according to [Buyer] and UBS' requirements. [Buyer] and UBS shall be responsible for any legal problems, such as design, patent, copyright, etc.; [Seller] is not liable for any such problems.
 
   -    [Buyer] and UBC will freely provide 1,500,000 bulletins to [Seller] for experiment.

After signing the contract, on 7 April 1988, [Seller], [Buyer] and UBC reached an agreement on the sales plan for the period April 1988 to 31 December 1988. The sales plan is:

   -    Price term: CIF San Francisco US $190;
 
   -    Delivery date and quantity: 500 guns by air on 20 April 1988; 2,000 guns on June 4, and 2,000 guns on July 19.

[Seller] paid the production factory a total of renminbi [RMB] 1,175,000 in advance on 13 January, 28 November 1987, and 15 March 1988. In April 1988 and on 6 June 1988, [Seller] received 500 guns and 2,000 guns, respectively. On 18 April 1988, [Seller] prepared to deliver the goods and asked [Buyer] to make payment on time. [Buyer] could not make the payment, because it did not get import approval for the guns. And because the guns were made according to [Buyer]'s special requirements, they could not be resold by [Seller]. [Seller] applied for arbitration.

[Seller]'s position

[Seller] alleges:

1. [Buyer] sent the bulletins for experiments one year late. According to the contract, after signing the contract, [Buyer] was obligated to send 1,500,000 bulletins. However, because [Buyer] could not get gun import approval and also had transportation problems, [Buyer] sent 464,000 bulletins to Shanghai on 8 February 1988. [Buyer] thus breached the contract, with the result that it could not be performed in the first year.

2. [Buyer] never did get gun import approval, so the guns could not be sold in the U.S. market. After [Buyer] had obtained import approval for a sample, on 31 March 1988, [Seller] sent two packs of samples by air to [Buyer]. On 13 May 1988, UBC notified [Buyer] that BATF of the U.S. prohibited importing this kind of guns. According to the contract, it was [Buyer]'s duty to get import approval; and [Buyer] is in breach of contract, if it cannot get the approval regardless of the reasons, such as design or patent.

3. When [Buyer] did not get the import approval, it did not take reasonable measures to mitigate the damages. Although [Buyer] suggested two measures: (1) to a Canadian Italian importer to sell the goods in Canada; or (2) to provide a method to change the guns, [Buyer] did not take either of these measures.

4. [Buyer]'s failure to obtain the import approval is not a case of force majeure. Thus, the force majeure clause does not apply.

According to the above facts and reasons, [Buyer] should indemnify [Seller]'s loss, US $358,446.77 and interest; calculated as:

     (1) The advance payment for 2,500 guns, RMB 1,175,000;

     (2) The expected profits for 1988, RMB 878,900; the formula is:

     -    The expected profits for 1988 = profits in RMB included in US $1 x FOB in US dollars x annual quantity delivered
 
     -    The factory price: RMB 450; the contract price: CIF US $190, FOB US $187; [Seller]'s cost: RMB 450 + (450 x 15%) = RMB 517.50; profits in RMB included in US $ 1: 3.71 (currency exchange rate) - RMB 517.50 US $187 = 0.94. Accordingly, the expected profits for 1988: 0.94 x 187 x 5000 = RMB 878,900;

     (3) [Seller]'s loss: the total of the above amounts is RMB 2,053,900, i.e., US $358,446.77 (RMB 5.73 : US $1). [Buyer] should also pay the arbitration fee and [Seller]'s attorneys' fee and other expenses for this case.

[Buyer] did not submit any defense.

OPINION OF THE ARBITRATION TRIBUNAL

According to the court session and written materials submitted by [Seller], the Arbitration Tribunal holds:

1. [Buyer] did not get the guns import approval, so the contract could not be performed. [Buyer] shall be liable for [Seller]'s loss.

According to the contract and international trade custom, [Buyer] shall be liable and take the risk for getting the import approval. In this case, it is [Buyer]'s duty to get the import approval. According to Clause 20 of the contract, [Seller] is not liable for any legal problem due to sales of guns; the decision of BATF of the U.S. [Import Approval Office] shows [Buyer] could not get the import approval due to the design of the guns. This has nothing to do with [Seller]. In addition, the necessity of getting import approval could have been foreseen by [Buyer], because the law has been in effect for many years in the U.S. [Buyer] has reason to know it is necessary to get import approval. The clause in the contract shows that getting the import approval is not a precondition on the part of the [Seller] when it signed the contract. Moreover, failure to get the import approval can be foreseen and is not force majeure, so [Buyer]'s cannot be exempted from damages for that.

2. According to Article 74 of CISG:

"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach."

The Arbitration Tribunal holds the damages shall be the advance payment [Seller] paid to the factory for 2,500 guns, RMB 1,175,000, and the profits RMB 878,900, if the contract had been performed. The total amount shall be RMB 2,053,900, i.e., US $358,446.77 (RMB 5.73 : US $1).

According to Clause 20 of the contract, the guns under the contract were specially made in accordance with [Buyer]'s requirements. When [Buyer] refused to receive the goods because it could not get the import approval, [Seller] could not resell the goods. Thus, [Buyer] shall indemnify [Seller] the advance payment paid to the factory. According to the contract, the parties should perform the contract when the contract was signed. However, because [Buyer] sent the bulletins one year later, the contract was not fully performed in the first year after the contract was signed. In February 1988, when [Seller] received the bulletins sent by [Buyer], the contract was fully performed by [Seller].

The Arbitration Tribunal holds that [Seller]'s claim for the expected profits for 5,000 guns is reasonable and should be accepted.

3. [Buyer] can dispose of the goods under the contract, when it indemnifies [Seller] the loss.

AWARD

1. [Buyer] shall pay [Seller] US $358,446.77 before 10 September 1993, and interest at the annual rate of 8% from 4 September 1988 to the date when the payment is made.

The goods shall be disposed of by [Buyer] within 60 days after the above amount is paid; the expenses for disposing of the goods shall be paid by [Buyer].

2. [Buyer] shall pay the entire arbitration fee. [Seller] has paid the arbitration fee RMB ___; [Buyer] shall pay [Seller] RMB ___ before 10 September 1993.

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 the United States 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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Pace Law School Institute of International Commercial Law - Last updated March 10, 2006
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