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CISG CASE PRESENTATION

China 22 January 1996 CIETAC Arbitration proceeding (Palm oil case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960122c1.html]

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

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Case identification

DATE OF DECISION: 19960122 (22 January 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/04

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Singapore (respondent)

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

GOODS INVOLVED: Palm oil


Case abstract

PRC: China International Economic & Trade Arbitration Commission,
Palm oil case of 22 January 1996

Case law on UNCITRAL texts (CLOUT) abstract no. 679

Reproduced with permission of UNCITRAL

Abstract prepared by Anna Lin

A Chinese buyer and a Singaporean seller entered into a sales contract on refined edible palm oil. After the buyer issued an irrevocable L/C to the seller, the latter refused to perform. It demanded changes to the L/C because of a quality problem with the palm oil and the price increase for palm oil. Subsequently, the buyer changed the L/C based on an agreement reached by the parties. The seller, however, failed to deliver any goods.

The buyer sought compensation, among others, before an arbitration tribunal on the basis of a penalty clause in the contract for late delivery, for the loss of issuing and changing the L/C. During the tribunal session the buyer stated that the contract had been avoided. Additionally, it asked the tribunal to avoid the contract. It further claimed damages [Art. 74 CISG], which were based on the difference between the contract price and the resale market price. Additionally, it claimed for delivery of the goods under the original contract.

The tribunal decided that the buyer had performed its contractual obligations by issuing the L/C and that the seller was in fundamental breach of the contract [Art. 25 CISG]. Accordingly, the tribunal held that the contract had been avoided [Art. 49(1)(a) CISG]. The tribunal accepted the buyer's claim for damages under Art. [45, 74 CISG]. However, the tribunal rejected both the buyer's claim for compensation under the contractual penalty clause and its demand for performance of the contract, since the contract had been avoided. In addition, the tribunal denied the buyer's claim of costs associated with the issuance and change of the L/C, as it deemed such costs to be common costs for business.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 74

Classification of issues using UNCITRAL classification code numbers:

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

Descriptors: Damages ; Profits, loss of

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

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) 1996 vol., pp. 817-820

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.58, 90, 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

Palm oil case (22 January 1996)

Translation [*] by Meihua Xu [**]

Edited by Liming (Anna) Lin [***]

The China's International Trade and Economic Arbitration Commission Shenzhen Commission (hereafter, the "Arbitration Commission") accepted the case on 18 April 1991 according to:

   -    The arbitration clause in Sales Contract No. 71008 signed by Claimant [Buyer], China Shantou City __ Company, and Respondent [Seller], Singapore __ (private) Company, on 1 July 1994; and
 
   -    The written arbitration application submitted by [Buyer] in February 1995.

On 17 April 1995, the Secretary Office of the Arbitration Commission sent the arbitration notice to the [Seller] by registered mail, and enclosed the [Buyer]'s arbitration application and its attachment. The [Seller] was required to appoint an arbitrator in a timely manner and submit its defense by written document. The receipt of the registered mail sent to the [Seller] indicated that the [Seller] had received the aforesaid documents.

The Arbitration Commission did not receive notice from the [Seller] appointing its arbitrator. Therefore, according to Article 26 of the Arbitration Rules (effective since 1 June 1994), the Chairman of the Arbitration Commission appointed Mr. D as an arbitrator on behalf of the [Seller] on 26 June 1995. On the same day, the Arbitration Commission appointed Mr. P as the Presiding Arbitrator according to the Arbitration Rules. On 26 June 1995, Mr. P, Mr. D, and Mr. A, the arbitrator appointed by the [Buyer], formed the Arbitration Tribunal to hear this case. On the same day, the Secretary Office of the Arbitration Commission sent the Arbitration Tribunal formation notice to the [Seller] by registered mail.

On 30 June 1995, the Arbitration Tribunal decided to hold a court session in Beijing on 8 September 1995. The Secretary Office of the Arbitration Commission sent the notice of the court session to the [Seller] by registered mail.

The Arbitration Tribunal formation notice and the court session notice were returned by the post office as "unclaimed" mail. On 31 July, the Arbitration Commission sent the aforesaid notices to the [Seller] through TNT Express Mail Company, which were also returned. Because of this mailing problem, on 22 August 1995, the Arbitration Tribunal decided to postpone the court session to 17 October 1995.

On 22 August 1995, the Secretary Office of the Arbitration Commission entrusted __ Law Firm (former name was China __ Law Firm) to send the Arbitration Tribunal formation notice and the court session postponement notice to the [Seller]. On 24 August 1995, the __ Law Firm sent a letter to the Arbitration Tribunal saying that it had delivered the documents to the [Seller] on 24 August 1995. According to Articles 76 and 77 of the Arbitration Rules, the Arbitration Commission has sent the aforesaid Arbitration Tribunal formation notice and the court session postponement notice to the [Seller].

During the arbitration process, Mr. P could not continue to act as the Presiding Arbitrator due to health problem. Pursuant to Articles 31 and 24 of the Arbitration Rules, on 9 October, the Chairman of the Arbitration Commission appointed Mr. L as the Presiding Arbitrator, and Mr. L together with Mr. A and Mr. D continued to process this case. The date of the court session remained the same.

On 9 October 1995, the Secretary Office of the Arbitration Commission entrusted __ Law Firm to send the new Presiding Arbitrator appointment notice to the [Seller]. On 10 October, the __ Law Firm sent a letter to inform the Arbitration Tribunal that the notice had been delivered to the [Seller].

On 17 October 1995, the court session was held in Beijing as planned. The [Buyer] sent a representative to the court session; the [Seller] did not present nor did give any reason for its non-attendance. According to Article 42 of the Arbitration Rules, the Arbitration Tribunal processed this case by default.

In the court session, the [Buyer] made an oral statement and answered the Arbitration Tribunal's questions. After the court session, the [Buyer] submitted a supplementary document.

The Arbitration Tribunal sent two letters on 1 November 1995 and 29 November to the [Seller] asking whether it wanted another court session and whether it had any opinions on this case, to which the [Seller] should reply within a stipulated period of time. The [Buyer]'s supplementary document was also attached.

On 1 November and 29 November, the Arbitration Tribunal entrusted __ Law Firm to deliver the aforesaid notice and its attachment to the [Seller]. On 2 November and 30 November, the __ Law Firm sent letters to the Arbitration Tribunal stating that the two documents were delivered to the [Seller] on 2 November and 30 November. The [Seller] did not make any response within the stipulated time.

Therefore, according to Article 42 of the Arbitration Rules, the Arbitration Tribunal concluded this case based on the existing documents and the court session, and made this award.

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

I. FACTS

On 1 July 1994, the [Buyer] and the [Seller] signed a sales contract by which the [Buyer] was to purchase 3,000 tons of Haihuang brand refined edible palm oil. The term was CIF Shantou, the unit price was US $610, and the total price was US $1,830,000. The shipment was to be before 30 July.

Following the contract, on 4 July, which was 25 days before the loading date, the [Buyer] issued an irrevocable L/C to the [Seller] through the Bank of China Jinan Branch (Shandong Province __ Trade Company was the [Buyer]'s customer) to the Bank of China Singapore Branch. However, later, the [Seller] refused to perform the contract and demanded to change the L/C alleging that part of the oil had a quality problem and the price for oil had increased. On 1 August, both parties reached an agreement, which stipulated:

(1) [Buyer] agrees to change the L/C so that (a) the goods can be delivered separately; (b) the deadline for delivery can be changed to 31 August 1994; (c) the L/C is valid until 20 September 1994.

(2) [Seller] must load 1,000 tons of goods before 10 August 1994, and the remaining goods should be loaded before the end of August.

The [Buyer] changed the L/C in accordance with this revised agreement; the [Seller], however, has not deliver any goods.

II. [BUYER]'S POSITION

The [Buyer] asserts that the [Seller] used "the oil has a quality problem" and "the price for palm oil has increased" as excuses to unilaterally avoid the contract. The fact is that after signing the agreement, on 16 August 1994, the [Seller] sent a fax to the [Buyer] stating that the price for palm oil had increased dramatically and the situtation was unclear; two days later, the [Buyer] sent a fax to urge the [Seller] to deliver the goods stating that the delivery date for 1,000 tons had passed, and inquiring as to the [Seller]'s plan for the remaining 2,000 tons of goods.

On the same day, the [Seller] replied that the price for palm oil had exceeded US $720, and there was a great demand for the goods, therefore, the [Seller] was not going to deliver the goods. On 30 August, the [Buyer] claimed compensation, and attached the compensation letter from its customer, Shandong Province __ Trade Company, which included the compensation sum in detail. Later, on 5 October, the [Buyer] asked for compensation again based on the aforesaid sum, however, the [Seller] never replied.

The [Buyer] asks the [Seller] to compensate:

(1) According to Article 6, the penalty clause in the sales contract which states that "If the [Seller] cannot deliver the goods on time, it shall pay 5% of the total price (US $1,830,000) of the contract, which is US $91,500.

(2) The loss of issuing and changing the L/C: renminbi [RMB] 24,280.06, which is US $2,856,48 resulting from the [Seller] 's violation of the contract.

(3) The [Buyer]'s attorneys' fee and the arbitration fee: RMB 38,500, which is US $4,643.76. (exchange rate: 8. 29: 1).

The [Buyer]'s claim for compensation totals US $99,000.24.

During the court session, the [Buyer] stated that the contract had been avoided and that it would not perform the contract any more. After the court session, the [Buyer] submitted a supplementary arbitration application stating the following supplementary claim:

(1) According to Article 18 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, the party who has performed its obligation has the right to claim compensation, and according to Article 6(a), the penalty clause in the sales contract, the [Buyer] has the right to terminate the contract and claim for all losses resulting from the [Seller]'s non-delivery of the goods. According to the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG") and international trade usages, if the [Buyer] had received the goods and resold the goods on time, the reselling price was RMB 6,800/ton, and prime cost including tax was RMB 6,540. The price difference was RMB 260, therefore, the [Buyer]'s loss is RMB 780, 000, which is US $94,000.

(2) According to Article 18 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, the contract performing party has the right to ask for remedying the contract, and under Article 6(b) of the penalty clause of the sales contract, the contract is still valid, but the [Seller] should pay 5% of the total price (US $1,830,000), which is US $91,500. In addition, the [Seller] should deliver the goods at the same price under the original contract within two months.

III. OPINION OF THE ARBITRATION TRIBUNAL

(1) Compensation for loss resulting from the [Seller]'s non-delivery of goods

Under the contract in this case, the [Seller] should have delivered 3,000 tons of goods before the end of July 1994 at the unit price of US $610, which is a total of US $1,830,000. However, the [Seller] asked for a change in the L/C to postpone the delivery of the goods using as excuse that the palm oil had a quality problem and the price for the goods had increased. After the [Buyer] agreed to this, the parties changed the L/C, and signed an agreement in which it was determined that the first 1,000 tons of goods should be delivered on 10 August 1994, and that the remaining 2,000 tons should be delivered before the end of August. However, the [Seller] has not deliver any goods, which constitutes a fundamental breach of the contract.

The Arbitration Tribunal notes that the [Buyer] stated that the contract had been terminated in the court session, and in its supplementary arbitration application, it asked to avoid the contract. In addition, the [Buyer] alleged that under the CISG and international custom, the [Buyer] is entitled to recover the difference between the domestic resale market price (the price in August 1994 when the goods should have been delivered) of RMB 6,800/ton and the contract price including tax of RMB 6,540, which is RMB 260/ton, and a total of RMB 780,000. (US $94,000)

The [Buyer]'s claim for the price difference between the contract price including tax of RMB 6,500/ton and the resale market price (if the goods had been delivered on time) of RMB 6,800, amounts to a total of US $94,000. The Arbitration Tribunal deems that this claim is reasonable and should be accepted.

The Arbitration Tribunal deems that the [Seller] has fundamentally breached the contract, and the [Buyer] also asked to avoid the contract; therefore, the [Buyer] can recover by receiving the aforesaid price difference. The [Buyer]'s asking for compensation based on the penalty clause in the contract, and demanding of the [Seller]'s continuing to perform the contract should not be accepted.

(2) Other claims

The [Buyer] also asks for the cost of issuing and changing the L/C of RMB 24,280.06. The Arbitration Tribunal notes that the cost for issuing or changing an L/C is a common cost for business, and if the [Buyer] is entitled to the price difference, this claim of the [Buyer\ should not be considered.

According to Article 59 of the Arbitration Rules, the Arbitration Tribunal admits the [Buyer]'s claim for attorneys' fee.

IV. THE AWARD

(1) The contract in this case has been avoided.

(2) [Seller] shall pay the [Buyer]'s loss of US $94,000 and the attorneys' fee of RMB 13, 000.

(3) [Buyer]'s other claim is dismissed

(4) The [Seller] shall bear the entire arbitration fee.

The [Seller] shall pay the [Buyer] a total of US $94,000 and RMB 38,500 within 45 days after this award takes effect. Otherwise, 7% annual interest for the US $ payment and 11% annual interest for RMB payment 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's Republic of China is referred to as [Buyer] and Respondent of Singapore 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].

** 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.

*** Liming (Anna) Lin, J.D. candidate 2007, Pace University School of Law. She received her MBA from University of Maryland at College Park, and her Bachelor of Science from Nanjing University, China.

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