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CISG CASE PRESENTATION

China 28 December 1994 CIETAC Arbitration proceeding (Round steel case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/941228c1.html]

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

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Case identification

DATE OF DECISION: 19941228 (28 December 1994)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1994/15

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (respondent)

BUYER'S COUNTRY: Singapore (claimant)

GOODS INVOLVED: Round steel


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 38 ; 39 ; 74 ; 78

Classification of issues using UNCITRAL classification code numbers:

38A [Buyer's obligation to examine goods: time for examining goods];

39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];

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

78B [Rate of interest]

Descriptors: Examination of goods ; Lack of conformity notice, timeliness ; Damages ; 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. 1317-1320

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.11, 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

Round steel case (28 December 1994)

Translation [*] by Meihua Xu [**]

Edited by John W. Zhu [***]

The China International Trade and Economic Arbitration Commission (formerly known as the Foreign Economic and Trade Arbitration Committee of China Council for the Promotion of International Trade, hereafter, the "Arbitration Commission") accepted this case according to:

   -    The arbitration clause in Contract No. 3EMT170025SG signed by Claimant [Buyer], Singapore __ Company, and Respondent [Seller], Germany __ Company, on 19 March 1993; and
 
   -    The written arbitration application submitted by [Buyer] on 23 November 1993.

According to the Arbitration Rules, the Arbitration Commission formed the Arbitration Tribunal consisting of Mr. P, the Presiding Arbitrator, arbitrators Mr. A, and Mr. D to hear this case.

The Arbitration Tribunal examined the [Buyer]'s arbitration application, the [Seller]'s comments on the quality/quantity claim, and the attachment, and held a court session in Beijing on 15 July 1994. The [Buyer] has presented in the court session. It made a statement of the facts and answered the Arbitration Tribunal's questions. The [Seller] was absent.

After the court session, the Secretariat Office of the Arbitration Tribunal sent a letter to the [Seller] regarding the court session. The [Buyer] submitted supplementary materials to the Arbitration Commission within the stipulated time limit, but the [Seller] did not do so.

This case has been concluded. After deliberation, the Arbitration Tribunal made this award by consent.

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

I. FACTS

The [Buyer] and the [Seller] signed Contract No. 3EMT170025 on 19 March 1993, by which the [Buyer] was to purchase 4,808.62 tons of round steel from the [Seller], C&F Fangcheng port for the unit price of US $285/ton, totaling US $1,370,456.70. The shipping period was April 1994.

The contract had special requirements on the specifications of the round steel, and the ratios of lengths to weights of different bundles of the goods.

After the conclusion of the contract, the [Buyer] issued the L/C as required by the contract, and the [Seller] made the first delivery of 716.840 tons of goods to Zhangjiagang on 17 June 1993, and made the second delivery on 6 July to Zhanjiang port. Later, the [Buyer] discovered that the goods delivered by the [Seller] had severe problems on quality, shortness of weight, rust and shortness of length. The [Buyer] asked for compensation from the [Seller] but with no result; therefore, it filed this arbitration application on 23 November 1993.

[POSITION OF THE PARTIES]

[Buyer]'s position

The [Buyer] alleges that:

After the [Seller] made the first and the second deliveries on 17 June and 6 July 1993 to Zhangjiagang and Zhanjiang port, the consignee, Shanxi Provincial Metal Material Company, entrusted Jiangsu Import & Export Commodity Inspection Bureau (hereafter "Jiangsu CIB") and Guangdong Import & Export Commodity Inspection Bureau (hereafter "Guangdong CIB"), respectively, to inspect the goods in accordance with the contract and common trading procedures. The inspection results indicated that the sizes of most of the goods did not conform to the contract, the packages were damaged, and there was rust on many goods.

Jiangsu CIB issued Inspection Certificate No. 3212/J041680 on 26 July 1993, indicating that among 716.840 tons of goods delivered to Zhangjiagang, "lengths of part of the goods did not conform to Contract 3WFOW2110089SG and the goods had severe rust", and concluded that "the appearance of the goods and the lengths of part of the goods did not conform to Contract 3WFOW2110089SG".

Guangdong CIB issued Inspection Certificate No. 4408/I0838 on weight, specification, and quality of the goods on 20 ~ 27 August 1993, indicating that "the goods should be 4,057 tons, but seven bundles were missing with a shortage of 123.630 tons; a length of 11.7 meters of the goods were completely missing, which did not conform to the contract and the B/L; moreover, the S content of one sample of Specification 12MM was not in compliance with the specification of GOST380-88 standard of Russia Steel."

After receiving the notice from the consignee, the [Buyer] faxed to the [Seller] on 22 July 1993, informing the [Seller] of the situation and that the consignee was to claim damages after receiving the inspection certificates from the inspection bureaus. Pursuant to Article 13 of the contract, the [Buyer] claimed damages of US $88,514.84 from the [Seller] on 10 September after receiving the inspection certificates and the consignee's claim for compensation on 6 September. The original inspection certificates were mailed to the [Seller] on the same day, but the [Seller] never responded.

On 23 September and 1 October, the [Buyer] faxed the [Seller] twice, asking it to make written response, and on 13 October, entrusted its attorney to send another fax, asking for compensation and requesting the [Seller] to respond before 20 October. The [Seller] responded on the same day, stating that it had contacted the supplier, and that it would give a formal answer to the [Buyer]' claim after receiving response from the supplier. Later, the [Seller] faxed to the [Buyer], asking the details of the shortage of weight, and on 14 October, through its attorney, the [Buyer] answered the [Seller]'s questions and reminded the [Seller] to make response within the time limit. However, the [Seller] never replied.

On 22 October 1993, the [Buyer] informed the [Seller] through its attorney that it was to file an arbitration claim since the [Seller] failed to provide any response to the [Buyer] within the stipulated time limit.

Because the goods delivered by the [Seller] had severe defects in quality, shortage of weight, rust, and shortness of length, which caused the [Buyer] to have to face compensation claims from its client, the [Buyer] asks the [Seller] to compensate:

1. Losses of price difference and shortage of weight caused by [Seller]'s defective goods of US $88,514.84;

2. Loss of interest on the price of US $1,785;

3. Loss of inspection fee of US $3,243.10.

[Seller]'s defense

The [Seller] counter argues that:

(1) For the shortage of weight

In Inspection Certificate No. 31/37 and Vessel Draft Inspection Certificate No. 29/93 issued by Bapha PARNAVI Inspection Company, the number of bundles and weight of the goods were clearly indicated. Shortage of 7 bundles (123.6 tons) is within the scope of [Buyer]'s insurance, and the [Buyer] should ask compensation from the insurance company. As stated in the aforesaid inspection certificates, the [Seller] has delivered the goods it should deliver, and should not be liable for the shortage of the goods.

(2) For the quality of the goods

The goods delivered by the [Seller] conform to the standards of GOST380-88 and/or 3KP as stipulated in the contract. Even though the S content of one sample of the second delivery of 4,057.8 tons of goods did not conform to the contract, this does not prove that the entire goods did not conform to the contract since the remaining samples were all in compliance with the contract. Thus, the [Seller] cannot accept the [Buyer]'s quality claim.

(3) Rust on the surface of the goods

The goods under the contract were loaded at the beginning of May 1993, and it was noted in the B/L that there was minor rust on the surface of the goods. The goods were unloaded on 21 June 1993, and inspected on 26 July 1993, which was five weeks after the goods were left at Zhanjiang port. The [Seller] should not be held liable for rust that occurred naturally due to factors such as moisture, etc. The [Seller] refuses any claims regarding this.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The Contract 3EMT170025SC that was signed by the two parties on 19 March 1993 did not stipulate the applicable law for dispute resolution; therefore, this should be decided by the Arbitration Tribunal. Considering the fact that the places of business of the [Buyer] and [Seller] are situated in Contracting States of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), and that there was no provision excluding the application of the CISG in the contract, the CISG should be applied in this case.

2. Goods under the contract

According to Inspection Certificate 3212/J041680 issued by Jiangsu CIB on 26 July 1993, the goods delivered by the [Seller] on 17 June 1993 to Zhangjiagang had severe rust and "the appearance of the goods and lengths of part of the goods did not conform to Contract 3WFOW2110089SG"; according to Inspection Certificate No. 4408/I0838 on weight, specification, and quality of the goods issued by Guangdong CIB on 20 ~ 27 August 1993, "there was a shortage of seven bundles, totaling 123.630 tons of goods in the goods delivered by the [Seller] on 6 July 1993 to Zhanjiang port; the S content of one sample of Specification 12MM was not in compliance with the specification of the GOST380-88 standard of Russia Steel; and a length of 11.7 meters of the goods was completely missing, which did not conform to the contract and the B/L."

Pursuant to the stipulation in the contract that the inspection conducted by China CIB should be conclusive, the Arbitration Tribunal deems that the goods delivered by the [Seller] did not conform to the contract, which constituted a contract violation, and that according to Article 74 of the CISG, the [Seller] is liable for the damages caused to the [Buyer] due to the non-conforming goods.

The [Buyer] claimed damage of US $35,226.00 (i.e., 123.60 tons US $285/ton = US $35,226.00) for shortage of weight in its "Damages and Costs List", No. 13 attachment to the arbitration application. The Arbitration Tribunal notes that according to the documents (Inspection Certificate No. 31/93 issued by Bapha PARNAVI Inspection Company, and the B/L issued by the carrier) provided by the [Seller], it has made the second delivery of 4,057 tons of goods under the contract, totaling 558 bundles, among which 416 bundles were 12mm in diameter, totaling 2,882 tons; 142 bundles were 18mm in diameter, totaling 1,175 tons, and the B/L shows that there were 558 bundles of goods.

The weight and specification inspection certificate issued by Guangdong CIB on 20 and 27 August 1993 indicated that there were 551 bundles of goods in the second delivery, totaling 3,933.370 tons, with a shortage of seven bundles. The total shortage of the goods was 123.60 tons (including the missing part). Among the missing seven bundles, two bundles were 12mm in diameters, totaling 13.8558 tons; five bundles were 18mm in diameters, totaling 41.3730 tons; and the total shortage of seven bundles amounted to 55.2288 tons.

The Arbitration Tribunal holds that the shipping company shall take the responsibility for the shortage of the goods, but not the [Seller]. The number of bundles indicated in the B/L was 558; therefore, the carrier should have delivered this amount; if there was a shortage during unloading, the consignee should claim damages to the carrier. For the remaining shortage of the goods (i.e., 123.6 tons - 7 bundles of 55.2288 tons = 68.37 tons), the [Seller] shall be liable. Therefore, the actual loss of shortage of the goods suffered by the [Buyer] is US $19,485.792 [i.e., (123.60 tons - 55.2288 tons) US $285/ton = US $19,485.792].

In addition, the Arbitration Tribunal holds that the damage calculation listed in Damages and Costs List in No. 13 attachment to the [Buyer]'s arbitration application is reasonable; thus, the [Seller] shall pay the loss of the [Buyer] of US $72,774.632 caused by the [Seller]'s non-conforming goods, among which loss of weight shortage is US $19,485.792, loss caused by rust on the surfaces is US $7,168.40, loss caused by non-conforming quality is US $6,786.74, and loss of non-conforming specification is US $39,333.70 and 6% annual interest shall be added to the aforesaid sum.

The Arbitration Tribunal notes that the [Buyer] formally claimed compensation from the [Seller] on 10 September 1993; therefore, the interest shall be calculated from that day to the date of this award, which is US $5,821.9705 (i.e., US $72,774.632 6% 16 months 12 = US $5,821.9705); thus, the total damages and interest the [Seller] shall pay to the [Buyer] is US $78,596.602.

3. The inspection fee

According to the inspection and compensation clause in Article 13 of the contract, the inspection fee shall be paid by the [Seller]. The inspection fee in this case is renminbi [RMB] 28,215.00, i.e., US $3,243.10 calculated at 1 : 8.7 exchanging rate, which the [Seller] shall pay to the [Buyer].

4. The arbitration fee

The [Buyer] shall bear 20% of the arbitration fee and the [Seller] shall bear 80%.

III. THE AWARD

The Arbitration Tribunal rules that:

      (1) The [Seller] shall pay the [Buyer]'s loss and the interest, totaling US $78,596.602;

      (2) The [Seller] shall pay to the [Buyer] inspection fee of US $3,243.10;

      (3) The [Buyer] shall bear 20% of the arbitration fee and the [Seller] shall bear 80%.

The total amount the [Seller] shall pay to the [Buyer] is US $84,731.702, which shall be paid before 31 January 1995; otherwise, an annual interest of 8% shall be added from 1 February 1995 to the date of actual payment.

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 Singapore is referred to as [Buyer] and Respondent of Germany 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];

** 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.

*** John W. Zhu, LL.M. China University of Political Science and Law (National Graduate Scholarship); Bachelor of Law, Southwest University of Political Science and Law; Double Degree, English Literature, Sichuan International Studies University, Chongqing, China. Focus: International Economic Law.

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