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CISG CASE PRESENTATION

China 5 February 1996 CIETAC Arbitration proceeding (Peanut case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960205c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19960205 (5 February 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/06

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Netherlands (claimant)

GOODS INVOLVED: Peanuts


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 75 ; 76

Classification of issues using UNCITRAL classification code numbers:

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

75B [Damages established by substitute transaction after avoidance (repurchase by aggrieved buyer): reasonable substitute transaction];

76B [Damages based on current price]

Descriptors: Damages ; Cover transactions

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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) 1996 vol., pp. 864-868

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

Peanut case (5 February 1996)

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 Sales Confirmation No. 527/93006 for the sale of peanuts signed by Claimant [Buyer], Holland __ Company and Respondent [Seller], China __ Trade Company on 1 November 1993; and
 
   -    The written arbitration application submitted by [Buyer] on 9 March 1995.

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

The Arbitration Tribunal examined the arbitration application, arbitration defense and other written documents submitted by both parties, and held a court session in Beijing on 4 October 1995. Both parties sent representatives to the court session. They made oral statements and answered the Arbitration Tribunal's questions.

After the court session, both parties submitted supplementary evidence and the Arbitration Tribunal forwarded each party's documents to the other party.

The case has been concluded. After discussion, the Arbitration Tribunal made this award.

The following are the [Buyer]'s claim, the facts, the Tribunal's opinion and award.

I. [BUYER]'S CLAIM

The following is the [Buyer]'s claim in its arbitration application

The [Buyer] asks the Arbitration Tribunal to decree that the [Seller] shall pay the losses and costs resulting from the [Seller]'s non-performance of the delivery obligation under the contract, which are:

  1. The cost for purchasing substitute goods of US $151, 884 and other costs;
  2. The interest on the aforesaid sum;
  3. The arbitration fee paid in advance and the [Buyer]'s attorneys' fee.

II. FACTS

The [Buyer] and the [Seller] signed Sales Confirmation No. 527/93006 (hereafter, the "Contract") on 1 November 1993 in Beijing, by which the [Seller] agreed to sell and the [Buyer] agreed to purchase 2,000 tons of peanuts (with shell) produced in China. The terms of the Contract were:

   -    Price: US $650/ton FOB Xingang;
   -    Water content: less than 8.5%;
   -    Impurity: less than 0.5%;
   -    Not plump eared peanuts: less than 5.5%, 9 to 11 grains/oz;
   -    Delivery: [Seller] shall deliver the goods in two installments of 1,000 tons each; the first 1,000 tons should be delivered in November 1993, and the second 1,000 tons should be delivered before 20 December 1993;
   -    Payment: L/C.

The contract provides that the [Buyer] shall issue a confirmed, irrevocable sight L/C before 20 November 1993 which would be valid within twenty days after the goods had been delivered. It was also determined in the Contract that "the [Buyer] has the right to examine the goods before or during the loading, and that if the [Buyer] or its representative finds the goods do not conform to the Contract, it has the right to reject the non-conforming goods."

The Contract was signed by Mr. Huang __ for the [Seller] with China__ Trade Company's seal and Mr. Song __ for the [Buyer] with Holland O'K. Limited's seal.

III. POSITION OF THE PARTIES

A. [Buyer]'s position

The [Buyer] asserts that on 17 November 1993 and 19 November, the [Seller] sent two faxes to the [Buyer] saying that the first 1, 000 tons of goods were ready to be inspected by the [Buyer] before loading. The [Buyer] went to Tianjin to examine the goods, but found that there were only 600 tons of goods, and that the size of the peanuts was uneven and smaller than the size required by the Contract.

The [Buyer] asked the [Seller] to take prompt action to prepare the goods in order to meet the deadline for the first delivery. The [Seller] admitted that the goods were not sufficient and apologized. Later, the [Seller] alleged that the cold weather slowed down the process, and it was not until 1 December that the [Seller] stated that the first delivery still had not reached the required amount, and that [Seller] was not sure about the second delivery. The [Seller] also asked the [Buyer] to look for another source of the goods to perform the Contract.

The [Buyer] helped the [Seller] find 2,000 tons of goods from Tianjin A Trade Company. After discussion, on 11 December 1993, the three parties signed an agreement by which, the [Seller] was required to send renminbi [RMB] 10,335,000 to A Trade Company within two days after the [Buyer] issued a certificate accepting the goods. After that, the [Buyer] could send the ship for loading and should pay the price of US $1,300,000 to the [Seller] by 25 January 1994. The agreement was signed and sealed by the [Buyer] and A Company, and was taken back by the [Seller] to Beijing to be signed. However, the [Seller] has not yet replied; therefore, this arrangement also failed.

On 13 December 1993, the [Seller] alleged that the Contract had been terminated and refused to deliver the goods with an excuse that the [Buyer] had not issued the L/C. On 30 December 1993, the [Seller] sent another fax to the [Buyer] saying that the Contract had been terminated, and they needed to deal with Contract post-termination issues.

Considering the fact that the [Seller] had repeatedly refused to deliver the goods under the Contract, the [Buyer] had to find another source of supply to avoid violating its contracts with its customers. On 18 January 1994, the [Buyer] signed a contract with China Hainan __ Company to buy 2,000 tons ( 5%) of substitute goods. The goods actually loaded were 2,025.12 tons, and the price was US $725/ton. This price was US $75/ton higher than the original contract concluded with the [Seller]; it was a total of US $151,884 higher.

According to the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest and the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), the [Buyer] asks the Arbitration Tribunal to order that the [Seller] shall pay the price difference for buying substitute goods and interest on this amount. The [Buyer] also provided the sales contract it signed with A Company on 18 January 1994, five Bills of Lading for the replacement goods, and related receipt and money-transferring documents from the bank.

B. [Seller]'s position

The [Seller] alleges that:

      1. On the Contract signed on 1 November 1993, even though it was printed that "C. B. V." was the [Buyer] in this case, the party who actually signed and sealed the Contract was __ Company (Holland O'K. Limited).

__ Company alleged that it was the [Buyer]'s representative, however, no [Buyer]'s entrusting document was presented. The original contract did not contain the [Buyer]'s signature, nor a signature for entrusting __ Company, and Mr. Huang __ was not entrusted to sign the Contract; therefore, the Contract was void.

      2. The [Seller] found customs declaration forms for four of the five Bills of Lading for shipping the substitute goods by ship Shui Cheng and ship Feng Tai at Tianjin port Custom. In two of them, the entry price was US $400/ton, one was US $630/ton, and one was US $650/ton, but not as the [Buyer] stated: US $725/ton. Therefore, there was no price difference as claimed by the [Buyer]. The [Seller] also found customs declaration forms for four Bills of Lading for exporting peanuts in other similar sales around the same time, which were US $400 to 650/ton; therefore, the market price for exporting the contract goods then was FOB US $400 to 650/ton.

      3. The [Buyer] did not issue the L/C before 20 November 1993 as required by the contract. On 22 November 1993 and 24 November, the [Seller] suggested that the [Buyer] could examine the goods first and then issue the L/C, but the [Buyer] replied that it could not understand the [Seller]'s suggestion. On 27 November, the [Seller] sent another fax saying that as a common trade method, the [Buyer] should issue the L/C first and then examine the goods, however, no response was received from the [Buyer]. The [Buyer] had not issued the L/C before 30 November. The [Seller] had to announce termination of the Contract on 13 December. The [Seller] asserts that the [Buyer] did not issue the L/C on time, which constituted a fundamental breach of the contract, therefore, the [Buyer] should bear all the losses by itself.

C. [Buyer]'s supplementary response

The agent of the [Buyer] submitted a supplementary document after the court session to rebut the aforesaid assertions of the [Seller]. [Buyer] alleges that:

      1. Holland __ Company was the agent of the [Buyer], which can be proved by an entrusting certificate that was issued on 20 August 1993. The [Buyer]'s representative in Beijing can also testify to this effect.

      2. The [Buyer] had to purchase the substitute goods because of the [Seller]'s non-performance of the Contract. The four exporting goods entry reports the [Seller] found at Tianjin port Customs were inconsistent with the [Buyer]'s Bills of Lading (such as, the contract number was different, the exporting date was inconsistent with the date on the Bill of Lading, the weight of the goods in F19 was different, and the unloading ports in two of the Bills of Lading were different, etc). The [Buyer] alleges that the record issued by [Buyer]'s customer has no connection with the substitute goods. In addition, the [Buyer] has provided the contract it has signed with Hainan __ Company to buy the goods and the payment receipt, which was sufficient to prove that there is a difference between the contract price and the price for replacement. How much __ Company has paid to buy the goods to sell to the [Buyer] has nothing to do with the replacement contract price.

      3. The reason the [Buyer] did not issue the L/C was to follow the [Seller]'s "doing the examination before issuing the L/C" procedure. Furthermore, on 12 November 1993, Mr. Song of the [Buyer] and the [Seller] reached an agreement on the time for issuing the L/C (examining before issuing L/C). The [Seller] did not prepare enough conforming goods for the first delivery, and asked the [Buyer] to look for the resource for the second delivery, with the result the [Buyer] had to seek substitute goods.

Therefore, the [Buyer] insists on its arbitration claim.

IV. OPINION OF THE ARBITRATION TRIBUNAL

      1. Applicable law

The parties in this case did not decide on the applicable law. The law of the country which has the closest relationship to the contract should be applied. Considering that the place of the contract's formation and the place of inspection of the goods is in China, this country has the closest relationship to the contract; therefore Chinese law should be applied. In addition, both parties in the contract are from Contracting States of the CISG; therefore, the CISG can also be applied if needed.

      2. The validity of the contract and the qualification of the [Buyer] as a party to the contract

The Arbitration Tribunal concludes that: (1) until the application for arbitration, both parties were performing Contract No. 527/93006, and the [Seller] had never raised any objection to the contract; and (2) the [Buyer] has provided the entrusting contract C. B. V. concluded with Holland __ Company (Holland O'K. Limited), by which the [Buyer] entrusted Holland __ Company the right to conclude and perform the contract.

Article 16 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest provides that, "if the contract is formed lawfully, it has binding effect, and the parties should perform the obligations in the contract. No party should change or terminate the contract." According to this Article, the contract in this case is valid, and both C. B. V. as the [Buyer] and Holland __ Company, who signed the contract as the [Buyer]'s representative, are parties to the contract.

The Arbitration Tribunal does not accept the [Seller]'s assertion that C.B. V., the [Buyer], did not sign the contract, and that Holland __ Company was not entrusted by the [Buyer] and that, therefore, the contract was void, and that the aforesaid parties cannot be parties to the contract.

      3. The liability for breach of contract

According to the contract in this case, the [Buyer] was obligated to issue a confirmed, irrevocable, and transferable sight L/C which permits delivery of goods by installment to the [Seller] before 20 November 1993, and the [Seller] was obligated to deliver 1,000 tons of goods before November and 1,000 tons before 20 December 1993.

According to the materials submitted by the parties, the Arbitration Tribunal finds that before 20 November, the parties did not reach a written agreement that the [Buyer] can examine the goods first, and that if it agrees to accept the goods, the [Buyer] should issue a L/C.

Through the faxes sent by the [Seller] on 22 November 1993 and 24 November 1993, it can be found that the parties agreed to modify the order of issuing the L/C and examining goods to "(1) the [Seller] shall prepare the goods and notify the [Buyer] to examine the goods; and (2) when the [Buyer] examines the goods, if it agrees to accept the goods, it should issue a L/C", which does not discharge the [Buyer] from performing its obligation to issue a L/C. The agreement of changing the time to issue the L/C was signed later than 20 November 1993, therefore, the [Buyer] did not issue the L/C on time, which is a violation of the contract, and the [Buyer] shall bear the consequent liabilities.

The Arbitration Tribunal also found that the [Seller] was not ready to ship the first delivery of 1,000 tons of goods in November 1993, and until 1 December 1993, the 1,000 tons of goods for the first delivery still did not reach the requirement for exporting (see the [Seller]'s fax on 1 December 1993). The [Seller] even suggested that the [Buyer] find another source of supply for the 1,000 tons of goods of the second delivery. Therefore, the Arbitration Tribunal deems that the [Seller]'s not preparing enough goods after the L/C was issued and changed is the essential reason for causing the contract not to be performed. The [Seller] should take the responsibility for failing to prepare the goods. The parties changed the time and order for issuing the L/C, therefore, the [Seller]'s accusation that the [Buyer] did not issue the L/C on time, which gave [Seller] the right to terminate the contract, should not be accepted.

      4. The [Buyer]'s claim for the price difference

            (1) The parties have different opinions on the price for exporting peanuts from China between December 1993 and February 1994. The price provided by the [Buyer] is higher than US $725/ton, and the [Seller]'s price is between US $400 and US $650/ton.

            (2) According to Articles 75 and 76 of the CISG, if the party claiming damages of the difference between the contract price and the price for replacing the goods, it must purchase the substitute goods in a reasonable manner, which means the price for replacement should be the current price at the place where the delivery of the goods should have been made. (Article 76 of the CISG). From the evidence provided by the [Seller], the price for exporting peanuts at that time was lower than US $725/ton, and the [Buyer] has no strong evidence to reverse the [Seller]'s assertion;

            (3) The most important thing is that the [Buyer] has not provided sufficient evidence to support its price difference claim. Even though the [Buyer] has provided its purchasing contract, Bill of Lading and receipt, it has not submitted customs declaration forms which are in line with the price on its Bill of Lading.

            (4) The price on the money transferring form is not the price for purchasing the substitute goods.

Considering all of the above, the Arbitration Tribunal deems that the [Buyer]'s claim for a price difference of US $151,884 and interest on this amount is not supported by sufficient evidence and should not be accepted.

However, considering that:

            (1) Even though the [Buyer] did not issue the L/C before 20 November as required in the contract, which constitutes a violation of the contract, the two parties had negotiated to change the time for issuing the L/C, which was confirmed by written document on 22 November 1993;

            (2) After changing the L/C, the [Seller]'s failing to prepare the goods is the essential reason which caused the Contract not to be performed. The [Seller] itself also suggested that the [Buyer] find another source of supply; therefore, the [Seller]'s failure to deliver the goods deprived the [Buyer] of its expectation for making a profit, and finding a new source of supply was a burden for the [Buyer], which also caused unnecessary loss, therefore, the [Seller] should compensate the [Buyer].

The Arbitration Tribunal deems that a reasonable sum for compensation is 1/3 of the price difference claimed by the [Buyer], which is US $151,884 1/3 = US $50,628.

      5. The arbitration fee and attorneys' fees

The [Buyer] and the [Seller] shall each bear 50% of the arbitration fee. The [Buyer]'s claim that the [Seller] shall pay its attorney's fee should not be accepted.

V. THE AWARD

1. The [Buyer]'s claim for a price difference of US $151,884 and interest on this amount is dismissed

2. [Seller] shall pay the [Buyer] US $50,628 for the contract violation;

3. [Buyer] and [Seller] shall each bear 50% of the arbitration fee;

4. The [Buyer]'s claim for attorneys' fee is dismissed.

The [Seller] shall pay the aforesaid (2) and (3) fees to the [Buyer] within 45 days after this award takes effect. Otherwise, 8% 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 Netherlands is referred to as [Buyer] and Respondent of the People's Republic of China 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.

*** 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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