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CISG CASE PRESENTATION

China 5 September 1994 CIETAC Arbitration proceeding (Weaving machines, tools and accessories case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/940905c2.html]

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

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Case identification

DATE OF DECISION: 19940905 (5 September 1994)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1994/10

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Switzerland (respondent)

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

GOODS INVOLVED: Weaving machines, tools and accessories


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 47 ; 49 ; 74 ; 77 ; 84

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

47A [Buyer's right to fix additional period for performance];

49A [Buyer's right to avoid contract];

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

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

84A [Seller bound to refund price must pay interest]

Descriptors: Fundamental breach ; Nachfrist ; Avoidance ; Damages ; Foreseeability of 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) 1994 vol., pp. 1018-1022

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.58, 66, 100, 115, 213, 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

Weaving machines, tools and accessories case (5 September 1994)

Translation [*] by CHEN Gang [**]

Translation edited by Meihua Xu [***]

In accordance with the arbitration provisions of Contract 92EU404-1049ZH/A signed on 16 October 1992 and Contract 92EU404-1049ZH/B signed on 18 October 1992 between Claimant Dalian XX Industrial & Commercial Ltd. Co. of China [Buyer] and Respondent XX Co. of Switzerland [Seller], and the written application for arbitration filed by the [Buyer] on 4 January 1994, the China International Economic & Trade Arbitration Commission (formerly known as "China Council for the Promotion of International Trade Foreign Economic and Trade Arbitration Sub-commission", hereinafter referred to as "the Arbitration Commission") accepted this arbitration case concerning the dispute on the claim for compensation arising out of the contracts aforesaid.

Pursuant to the arbitration rules of the China International Economic & Trade Arbitration Commission (hereinafter referred to as "the Arbitration Rules"), the Arbitration Commission sent the [Seller] the arbitration notice, asking the [Seller] to designate the arbitrator and submit the statement of response. However, the [Seller] did not satisfy either of the above requirements within the time limit set forth in the aforesaid notice, but faxed the Arbitration Commission a letter which the [Seller] sent to the [Buyer].

In accordance with Article 16 of the Arbitration Rules, the Chairman of the Arbitration Commission appointed Mr. D as the arbitrator on the [Seller]'s behalf and Mr. P as the chief arbitrator, who constituted the Arbitration Tribunal together with Mr. A appointed by the [Buyer] as the arbitrator. After reviewing the written application for arbitration and evidence materials filed by the [Buyer], the Arbitration Tribunal notified the [Buyer] and the [Seller] that a hearing would be held in Beijing on 18 May 1994. The [Buyer] and his attorney appeared and made an oral statement and answered the queries from the Arbitration Tribunal, while the [Seller] did not offer any excuse for being absent. On 4 June 1994, the Arbitration Commission mailed the [Seller] the brief materials concerning the hearing, and furthermore explained that any written defense opinions or evidence materials concerned from the [Seller] could still be handled no later than 30 June, enclosed with the supplemental materials provided by the [Buyer] after the hearing. The [Seller], however, never made any response. On the basis of all the materials submitted concerning this case and after verifying all of the facts, the members of the Arbitration Tribunal, consulting together, concluded that the arbitration notice and another document notifying the hearing as well as other materials concerned had been received by the [Seller] according to the Arbitration Rules agreed by the two parties. Therefore, it was understood that the [Seller] had renounced his right by failing to make any defense.

The Arbitration Tribunal has concluded this case by rendering a judgment by default subject to Article 29 of the Arbitration Rules. The facts of the case, the opinion of the arbitrator and the award are presented as follows.

PART I: FACTS OF THE CASE

The Claimant [Buyer] together with the client, Dalian XX Dying & Weaving Ltd. Co. of China and the Respondent XX Co. of Switzerland [Seller] signed Contract 92EU404-1049ZH/A (hereinafter referred to as "Contract A") and Contract 92EU404-1049ZH/B (hereinafter referred to as "Contract B") along with its attachment in Switzerland on 16 October and 18 October 1992, respectively. It was provided in Contract A that:

  1. The [Seller] sold to the [Buyer] 28 SULZER RUTI WEAVING machines PU 130"E 10 MW (R);
  2. The unit price was 64,000. Swiss francs [SFr]; total price 1,792,000 SFr, Ex Works, loaded in Containers;
  3. The shipping time was January 1993;
  4. The port of shipment was any European Port; the port of destination was Dalian Port; and
  5. The country of origin and manufacture was Switzerland.
  6. There were all together four attachments to Contract A as effective components thereof, among which, Attachment 1 specified that the goods under the Contract must be equipment during 1987/1988; Attachment 2 fixed the terms of payment, viz. to transfer to the [Seller] the price of SFr 179,200 by telegram by 30 October 1992, another SFr 179,200 by telegram by 30 November 1992, and to open an irrevocable, confirmed and transferable sight L/C in favor of the [Seller] to settle the remaining SFr 1,433,600 by the [Buyer], which should be issued within 30 days prior to the shipment; Attachments 3 and 4 make detailed provisions concerning trying-out the equipment by experts sent by the [Seller] and organizing the observation groups by the [Buyer], and so on, respectively.

The main stipulations of Contract B were,

  1. The [Seller] sold to the [Buyer] nine sets of tools and accessories, including two Warp Trying and Frame Uster Topmatic models 201 at the unit price of SFr 21,000, totaling SFr 42,000; four Transport devices at the total price of SFr 15,900; one Oil Change Equipment for Fresh Oil at the unit price of SFr 12,000; one Special Tools Dobby at the unit price of SFr 1,387; one Special Tools Sulzer at the unit price of SFr 6,840; and Standard Tools, etc. at the price of SFr 13,843. All goods under Contract B amounted to Swiss Francs 91,970 Ex Works, loaded in Containers;
  2. The shipping time was January 1993; and
  3. The port of shipment, the port of destination, the country of origin and manufacture were the same as those in Contract A.
  4. There were all together six attachments to Contract B as effective components, which provided respective descriptions of the goods under the Contract.

After the conclusion of the aforesaid two contracts, the client of the [Buyer] sent by T/T to the [Seller] the advance payment of SFr 179,200 and SFr 197,594, accounting for 20% of the total price of goods under both Contract A and B, through Industrial and Commercial Bank of China Dalian Branch on 29 October 1992 and 30 November 1992, respectively. In addition, on 9 February 1993 the client opened an L/C for the amount of SFr 1,507,176, prescribing that shipment from any European port to Dalian port could not be later than 15 March 1993, and partial shipment was not allowed, nor was transshipment.

Subsequently, upon the request of the [Seller] the [Buyer] made five amendments or modifications to the L/C successively during the period from 16 February 16 1993 to 24 April. With the fifth amendment, the shipping time was extended to 31 May 1993.

On 24 May 1993, the [Seller] delivered to the [Buyer] six sets of equipment under Contract A, worth SFr 384,000, and at the same time, seven sets under Contract B, worth SFr 78,970.

The [Seller] asked the [Buyer] to amend the L/C to extend the delivery date three times, respectively, on 2 June and 8 June and 1 July 1993 by fax and expressed the willingness to travel to Dalian to solve the issue of delayed delivery. On 3 July 1993, the [Buyer] amended the L/C for the sixth time, determining that the delivery of the goods should not be later than 31 July 1993 and the expiry date of the L/C was put off till 15 August 1993. On 15 July 1993, the [Seller] faxed the [Buyer] that the amended L/C from the [Buyer] arrived too late for the goods to be shipped until after their workers returned to work from the summer holiday lasting from 10 July to 8 August 1993.

From 30 July to 31 July 1993, the [Buyer], the [Seller] and the client of the [Buyer], Dalian XX Dying & Weaving Ltd. Co., signed the minutes of a meeting and MEMO, defining clearly that the [Seller] should ship the remaining twenty-two machines by the end of August 1993, otherwise Dalian XX Dying & Weaving Ltd. Co. was entitled to take measures according to the Contract. Thereafter, the [Buyer] amended the L/C for the seventh time on 6 August, providing that delivery of the goods should not be later than 31 August 1993 and the period of validity of the L/C was prolonged to 15 September 1993.

On 26 August 1993, the [Seller] faxed to the [Buyer] that he would not be able to deliver the goods in August. On 17 September, the [Seller] notified the [Buyer] that he had the goods ready for shipment and asked the [Buyer] to inform the shipping agency and amend the L/C accordingly. On 18 September 1993, the [Buyer] asked the shipping agency to prepare for the transport of the other twenty-two sets, and furthermore, on 27 September [Buyer] made an eighth amendment to the L/C, specifying that the delivery of the goods should not be later than 31 October 1993 and the period of validity of the L/C was prolonged to 15 November 1993.

On 28 October 1993, the [Seller] delivered to the [Buyer] the other six machines under Contract A, amounting to SFr 384,000, and one machine under Contract B at the price of SFr 12,000, whose origin country was Germany, indicated by the [Seller] in Invoice No. 93'239B. After its arrival, the [Buyer] refused to accept the goods on the excuse of the discrepancy between the documents and the L/C.

PART II: CLAIMANT [BUYER]'S POSITION

[Buyer]'s claim:

Having signed Contracts A and B, the [Seller] was incompetent for the obligation of delivering the goods, moreover, [Seller] deferred the shipment again and again, and for the worse, some goods still remained undelivered in spite of the fact that the [Buyer] had amended the L/C quite a few times. The six machines under Contract A that were delivered in May 1993 had defects in quality; they were certified by the Inspection and Quarantine of China Liaoning branch on 15 November 1993 as having been manufactured during 1981-1983 instead of 1987-1988 as required in the Contract. As a consequence, the [Seller] should be held responsible for all the substantial financial losses suffered by the [Buyer] due to the [Seller]'s delaying the delivery, failing to ship some of the goods under the contract, and delivering goods inconsistent with the specifications in the contract.

As to the reason for returning the goods, the [Buyer] claimed that the [Seller] caused tremendous economic loss to him owing to the [Seller]'s failure to deliver the goods time and again, on which the [Buyer] still made material compromise with the [Seller]. Even though during the period from 30 July to 31 July 1993 both parties signed the minute of the meeting and MEMO, defining clearly that the [Seller] should ship the remaining twenty-two machines by the end of August 1993, the [Seller] did not deliver six of the remaining machines until 28 October, which the [Buyer] had every reason to refuse to accept. Meanwhile, it was indicated clearly in Invoice No. 93'239B from the [Seller] that the origin country of the goods under Contract B was Germany, whereas it should have been Switzerland according to the Contract and the L/C, which constituted a discrepancy between the documents and the L/C. Owing to such discrepancy, the Paying Bank, namely the Industrial and Commercial Bank of China Dalian Branch (hereinafter referred to as "ICBC Dalian") was authorized to refuse to pay for the goods, and the [Buyer] was justified in not accepting the goods for the reasons presented below.

  1. The [Seller] repeatedly asked for an additional period of time for the performance of his obligation and the [Buyer] postponed the deadline for delivery as requested each time. During the period from 30 July to 31 July 1993 both parties signed the minutes of their meeting and MEMO, defining clearly that the [Seller] should ship the remaining twenty-two machines by the end of August 1993, which should be regarded as the last time limit of reasonable length granted to the [Seller] by the [Buyer] for his performance, but the [Seller] delivered only six of the remainder, and then not until 28 October.

  2. To [Buyer]'s detriment, the [Seller] delivered only six instead of all the remaining twenty-two machines as expected.

  3. Moreover, the six machines delivered on 28 October and another six delivered in May by the [Seller] were all manufactured during 1981-1983 instead of 1987-1988 as required in the contract.

When the [Buyer] protested against paying for the six machines delivered on 28 October, the Notifying Bank, namely Credit Suisse Group sent a telex asking the Issuing Bank, ICBC Dalian to return the documents. Therefore, the [Buyer] was entitled to declare the contract avoided and rejected the goods pursuant to Articles 47 and 49 of the United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as the "CISG") and Article 29 of the Contract Law Involving Foreign Interests.

The [Buyer]'s arbitration claims are:

1. Owing to the fact that the failure by the [Seller] to perform his obligations under the contract had amounted to a fundamental breach of contract, the [Buyer] had the right to declare the contract avoided and claim damages for such breach. Therefore, the [Buyer] appealed to the Arbitration Tribunal to declare the contract avoided and to ask the [Seller] to refund SFr 376,794 of the advance payment, accounting for 20% of the total price of goods under both Contract A and B which the [Buyer] had paid and compensate [Buyer] for the interest based on the period from the date of payment to the date of refund.

The [Buyer] modified the aforesaid claim in his supplemental materials. Given that the [Buyer] had taken and actually used some of the accessories under Contract B, SFr 78,970 in total, the [Buyer] would not ask to return these accessories, instead [Seller] should deduct SFr 15,794 of the price for the accessories from SFr 18,394, the advance payment accounting for 20% of their total price under Contract B with SFr 2,600 as the balance, which should be refunded together with SFr 358,400 of the advance payment under Contract A, amounting to SFr 361,000, with the interest on such total as well paid by the [Seller].

2. The [Buyer] claimed the right to return the six machines under Contract A, which had been delivered by the [Seller], but were certified substantially inconsistent with the provisions in the contract, and to have the [Seller] to refund SFr 307,200 of the total price of these six machines with the interest thereon, and in addition, to bear the cost of the freight, insurance premium, fees of installation and disassembling, and so on, which were incurred by such return.

3. The [Seller] should compensate for the actual expense of amending the L/C, SFr 1,076, which had been covered by the [Buyer].

4. Due to the fundamental breach of contract by the [Seller], subject to Article 16 of the two contracts, the [Seller] should pay 5% of the sum of the two contracts as breach of contract damages for delay in delivery, amounting to SFr 89,600.

5. The [Seller] should compensate for the financial loss suffered by the [Buyer], totaling up to RMB 2,494,800 due to the fundamental breach of contract by the [Seller].

6. The [Seller] should bear the arbitration fee and the attorneys' fees paid by the [Buyer] for this case; this amounts to RMB 132,756.30.

PART III: RESPONDENT [SELLER]'S POSITION

As the [Seller] did not attend the hearing and respond to the issues; the [Seller]'s position could not be ascertained.

PART IV: OPINION OF THE ARBITRATION TRIBUNAL

The Arbitration Tribunal noted that both China and Switzerland, where the [Buyer] and [Seller] have their places of business, respectively, have adopted the United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as the "CISG"). Thereafter, the settlement of the dispute under the case can refer to the CISG.

Contracts 92EU404-1049ZH/A and 92EU404-1049ZH/B signed by the [Buyer] and [Seller] were valid according to the provisions of the law concerned.

After the conclusion of these contracts, the [Buyer] made several amendments to the L/C at the [Seller]'s request; therefore, the shipping time in the L/C should be regarded as an amendment to the date for delivery by both parties. As to the claim by the [Buyer] that the end of August 1993 provided in the MEMO between the [Buyer] and [Seller] was seen as the shipping deadline, the Arbitration Tribunal held that the deadline fixed by both parties should be 31 October 1993 due to the fact that after signing the MEMO, the [Buyer] made another amendment to the L/C on 27 September 1993 as requested by the [Seller] putting off the deadline to 31 October 1993.

Up to the deadline fixed by both parties, the [Seller] had only delivered six machines under Contract A and seven machines under Contract B in May 1993 and six machines under Contract A and one under Contract B in October 1993, with sixteen machines under Contract A and one under Contract B remaining unshipped. In consequence, the failure by the [Seller] amounted to a breach of contract, and the [Buyer] had the right to declare the contract avoided and claim damages.

It was reasonable for the [Buyer] to requires return of the goods in view of the non-conformity in that the six machines under Contract A and one under Contract B in October 1993 that were shipped by the [Seller] were not manufactured in the same time and place provided in the contracts and the L/C and meanwhile, they were only a part of the goods under the contracts. As for the six machines under Contract A and seven under Contract B in May 1993, it was held that the [Buyer] had agreed to take those goods and should pay for their price since the [Buyer] did not give notice to the [Seller] specifying the nature of the lack of conformity in quality and requiring the returning of the goods within a period as is practicable in the circumstances and also had actually used these machines. The Arbitration Tribunal dismissed the claim by the [Buyer] to return the six machines under Contract A, whose price of SFr 76,800 should be deducted from the advance payment which the [Buyer] required the [Seller] to refund

Subject to Article 16 of the Contract, the [Seller] should pay breach of contract damages owing to his breach of contract, which amounted to 5% of the value of the goods deferred as provided in the Contract calculated as follows:

Breach of contract damages for the goods deferred under Contract A: (SFr 1,792,000 -- SFr 384,000) 5% = SFr 70,400 Breach of contract damages for the goods deferred under Contract B: (SFr 91,970 -- SFr 78,970) 5% = SFr 650 Breach of contract damages in total: SFr 70,400 + SFr 650 = SFr 71,050

As for the financial loss claimed by the [Buyer], the Arbitration Tribunal held that it should be settled according to the concrete conditions in this case pursuant to Article 74 of CISG, damages for breach of contracts 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 light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of the contract.

First of all, subject to CISG, the [Seller] should compensate the [Buyer] all losses (including loss of profits) caused by his breach.

Second, in light of the facts and matters of this case, when signing Contracts A and B, the [Seller] clearly knew the purpose for which the [Buyer] purchased the goods under the contracts and therefore ought to have foreseen the loss suffered by the [Buyer] not being able to install, try and use the machines for production on schedule as a consequence of the deferred shipment. In addition, the parties did not set any restrictions on the compensation for such loss in the contract.

Finally, whether the damages claimed by the [Buyer] was reasonable or not? The [Buyer] required the [Seller] to compensate for the losses suffered within six months, which total was smaller than that actually suffered by the [Buyer]; moreover, the Arbitration Tribunal did not identify any among these losses which could have been avoided by some measures the [Buyer] could have resorted to. Consequently, the Arbitration Tribunal agrees with the appeal by the [Buyer].

The claim for the expense of opening the L/C was fundamentally reasonable since it belonged to losses caused by the [Seller]'s breach, which, however, should be compensated by the [Seller] in part in view of the fact that the [Buyer] had taken delivery of a part of the goods from the [Seller].

Accordingly, the [Seller] should partially bear the fees of arbitration and other expenses paid by the [Buyer] for this case.

PART V: AWARD

The Arbitration Tribunal hereby decides:

1. Contracts 92EU404-1049ZH/A and 92EU404-1049ZH/B shall be terminated effective the concluding date of the arbitration.

2. The [Seller] shall pay SFr 71,050 to the [Buyer] for breach of contract damages.

3. The [Seller] shall refund to the [Buyer] the advance payment of SFr 376,794 with the value of the goods which had been taken by the [Buyer], SFr 92,594, deducted; namely, SFr 376,794 - SFr 92,594 = SFr 284,200.

4. The [Seller] shall pay SFr 1,000 to compensate for the actual expenses by the [Buyer] to amend the L/C eight times at the [Seller]'s request.

5. The [Seller] shall compensate for the loss of profits suffered by the [Buyer] due to the [Seller]'s breach, RMB 2,494,800.

6. The [Seller] shall pay RMB 50,000 as compensation for part of the [Buyer]'s legal expenses in this case.

7. The arbitration fees for the case should be borne by the [Seller] in total.

The sums above-mentioned total SFr 356,250 and RMB 2,627,352, which shall be settled completely by the [Seller] within 45 days after the conclusion of the arbitration. Interest shall be paid on any sum in arrears.

This award is final.


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]; Respondent of Switzerland is referred to as [Seller]. Amounts in the currency of Switzerland (Swiss francs) are indicated as [SFr]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

** 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.

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