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CISG CASE PRESENTATION

China 19 September 1994 CIETAC Arbitration proceeding (Steel case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/940919c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19940919 (19 September 1994)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1994/11

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Italy (respondent)

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

GOODS INVOLVED: Metric tons of steel


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 47 ; 49 ; 74 ; 76

Classification of issues using UNCITRAL classification code numbers:

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

49A [Buyer's right to avoid contract: grounds for avoidance];

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

76B [Damages recoverable based on current price]

Descriptors: Nachfrist ; Avoidance ; 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) 1994 vol., p. 1037-1040

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.101, 155, 197, 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

Steel case (19 September 1994)

Translation [*] by Zheng Xie [**]

Translation edited by Meihua Xu [***]

China's International Trade and Economic Arbitration Commission (hereafter, "the Arbitration Commission") accepts the case about steel disputes, according to the arbitration clause in Sales Confirmation No. 93CFOQ-022410IT signed by Claimant XX Trade Company, Guangxi (the present name is XX Trade Ltd.) [Buyer], and Respondent XX Company, Italy [Seller], on 7 February 1993 and the written arbitration application submitted by [Buyer] on 3 August 1993.

The Chairman of the Arbitration Commission appointed Mr. D as Arbitrator for [Seller] according to Article 16 of the Arbitration Rules, because [Seller] neither appointed an arbitrator nor authorized the Chairman of the Arbitration Commission to appoint an arbitrator within the time specified in the notice. Mr. D, Arbitrator A appointed by [Buyer] and the Presiding Arbitrator appointed by the Chairman form the Arbitration Tribunal and heard the present case.

The Arbitration Commission sent the notice of the formation of the Arbitration Tribunal and the notice of court session by fax on 28 January and 3 May 1994, respectively.

The Arbitration Tribunal thoroughly examined [Buyer]'s arbitration application, supplementary materials, and [Seller]'s reply after receiving the notice of arbitration. On 4 June 1994, the Arbitration Tribunal held the trial session in Beijing. [Buyer] sent its representative to make an oral statement and answered the Arbitration Tribunal's questions. [Seller] neither presented in the session nor explained the reason of absence. According to Article 29 of the Arbitration Rules, the Arbitration Tribunal decides the case by default. After the session, the Arbitration Commission informed [Seller] by fax about the session and required it to submit its written opinion within fifteen days after receiving the fax, but [Seller] did not reply within the stipulated period.

The Arbitration Tribunal has concluded the case and handed down its the award on the basis of the court session and the written materials.

FACTS

On 7 February 1993, [Buyer] and [Seller] executed Contract No. 93CFOQ-022410IT in Shanghai. The contract stipulates that [Seller] sells 10,000 metric tons of plate round steel, including 4,000 metric tons and 6,000 metric tons of high tensile deformed steel at a price of US $288 per ton, C&F Beihai, Guanxi, for the total price of US $2,880,000. The payment term is: [Buyer] opens an irrevocable Letter of Credit with [Seller] as beneficiary within thirty days before the time of delivery.

On 15 March 1993, [Buyer] opened a L/C with [Seller] as beneficiary through China Bank Guanxi Branch. The L/C stipulates that the time of delivery is before 20 April 1993. On 21 April 1993, [Seller] by fax requested [Buyer] to postpone the time of shipment to 15 May 1993 in the L/C. [Buyer] altered the time of shipment in accordance with [Seller]'s request and postponed the expiration date of the L/C to 15 July. On 17 May 1993, [Seller] required [Buyer] to increase the price and the freight, and alter the requirements specification, etc. On 26 May. [Buyer] agreed to the price increase and asked [Seller] to post a cash deposit for performance bond. On 19 June, [Buyer] informed [Seller] that it agreed on the shipping arrangement and gave the last grace period of shipment which ended on 30 June. From that time to 20 July 1993, the parties had negotiated about the notice of loading, cash deposit for performance bond and alteration of the L/C, etc., by mail and many fax communications, but did not reach any agreement. On 3 August 1993, [Buyer] submitted the written arbitration application to the Arbitration Commission.

[Buyer] claims:

One. [Seller] requested [Buyer] to change the time of shipment to 15 May 1993. However, [Seller] did not perform, but required [Buyer] alter the L/C again.

[Buyer] alleges that on 19 June it had informed [Seller] by fax that the last grace period ended on 30 June 1993 and that it need not alter the L/C because [Seller] refused to accept the requirement that [Buyer] would alter the L/C under the condition that it received the first three days' report of loading process. The conclusion is: [Seller] lacked good faith to perform the contract and fundamentally breached the contract.

Two. 15 May 1993 was the last day for delivery confirmed by the mail and faxes of the parties. The 15 May date constituted an alteration of Clause 5 of the contract, which provides " if the L/C is opened before 26 February 1993, the time of delivery is before the end of March 1993. When [Seller] breached the contract, according to Article 47 of CISG, [Buyer] fixed an additional period of time for [Seller]'s performance, which ended on 30 June, but [Seller] did not perform.

Three. When the contract was executed, [Buyer]'s client signed it too, which shows that at that time [Seller] knew [Buyer] was an agent of its domestic client for import, so [Seller] should predict the possible loss of the domestic client. [Buyer] is an import agent of the domestic client and charges it 1.5% as commission. [Buyer] represented its client in the signing of the foreign trade contract and has the duty to claim for its client. [Seller] should indemnify [Buyer]'s client for the loss.

Accordingly, [Buyer] submits the following arbitration claims:

  1. According to Clause 16 of the contract, [Buyer] request to avoid the contract and remain the right to claim for damages.

  2. According to Clause 16 of the contract, [Seller] should pay US $144, 000, the fine for late delivery, i.e., 5% of the contract price.

  3. [Seller] should bear the loss of the price difference, i.e., the difference between the contract price with all expenditure and the domestic price according to the official information. In June 1993 the average domestic price of high tensile deformed steel bar and plate round steel is RMB 4,300 per ton. The contract price with all expenditure is RMB 3,367.27 per ton. The difference for 10,000 metric tons is RMB 9,327,300. [Buyer] requests that [Seller] pay RMB 75 million to 90 million.

  4. [Seller] should pay [Buyer] RMB 20 million, the loss of profits.

  5. [Seller] should bear the entire arbitration fee.

After receiving the notice of arbitration and the arbitration application, on 28 October 1993, [Seller] sent a letter to the Arbitration Commission stating, "We signed a contract with [Buyer], but it neither open a L/C within a reasonable time nor prolonged the expiration date of the L/C. To us this matter ended." Meanwhile, [Seller] returned the arbitration application and other documents. The Arbitration Commission sent the notice of formation of the Arbitration Tribunal and the notice of court session by fax to [Seller] and informed it of the court session. [Seller] did not reply.

THE TRIBUNAL'S OPINION

Applicable law

The parties did not choose the applicable law in the contract, so the law is decided by the Arbitration Tribunal .The Arbitration Tribunal holds that United Nations Convention on Contracts for the International Sale of Goods (1980) [CISG] applies.

Avoidance of the contract

According to Article 49 of CISG, buyer may declare the contract avoided if seller fundamentally breaches the contract. [Buyer] fixed a reasonable additional time for [Seller] to perform its obligation according to Article 47, but [Seller] did not deliver the goods, so [Buyer] has the right to declare the contract avoided.

[Buyer]'s penalty claim

[Buyer]'s second claim is that, according to Clause 16 of the contract, [Seller] should pay the fine for late delivery US $144, 000. The Arbitration Tribunal notes that after signing the contract the parties modified some contract clauses, such as the time of shipment, and [Buyer] altered the L/C twice. [Seller] did not deliver the goods before 15 June 1993, the last day of the time stipulated. Then the parties negotiated by fax about the time of shipment, freight, etc. and almost reached an agreement. The parties agreed to load the goods from 28 June 1993 and begin sailing on about 10 July. Because [Seller] did not perform its obligation, [Buyer] does not trust it. On 25 June, [Buyer] requested [Seller] to: (1) send a notice on the name of the ship; (2) report about the loading process of the first three days on 1 July, and advised that, if [Seller] confirms these two points, [Buyer] will alter the L/C immediately. [Seller] did not confirm. The parties then negotiated by fax many times, but did not reach a new agreement. Thus, non-delivery is not attributed to [Buyer]. [Seller]'s non-delivery constitutes fundamental breach.

The Arbitration Tribunal notes that the clause 16 of the contract provides that there shall be a fine for late delivery. The last sentence of that clause stipulates:

"If Seller does not deliver the goods within 10 weeks after the time of shipment stipulated in the contract, Buyer has the right to cancel the contract. Although the contract is cancelled, Seller shall still pay the above fine to Buyer."

The Arbitration Tribunal holds that this stipulation is a special agreement of the parties and is applicable when Seller does not deliver the goods and shall compensate Buyer. The contract does not provide any other remedies for Buyer, when Seller does not deliver the goods. Thus, the Arbitration Tribunal decides that this claim of [Buyer] is in accordance with Clause 16 of the contract. [Seller] shall pay the fine: 5% of the total contract price, i.e., US $288 per ton x 10,000 tons x 5% = US $144,000.

[Buyer]'s claims for damages

[Buyer]'s third claim is to require [Seller] pay the loss due to price difference, and [Buyer]'s fourth claim is for [Seller] to pay the loss of profits. According to Article 74 of CISG:

[Buyer] is entitled to the sum of compensation "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."

CISG does not provide how to calculate the damages "as a consequence of the breach", so the Arbitration Tribunal has to decide it on the basis of the specific facts.

The Arbitration Tribunal holds that [Buyer] has the duty to prove the following three points:

  1. The domestic market price in the third claim is a reasonable price;

  2. The loss of profits, RMB 20 million, was suffered by [Buyer] itself and was foreseen or ought to be foreseen when the parties executed the contract.

  3. [Buyer] has taken reasonable measures to mitigate the damages.

About the first point, the Arbitration Tribunal holds that if [Buyer] claims the difference between the contract price and the market price, the market price shall be the price at the time and place of delivery. Such price shall be the price of the goods at the Russian port between June and July 1993. The domestic price at that time is not comparable. Because [Buyer] cannot prove the reasonable market price, the Arbitration Tribunal does not support [Buyer]'s third claim.

About the second point, [Buyer] has not provided the facts and the legal basis to prove the loss of profits, RMB 20 million. Under ordinary circumstances, loss of profits shall be foreseen or ought to be foreseen by the parties when signing the contract, but [Buyer] has not proved this. Thus, the Arbitration Tribunal cannot support [Buyer]'s claim for the loss of profits, RMB 20 million.

About the third point, [Buyer] did not prove that it had taken reasonable measures (including buying substitute goods) to mitigate the damages claimed .

The arbitration fee

[Buyer] shall pay 30% of the arbitration fee of this case, and [Seller] shall pay 70%.

AWARD

   -    One. Contract No. 93CFOQ-022410IT is terminated.
   -    Two. [Seller] shall pay [Buyer] US $144,000, the fine for non-delivery.
   -    Three. [Buyer]'s other claims are dismissed.
   -    Four. [Buyer] shall pay 30% of the arbitration fee of this case, and [Seller] shall pay 70%.

[Seller] shall pay the above amount before 15 November 1994.

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]; Respondent of Italy 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].

** 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 23, 2006
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