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CISG CASE PRESENTATION

China 10 March 1995 CIETAC Arbitration proceeding (Wool case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/950310c1.html]

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

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Case identification

DATE OF DECISION: 19950310 (10 March 1995)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1995/04

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Australia (respondent)

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

GOODS INVOLVED: Wool


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 38 ; 67 ; 74 ; 77 ; 78 ; 79

Classification of issues using UNCITRAL classification code numbers:

8A [Intent of party making statement or engaging in conduct];

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

67A [Risk when contract involves carriage of goods];

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

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

79C [Impediment excusing party from damages: non-performance attributable to third party contractor]

Descriptors: Intent ; Standard Terms and Conditions ; Examination of goods ; Passage of risk ; Damages ; Mitigation of loss ; Exemptions or impediments

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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) 1995 vol., pp. 1311-1316

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.210, 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

Wool case (10 March 1995)

Translation [*] by Zheng Xie [**]

Translation edited by Meihua Xu [***]

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

   -    The arbitration clause which was cited from General Trading Terms of Buying Wool and Wool Top of ChinaTex Raw Materials Trading International Corporation, in Contract No. 93YWZC87/333046AU signed by Claimant [Buyer], Jiangsu ___ Trade Joint-Stock Company, and Respondent [Seller], Australia___ Company, on 20 March 1993; and
 
   -    The written arbitration application submitted by [Buyer] on 6 June 1994.

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

The Arbitration Tribunal thoroughly examined the written documents submitted by the parties and held a court session in Beijing on 25 October 1994. [Buyer]'s and [Seller]'s representatives presented. They made oral statements and arguments, and answered the Arbitration Tribunal's questions. After the session, the parties submitted supplementary materials.

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

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

FACTS

On 20 March 1993, [Buyer] and [Seller] entered into Contract No. 93YWZC87/333046AU. The contract stipulates that [Buyer] purchases from [Seller]:

   -    The goods: Australian raw wool T56FNF;
   -    Quality of the goods: Fitness 22.6 Mic Max, 3.5 inches up and 16% regain, and without tender wool;
   -    Applicable terms and conditions: The General Trading Terms of Buying Wool and Wool Top of ChinaTex Raw Materials Trading International Corporation apply.

The contract also stipulates:

   -    Net weight of the goods: 50,000 kg (2% more or less);
   -    Price: US $3.48/kg;
   -    Total contract price: US $174,000;
   -    Delivery term: CNF Shanghai;
   -    Time of shipment: June 1993.

After signing the contract, the parties altered the price and destination port:

   -    The contract price was altered from US $3.48/kg to US $3.44/kg;
   -    The destination port was altered from Shanghai to Zhang Jia Gang;
   -    The total contract price was altered from US $174,000 to US $172,000.

Although the parties confirmed the alteration, they did not sign a new contract. The parties agreed to perform in accordance with the altered contract.

On 31 May 1993, [Buyer] through the bank, issued a L/C for US $172,000 with [Seller] as beneficiary. On 9 July 1993, [Seller] faxed to [Buyer] asserting that the goods were loaded, but would be transshipped in Hong Kong and that:

   -    The Hong Kong ship was Trade Safety V56;
   -    The expected arrival date was 10 August 1993.

However, the ship arrived at Zhang Jia Gang on 18 August 1993 and, when [Buyer]'s domestic client went to take delivery, it found there were no goods under the contract on that ship.

   -    Then, after inspecting, [Buyer] found the goods had arrived at Zhang Jia Gang on 20 July 1993 on the ship Sufa9327. By that time, [Buyer] client was late for customs declaration and taking the delivery and had to pay a late declaration penalty, remninbi [RMB] 16,080 to Zhang Jia Gang customs.
 
   -    After taking delivery, [Buyer]'s client found the goods had quality defects, and applied for inspection. On 30 October 1993 and 5 January 1994, the Jiangsu Import and Export Commodity Inspection Bureau issued two inspection certificates, which show that the goods have quality defects.

Accordingly, [Buyer] claimed for damages with [Seller]. Because [Seller] refused [Buyer] claim, [Buyer] applied for arbitration on 6 June 1994.

POSITION OF THE PARTIES

[Buyer]'s claims

[Buyer] makes the following claims:

  1. [Seller] should indemnify [Buyer] the loss of US $34,694.40, which was caused by the non-conforming goods under Contract No. 93YWZC87/333046AU, and [Seller] should pay interest at the monthly rate of 4/1000, from the date when [Buyer] made the payment.

  2. [Seller] should indemnify [Buyer] the loss of renminbi [RMB] 16,080, which was caused by [Seller] informing [Buyer] of the wrong ship name and arrival date.

  3. [Seller] should indemnify [Buyer] the loss of US $10,800 and RMB 65,000, which was caused by the non-conforming wool delivered.

  4. [Seller] should pay the arbitration fee.

To [Buyer]'s claims, [Seller] submitted a detailed defense.

DISPUTED ISSUES

The following are the main disputes between the parties.

1. Contract No. 93YWZC87/333046AU

[Seller] asserts in its defense that the contract submitted by [Buyer] is different from the one they signed, including different dates, prices and destination ports, etc. [Seller] alleges that [Buyer] arbitrarily and fraudulently altered the contract.

[Buyer] alleges that the contract submitted by [Buyer] is the original one signed by the parties; and that the parties altered the price, destination, etc. by agreement after signing the contract. The altered contract is the same as the one submitted by [Buyer]. The parties performed the contract according to the altered one. [Buyer] has submitted evidence to support its assertion.

2. The inspection certificates

[Seller] asserts during the court session, that the inspection was not made within the time stipulated in the contract, so the inspection certificate is not valid. According to the clause on the back of the contract, the inspection shall be made within 60 days after the goods arrive at the destination port. The two inspection certificates issued by Jiangsu Import and Export Commodity Inspection Bureau were made after the stipulated time. Moreover, [Seller] alleges in its defense, that the two inspection certificates have many conflicting points, so it doubts the credibility of these certificates.

In response to this assertion, [Buyer] alleges that the time of inspection is stipulated in the General Trading Terms of Buying Wool and Wool Top of ChinaTex Raw Materials Trading International Corporation. The clause on the back of the contract does not apply. China Import and Export Commodity Inspection Bureau is not only the final inspection bureau agreed by the parties, but also the legal inspection bureau for the import and export commodity. The inspection certificate issued by China Import and Export Commodity Inspection Bureau is the basis for claiming damages according to the contract. [Seller] has no right to doubt its validity and accuracy.

3. The wrong ship name and arrival date

[Seller] refused to indemnify [Buyer] for the late declaration penalty due to its having informed [Buyer] of the wrong ship name and destination date. It is [Seller] position that under the price term of CNF, [Seller]'s duty is only to book the ship and to load the goods, and it is not liable for other expenses. In addition, the goods were not transshipped in accordance with the original plan, which was not caused and controlled by [Seller].

To the above point, [Buyer] in its supplementary materials cites CFR A7. INCOTERMS 1990, which stipulates that [Seller] shall give [Buyer] sufficient notice of loading the goods, and other necessary notice for [Buyer] to take the delivery. [Buyer] asserts that [Seller] gave [Buyer] the wrong ship name and arrival date, and did not inform [Buyer] of the altered transshipment plan in time, therefore, [Seller] breached its duty stipulated by INCOTERMS A7.

4. The quality of wool

      (1) Whether the wool was rotten and issues associated with passage of risk

[Buyer] asserts that 3,017 Kg of the goods were rotten and that this is proved by the inspection certificate issued by the Jiangsu Commodity Inspection Bureau. [Seller] alleges that according to United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG), the risk of the wool passed to [Buyer] when the goods were loaded, and [Seller] is only liable for the goods before loading. In addition, the Australia Wool Inspection Bureau (the largest wool inspection organization in the world) inspected the goods before it was loaded, and the inspection certificate shows the goods were not rotten.

In response to [Seller] defense, [Buyer] in its supplementary materials, pointed out that the inspection certificate issued by Jiangsu Commodity Inspection Bureau shows the goods were rotten before they arrived at Zhang Jia Gang. Moreover, according to Article 11 of the General Trading Terms of Buying Wool and Wool Top of ChinaTex Raw Materials Trading International Corporation, the inspection by the China Commodity Bureau is the basis to prove the quality, specification and weight of the goods; [Buyer] has the right to claim for damages on the basis of the inspection certificate issued by the China Commodity Inspection Bureau.

      (2) Loss of quantity

The inspection certificate dated on 30 October 1993 submitted by [Buyer] and [Seller]'s invoice prove that the loss of quantity of the goods delivered by [Seller] is 931.4kg. [Seller]'s defense is that the weight of the goods was conforming before loading, and the inspection certificate executed by the Australia Wool Inspection Bureau proves this; moreover, even if the loss of weight exists, the loss conforms to the more or less clause in the contract.

      (3) The fitness of the wool

The inspection certificate dated 30 October 1993 submitted by [Buyer] shows that the fitness of five packs of wool does not conform to the contract. The fitness stipulated in the contract is 22.6 Mic Max, but the fitness of these five packs is 24.7 Mic. [Buyer] asserts that the five packs of wool are T423FNF raw wool, the price of which in the Australian wool market was US $2.8/kg on the date when the goods were delivered. Thus, [Buyer] paid US $499.20 too much.

[Seller] asserts that these five packs of wool are T58FNF raw wool. The price difference between the wool delivered and the wool which should have been delivered is only US $0.25/kg. Accordingly, [Seller] should only indemnify [Buyer] US $208 (832 kg x US $0.25/kg).

      (4) The length of the wool

[Buyer] alleges that the length of the wool delivered by [Seller] is only 3.21 inches, which does not conform to the length of 3.5 inches stipulated in the contract. The wool delivered could not be used to manufacture Wool Top. Thus, [Buyer] requests [Seller] to indemnify the loss, US $19,761.84.

[Seller] asserts that wool with a length of 3.15-2.76 inches, or even 2.99-2.68 inches can be used to manufacture Wool Top. [Buyer]'s method of calculating the price difference is inaccurate. Moreover, [Seller] pointed out that the price difference between wool with a length of 3.5 inches and wool with a length of 3.2 inches is US $0.012/kg, and that [Buyer]'s loss is less than US $654.37.

      (5) Existence of tender wool in the goods

The inspection certificate dated 30 October 1993 submitted by [Buyer] shows that there are 567 Kg of tender wool in the goods. [Buyer] claims US $1.5/kg for compensation.

[Seller] defends that the price difference should be US $0.15/kg, and that [Buyer]'s loss is only US $85.05.

      (6) [Buyer]'s duty to mitigate damages

According to Article 77 of CISG, [Seller] in its defense asserts that when the goods delivered do not conform to the contract, [Buyer] has the duty to purchase substitute goods in the international market to mitigate damages. However, [Buyer] did not do this, so it should be liable for the enlarged damages.

OPINION OF THE ARBITRAL TRIBUNAL

1. Article 1 of United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG) applies to contracts for the sale of goods between parties whose places of business are in different States, when the States are Contracting States. In this case, [Buyer]'s place of business is in China, and [Seller]'s place of business is in Australia. The two countries signed the CISG; the contract is for the sale of goods, and there is no stipulation of applicable law in the contract. Thus, CISG applies to this case.

2. The Arbitration Tribunal holds that [Buyer] and [Seller] altered their Contract No. 93YWZC87/333046AU after signing it. Although they did not make a new contract, they performed the contract according to the altered contract. Accordingly, the Arbitration Tribunal holds that it is not [Buyer] who arbitrarily altered the contract.

3. To the issue of validity of the inspection certificate, the Arbitration Tribunal holds that the clause on the back of the contract is part of Contract No. 93YWZC87/333046AU. If the parties' intention had been to only use the front side of the contract and General Trading Terms of Buying Wool and Wool Top of ChinaTex Raw Materials Trading International Corporation stipulated in the front side of the contract, they would have expressly excluded the clause on the back side of the contract. Otherwise, all of the clauses in the contract shall be applied. Meanwhile, the clause on the front side states that the terms of the contract are to be primarily applied. In addition, the General Trading Terms of Buying Wool and Wool Top of ChinaTex Raw Materials Trading International Corporation do not stipulate the time of inspection. Accordingly, the time of inspection, within 60 days when the goods arrive at the destination port stipulated on the back of the contract, shall apply.

According to the evidence submitted by the parties, the time of arrival of the goods was 20 July 1993. Because [Seller] informed [Buyer] of the wrong ship name and date of arrival, [Buyer] did not take delivery until 8 September 1993. Thus, early September is the reasonable time for inspection; the deadline shall be the end of October. The two inspection certificates submitted by [Buyer] were issued on 30 October 1993 and 5 January 1994, respectively. The Arbitration Tribunal holds that the inspection certificate dated 30 October 1993 is valid, and the inspection certificate of 5 January 1994 is invalid because it was issued beyond the time limit.

4. To the wrong ship name and date of arrival, the Arbitration Tribunal holds that, according to INCOTERMS 1990, [Seller] has a duty to notify [Buyer] about the transshipment so that [Buyer] can take reasonable measures to take delivery of the goods. If [Seller] does not do this, [Buyer] has to try to get information of the location of the goods, and spend extra expenses, such as late declaration penalty, which are not reasonable measures to take delivery.

Informing of the wrong ship name and date of arrival is the shipping company's fault. According to Article 79(2) of CISG:

"If the party's failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if: (a) he is exempt under the preceding paragraph; and (b) the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him."

And the preceding paragraph, Article 79(1), states

"A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences."

Thus, a party shall be liable for a third party breach, if the third party is hired by it, except under circumstances which can exempt the party and the third party.

In this case, the shipping company that was hired by [Seller] had the duty to inform [Buyer]. When the shipping company failed to perform its duty properly, [Seller] shall be liable for damages, i.e., the late declaration penalty.

5. The disputes on the quality of the wool are:

      (1) The evidence to prove goods were rotten is the inspection certificate dated 5 January 1994. However, that inspection certificate was not made within the time limit, so it is invalid. Thus, the Arbitration Tribunal does not support [Buyer]'s claim due to such quality defects.

      (2) To the loss of weight, the Arbitration Tribunal holds:

      -    First, according to Article 11 of the General Trading Terms of Buying Wool and Wool Top of ChinaTex Raw Materials Trading International Corporation, [Buyer] has the right to re-inspect the goods when they arrive at the China Port. And when the inspection conclusion made by the Australia Wool Inspection Bureau differs from the inspection conclusion made by China Commodity Inspection Bureau, the inspection certificate issued by China Bureau shall prevail.
 
      -    Second, the contract stipulates that the goods delivered can be 2% more or less, which means that the weight of the goods delivered shall be within 2%, [Buyer] cannot refuse the more part of the goods or ask [Seller] to supplement the less part. [Seller], however, understands that it can deliver goods 2% less than the weight stipulated in the contract, and still be paid the price for 100% goods. This is inaccurate. Accordingly, the Arbitration Tribunal decides that [Seller] shall return US $3,204 to [Buyer] for the goods not delivered.

      (3) To the fitness of the wool, the Arbitration Tribunal holds that wool with fitness of 24.7 MIC is near raw wool T58FNF, which is different from the wool T423FNF. The Arbitration Tribunal supports [Seller]'s assertion that the price difference between the wool delivered and the wool T56FNF that is stipulated in the contract is US $0.25/kg. Thus, [Seller] shall indemnify [Buyer] US $208 (US $0.25/kg x 832kg).

      (4) To the length of the wool, because [Buyer] did not object to [Seller]'s assertion within the time stipulated, the Arbitration Tribunal after investigation holds that [Seller]'s data are reasonable. The Arbitration Tribunal decides [Seller] shall indemnify [Buyer] US $0.012/kg x 49,404.6 kg = US $592.86.

      (5) To the tender wool among the goods, because [Buyer] did not make any objection to [Seller]'s assertion, the Arbitration Tribunal after investigating, holds that [Seller]'s data are reasonable. The Arbitration Tribunal decides that [Seller] shall indemnify [Buyer] US $85.05 (US $0.15/kg x 567 kg).

6. To [Buyer]'s duty of mitigation, the Arbitration Tribunal holds that there is no issue on a duty of mitigation through the purchase of substitute goods, so [Seller]'s assertion is not supported.

7. To [Buyer]'s claim for the loss caused by the non-conforming quality and specification, US $10,800 and RMB 65,000, the Arbitration Tribunal holds that because [Buyer] did not provide sufficient evidence, this claim is not supported.

THE AWARD

1. [Seller] shall indemnify [Buyer] the loss caused by the non-conforming goods, US $3,204.02 + US $208 + US $592.86 + US $85.05 = US $4,089.93, and interest at annual rate of 7%, to the date when the payment is made.

2. [Seller] shall indemnify [Buyer] the late declaration penalty due to notification of the wrong ship name and arrival date, RMB 16,080.

3. [Buyer]'s other claims are dismissed.

4. [Seller] shall pay 80% of the arbitration fee, and [Buyer] shall pay 20%.

5. The above amount shall be paid with 40 days when the award is made; otherwise, interest at a 9% annual rate 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 People Republic of China is referred to as [Buyer]; Respondent of Australia 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 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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