China 15 May 1995 CIETAC Arbitration proceeding (Copper cable case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/950515c1.html]
DATE OF DECISION:
DATABASE ASSIGNED DOCKET NUMBER: CISG/1995/09
CASE HISTORY: Unavailable
SELLER'S COUNTRY: United States (respondent)
BUYER'S COUNTRY: People's Republic of China (claimant)
GOODS INVOLVED: Copper cable
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
8C [Interpretation of party's statement or other conduct: interpretation in light of surrounding circumstances]; 9B [Implied agreement on international usage]; 74A [General rules for measuring damages: loss suffered as consequence of breach]
8C [Interpretation of party's statement or other conduct: interpretation in light of surrounding circumstances];
9B [Implied agreement on international usage];
74A [General rules for measuring damages: loss suffered as consequence of breach]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
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. 1551-1556
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
|Case text (English translation)
Joint translation project:
Copper cable case (15 May 1995)
Translation [*] by Jun Wang [**]
Edited by Meihu Xu [***]
China's International Trade and Economic Arbitration Commission (hereafter, "the Arbitration Commission") accepted the present case according to:
|-||The arbitration clauses in three contracts, No. RCA92004 signed on 20 January 1992, No.
RCA92013 signed on 6 April 1992 and No. RCA92017 signed on 10 July 1992 by the Respondent
[Seller], America ___ Limited Corporation and the Claimant [Buyer], Shantou Special Economic
Region [People's Republic of China] ___ Industry General Corporation; and|
|-||The written arbitration application submitted by the [Buyer] on 15 December 1993.|
According to the Arbitration Rules, the Chairman of the Arbitration Commisssion appointed Ms. P as the presiding arbitrator. Ms. P, together with Arbitrator Mr. A, appointed by the [Buyer], and Arbitrator Mr. D, appointed by the Chairman of the Arbitration Commission on behalf of the [Seller] according to Article 16 of the Arbitration Rules, formed the Arbitration Tribunal to hear this case.
The Arbitration Tribunal reviewed the [Buyer]’s written application and the [Seller]’s written defense, checked the relevant evidence materials submitted by both parties, and held a court session on 9 June 1994 in Beijing. Both the [Buyer] and the [Seller] attended the court session and answered the Arbitration Tribunal's questions.
The Arbitration Tribunal has concluded the case and rendered its award by consent based on the hearing and supplementary materials submitted after the hearing.
The following are the facts, the opinion of the Arbitration Tribunal and the award.
On 20 January, 6 April, and 10 July 1992, [Buyer] signed with [Seller] three contracts for the purchase of used communication cable with 60% copper content. The contracts were numbered RCA92004, RCA92013, and RCA92017 (hereafter, Contract No. 004, Contract No. 013, and Contract No. 017). The L/C numbers were L/C41A920086, L/C41A92043 and L/C41A920822, respectively.
It is stipulated in Contract No. 004 that the [Seller] shall provide 200 tons of goods, 1,200 US $/ton; payment shall be made by transferable L/C, 85% prompt payment, 15% long-term payment; the commodity inspection shall be made within 90 days after the goods arrive at the destination port; should there be any insufficiency in content of copper, the [Seller] shall compensate the [Buyer] within 10 days after receiving the inspection report. The remedies shall not be paid in goods.
POSITION OF THE PARTIES
The [Buyer] alleges that:
On 10 March 1992, following the payment notice issued by the bank, the [Buyer] made prompt payment of 85% of the total amount (US $196,418.34) for 192.567 tons of goods under Contract No. 004. On 18 June, after inspection, it was found that the actual weight of goods under Contract No. 004 was only 191.124 tons, which was inconsistent with the number of 192.567 tons on the No. 92-42447 receipt. There was a 1.443 ton shortage. And the copper content was only 54.6%, which was inconsistent with the 60% requirement of the contract. On 29 June, the [Buyer] faxed this information to the [Seller] immediately after receiving the inspection report. The [Seller] confirmed the inspection report by fax on 12 August, and agreed to make compensation for Contract No. 004 with 8 tons of goods under Contract No. 013.
On 6 April 1992, the [Buyer] and [Seller] signed Contract No. 013. It was stipulated in this contract that the [Seller] shall provide 500 tons of goods, US $200/ton; payment shall be made in the same method as under Contract No. 004. Because of the low content of copper in the used cable under Contract No. 004, and the delay of goods under Contract No. 013, following repeated requests by the [Buyer], the [Seller] sent representative to Shantou to check the condition of the goods and signed a “supplemental agreement” to Contract No. 013 on 14 April 1992. It was agreed that after the goods arrive at Shantou port, the [Buyer] is entitled to re-inspect the goods. If the copper content is inconsistent with the contract, the inspection result provided by Shantou Import-Export Commodities Inspection Bureau shall apply, and the [Buyer] may claim damages from the [Seller] in accordance with the certificate of weight and quality (content of copper) issued by the Shantou Import-Export Commodities Inspection Bureau. Claims may be submitted within 50 days after the goods arrive at Shantou Port.
Between 13 July and 30 September 1992, the [Seller] had delivered 538.1 tons of goods to Shantou Port. After six inspections, the actual weight of the goods was found to be 535.266 tons, and the copper content was 46.26%. In a fax sent on 11 September, the [Seller] acknowledged the extremely low content of copper and showed willingness to remedy the situation in two containers of goods under a third contract (i.e., Contract No. 017). Later, in a fax sent on 14 September, the [Seller] asked the [Buyer] to go to the bank and conduct the procedure of taking delivery of goods carried by containers No. 18-22 (i.e., containers No. ZCSU2424250, ZCSU2173896, ZCSU2010477, ZCSU2462348, ITLUT346649, with actual weight of 90.267 tons in total) without payment. In fact, the [Buyer] had made eight payments to the [Seller] in accordance with the requirements of the bank and the contracts, totaling US $548,862 (including the eight tons of goods promised by the [Seller] as compensation).
On 10 July 1992, the [Buyer] signed Contract No. 017 with the [Seller]. It was stipulated in this contract that the [Seller] shall provide 500 tons of goods, US $1,250/ton; payment shall be made via transferable L/C; 85% of the total payment shall be made in prompt payment, and the remaining 15% shall be paid via telegraphic transaction within 45 days after the arrival of the goods; claims for remedies shall be made within 90 days after the goods arrive at the destination port.
Later, the two parties signed a “supplemental agreement” to Contract No. 017, which stipulates that: after the goods arrive at the Shantou Port, the [Buyer] is entitled to a re-inspection of the weight and copper content of the goods. If there is any inconsistency with the delivery sheet, the inspection certificate issued by the Guangdong Import-Export Commodities Inspection Bureau shall apply, and the [Buyer] may claim damages against the [Seller] based on the aforesaid inspection certificate. The claim shall be made within 60 days after the last container of the same batch of goods arrives at Shantou Port. If the [Seller] makes no response within 15 days after receiving the [Buyer]’s claim, it shall be deemed that the [Seller] has accepted the claim.
Between 14 September 1992 and 4 December 1992, goods under this contract amounting to 294.88 tons (according to the receipt) had been delivered to Shantou, and were inspected respectively four times with the result of actual weight of 276.9 tons in total, and average copper content at 40.73%. Due to this situation, the [Buyer] again claimed against the [Seller] for remedies. On 24 October 1992, the [Seller] faxed to confirm that there were still 214.775 tons of cable to be delivered (not including nine containers that had not arrived), meanwhile, the [Buyer] paid US $474,410.68 to the bank, (not including payment for the two containers, Containers No. HDMU4090025 and No. KWTU4012944 promised by the [Seller] as compensation. The weight of these goods presented on the receipt was 38.156 tons, while the actual weight was 36.38 tons with a copper content of only 40.5%).
Between 11 March and 20 March 1993, the last nine containers were unloaded at the Shantou Port. The result of inspection was that: the actual weight was 188.92 tons, and the copper content was 41.9%. Under this situation, the [Buyer] faxed the inspection report to the [Seller] again for confirmation, but the [Seller] asserted that the nine containers of goods had an inspection certificate issued by SGS, and requested an exclusion of remedies for these goods. However, the [Seller] never offered the SGS’s commodities inspection certificate at all while the [Buyer] had made payment to the bank in accordance with the requirements of the contract.
On 20 April, the [Buyer] sent a fax to the [Seller], requesting the [Seller] to pay the confirmed remedies for the 214.775 tons of goods, but the [Seller] denied the compensation amount which it had confirmed in the fax sent on 14 July 1993, and alleged that the actual compensation should be 203.604 tons (excluding the last nine containers). The [Seller] also stated that the compensation would be made by No. 2 used copper cable, amounting to 122.16 tons. On 4 August, the [Seller] requested in addition that the compensation should be made between September and October. The [Buyer] responded that, based on the consideration that compensation in goods may cause a quality dispute again, and because it was stipulated in the contract that compensation shall not be made in goods; therefore, the [Buyer] requested the [Seller] to pay the remedies in cash. The [Seller] telegraphed the [Buyer] alleging its shortage of cash and difficulties in collecting money. The [Buyer] therefore asked the [Seller] to open a long-term L/C. On 2 September, the [Seller] sent a fax to the [Buyer], agreeing to negotiate with the bank for the L/C. However, the [Buyer] has waited till now with no result, therefore, the [Buyer] applied for arbitration.
The [Buyer] alleges that:
|-||The loss under Contract No. 004 was US $22,446.00;|
|-||The loss under Contract No. 013 was US $81,739.20;|
|-||The loss under Contract No. 017 was US $81,937.50, totaling US $186,122.70.|
Because of the serious quality problems with the goods delivered by the [Seller], which caused huge losses to the [Buyer], [Buyer] requests the Arbitration Tribunal to rule that:
1. [Seller] shall pay the loss of [Buyer] totaling US $186,112.70 with interest. (Starting from 1 November 1993 to the date of the arbitration award is made)
2. [Seller] shall bear the [Buyer]’s attorneys’ fee and other expenses caused by the arbitration.
3. [Seller] shall bear the arbitration fee.
The [Seller] defended, stating that:
1. Under international trade usage, the permitted error for weight is ±0.5%, for the content of copper it is ±1.5%. The [Seller] asserts that error shall always be considered while calculating any standard. Though it was not expressly stipulated in the contract by the two parties, based on the fact that even the SI Units will take error into consideration, the error factor should be considered while calculating the weight and the content of copper. In addition, [Seller] alleged that the [Buyer] and [Seller] had reached an oral agreement on this issue to the effect that:
|-||Under Contract No. 004, the [Seller] shall compensate the [Buyer] US $15,866.12;|
|-||Under Contract No. 013, the [Seller] shall compensate the [Buyer] US $27,452.58;|
|-||Under Contract No. 017, the [Seller] shall compensate the [Buyer] US $66,610.59, totaling US $109,929.29|
2. The additional “supplemental agreement” signed by the [Buyer] and [Seller] was lawful, and the issuing date of inspection report listed in the agreement was enforceable. The [Buyer] shall be liable for providing the inspection report after the time limit for issuing the inspection report has expired. The loss shall be borne by the [Buyer], and the [Seller] shall not be liable for any obligation here. Thus, under Contract No. 013, the inspection dates of goods presented on Receipts No. 92-43274, No. 92-00151, No. 92-00169, No. 92-00178, No. 92-00190, No. 92-01088 had passed the agreed term of 60 days; Under Contract No. 017, the inspection dates of goods presented on Receipts No. 92-01088, No. 92-00326, No. 92-00909, No. 92-00822 had also passed the agreed term (60 days).
The [Seller] asserts that the goods claimed within the claim period (60 days), shall be calculated in accordance with the inspection report considering the error recognized by international standards. Thus, the amount of remedy that should be paid to the [Buyer]:
|-||Under Contract No. 004 is US $15,289.92;|
|-||Under Contract No. 013 is US $27,452.58;|
|-||Under Contract No. 017 is US $66,610.59, totaling US $109,929.29|
The formula for calculation applied was:
(1) The standard of error:
|-||Weight: weight on the receipt ±0.5%|
|-||Content of copper: the standard content of copper under contract ±1.5%|
|-||The copper content stipulated in the contract is 60%|
|-||Thus, the permitted range of fluctuation is: 58.5% ~ 61.5%|
(2) The formula for calculation of loss
|-||Compensation shall be paid = (actual weight MT × Value/MT × difference on content of copper ÷ the negative bias on content of copper.|
|-||Where: actual value: weight on the receipt ±0.5%|
|-||Weight on the receipt: 192.567 MT|
|-||Actual weight: 191.604 MT|
|-||Value/ MT --- US $1,200 /mt under Contract No. RCA92004|
|-||Difference on the content of copper ---3.9% under Contract No. RCA92004|
|-||Bias on content of copper --- 58.5% under Contract No. RCA92004|
3. As to the “confirmation letter” signed by the [Seller] and submitted by the [Buyer] on 24 October 1992, the [Seller] alleges that the “confirmation letter” and the second “supplemental agreement” were signed on the same day, and later, the [Buyer] typed the “supplemental agreement” as a formal document, which was signed by both parties. Thus, the “confirmation letter” shall not be used as legal evidence and the “supplemental agreement” shall be the basis.
II. OPINION OF THE ARBITRATION TRIBUNAL
1. Contracts No. 004, No. 013 and No. 017 for the sale of used cable signed by the [Buyer] and [Seller] are legal and effective. Pursuant to the provisions of the Foreign Economic Contract Law of the People’s Republic of China and the United Nations Convention on Contracts for the International Sale of Goods (hereafter, the “CISG”), both parties shall conduct themselves pursuant to the provisions of the contract, exercise their rights and fulfil their obligations under the contract.
After the contracts were signed, the [Buyer] fulfilled its payment obligation. The payments made by the [Buyer] under the three contracts total US $1,532,023.96. (Details are provided in the attached Form I)
However, during the performance of the contract, the [Seller] did not deliever the goods according to the quality requirement stipulated in the contract. The goods that were delivered were non-conforming goods. This constitutes a breach of contract which caused damages to the [Buyer]. [Seller] is liable for the breach of contract. The inspection results confirmed by the Arbitration Tribunal are listed in the attached Form II.
In conclusion, comparing the amount presented on the receipts issued by the [Seller] during the execution of Contracts No. 004, No. 013 and No. 017, except the 2.045 tons exceeding goods under Receipt No. 92-43274, others are all in shortage, totaling 12.7926 tons with an average copper content of 42.75%.
2. As to the calculation standard for the loss suffered by the [Buyer], the [Seller] asserted that the errors for quality and weight are ±0.5% and ±1.5%, respectively. However, after the examination made by the Arbitration Tribunal, it was found that there was no such an international trade usage, nor was there any written evidence to prove that the parties had agreed to this. Thus, the Arbitration Tribunal holds that, [Seller]’s this assertion cannot be supported and the provisions of the contract shall be applied.
3. As to the issuance of the inspection certificate, the Arbitration Tribunal notes that the [Buyer] and [Seller] voluntarily reached a “supplemental agreement” on 24 October 1992 after signing Contracts No. 013 and No. 017, which was to be executed together with the two contracts. It was stipulated in the “supplemental agreement” that the [Buyer] could make a claim within 60 days after receiving the last container of the same set of goods. On the same day, the [Seller] issued the “confirmation letter” to the [Buyer], stating “we agree on the 30 days extension based on the original claim period”, which means the claim period had been expanded from 60 days to 90 days. Although the [Seller] denied the effectiveness of the “confirmation letter”, its reason for denial is not sufficient, and without any other written supporting evidence. Thus, the Arbitration Tribunal holds that the “confirmation letter” is effective and that the claim period should be within 90 days after the [Buyer] received the last container of the same set of goods from the [Seller].
According to the inspection report, the Arbitration Tribunal notes that, among the six inspections made on the goods under Contract No. 013, except for the fourth inspection, i.e., Receipt No. 92-00178, which was not conducted during the period of inspection, the other five inspections shall be effective. In addition, the inspections for the goods under Contracts No. 004 and No. 017 were conducted within the inspection period, which should be effective.
Thus, except the amount claimed beyond the inspection period, the calculation for compensation to the [Buyer] is indicated as the following: (Details are listed in the attached Form III).
According to the forms for Contracts No. 004, No. 013 and No. 017, the [Seller] shall pay the [Buyer] US $129,272.22 (US $21,908.25 + US $42,812.08 + US $64,551.89) plus the interest at a monthly interest rate of 6‰ from 1 November 1993 to the actual payment date.
4. As to the [Buyer]’s claim for attorneys’ fee and other expenses, the Arbitration Tribunal holds that [Seller] shall made appropriate compensation, and renminbi [RMB] 40,000 is considered reasonable.
1. [Seller] shall pay the remedies for the losses of the [Buyer] due to its breach of contract totaling US $129,272.22 with a 6‰ monthly interest calculated from 1 November 1993 to the date actual payment is made.
2. [Seller] shall compensate the [Buyer]’s attorneys’ fee and other expenses of RMB 40,000.
3. The arbitration fee shall be borne by the [Seller].
4. The above amounts shall be paid to the [Buyer] within 60 days after this award takes effect. Otherwise, an 8‰ monthly interest on US $ and a 10‰ monthly interest on RMB payment will be added.
This is the final award.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the People's Republic of China is referred to as [Buyer]; Respondent of the United States 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].
** Jun Wang, LL.M. in Corporate Law, Law School of New York University; LL.B. Law School of Peking University; B.A. in Economics, CCER (China Center for Economic Research) of Peking University.
*** 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.Go to Case Table of Contents