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CISG CASE PRESENTATION

China 18 April 1995 CIETAC Arbitration proceeding (Clothes case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/950418c1.html]

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

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Case identification

DATE OF DECISION: 19950418 (18 April 1995)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1995/06

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: People's Republic of China (respondent)

BUYER'S COUNTRY: Australia (claimant)

GOODS INVOLVED: Clothes


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 18 ; 33 ; 39 ; 47 ; 74 ; 75 ; 77

Classification of issues using UNCITRAL classification code numbers:

18A2 [Acceptance (time and manner): criteria for acceptance (conduct constituting acceptance)];

33C [Time for delivery (when date not fixed by or determinable from contract): reasonable time after contract's conclusion];

39A2 [Requirement to notify seller of lack of conformity: Buyer must notify seller within reasonable time];

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

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

75A2 [Damages established by substitute transaction after avoidance: repurchase by aggrieved buyer];

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

Descriptors: Acceptance of offer ; Delivery ; Lack of conformity notice, timeliness ; Nachfrist ; Damages ; Cover transactions ; Mitigation of loss

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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. 1417-1421

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

Clothes case (18 April 1995)

Translation [*] by Meihua Xu [**]

Edited by John W. Zhu [***]

The China's International Trade and Economic Arbitration Commission (hereafter, the "Arbitration Commission") accepted the case according to:

   -    The arbitration clause in the sales contract confirmation signed by Claimant [Buyer], Australia __ Company and Respondent [Seller], China Changzhou City __ Trade Company; and
 
   -    The written arbitration application submitted by [Buyer] on 18 April 1994.

In accordance with the Arbitration Rules, Mr. A, the arbitrator appointed by the [Buyer], Mr. D, the arbitrator appointed by the [Seller], and Mr. P, the Presiding Arbitrator appointed by the Chairman of the Arbitration Commission, formed the Arbitration Tribunal to hear this case.

The Arbitration Tribunal has examined the written arbitration application and the evidence submitted by the [Buyer] (The [Seller] did not submit any arbitration defense or evidence before the court session). On 5 September 1994, a court session was held in Beijing. Both [Seller] and [Buyer] sent representatives to the court session. They made oral statements and arguments, and answered the Arbitration Tribunal's questions.

After the court session, the Arbitration Tribunal forwarded the documents submitted by both parties. This case has been concluded and the Arbitration Tribunal made this award after discussion. The following are the facts, the Tribunal's opinion and award.

I. FACTS

[POSITION OF THE PARTIES]

[Buyer]'s position

The [Buyer] alleges that:

In January 1993, the two parties reached agreement on the sale of five kinds of clothes, totaling Australian dollars [AUD] 717,646.70. On 12 March 1993, the [Buyer] issued a L/C with the [Seller] as the beneficiary, which covered the entire price. According to the L/C, the goods were to be shipped in four deliveries; the first delivery of twenty-four orders, consisting of 130,000 pieces of clothes, was to be shipped by 4 April 1993.

Because the [Seller] could not deliver the goods on time, the [Buyer] postponed the deadline twice as requested by the [Seller]. However, the [Seller] had not finished the first delivery by the end of May and failed to cooperate, using many excuses.

Considering the fact that the first delivery was too late and that the [Seller] was not able to deliver the remaining goods, the [Buyer] had to resort to other remedies, such as changing the shipping term to air-shipment and contacting other manufacturers.

After that, because the quality of the 20,000 pieces of clothes in [Seller]'s first delivery did not conform to the contract, the [Buyer]'s customer claimed for compensation.

The [Seller] repeatedly postponed the delivery of the goods, and the quality of the delivered goods was poor. This breach of contract caused severe economic loss to the [Buyer]. Failing to reach an agreement, the [Buyer] filed the arbitration application to the Arbitration Commission on 18 April 1994, claiming:

  1. [Seller] should pay the air-shipment fee of AUD 67,941.33, which had to be chosen by the [Buyer] because of the [Seller]'s delay of the delivery.

  2. [Seller] should pay the price for substitute goods of AUD 47,466.71

  3. [Seller] should pay the fee to repair the clothes of AUD 51,663.00

  4. [Seller] should bear the arbitration fee, [Buyer]'s attorneys' fee of Renminbi [RMB] 28,000 (AUD 4,437.87), and part of the air ticket cost of AUD 2,050.00

[Seller]'s defense

The [Seller] counter argues that:

In January 1993, the [Buyer] and the [Seller] negotiated for the export of clothes. The [Buyer] stated its demands and typed the name of the goods, quantity of the goods, unit price, and the total price in the contract confirmation without specifying the quantity of each kind of clothes, the delivery date, the payment term, or the payment date.

The sales contract confirmation was returned to the [Seller] after having been signed by the [Buyer].

Because the main clause in the contract, the payment term, was not determined, and because that the [Buyer] did not issue the L/C until 12 March 1993, the [Seller] could not deliver the goods within the time stipulated in the contract and had to deliver those that had been manufactured. The [Seller] did not sign the sales contract confirmation, nor did it accept the delivery term determined in the L/C by any means.

Therefore, the [Seller] asserts that:

1. On the formation of the contract

The [Buyer] and the [Seller] did not reach an agreement on the sales contract. The sales document is not a legal contract, nor does it have binding effect on both parties. The business between the [Buyer] and the [Seller] only occurred based on the existing trade.

2. On the delay of the delivery

There was no clause on the delivery date in the contract, which was mentioned in the L/C. On the one hand, it was only the demand by the [Buyer]. On the other hand, as a tool of payment, a L/C is a different concept from the contract, in which the clauses do not have the same legal effect as those in the contract and the result of the beneficiary's violating the L/C deprives him of receiving the payment from the bank, which should not be deemed a contract violation. Therefore, there is no contractual basis for the [Seller]'s delay of the delivery.

Even though the delivery date was determined in the L/C, it was postponed and became the same as the date of the actual delivery by the [Seller], therefore, there was no delay of the [Seller]'s delivery. For the undelivered goods, since there was no contract, there was no obligation for the [Seller] to deliver the goods.

3. On the air-shipment fee

     (1) There was no delay of the delivery, therefore, the [Seller] should not bear the cost to ship the goods by air.

     (2) Changing to air-shipment was requested by the [Buyer] and the [Buyer] indicated that it intended to bear the cost.

     (3) The [Buyer] did not submit evidence to show that the air-shipment fee was AUD 167,941.33.

     (4) The [Buyer]'s claim for the shipping fee of purchasing substitute goods should not be accepted.

4. On the substitute goods

The [Buyer]'s claim for compensation for the loss of purchasing substitute goods is not acceptable.

     (1) There was no contract between the [Buyer] and the [Seller], therefore, there is no legal basis for the [Buyer] to require the [Seller] to export any goods, nor was there any reason for the [Buyer] to purchase the substitute goods.

     (2) Except for the delivered goods, the parties could not reach agreement on the remaining goods because the [Buyer] refused to modify the L/C. Under these circumstances, the [Seller] had no obligation to deliver the goods.

On 17 June 1993, the [Buyer] withdrew its orders and gave them to Wujin International Trade Company. Based on the L/C issued by the [Buyer], the delivery deadline for some of the goods had not expired. However, according to the clauses in the three L/Cs submitted by the [Buyer] as the evidence showing the [Buyer]'s loss for purchasing substitute goods, the delivery date was later than the date determined in the L/C issued by the [Buyer] to the [Seller], which meant that the [Buyer] gave up requiring the [Seller] to deliver the goods, and that the [Buyer] had no reason to ask the [Seller] to bear the loss incurred in purchasing the substitute goods.

     (3) In the three L/Cs submitted by the [Buyer], the price was under the CIF term, which was different from the CNF term issued to the [Seller].

     (4) From the number, quantity, and variety of the goods listed in the three L/Cs, it can be found that some of the goods had already been delivered by the [Seller], and that some of them were duplicated, which indicates that the [Buyer] was performing another contract, therefore, there were no substitute goods.

5. On the fee for repairing the clothes

There was no contract between the [Buyer] and the [Seller], nor is there a specific quality clause. The quality standard between the [Buyer] and its customers cannot be cited as the standard between the [Buyer] and the [Seller]. Therefore, the compensation clause provided by the [Buyer] to its customers cannot be the basis for the [Buyer] to claim damages from the [Seller].

[Buyer]'s response

The [Buyer] pointed out in its supplementary document:

1. Formation of the contract

     (1) At the end of March 1993, the [Buyer] saw the contract signed by the [Seller], but the [Seller] said later that it had been lost. The [Buyer] has never received the original contract through fax.

     (2) In terms of law, the contract has been formed: when the [Seller] accepted the [Buyer]'s order, both parties reached an agreement. The [Seller]'s printing seven contracts using its own contract form and handing them over to the [Buyer] constituted an effective offer. When the [Buyer] signed the confirmation of the seven contracts, the agreement was concluded.

2. The fact that the [Seller] has violated the contract

According to the purchase order and the L/C, the first delivery of the goods was to be on 4 April, and the following deliveries were to be 14 April, 24 April, 24 May, 4 June, and 4 August. The [Seller] should have delivered 130,000 pieces of clothes in twenty-four purchase orders before 4 April 1993.

When the [Seller] indicated that it was not able to deliver the goods on time, the [Buyer] agreed to postpone the delivery date to 14 April and 24 April after negotiating this with its customers. However, factually, the [Seller] did not complete 20,000 pieces until 20 April, and by the end of May, the [Seller] still could not deliver the 130,000 pieces for the 4 April delivery.

In June and July, the [Seller] still could not deliver the goods, and the factory almost stopped manufacturing the goods. Afterward, the [Seller] stopped delivering the goods saying that the price for the goods had changed.

In July, after making the last delivery, the [Seller] announced it was terminating the contract. On 16 July, the [Buyer] raised quality problems with the [Seller], asserting that if the [Seller] could not deliver the goods on time, it was going to withdraw the orders and claim compensation.

After being informed that the [Seller] was not going to perform the contract and deliver the goods, the [Buyer] had to announce that the contract was avoided, and rearranged the remaining orders with other manufacturers.

3. The air-shipment fee

Based on the aforesaid facts, the [Buyer] alleges that for either the part that has been delivered by the [Seller], or the substitute goods, an air-shipment fee occurred because of the late delivery of the [Seller]. Clothes are seasonal goods. In Australia, even a few days' delay could lose the entire selling season.

The [Buyer]'s choice of air-shipment is a reasonable remedy, which mitigated the loss resulting from the [Seller]'s violation of the contract. Therefore, the [Buyer] has the right to ask for compensation for the extra cost of the air-shipment fee.

4. Legal basis for the [Buyer]'s purchase of substitute goods

     (1) The [Buyer] had repeatedly postponed the deadline for delivery.

     (2) The [Seller] stated that it was not going to perform the contract within the additional period of time fixed by the [Buyer].

     (3) The [Buyer] announced the avoidance of the contract on 6 July.

     (4) Purchasing substitute goods was the most reasonable remedy to mitigate the loss under the emerging circumstances.

5. Issues on the notice of lack of conformity of the quality of the goods and the time limitation for claiming compensation

Even though the [Buyer]'s first written claim of lack of conformity of the quality of the goods was on 16 July 1993, it had repeatedly raised quality problems before that. For installment goods, the [Buyer]'s raising quality problem within 30 days after the last delivery of the goods does not violate the stipulation in the contract, which says "if the [Buyer] claims for compensation, all disputes on quality problems must be raised within 30 days after the goods arrive at the destination port."

II. OPINION OF THE ARBITRATION TRIBUNAL

1. The formation of the contract

The [Seller] asserts that it did not sign on the sales contract confirmation; therefore, there was no contract between the [Buyer] and the [Seller]. The [Buyer] asserts that the [Seller] signed the confirmation, but that it was lost by the [Seller], which is the reason why the [Seller] did not send the original contract to the [Buyer].

The [Seller]'s name, Changzhou __ Trade Company, is at the beginning and the end of the contract. The [Seller] printed seven contracts using its own forms and gave them to the [Buyer], which constituted an effective offer and became an effective contract with the [Buyer]'s signature.

The Arbitration Tribunal deems that even though both parties failed to provide the original contract signed by both parties, the [Seller] sent the contract using its own form after receiving the [Buyer]'s offer and the [Buyer] has signed the contract. Like contracts formed by mail, the contract was formed.

Both parties were performing the contract following the contract confirmation and the L/C (including modified stipulations). Therefore, based on the aforesaid facts, the performance of both parties has confirmed the existence of the contract, which has binding effect on both parties.

2. Delay of the delivery

Paragraph (c) of Article 33 of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG") stipulates how to determine the delivery date when there is no agreement on this subject in the contract. This section of the CISG provides that "in any other case, within a reasonable time after the conclusion of the contract".

What is a reasonable time? In the instant case, the delivery date was only mentioned in the L/C issued by the [Buyer], which was postponed upon the request of the [Seller]. The [Seller] did not deliver the goods within the additional time fixed by the [Buyer] and in order to enable the [Seller] to receive the payment through the issued L/C, the [Buyer] again agreed to postpone the deadline for shipment after being asked by the [Seller].

Based on the above facts, the Arbitration Tribunal deems that the first postponed delivery date on the L/C should be considered as the delivery date agreed by both parties.

Even though the [Seller] could not deliver the goods on time, the fact that the [Buyer] postponed the delivery date to the date on which the actual delivery was made shall be deemed an acceptance of the [Seller]'s delay of the delivery.

3. The substitute goods

From the evidence submitted by the [Buyer], the Arbitration Tribunal found that:

     (1) Part of the substitute goods are goods that had already been delivered by the [Seller]. For example, the 4, 992 pieces of No. 1310806 clothes in the L/C issued by the [Buyer] to Ningbo__ Import & Export Company were already delivered by the [Seller].

     (2) The substitute goods have overlapped. For instance, the goods name, quantity, price in the L/C the [Buyer] issued to Beijing Nanguang Company are the same as those contained in the second item in the L/C issued to Ningbo Import & Export Company.

     (3) The substitute goods are not the same as the goods that should have been delivered by the [Seller]. First of all, the goods in replacement were under CIF term, but the goods in the original contract were under CNF term. Secondly, the delivery date for the substitute goods was later than the deadline for delivery in the contact between the [Buyer] and the [Seller].

Above all, the Arbitration Tribunal does not accept the [Buyer]'s claim for the loss resulting from purchasing the substitute goods.

4. The air-shipment fee

Based on the evidence submitted by both parties, the Arbitration Tribunal finds that in the fax sent by the [Buyer] to the [Seller] on 20 May 1992, it was stated that if the [Seller] could not bear the air-shipment fee, the [Buyer] had to pay it. Therefore, the Arbitration Tribunal considers that since the [Buyer] agreed to pay for the air-shipment fee and in fact paid for it, the [Seller] has no obligation to bear this cost.

For the air-shipment fee for the substitute goods, because the substitute goods cannot be admitted, this claim of the [Buyer] is not acceptable.

5. The [Buyer]'s claim of the fee for repairing the goods

Based on the actual delivered goods and the written evidence provided by the [Buyer], the Arbitration Tribunal deems that the [Seller] should take the responsibility for the quality problems and should bear the cost for repairing the goods,

III. THE AWARD

The Arbitration Tribunal:

     (1) Dismisses the [Buyer]'s claim for air-shipment fee of AUD 167,941.33.

     (2) Dismisses the [Buyer]'s claim for the loss resulting from purchasing substitute goods of US $47,466.71.

     (3) Rules that the [Seller] shall pay the [Buyer] the fee of AUD 51,663.00 for repairing the goods.

     (4) Dismisses the [Buyer]'s claim for the attorney's fee of RMB 28,000 and part of the cost for air tickets of AUD 2,050.00.

     (5) Rules that [Buyer] shall bear 30% of the arbitration fee and the [Seller] shall bear 70%.

The actual cost for processing this case of RMB 4,000 shall be borne by the [Seller], which has been paid by the [Buyer] in advance.

The [Seller] shall pay and pay back the aforesaid sum within 30 days after this award takes effect. Otherwise, 9% annual interest 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 Australia is referred to as [Buyer] and Respondents of the People's Republic of China is referred to as [Seller]. Amounts in the currency of Australia (Australia dollars) are indicated as [AUD]; 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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