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CISG CASE PRESENTATION

China 25 October 1994 CIETAC Arbitration proceeding (High tensile steel bar case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/941025c1.html]

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

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Case identification

DATE OF DECISION: 19941025 (25 October 1994)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1994/13

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (respondent)

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

GOODS INVOLVED: High tensile steel bars


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 49 ; 74 [Also cited: Article 23 ] [Also relevant: Article 76 ]

Classification of issues using UNCITRAL classification code numbers:

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

49A [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract];

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

Descriptors: Fundamental breach ; Avoidance ; Damages ; Foreseeability of damages ; Profits, loss of

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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. 1122-1125

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.90, 131, 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

High tensile steel bar case (25 October 1994)

Translation [*] by Zheng Xie [**]

Translation edited by Meihua Xu [***]

China's International Trade and Economic Arbitration Commission (hereafter, "the Arbitration Commission") accepts the present case according to the arbitration clause in Contract No. 930331 executed by Claimant XX Import and Export Company, China [Buyer], and Respondent XX Company, US [Seller], and the written arbitration application submitted by [Buyer] on 20 August 1993.

Arbitrator A appointed by [Buyer], Arbitrator D appointed by [Seller], and Presiding Arbitrator P, appointed by the Chairman of the Arbitration Commission, form the Arbitration Tribunal to hear this case.

The Arbitration Tribunal examined the written documents and evidence submitted by the parties and held a court session in Beijing on 28 March 1994. [Buyer]'s representative and agent for arbitration presented and made oral statements. [Seller] did not present at this session. After the session, [Buyer] submitted supplementary materials. The Arbitration Tribunal noticed [Seller] about the session in a timely manner and sent to [Seller] the [Buyer]'s supplementary materials, however, [Seller] has not provided any response.

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

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

FACTS

On 31 March 1993, [Buyer] and [Seller] drafted a contract for sale of high tensile deformed steel bars. After negotiation and modification, on 30 April 1993. [Buyer] and [Seller] signed Contract No. 930331, which stipulated that [Seller] will provide to [Buyer] 10,000 metric tons Libyan high tensile deformed steel bars. The price was US $305 per metric ton, C&F Beihai; the total contract price was US $30.5 million. [Seller] was obligated to open a Performance Bond within five business days after receiving the pre-advice Letter of Credit issued by [Buyer], and then [Buyer] was obligated to execute an irrevocable L/C with [Seller] as beneficiary within thirty days. [Seller] was to deliver the goods within thirty-five days after receiving the L/C.

Receiving the pre-advice L/C issued by [Buyer] on 23 April 1993, [Seller] was expressed to execute the Performance Bond before 12:31 p.m. on 30 April and to provide notice of the date of loading at the same time. However, [Seller] did not issue the Performance Bond.

On 7, 17, 20, and 24 May, [Buyer] urged [Seller] to open the Performance Bond as soon as possible. [Seller] asked [Buyer] to postpone the confirmation of sailing date to 26 May. However, on 26 May, the last day, [Seller] informed [Buyer] that it was hard to decide the sailing date and that it could not issue the Performance Bond. [Seller] let [Buyer] decide whether to cancel the contract or not. On 1 June, [Buyer] sent a letter to [Seller] pointing out that it was [Seller]'s breach that prevented the contract from being performed.

On 7 August 1993, [Buyer]'s agent sent a lawyer's letter to [Seller] requiring it to compensate for damages. [Seller] refused the request for compensation. On 20 August 1993, [Buyer] submitted the arbitration application to the Arbitration Commission.

[Buyer]'s position

[Buyer] asserts:

[Seller]'s breach prevented [Buyer] from performing Domestic Contract No. 930L with Beihai XX Advisory Service Company, which sued [Buyer] for damages in Beihai Intermediate Court. The parties made an amicable settlement after negotiation. On 25 June 1993, [Buyer] compensated Beihai XX Advisory Company renminbi [RMB] 12 million. [Buyer] suffered a severe loss of money and business credit.

[Buyer] makes the following arbitration claim:

  1. To require [Seller] to pay RMB 12 million, fine for [Buyer]'s breach of contract with Beihai Advisory Company because of [Seller]'s breach.

  2. To require [Seller] to pay US $482,388 for [Buyer]'s anticipated profits.

  3. To require [Seller] to pay the arbitration fee of this case and [Buyer]'s attorneys' fee and other expenditure.

[Seller]'s position

[Seller] presents defenses in Letter No.11253-7578 sent to the Secretariat of the Arbitration Commission, which is not dated:

[Seller] admits that it signed a contract with [Buyer]. The contract implies that [Seller] is capable to find a qualified supplier of the goods. Although [Seller] has made the best effort to find a supplier, the supplier breached the contract with [Seller], which caused [Seller]'s breach of its contract with [Buyer]. [Seller] asserts that even if [Seller] breached the contract with [Buyer], [Buyer] has not suffered any damages, so [Buyer] did not suffer the amount of damages claimed.

THE TRIBUNAL'S OPINION

Applicable law. China and The United States are parties to the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereafter, CISG), so CISG is applied in this case.

Effective date of the contract. The Arbitration Tribunal decided that the formation date of the contract No. 930331 is 30 April 1993. Although the contract was drafted on 31 March 1993, the parties signed it on 21 April and 30 April 1993, respectively. According to Article 23 of CISG, the effective date of the contract is 30 April 1993. [Buyer] opened the pre-advice L/C on 23 April, which is not late but early.

Fundamental breach of contract. [Seller] fundamentally breached the contract. When receiving the pre-advice L/C at 12:31 p.m. on 23 April, [Seller] should have executed the Performance Bond before 30 April when the contract was executed and became effective. However, [Seller] neither issued the Performance Bond on 30 April 1993 nor at a later time, which showed that [Seller] would not perform the contract intentionally or incapably. This constitutes a fundamental breach. [Buyer] has the right to terminate and avoid the contract. [Buyer]'s fax on 1 June 1993 can be regarded as a notice to avoid the contract. On 6 July 1993, [Seller] confirmed it by fax. Thus it is on 1 June 1993 when the contract was avoided.

[Buyer]'s claims for damages. According to Article 74 of CISG, [Seller] shall pay a sum equal to the loss, including loss of profit, suffered by [Buyer] as a consequence of the breach. [Buyer] is a trading company, so [Seller] ought to foresee that [Buyer] would suffer loss of anticipatory profits and indemnification to its client as a consequence of the breach. After examining [Buyer]'s claim for damages, the Arbitration Tribunal holds:

  1. The first damages award is to require [Seller] pay RMB 12 million, the breach of contract damages to [Buyer]'s client. The Arbitration Tribunal holds that such damages are really suffered by [Buyer] on the basis of the settlement agreement between [Buyer] and Beihai Advisory Company, and the paper of civil judgment issued by Beihai Intermediate Court. [Seller] shall pay for such damages.

  2. The second damages award is to require [Seller] to pay US $482,388, the loss of anticipatory profits. The Arbitration Tribunal examined [Buyer]'s basis for the calculation, and holds RMB 2,840 is a reasonable market price at that time and place. According to Article 76 of CISG, the Arbitration Tribunal rules that the claim for US $482,388, loss of anticipatory damages is justifiable.

  3. On the issue of attorneys' fee and arbitration fee, [Seller] has fundamentally breached the contract, so it shall pay the arbitration fee and attorneys' fee of this case. In addition, [Seller] shall pay an additional fee of US $2,500 to the Arbitration Commission, because it appointed a foreign arbitrator.

AWARD

One. [Seller] shall pay RMB 12 million, the damages for breach of contract paid to [Buyer]'s customer, Beihai Advisory Service Company by [Buyer] due to [Seller]'s fundamental breach.

Two. [Seller] shall pay [Buyer] for loss of anticipated profits, US $ 482,388.

Three. [Seller] shall pay the entire arbitration fee of this case.

Four. [Seller] shall pay [Buyer] the attorneys' fee for this arbitration, RMB 75,000.

Five. [Seller] shall pay US $2,500 to the Arbitration Commission for appointing a foreign arbitrator.

Six. [Seller] shall pay the above sum within 30 days after this award takes effect, otherwise, an 8% annual interest shall be added.


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 the 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].

** 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 July 10, 2006
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