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CISG CASE PRESENTATION

China 10 March 1995 CIETAC Arbitration proceeding (Polyethylene film case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/950310c2.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/1995/03

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (respondent)

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

GOODS INVOLVED: Polyethylene film


Classification of issues present

APPLICATION OF CISG: Evidently. Although the award does not identify the governing law, the Tribunal refers to provisions of the CISG as bearing upon sales of goods in transit.

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles: 8 ; 74 ; 77 ; 78 ; 84(1) ; 88 [Also cited: Articles 32 ; 68 ]

Classification of issues using UNCITRAL classification code numbers:

8C [Interpretation of party's statements or other conduct: interpretation in light of surrounding circumstances];

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

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

78A ; 78B [Interest on delay in receiving price or any other sum in arrears; Rate of interest];

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

88C [Right to retain reasonable expenses from proceeds of resale of goods]

Descriptors: Intent ; Damages ; Mitigation of loss ; Interest ; Resale of goods

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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. 1307-1311

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC (PRC) Arbitration Award

Polyethylene film case (10 March 1995)

Translation [*] by WEI Shu [**]

Edited by John W. Zhu [***]

The China International Economic and Trade Arbitration Commission (formerly known as the Foreign Economic and Trade Arbitration Committee of China Council for the Promotion of International Trade, hereafter "the Commission" or "the Arbitration Commission") accepted this case arising out of a contractual dispute regarding the delivery of polyethylene film according to:

   -    The arbitration clause in Contract No. 91RMTB-6005MR signed on 16 August 1991 by the Claimant, Gansu Provincial __ Trade Company (hereafter referred to as "the [Buyer]") and the Respondent, American Los Angeles __ Company; and
 
   -    The written arbitration application submitted by the [Buyer] on 29 December 1992.

According to the Arbitration Rules, the Chairman of the Commission appointed Mr. P as the presiding arbitrator. Mr. A, appointed by the [Buyer], Mr. D, designated by the American Los Angeles __ Company, and Mr. P jointly formed an Arbitration Tribunal to hear the case.

The Arbitration Tribunal has examined the written arbitration application submitted by the [Buyer], the arbitration defense submitted by the American Los Angeles __ Company, and other materials submitted by the parties, and held court sessions on 24 August 1993 and 11 May 1994. The representatives of the parties appeared before the Tribunal, and responded to the questions of the Tribunal. Both parties submitted supplementary materials after the court sessions. The Arbitration Tribunal examined all evidence and materials, and rendered its award based on the court session.

The facts, Arbitration Tribunal's opinion and the award are as follows:

I. FACTS

On 16 August 1991, the [Buyer], Gansu Provincial __ Trade Company, and the American A Trade Company [hereafter "A Trade Company"], executed Contract No. 91RMTB-6005MR for the sale of 200 metric tons of LDPE polyethylene film. The Contract provides for:

   -    Identification of goods: HH-LDNP 2-1;
   -    Melting flow index: 2.0-3.0;
   -    Density: 0.920-0.924;
   -    Unit price: US $745/MT CIF China Huangpu;
   -    Total price: US $149,000.00;
   -    Beneficiary of the L/C: The supplier, H. Heller Company.

H. Heller Company, however, insisted on a L/C at sight issued by a bank located in America, but Lanzhou Branch of Bank of China, the issuing bank acting for [Buyer], did not agree to this. Therefore, the supplier, H. Heller Company, suspended the delivery of the goods, which resulted in the nonperformance of the contract. Under these circumstances, the American Los Angeles __ Company, agreed to issue the L/C in America to enable the [Buyer] to purchase the LDPE polyethylene film. The [Buyer] and the American Los Angeles __ Company negotiated and consented on the supplier of the goods, quantity, price, shipment period, the issuance of the L/C, etc. through several letters and faxes, and began to perform the contract. After the goods were shipped, the [Buyer] amended the former contract concluded with A Trade Company, and then faxed the first and the last revised pages to the American Los Angeles __ Company. The American Los Angeles __ Company signed them and faxed them back to the [Buyer] on 2 March 1992.

The details of this contract were as follows:

   -    Party identified as buyer in this contract: Claimant Gansu Provincial __ Trade Company;
   -    Party identified as seller in this contract: American Los Angeles __ Company;
   -    Contract No.: 91RMTB-6005MR;
   -    Conclusion date: 16 August, 1991;
   -    Quantity of goods: 280 MT;
   -    Unit price: USD/740/MT, CIF Zhongguo Huangpu;
   -    Total price: US $207,200.00.

Other provisions were the same as the former contract entered into between the [Buyer] and A Trade Company.

On 18 November 1991, the [Buyer] arranged for the issuance of a L/C with the American Los Angeles __ Company as the beneficiary. The goods, 280.80 M.T. of polyethylene film, delivered by the American Los Angeles __ Company, arrived at Xingang port on 12 March 1992, and arrived at Lanzhou in April by railroad. On 4 March 1992, the American Los Angeles __ Company confirmed receipt of the payment for the goods.

After the goods arrived at Lanzhou, upon application of the [Buyer], Gansu Import & Export Commodity Inspection Bureau examined the goods and issued an inspection certificate on 20 May 1992. The inspection certificate stated that "the package of the goods, brand, and quality are not in accordance with the contract". After the goods were in inspection but before the inspection certificate was issued, the [Buyer], by fax dated 16 May 1992, informed the American Los Angeles __ Company that the quality of the goods was not in compliance with the contract and that the [Buyer] retained the right to claim damages. Thereafter, the [Buyer] presented the inspection certificate to the American Los Angeles __ Company and claimed for indemnity many times. The American Los Angeles __ Company insisted that it was not a party to the contract and claimed that American Los Angeles __ Company signed the contract as vendor just to help the [Buyer] apply to Customs. The American Los Angeles __ Company also alleged that American Los Angeles __ Company was only responsible for the payment to the supplier, not for the quality of the goods. The American Los Angeles __ Company sought to have the [Buyer] cooperate with the American Los Angeles __ Company in making a claim against the supplier, H. Heller Company. The American Los Angeles __ Company filed a claim for US $323,067.36 against the supplier on 23 July 1992, and urged payment of this claim many times, and then sued the H. Heller Company in a New York court.

Because the American Los Angeles __ Company refused to compensate the [Buyer] directly, the [Buyer] applied to the Arbitration Commission, seeking to require the American Los Angeles __ Company to:

   -    Refund the contract price, interest, charges, port fees, freight fees, inspection fees, storage fees and other losses, in total: US $323,067.36; and
 
   -    Dispose of the goods under the contract, and to pay the arbitration fees and other charges.

In November 1993, the [Buyer] further expressed its damages in a claim list. On 26 December 1994, the sum of the damages was revised to US $526,464.84. The details of the revised claim list are:

1. Contract price: US $207,792.00, and interest on the price: US $100,562.63.

2. Loss of profit: US $121,207.66, and interest on this amount: US $49,463.99. At the time the L/C was issued, the exchange rate was RMB/US $ = 8.39/1 and the foreign exchange fee was RMB 384.80 yuan per ton, in total: RMB 4,373.4 yuan per ton in Lanzhou. The [Buyer]'s price to its client was RMB 6,700 yuan per ton. The price difference was therefore RMB 2,326.6 yuan per ton, in total: RMB 653,309.28 yuan, that is, US $121,207.66 converted at the exchange rate RMB/US $ = 5.39.

3. Attorneys' fees: US $5,199.31 (RMB 30,000.00 yuan) and interest on this amount: US $2,284.00.

4. Arbitration fee: US $6,928.25 (RMB 39,976.00 yuan) and interest on this amount: US $2,284.95;

5. Litigation fee attributed to the [Buyer] in the litigation filed by the [Buyer]'s clients against the [Buyer]: US $3,276.45 (RMB 18,086.00 yuan), and interest on this amount: US $1,337.10.

6. Storage fee: US $11,130.47 (RMB 76,340.00 yuan) and interest on this amount: US $1,916.60.

7. Inspection fees: US $1,762.50 (RMB 9,729.00 yuan) and interest on this amount: US $706.32.

8. Railroad transportation fees and other incidental expenses: US $3,379.87 (RMB 18,460.20 yuan) and interest on this amount: US $1,418.38.

9. Insurance premium for transportation by land: US $434.19 (RMB 2,371.46 yuan) and interest on this amount: US $182.22.

10. Customs clearance fee: US $21.06 (RMB 115.00 yuan) and interest on this amount: US $9.08.

11. Labor fee or handling charge in Tianjin port: US $3,883.15 (RMB 21,208.99 yuan) and interest on this amount: US $1,674.85.

12. L/C issuance fee: US $506.25 (RMB 2,728.70 yuan) and interest on this amount: US $243.07.

II. POSITION OF THE PARTIES

[Buyer]'s position

The [Buyer] alleged that:

[Buyer] had initially concluded a contract with A Trade Company for the purchase of polyethylene film, but this contract was terminated for non-performance. The American Los Angeles __ Company had known that the contract between the [Buyer] and A Trade Company was frustrated, and asked for a copy of the contract and searched for a supplier of the goods. After the American Los Angeles __ Company and the [Buyer] agreed on the supplier, the price of the goods and the shipment period, American Los Angeles __ Company, as vendor, entered into a contract with the [Buyer], proscribing a different quantity and price from the former contract. The [Buyer] then issued a L/C on request with American Los Angeles __ Company as the beneficiary, and the American Los Angeles __ Company, in its own name, delivered the goods, issued an invoice and delivered the shipping documents. The contract was thus performed. However, the goods delivered by the American Los Angeles __ Company were not in compliance with the contract. The American Los Angeles __ Company's refusal to compensate when the [Buyer] claimed on the goods on the basis of the inspection certificate proscribed in the contract within the contract period, and the American Los Angeles __ Company's refusal to dispose of the goods under the contract caused the [Buyer] to suffer a considerable loss. Therefore, the [Buyer] filed a claim against the American Los Angeles __ Company before the Arbitration Commission.

American Los Angeles __ Company's defense

American Los Angeles __ Company alleged that

It was not a party to the contract, and insisted that it just assisted the [Buyer] to issue the L/C. The true "seller" under the contract was in fact A Trade Company, and the supplier was H. Heller Company. Because of difficulties in method of payment between the contracting parties, i.e., [Buyer] and A Trade Company, the American Los Angeles Trading Company, at the request of A Trade Company, agreed to issue the L/C for the [Buyer]. And the American Los Angeles Trading Company had expressed its status in a fax to the [Buyer].

The American Los Angeles Trading Company pointed out in the meantime that, the purpose of having the it sign the contract was just to facilitate the entry of the goods, not to become a contracting party, and that the signature affixed on the contract by the American Los Angeles Trading Company's representative had no legal binding force. Moreover, the goods were in transit at the time of signature, and the [Buyer] just faxed the first and the last pages of the contract to the American Los Angeles Trading Company, which is unusual in the practice of concluding contracts. Furthermore, if the American Los Angeles Trading Company had not issued the L/C for the [Buyer] when the supplier sought to raise the price for US $20 per M.T., he could not have reduced the unit price by US $5 per M.T.; otherwise, the American Los Angeles Trading Company would go into the red. In addition, the reason why the American Los Angeles Trading Company filed a suit in an American court was to permit the substitution of the [Buyer]'s claim, a behavior undertaken by the American Los Angeles Trading Company because of the friendship and cooperative relationship between the parties. The above fact indicates that the American Los Angeles Trading Company, in fact, was not the seller under the contract.

[Buyer]'s rebuttal

The [Buyer] agued that the reason why the American Los Angeles __ Company signed the contract was for profit -- the American Los Angeles __ Company would gain the price difference of US $20 per MT. Moreover, as a trading company, the American Los Angeles __ Company could not be unaware of the legal consequences of signing a contract. It was not reasonable that the American Los Angeles __ Company just signed the contract but did not assume the responsibility.

The [Buyer] disposed of the goods under the contract for the sum of RMB 870,480 yuan.

III. THE TRIBUNAL'S OPINION

1. Parties to the contract

The main dispute in this case was whether the American Los Angeles __ Company was a party to the contract. The Tribunal concluded that the [Buyer] and the American Los Angeles __ Company did sign the contract -- this fact was not disputed-- but the time of the execution was not 16 August 1991, the recorded date in the contract. The actual date when the American Los Angeles __ Company faxed back the signed contract to the [Buyer] was 2 March 1992. Before signature, the parties negotiated on the terms of the contract, such as payment, shipment, loading time and quantity, through faxes they exchanged on 16 November, 27 December 1991, and 13, 16 and 30 January 1992. Thus, the contents of the contract were known to one another. Furthermore, the contract entered into by the [Buyer] and the American Los Angeles __ Company was based on the former contract concluded by the [Buyer] and A Trade Company, and after negotiations, the seller's name, quantity of the goods, unit price and total price were different from the former contract. Therefore, the precondition for the [Buyer] to fax the first and the last pages to the American Los Angeles __ Company for American Los Angeles __ Company to sign on it was that they both had known the contents in other pages, and it was understandable that the fax was just a written confirmation of the contract after they revised the first and the last pages and agreed on the other context through negotiation.

The American Los Angeles __ Company alleged in defense that it is not logical and normal to have the goods shipped first and then conclude the contract. To this, the Arbitration Tribunal responds that parties may, by concluding a contract or an agreement, buy and sell goods which are in any state, phase or process. For example, a sale of goods in transit as provided in Articles 32 and 68 of CISG. Therefore, the fact that the goods were on the way and being shipped did not affect the effectiveness of the contract as long as the contract was concluded in accordance with the law.

The American Los Angeles __ Company emphasized once and again that it was entrusted by A Trade Company to issue the L/C, that the conclusion of the contract was for the purpose of customs entry, and that American Los Angeles __ Company gained no profit in this deal. However, it was determined by the Tribunal that A Trade Company had dissolved by January 1992. This was deduced from the letters written by Mr. Zheng of A Trade Company and the statement of the American Los Angeles __ Company in court hearings. In the second court session, the American Los Angeles __ Company admitted that it had had business with Mr. Mu acting for the former A Trade Company for a long time. Therefore, while the original contract was terminated and the new contract was different from it in unit price and quantity, it was not acceptable for the American Los Angeles __ Company to allege that it just performed the original contract and substituted the [Buyer] to issue the L/C. The Tribunal concludes that the American Los Angeles __ Company performed the contract as a seller. American Los Angeles __ Company took the payment and resold to the [Buyer] the goods which were bought from H. Heller Company in order to make a profit of US $20 per M.T.

To sum up, the American Los Angeles __ Company, in its own name, had entered into Contract No.91RMTB-6005MR with the [Buyer] through negotiation, and became the selling party. American Los Angeles __ Company should perform his duty under that contract -- deliver the goods in accordance with the contract.

2. The quality of the goods

The parties did not deny the fact that the quality of the goods was not in compliance with the contract, which was determined also by the inspection certificate issued by Gansu Import & Export Commodity Inspection Bureau. Based on this, the American Los Angeles __ Company had filed a suit against the American supplier. Therefore, it was reasonable for the [Buyer] to request to terminate the contract, return the goods and claim compensation. The American Los Angeles __ Company did not directly defend against the quality claims.

3. Refund of the price and other claims of the [Buyer]

For the aforesaid reasons, the American Los Angeles __ Company should refund to the [Buyer] the price of the goods: US $207,792, and pay interest on this amount from 2 March 1992 to the date the [Buyer] receives the money. The currency proscribed in the contract and paid factually was US dollars, so the interest should be calculated in US dollars, not RMB, and a rate of 6% annual interest is reasonable.

As to the other claims of the [Buyer], on examination, the Tribunal concludes that the expenses actually incurred that the American Los Angeles __ Company should compensate are:

   -    Litigation fee: RMB 18,086 yuan paid by the [Buyer] in litigation with [Buyer]'s client
   -    Storage fee: RMB 76,340 yuan
   -    Inspection fee: RMB 9,729 yuan
   -    Railroad transportation fees and other incidental expenses: RMB 18,460.20 yuan incurred in railway transportation
   -    Insurance premium for transportation by land: RMB 2,371.46 yuan
   -    Customs clearance fee: RMB 115 yuan
   -    Labor fee or handling charge in Tianjin port: RMB 21,208.99 yuan
   -    L/C issuance fee: RMB 2,728.70 yuan

In total RMB 149,039.35 yuan.

These expenses should be calculated in RMB, not in US dollars, and could be deducted from the price obtained by the [Buyer] in disposing of the goods in September 1994. However, the [Buyer] bears a certain responsibility for the fact that the goods were not disposed of in time. Therefore the [Buyer] should assume the losses, penalties and interest on these amounts for actual expenses incurred before September 1994.

As to the claim for the loss of prospective profit for the [Buyer], the Tribunal rejected it because the [Buyer]'s calculations in the materials presented to the Tribunal were not in accord with each other, and there was not sufficient evidence to support this claim.

As to the attorney fee of RMB 30,000 yuan paid by the [Buyer] for this case, the American Los Angeles __ Company should compensate but need not pay for the interest, which could be deducted from the price obtained by disposal of the goods.

As to the arbitration fee of RMB 39,976 yuan which was paid in advance by the [Buyer], the American Los Angeles __ Company should undertake 80%, i.e., RMB 31,980.80 yuan, which could be deducted from the price obtained by disposal of the goods.

Because of the dispute between the two parties, it was difficult to return the goods, so, after informing the American Los Angeles __ Company, the [Buyer] had to manage to dispose of the goods to mitigate the loss. The aforesaid actual expenses which should be compensated or assumed by the American Los Angeles __ Company should be deducted from the price of RMB 870,480 yuan obtained by the [Buyer] from the disposal of the goods in September 1994 The remaining amount should then be converted into US dollars at the exchange rate in the month in which the [Buyer] disposed of the goods -- that rate was 1 US $ = 8.5718 -- RMB, and be offset against the amount that the American Los Angeles __ Company should refund to the [Buyer] on 15 September 1994 and the interest on it. The amount to be offset is (870,480 - 149,039.35 - 30,000 - 31,980.80) / 8.5718 = US $76,933.65.

IV. THE AWARD

1. The American Los Angeles __ Company should refund the price: US $207,792, and pay 6% annual interest on this amount from 2 March 1992;

2. The American Los Angeles __ Company should compensate for the actual expenses incurred by the [Buyer], i.e., fees incurred in litigation filed by the [Buyer]'s client, storage fee, inspection fee, railroad transportation fees and other incidental expenses, customs clearance fee, labor fee or handling charge in Tianjin port, and issuance fees, in total: RMB 149,039.35 yuan, and attorney fee: RMB 30,000 yuan paid by the [Buyer] for this case;

3. The [Buyer] should undertake 20% of the arbitration fee and the American Los Angeles __ Company 80%;

4. The expenses that the American Los Angeles __ Company should compensate to the [Buyer] in items 2 and 3 should be deducted from the RMB 870,480 yuan obtained by the [Buyer] in disposal of the goods; the remaining amount should be converted into a sum of US $ 76,933.65, which is payable to the American Los Angeles __ Company;

5. The other claims of the [Buyer] were dismissed.

According to item 1, the American Los Angeles __ Company should refund the money and interest of US $239,404.84 up to the date of 15 September 1994. After deducting item 4 from this amount, the American Los Angeles __ Company should then pay US $162,471.19 to the [Buyer] (239,404.84 - 76,933.65 = 162,471.19) and annual interest calculated at 6% from 16 September 1994 to the date of actual payment of this money.

This award should be performed within 60 days after it takes effect.

This is the final award.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of the People's Republic of China is referred to as [Buyer] and the Respondent of the United States is referred to as American Los Angeles __ Company. 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].

** Wei Shu, LL.M. Peking University School of Law, Beijing, P.R. China, 2004; LL.B. Peking University School of Law, 2000.

*** 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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