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CISG CASE PRESENTATION

China 28 April 1995 CIETAC Arbitration proceeding (Rolled wire rod coil case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/950428c1.html]

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

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Case identification

DATE OF DECISION: 19950428 (28 April 1995)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1995/08

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Hong Kong (respondent)

BUYER'S COUNTRY: Hong Kong (claimant)

GOODS INVOLVED: Steet (rolled wire rod coil)


Classification of issues present

APPLICATION OF CISG: Yes, choice of parties

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 74 ; 79

Classification of issues using UNCITRAL classification code numbers:

6B [Choice of law: agreements to apply Convention];

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

79B [Impediments excusing party from damages]

Descriptors: Choice of law ; Damages ; Profits, loss of ; 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. 1476-1479

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.23, 198, Nordic Journal of Commercial Law (2/2005); Fan Yang, The Application of the CISG in the Current PRC Law and CIETAC Arbitration Practice (December 2006) n. 79

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Case text (English translation)

Queen Mary Case Translation Programme

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

Rolled wire rod coil case (28 April 1995)

Translation [*] by WANG Chenghong [**]

Translation edited by Meihua Xu [***]

      [Introduction]

  1. Facts of the Case and Positions of the Parties
  2. Opinion of the Arbitration Tribunal
    1. Applicable law
    2. Breach of contract
    3. Loss of profit [difference in price]
    4. Losses of cost of issuance of L/C and interest on deposit
    5. The arbitration fee
  3. The award

[INTRODUCTION]

In accordance with the arbitration clause contained in Contract No. CT - KEIO/3006/93 signed by and between Claimant Hong Kong XX International Company [Buyer] and Respondent Hong Kong XX Company [Seller] in Hong Kong on 23 March 1993 and the [Buyer]'s written application for arbitration on 9 November, 1993, the China International Economic & Trade Arbitration Commission (which was originally named the Foreign Trade Arbitration Commission, subsequently renamed as the Foreign Economic and Trade Arbitration Commission and currently is called the China International Economic & Trade Arbitration Commission, hereinafter "CIETAC") accepted this arbitration case.

In accordance with the Arbitration Rules, the Chairman of CIETAC appointed Mr. P as the presiding arbitrator, the [Buyer] appointed Ms. A and the [Seller] appointed Mr. D as the other two arbitrators. The three arbitrators formed the Arbitration Tribunal to jointly hear this case.

After reviewed the written application and argument submitted by the [Buyer] and the [Seller] and verifying the relevant supporting materials of the parties, the Arbitration Tribunal held oral hearings with respect to this case in Beijing on 30 May 1994. Both the [Buyer] and the [Seller] attended the hearing on time and answered the questions raised by the Arbitration Tribunal. The Arbitration Tribunal renders the arbitral award on the result of the hearing and the relevant evidence.

The facts of the case, the opinion of the Arbitration Tribunal and the award are:

1. FACTS OF THE CASE

As indicated in Contract No. CT - KEIO/3006/93 (hereinafter referred to as the "Contract") signed by and between [Buyer] and [Seller] in Hong Kong on 23 March 1993:

   -    The [Seller] shall provide 5,000 tons of Russian XX Steel (hereinafter referred to as the "goods") at the unit price of US $300/ton;
 
   -    Such rolled wire rod coil shall be delivered to Shantou, China in 45 days since receipt of the letter of credit ("L/C");
 
   -    The [Buyer] shall open an irrevocable L/C before 30 March 1993.

Meanwhile, the [Buyer] has signed a contract with A (Group) Automobile Service Company in Shantou Special Economic Zone (hereinafter referred to as "A Company") to resell the a.m. rolled wire rod coil to A Company at the price of US $318/ton. Thereafter, as the [Seller] failed to deliver the goods according to the Contract, disputes arose between the parties and the [Buyer] filed the application for arbitration at CIETAC.

POSITIONS OF THE PARTIES

[Buyer]'s position

The [Buyer] alleged that:

After signed the Contract with the [Seller], the [Buyer] resold the rolled wire rod coil to A Company. Due to financial arrangements, the [Buyer] and the [Seller] agreed that, A Company will open a transferable L/C on which it is expressly indicated that the L/C may be transferred to the [Seller], then the [Buyer] will transfer the L/C to the [Seller] (including the price in difference), and after that the [Seller] will pay the price difference (i.e., US $11/ton) to the [Buyer] within two days upon receipt of the L/C. For this arrangement, the [Buyer] raised the price to be paid to the [Seller] to US $307/ton and changed "CNF Shantou" to "CIF Shantou" with the [Seller] being responsible for the insurance. The [Buyer] and the [Seller] signed an agreement thereafter to confirm the a.m. arrangement. In early April 1993, the [Buyer] gave the [Seller] the duplicate of the L/C opened by A Company and the [Seller] generally accepted the terms and conditions of the L/C and only requesting certain literal modifications. After obtained the consent of A Company, the [Buyer] changed the L/C as per the request of the [Seller]. On 1 May 1993, the [Seller] sent a fax for extension of the shipment period to 30 May 1993. Once again the [Buyer] persuaded A Company to change the L/C accordingly.

Since the end of April 1993, the [Buyer] began to importune the [Seller] for shipment and information of the vessel onto which the goods were to be loaded. It was not until 28 May 1993 that the [Buyer] received notice from the [Seller] that there is an appropriate vessel from the Russian side. However, the [Seller] requested that the [Buyer] shall pay demurrage deposit amounting to US $50,000 which the [Buyer] deemed as unreasonable and refused to pay. Until 10 June 1993, the [Buyer] still kept importuning the [Seller] for shipment and explicitly expressed that although the shipment period has lapsed, the [Buyer] was still anticipating delivery of the goods. Unfortunately, the importuning by the [Buyer] was unsuccessful.

On 6 July 1993, the [Buyer] received from A Company a letter of claim for compensation and on the same day, the [Buyer] claimed against the [Seller] for indemnification. On 11 August 1993, the [Seller] sent a reply to the [Buyer] in which the [Seller] denied its breach of the Contract and stated that the dispute between the parties should be submitted to CIETAC for arbitration.

Therefore, the [Buyer] asked the Arbitration Tribunal to rule as follows.

1. [Buyer]'s loss of profit: The price difference under Contract No. CT - KEIO/3006/93

According to the a.m. contract and agreement between the [Buyer] and the [Seller], the [Seller] should pay the [Buyer] the price difference of US $11/ton on the contract quantity of 5,000 tons. As a result, the [Seller] should pay the [Buyer] direct losses of anticipated profit amounting to US $55,000 (5,000 x 11 = 55,000).

2. Loss of cost for the L/C

A Company which is the customer of the [Buyer] had asked Shantou XX Trade Company to open two irrevocable L/C, with the cost being remninbi [RMB] 40 per/ton. As the contract quantity is 5,000 tons, the total cost paid for opening the two L/C was RMB 200,000. Since A Company raised claim for compensation against the [Buyer], the [Buyer] claims compensation against the [Seller].

3. Loss for interest on the deposit

On the basis of the total contractual amount, A Company deposited 50% of the same at the relevant bank for opening the L/C, amounting to US $795,000. From the date the L/C was opened till 10 July 1993 when the L/C was cancelled, the loss of the interest, if based on monthly interest of 1.8%, amounts to US $55,677.80. Since A Company also raised claim for compensation of such losses against the [Buyer], the [Buyer] claims compensation against the [Seller].

The three a.m. claims in aggregate amount to: US $110,677.83 and RMB 200,000. In addition, the [Buyer] claims that the [Seller] should bear the entire arbitration fee.

[Seller]'s position

The [Seller] argued that:

1. The [Seller] has an objective reason for its non-delivery

It was rumored over various media then that Russian vessels were held in custody for several times and as the Shantou port was crowded, it was very difficult to rent a vessel. The [Seller] informed the [Buyer] of such circumstances in time. Although the [Seller] tried its best, the [Seller] could not deliver the goods.

2. Scope of the loss

      a. The [Buyer] is responsible for proving its losses. In particular, the [Buyer] must prove that the [Buyer] has already borne the cost for issuance of the L/C and the loss of interest to the deposit for issuance on the L/C.

      b. The cost for issuance of the L/C and the loss of interest on the deposit for issuance of the L/C should not be borne by the [Seller] for the following reasons:

           i) No matter whether the contract between the [Buyer] and A Company is governed by PRC laws or Hong Kong laws, regarding the qualification of the parties, lex patriae shall apply. As A Company does not have the right to export and import, the contract between the [Buyer] and A Company contains an obstacle from the legal perspective and is not enforceable. Since this obstacle is due to the inherent condition of A Company, A Company cannot claim for compensation pursuant to a contract that is not enforceable.

           ii) Even if the contract between the [Buyer] and A Company contained no obstacle from a legal perspective and was enforceable, A Company could not claim the cost for issuance of the L/C and the loss of interest to the deposit for issuance of the L/C since the cost for issuance of the L/C and the loss of interest to the deposit for issuance of the L/C is the operating cost of A Company, i.e., this cost would have to be paid if the deal succeed; if the deal failed, A Company may claim the price difference so that the effect on the economic condition of A Company would the same as if the contract had been performed.

           iii) If the [Buyer] indemnified A Company for the cost of issuance of the L/C and the loss of interest on the deposit for issuance of the L/C, the [Buyer] could not claim against the [Seller], since the [Buyer] does not have legal obligation to indemnify A Company for this.

           iv) Due to a.m. reasons, the [Buyer] is not entitled to claim against the [Seller] for the cost of issuance of the L/C and the loss of interest on the deposit for issuance of the L/C.

3. Foreseeability of the loss and the interest claim

The [Seller] could not foresee the cost for issuance of the L/C and the loss of interest on the deposit for issuance of the L/C. The cost of RMB 40/ton for issuance of the L/C was agreed between A Company and Guang Ao, which even the [Buyer], let alone the [Seller], could not foresee. The monthly interest of 1.8% is rather unbelievable to the [Seller].

Therefore, the cost of RMB 200,000 for issuance of the L/C and the loss of interest of US $55,677.83 on the deposit for issuance of the L/C as claimed by the [Buyer] should not be upheld. What is more, the [Seller] should be entitled to deduct 5% from the total damages.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. Applicable law

The Arbitration Tribunal noted that the parties reached consensus regarding the applicable law during the oral hearing that the United Nations Convention on Contracts for the International Sale of Goods (CISG) shall apply. The Arbitration Tribunal decides that CISG should be the applicable law in this case.

2. Breach of contract

The parties have no dispute regarding the fact that the goods were not delivered according to the Contract. The Arbitration Tribunal could not uphold the reason for non-delivery as raised by the [Seller], i.e., the port was crowded and it was very difficult to rent a vessel. The Arbitration Tribunal is of the opinion that these objective reasons could not excuse the [Seller] from the indemnification obligation that it should undertake for failure to deliver the goods in accordance with the Contract. The [Seller] shall indemnify the [Buyer] for the losses incurred by such non-delivery.

3. Loss of profit [difference in price]

The Arbitration Tribunal noted that the parties concluded an agreement on 6 April 1993 under which the parties agreed that A Company shall have a transferable L/C issued on which it is expressly indicated that the L/C may be transferred to the [Seller], then the [Buyer] will transfer the entire L/C to the [Seller] (including the price difference), and after that the [Seller] will pay the price difference (i.e., US $11/ton) to the [Buyer] within two days upon receipt of the payment under the L/C.

Article 74 of CISG provides:

"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract."

According to Article 74 CISG, the Arbitration Tribunal is of the opinion that the [Seller] may foresee that non-delivery will cause losses of US $11/ton to the [Buyer]. Therefore, the [Seller] shall indemnify the [Buyer] for such losses. However, it is provided in the Contract that the quantity of the goods to be delivered may be + / - 5%, the Arbitration Tribunal is of the opinion that the losses that the [Seller] shall indemnify the [Buyer] shall be: US $11/ton x [5,000 tons - (5,000 tons x 5%)] = US $52,250.00

4. Loss of cost of issuance of L/C and interest on deposit

The [Buyer] raised the claim for the cost of RMB 200,000 for issuance of the L/C and the loss of interest of US $55,677.83 on the deposit for issuance of the L/C but did not provide evidence to prove that the [Buyer] has borne such losses, thus the Arbitration Tribunal refuse to uphold this claim of the [Buyer].

5. The arbitration fees

The arbitration fees shall be borne 80% by the [Seller] and 20% by the [Buyer].

III. THE AWARD

The Arbitration Tribunal hereby decides:

  1. The [Seller] shall indemnify the [Buyer] for the losses of US $52,250 incurred by the [Seller]'s non-delivery.

  2. The [Buyer]'s claim for the cost of RMB 200,000 for issuance of the L/C and the loss of interest of US $55,677.83 to the deposit for issuance of the L/C shall be dismissed.

  3. The arbitration fees shall be borne 80% by the [Seller] and 20% by the [Buyer].

The a.m. indemnification shall be paid by the [Seller] to the [Buyer] on or before 15 June 1995.

This award is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant Hong Kong XX International Company is referred to as [Buyer]; Respondent Hong Kong XX Company 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].

** WANG Chenghong, LL.B., LL.M., 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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