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CISG CASE PRESENTATION

China 20 December 1993 CIETAC Arbitration proceeding (Equipment Case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/931220c1.html]

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

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Case identification

DATE OF DECISION: 19931220 (20 December 1993)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1993/13

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (claimant)

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

GOODS INVOLVED: Equipment


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 74

Classification of issues using UNCITRAL classification code numbers:

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

Descriptors: Damages ; Profits, loss of ; Foreseeability of 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. 611-614

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.205, 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

Equipment case (20 December 1993)

Translation [*] by Zheng Xie [**]

Translation edited by Meihua Xu [***]

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

   -    The arbitration clause in Contract No. 88MG392(6)65MR for sale of two sets of equipment HAS-750 and TACMATIC-21, signed by Claimant [Seller], the U.S. ___ Company, and Respondent [Buyer], China ___ Import and Export Corporation, on 14 November 1988; and
 
   -    The written arbitration application submitted by [Seller] to the Arbitration Commission on 8 March 1993.

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

The Arbitration Tribunal reviewed the written materials and evidence submitted by both parties. On 29 October 1993 the Arbitration Tribunal held a court session in Beijing. Both parties attended the session. They made oral statements and arguments, and answered the Arbitration Tribunal's questions. After the session, the parties tried to solve the dispute through negotiation, but failed. They submitted supplementary materials.

The Arbitration has concluded the case and handed down its award by consent. The following are the facts, the opinion of the Arbitration Tribunal and the award.

FACTS

On 14 November 1988, [Seller] and [Buyer] signed Contract No. 88MG392(6)65MR for sale of sets of equipment HAS-750 and TACMATIC-21. The contract stipulates:

   -    Total price: US $181,500.
   -    Time of shipment: 1989 March.
   -    Payment terms: [Buyer] shall issue an irrevocable L/C with [Seller] as beneficiary issued by Bank of China Beijing Office 30 days before shipping after receiving the notice of shipment.

Appendix IV. of the contract states:

"1. [Buyer] shall send five persons to [Seller] for two weeks' training. [Seller] shall pay the transportation fee in the city for the technicians; [Buyer] shall pay the airfare and accommodations.

"2. [Seller] shall send technicians to Wuxi Electronic Appliances Company to set up and test the equipment. [Buyer] shall pay the transportation fee in the city for the trainee; [Seller] shall pay the airfare and accommodations.

"3. [Seller] shall arrange for a trainee at the factory which manufactures the equipment TACMATIC-21 for two days' training."

POSITION OF THE PARTIES

[Seller]'s position

On 16 and 23 March 1989, [Seller] sent [Buyer] the notice of shipment, but [Buyer] did not issue the L/C. [Seller] and [Buyer] negotiated then, but did not reach any agreement. On 8 March 1993, [Seller] applied for arbitration. [Seller] alleges that [Buyer] did not perform its obligation to issue the L/C, with the result that the contract could not be performed. When [Buyer] breached the contract, [Seller] had performed all of the obligations which were due. Accordingly, [Buyer] should be liable for all of the damages.

[Seller] makes the following claims:

1. [Buyer] should indemnify [Seller] loss of profits, US $60,365.17 (i.e. the difference between the contract price, US $181,500 and the cost that [Seller] paid to the manufacturer, US $121,134.83).

2. [Buyer] should indemnify [Seller] loss of interest at the interest rate of 13% from 1 May 1993 to the date when the payment is made.

3. [Buyer] should pay the arbitration fee, [Seller]'s attorneys' fee and other reasonable expenses for the arbitration.

[Buyer]'s position

1. [Buyer] requested that the contract be cancelled because [Seller] severely breached the pool arrangement with Wuxi Electronic Appliances Company, and Wuxi Electronic Appliances Company did not need this equipment any more. Thus, [Seller] should not assert that [Buyer] breached the contract. [Seller] is the one who should be liable.

2. [Seller] is not the manufacturer, and the sets of equipment were not specially made. The manufacturer does not claim for damages, so [Seller] did not suffer any loss.

3. [Seller] asserts that its profits should be 50% of the cost. This is extremely high and not normal business profits. [Buyer] could not foresee that. During the performance of the contract, [Seller] did not buy any goods at all, nor did it perform its entire obligation. [Seller] only ordered that the goods be manufactured, and did not do a great deal of work, such as inspection, packing, shipping, setting up, adjusting, training, etc.; [Seller] did not pay shipping expenses, storage fee, loading fee, training fee, export duty and incoming tax, etc. All of the expenses are included in the cost. In sum, [Seller]'s claim for loss of profits, US $60,365.17 is not justifiable.

4. [Buyer] accepted [Seller]'s claim for US $37,260.75 when negotiating with [Seller], but [Seller] at the same time, claimed for damages in connection with a signed but not effective contract with another company, with the result that the dispute could not be resolved on time; it is therefore unreasonable to calculate interest for such a long time. Also, there is no basis for an interest rate of 13%.

[Buyer] alleges that client Wuxi Electronic Appliances Company applied for arbitration of the dispute on the pooling arrangement with [Seller] at the same time, and that there is a causal relationship between the two cases, therefore, the Arbitration Tribunal can consider hearing the two cases together. [Buyer] asks the Arbitration Tribunal to dismiss [Seller]'s claims, and to direct [Seller] to pay the arbitration fee.

[Seller]'s response

To [Buyer]'s allegations, [Seller] asserts that the contract between [Seller] and [Buyer] has nothing to do with the pooling arrangement with [Seller], Wuxi Electronic Appliances Company and another Zhuhai company. These are two independent legal relations; it is therefore unjustifiable to hear the two cases jointly.

OPINION OF THE ARBITRATION TRIBUNAL

The Arbitration Tribunal holds:

1. The contract between [Seller] and [Buyer] in this case has no legal relation with the pooling arrangement with [Seller], Wuxi Electronic Appliances Company and another Zhuhai company. The parties to the two contracts are different. Each contract has its own arbitration clause. Each contract is independent of the other. Accordingly, the two cases cannot be heard jointly. According to the arbitration clause of this case, the Arbitration Tribunal can only hear the dispute under this contract.

2. According to the contract, [Buyer] was obligated to apply to Bank of China Beijing Office for issuance of an irrevocable L/C with [Seller] as beneficiary, 30 days before shipping when receiving the notice of shipping. However, [Buyer] did not issue the L/C after receiving notice of shipping, so [Buyer] breached the contract.

Article 74 of United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG), states,

"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. Such damages 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 have known, as a possible consequence of the breach of contract."

[Buyer] shall be liable for [Seller]'s damages due to [Buyer]'s breach. However, [Seller]'s claim for expected profits, US $60,365.17, calculated as the difference between the contract price US $181,500 and the cost at which [Seller] bought from the manufacturer, US $121,134.83, [Buyer] neither could have been foreseen, nor should have been foreseen at the time of signing the contract. In addition, the necessary expenses, such as training fee, expenses for setting up and adjusting, etc. should be deducted from the expected profits.

[Buyer] accepted [Seller]'s claim of US $37,260.75 for expected profits. [Buyer]'s additional claims are not justifiable, so the Arbitration Tribunal holds that US $37,260.75 is reasonable. Moreover, [Seller]'s evidence shows the manufacturer has sold the equipment to another company, so [Seller] did not suffer any loss.

3. Regarding [Seller]'s claim for interest, [Seller] claimed for expected profits in March 1991, which it then rejected after [Buyer] agreed but then rejected. This delayed resolution of the dispute. However, [Seller] did not make any payment, so the Arbitration Tribunal does not support [Seller]'s claim for interest.

THE AWARD

The Arbitration Tribunal makes the following award:

1. [Buyer] shall indemnify [Seller] the loss, US $37,260.75;
2. [Seller]'s claim for interest is dismissed;
3. [Seller] shall pay its own attorneys' fee;
4. Half of the arbitration fee US $___ shall be paid by [Seller], and half shall be paid by [Buyer]. [Buyer] shall pay [Seller] US $___, which was paid by [Seller] in advance.

[Buyer] shall pay [Seller] the above amount, total US $38,601.25 within 30 days of the date of this award. Otherwise, 7% annual interest shall be added.

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 is referred to as [Seller]; Respondent of the People's Republic of China is referred to as [Buyer]. 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.

*** 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 13, 2006
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