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CISG CASE PRESENTATION

China 5 February 1996 CIETAC Arbitration proceeding (Antimony ingot case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960205c2.html]

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

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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/1996/07

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Hong Kong (respondent)

GOODS INVOLVED: Antimony ingots


Case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission 5 February 1996 (Antimony ingot case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/84],
CLOUT abstract no. 857

Reproduced with permission of UNCITRAL

Abstract prepared by Anna Lin

A mainland Chinese seller and a Hong Kong buyer entered into a contract for the purchase of antimony ingots. The contract stipulated the deadline of the loading and the issuance date for the letter of credit. The seller sent a fax to the buyer stating a date of shipment and asked the issuing of the letter of credit through a different payment bank than the one agreed to in the contract. A few days afterwards, the buyer faxed the seller to cancel the contract.

The seller nevertheless shipped some of the antimony ingots to the designated port on the contract. Negotiations between the two parties on reselling the goods ended with no results. The seller resold the goods at a lower price and filed the arbitration application, claiming loss in price difference.

The Arbitration Tribunal ruled that fulfilling the loading obligation ahead of time was not a breach of contract as the buyer had asked for the shipment to be arranged as soon as possible. With respect to the letter of credit, the tribunal argued that the seller had the right to ask for an amendment of the contract, and since the buyer had not accepted the change, they must revert back to the original contract which the buyer had failed to do. This was to be considered a fundamental breach of contract by the buyer. However, citing article 77 CISG, the Tribunal reasoned that the seller should take the main responsibility for the delay in disposing of the goods and in increasing the loss of profit. Therefore, the Tribunal condemned the buyer to compensate the seller only for the loss in the price difference and interest, as well as the various costs relating to the arbitration proceedings.

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Classification of issues present

APPLICATION OF CISG: Yes, agreement of the parties

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 8 ; 25 ; 52(1) ; 72(1) ; 74 ; 75 ; 77 ; 78 [Also cited: Articles 19 ; 53 ; 54 ; 61 ]

Classification of issues using UNCITRAL classification code numbers:

6B [Agreements to apply Convention: choice of parties];

8A [Intent of party making statement or engaging in conduct];

25B [Definition of fundamental breach: substantial deprivation of expectation];

52A [Early delivery: buyer may either take or refuse delivery];

72A [Avoidance prior to date for performance: when clear that party will commit fundamental breach];

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

75A1 [Damages established by substitute transaction after avoidance: resale by aggrieved seller];

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

78B [Rate of interest]

Descriptors: Choice of law ; Intent ; Fundamental breach ; Avoidance ; Anticipatory breach ; Damages ; Cover transactions ; Mitigation of loss ; Interest

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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. 868-874

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.23, 215, 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. 82

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Case text (English translation)

Queen Mary Case Translation Programme

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

Antimony ingot case (5 February 1996)

Translation [*] by Meihua Xu [**]

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

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

   -    The Arbitration clause in Sales Contract No. HCB010195 signed by Claimant [Seller], China Guangxi Hechi District ___ Trade Company Beihai Office and Respondent [Buyer], Hong Kong ___ Chemical Medicine Material Company on 12 January 1995; and
 
   -    The written arbitration application submitted by the [Seller] on 21 March 1995.

Mr. A, the arbitrator appointed by the [Seller], Mr. D, the arbitrator appointed by the [Buyer], and Mr. P, the Presiding Arbitrator appointed by the Chairman of the Arbitration Commission formed the Arbitration Tribunal following the Arbitration Rules.

The Arbitration Tribunal examined the [Seller]'s arbitration application and its attachment and the [Seller]'s defense and its attachment. On 7 November 1995, a court session was held in Beijing. The legal representative of the [Seller] and its arbitration representative together with the [Buyer]'s arbitration representative presented at the court sessions. They made oral statements, answered the Arbitration Tribunal's questions, and presented arguments.

During the court session, the [Seller] submitted a change to its arbitration claim application. After the court session, the [Seller] sent a letter to the Arbitration Tribunal to withdraw the aforesaid application. Both the [Buyer] and the [Seller] submitted supplementary materials after the court session.

This case has been concluded. The Arbitration Tribunal made this judgment based on the materials submitted by both parties and the court sessions.

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

I. FACTS

On 12 January 1995, the [Seller] and the [Buyer] concluded Sales Contract No. HCB010195 (hereafter, the "Contract") via fax, in which it was stipulated that the [Seller] would sell 100 tons of antimony ingots to the [Buyer]. The price was US $4,650/ton, CNF Rotterdam, and the total price was US $465,000. The loading ports were in China, the destination port was Rotterdam, and the loading date was 15 February 1995.

It was stipulated in the Contract that, "the [Buyer] should issue an irrevocable L/C with the [Seller] as the beneficiary, which can be cashed by providing the Bill of Lading at the Bank of China", and that, "the L/C should be issued to [Seller] before 17 January 1995, and should be valid within 15 days after the delivery date (including the fifteenth day).

On 13 January 1995, the [Buyer] sent a fax to the [Seller] confirming that both parties had reached an agreement during the phone conversation, which was that the [Buyer] should issue a L/C on 17 or 18 January 1995. The [Buyer] also mentioned in the fax that "we want you to arrange for the shipment as soon as possible".

On 17 January 1995, the [Seller] sent a fax to the [Buyer] stating:

"...our S/C No. HCB010195 100MT of antimony ingots, because of the Chinese New Year, we have received a notice from the port saying that there was no ship from 20 this month to 15 February. We have prepared the goods, and will ship them by the last ship (20 January) of this month. Please cooperate to issue the L/C on 18 to The People's Construction Bank of China, Beihai Branch, Sichuan Road South Beihai Guangxi China. If we don't receive it on 18, we cannot deliver the goods on time, and will suffer a severe loss. Therefore, we need your understanding and cooperation".

On 21 January 1995, the [Buyer] sent a fax to the [Seller] saying it had decided to cancel the contract based on the following reasons:

(1) The [Buyer] cannot issue the L/C within the time required by the [Seller];

(2) The [Seller] changed the payment bank suddenly, which put the [Buyer] at a loss what to do;

(3) The [Buyer] cannot tolerate the [Seller]'s changing the Contract repeatedly.

On 23 January 1995, the [Seller] sent a fax to the [Buyer] insisting the Contract was still valid and agreed to postpone the date for issuing the L/C to 24 January 1995. The [Seller] also alleged that if the [Buyer] did not issue the L/C before 24 January, the [Buyer] should bear the responsibility for all the losses.

On the same day, the [Buyer] rejected the [Seller]'s allegation saying it should not take any responsibility.

Later, the [Seller] shipped the 100 tons of goods in HCB010195 contract to Rotterdam. The [Buyer] and the [Seller] had negotiated the issue about reselling the goods until 16 March 1995, but with no result.

On 9 May 1995, the [Seller] sold 60 tons of the goods to an American buyer at US $2,400/ton, and on 17 May 1995, sold 40 tons to a Singapore buyer at US $2,400/ton.

On 21 March 1995, after the goods had been delivered to Rotterdam, but had not been resold to a third party, the [Seller] filed an arbitration claim to this Arbitration Commission claiming:

(1) The [Buyer] should compensate the [Seller]'s loss resulting from the [Buyer]'s failing to issue the L/C.

  1. Loss of price difference. The [Seller] had prepared the goods, but the [Buyer] violated the Contract, with the result the goods remained in the warehouse and could not be disposed. The price difference is US $4,650/ton - US $4,000 = US $650, which is US $65,000 for 100 tons.

  2. Loss of interest. If calculated at a 12/1000 interest rate, the loss for two months is US $465,000 12/1000 2 = US $11,160.

(2) The [Buyer] should bear the cost of the [Seller]'s attorneys' fee and the cost of traveling fee of renminbi [RMB] 47,000, which is US $5,575.33 (exchange rate: 8.43).

The total of (1) and (2) is US $81,735.33.

(3) The [Buyer] should bear the arbitration fee of this case.

On 7 November 1995, during the court session, the [Seller] submitted a change to its Arbitration Claim Application, in which it claims

  1. [Buyer] should bear the price difference of US $225,000 caused by its violation of the Contract.

    1. On 9 May 1995, the [Seller] sold 60 tons of the goods originally sold to the [Buyer] to Minmet K. N. (USA) Inc. at US $2,400/ton. The price difference is:

      (US $4,650/ton - US $2,400/ton) 60 tons = US $135,000.

    2. On 17 May 1995, the [Seller] sold 40 tons of goods originally sold to the [Buyer] to MingHua (SEA) Plc Ltd., at US $2,400/ton. The price difference is:

      (US $4,650/ton - US $2,400/ton) 40 tons = US $90,000.

  2. [Buyer] should bear the loss of bank interest for storing the goods for 4 months (from the middle of January 1995 to the middle of May). Calculated at an interest rate of 12/1000, this will be US $23,200, which is:

    US $4,650/ton 100 tons 12/1000 4 = US $23,200.

  3. The [Buyer] should bear the cost for the [Seller]'s attorneys' fee and traveling fee of RMB 47,000, which is US $5,575.33 (at a 8. 43 exchange rate).

    The total loss by the [Seller] to be compensated by the [Buyer] under 1, 2 and 3 is US $253,575.33.

  4. The [Buyer] should bear the entire arbitration cost.

On 29 November 1995, the [Seller] sent a letter to the Arbitration Tribunal announcing the withdrawal of its changed arbitration claim application submitted on 7 November 1995. However, the documents would be provided to the Arbitration Tribunal as evidence of the [Seller]'s loss. Therefore, the [Seller]'s arbitration claim remains the same as the one submitted on 21 March 1995.

The [Seller] alleged in its arbitration claim that:

(1) The reason the Contract could not be performed was the [Buyer]'s failure to issue the L/C, which constitutes a violation of the contract, and that the [Buyer] should bear the responsibility for contract violation and for all the losses resulting from it.

(2) The [Seller] suffered a huge economic loss due to the [Buyer]'s violation of the contract. According to Article 11 of the Contract, Articles 7, 16, 18, 19, and 37 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, and Articles 19, 25, 53, 54, 61, and 78 of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), the [Seller]'s claim for damages is lawful.

The [Buyer] counter argues the [Seller]'s assertion saying its termination of the contract was because the [Seller] violated the Contract first, which is evidenced by:

  1. The [Seller] changed the loading date from 15 February 1995 to 20 January 1995 by itself;

  2. The [Seller] changed the payment bank from the Bank of China to the People's Construction Bank Beihai Branch by itself and demanded that the [Buyer] issue the L/C on the next day.

The [Buyer] asserts that

  1. The [Seller] brought forward the date for loading by itself, which constitutes a fundamental breach of the Contract, and the [Buyer] may reject the goods based on it (Article 52(1) of the CISG). In addition, the [Seller]'s changing the loading date actually caused that the goods could not be delivered at the time agreed by both parties, which deprived the [Buyer] of its right to receive the goods as provided in the Contract. According to Article 25 of the CISG, the [Seller]'s aforesaid performance is a fundamental breach of the Contract.

  2. On 17 January 1995, the [Seller] notified the [Buyer] that it had changed the payment bank from the Bank of China to the People's Construction Bank Beihai Branch, and sought to have the [Buyer] issue a L/C to the new bank on the next day (18 January). This act of [Seller] not only violated the Contract, but also caused the [Buyer] to be unable to issue the L/C on time.

The [Buyer] also argues that according to the related articles under the CISG, a fundamental breach by one party gives the other party the right to terminate the contract. In the instant case, when the [Seller] has fundamentally breached the contract, the [Buyer] not only has the right to terminate the contract and discharge its obligation to issue the L/C, it also has the right to claim damages. The [Buyer] asks the tribunal to order that:

  1. [Buyer] reserve its right to claim compensation;
  2. All of the [Seller]'s arbitration claims shall be dismissed;
  3. [Seller] shall bear all the costs and losses for this arbitration.

The [Seller] counter argued orally in the court session on 7 November 1995, and by written document in its supplementary representation statement submitted on 29 November 1995, saying that:

  1. About the loading date. It was clearly stipulated in the Contract that the loading date was 15 February 1995, which means the [Seller] can load the goods between the date the Contract was signed and 15 February 1995. The [Seller]'s sending a fax to the [Buyer] informing that the loading date was 17 January was only a confirmation within the time stipulated in the Contract, which did not violate the Contract. Furthermore, even though the loading date meant 15 February that day, the [Seller] had the right to change the date to 20 January. If the parties could not reach an agreement on this issue, they should continue to perform the Contract. Therefore, the [Buyer]'s assertion that requesting a change to the Contract was a contract violation is not acceptable.

  2. About the date of issuing the L/C and changing the payment bank. The [Seller] alleges that on 17 January 1995, before the [Buyer] issued the L/C, the [Seller] had the right to change the payment bank and ask the [Buyer] to issue the L/C to the changed bank on 18 January 1995. If the [Buyer] agreed, then a new agreement was reached. On the other hand, if the [Buyer] did not agree, the two parties should perform the original Contract. Therefore, the [Buyer]'s assertion that asking for change was a contract violation also should not be accepted.

The [Buyer] made further statements about its assertion that the [Seller] has violated the contract.

The [Buyer] alleges that it was determined in the Contract that the loading date was 15 February 1995 that day, but not any day before 15 February; therefore, the [Seller] could only load the goods on 15 February, and could never bring forward the loading date to one month earlier.

The [Buyer] also alleges that as long as the loading date is determined, it becomes an important element of the Contract. According to Article 52(1) of the CISG, "if the [Seller] delivers the goods before the date fixed, the [Buyer] may take delivery or refuse to take delivery." Therefore, the [Buyer] could refuse to take delivery, and if the delivery date is an essential part of the Contract, the [Buyer] even has the right to terminate the contract.

In addition, the [Buyer] pointed out that according to Article 72(1) of the CISG, "if prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided". The [Seller] stated in its fax sent to the [Buyer] on 17 January 1995 that there was no ship from 20 to 15 February", which meant the [Buyer] avoided the Contract lawfully after it had known that the Contract could not be performed within the time stipulated in the Contract.

III. OPINION OF THE ARBITRATION TRIBUNAL

(1) The applicable law

The Arbitration Tribunal noted that the parties did not stipulate the applicable law in the Contract. However, in the [Seller]'s arbitration application and the [Buyer]'s defenses, the CISG was mentioned as a basis for each party's assertion. Therefore, the Arbitration Tribunal deems that the parties have reached an agreement on the applicable law during the arbitration process, therefore, the CISG should be applied here.

(2) Loading date

The Arbitration Tribunal notes that the essential dispute of this case is the parties disagreement on the loading date and the content of the fax sent by the [Seller] on 17 January 1995. The Arbitration Tribunal deems that "the deadline of loading date is 15 February 1995" should be understood to mean that 15 February 1995 is the last day for loading; this means that as long as the [Seller] loads the goods before 15 February 1995, the loading obligation has been performed.

In addition, the Arbitration Tribunal notes that the [Buyer] mentioned in its fax sent to the [Seller] on 13 January 1995 asking the [Seller] to arrange for shipment as soon as possible; therefore, the Arbitration Tribunal deems that the loading date in the Contract does not mean 15 February that day. The [Buyer]'s real understanding of the loading date is the hope that the [Seller] would load the goods between 13 January 1995 to 15 February 1995, and the sooner the better. Therefore, the [Seller]'s stating in the fax sent to the [Buyer] on 17 January 1995 that "we have prepared the goods, and will ship them by the last ship in this month" did not violate the loading date in the contract; rather, it satisfied the [Buyer]'s understanding and expectation of the loading date. Therefore, the [Buyer]'s assertion that the [Seller]'s saying that "we have prepared the goods, and will ship them by the last ship in this month meant the [Buyer] brought forward the loading date by itself, which constitutes a fundamental breach of the Contract" is not acceptable.

Also unacceptable is the [Buyer]'s assertion that the [Seller]'s stating "there is no ship from 20 January to 15 February" meant the loading could not be performed as determined in the Contract, which gave right to the [Buyer] to terminate the Contract.

(3) Issuing the L/C and changing the payment bank

The parties reached an agreement on 13 January 1995 that the [Buyer] should issue a L/C between 17 and 18 January 1995. On 17 January 1995, before the [Buyer] issued the L/C, the [Seller] sought to change the payment bank, and asked the [Buyer] to issue the L/C to the new bank on 18 January 1995, which the [Buyer] did not agree nor did it object to. The [Buyer] did not issue the L/C as determined in the original Contract either.

The Arbitration Tribunal deems that the [Seller] in this case has the right to ask the [Buyer] to change the payment bank or the issuing date. If the [Buyer] agrees with the aforesaid demand, the parties would reach a new agreement, and if the [Buyer] does not agree, then it should inform the [Seller] and perform its obligation under the original Contract.

In this case, the [Buyer] did not respond to [Seller]'s request to change the payment bank and the L/C issuing date, nor did [Buyer] perform to satisfy the [Seller]'s requirement. The [Buyer] did not issue the L/C as determined in the original Contract; therefore, it did not fulfill its obligation to issue the L/C.

(4) Responsibility for non-performance of the Contract

The Arbitration Tribunal notes that after the Contract was concluded, the [Seller] prepared the goods and was going to ship the goods within the time stipulated in the Contract. However, the [Buyer] did not issue the L/C within the stipulated time (17 January to 18 January 1995), and declared to terminate the Contract on 21 January 1995.

The Arbitration Tribunal deems that the [Buyer]'s aforesaid behavior has violated the Contract, and according to Article 74 of the CISG, the [Buyer] shall bear the responsibility for the loss to the [Seller] by its violation of the Contract.

(5) The [Seller]'s arbitration claim

After the [Buyer] declared that the contract has been avoided, the [Seller] sent a fax to the [Buyer] on 23 January 1995 insisting the contract was still valid and asking the [Buyer] to perform the Contract. After being rejected by the [Buyer], the [Seller] delivered the goods to Rotterdam. Later, the parties negotiated the issue of disposing of the goods, but with no result.

In May 1995, the [Seller] resold the goods at US $2,400/ton. The [Seller] claims the loss caused by the price difference of US $65,000 and its interest, and the cost for attorneys' fee and traveling fee.

The Arbitration Tribunal holds that:

1. After the [Buyer] declared the avoidance of the Contract, the [Seller] had made efforts to resell the goods, and resold them in May 1995. Even though the [Buyer] questioned whether the [Seller] has in fact delivered the goods to Rotterdam, it has no evidence to support its question. On the contrary, the [Seller] has provided sufficient evidence to show that it has delivered the goods to Rotterdam and sold them to other customers at US $2,400/ton.

The Arbitration Tribunal also holds that after the [Buyer] declared the avoidance of the Contract, the market price for antimony ingot decreased. The [Seller] should have taken actions to remedy the loss. However, it was not until May 1995 that the [Seller] sold the goods at as low a price as US $2,400/ton, with the result the price difference is as high as US $2,250/ton, which is a total of US $225,000 loss. Therefore, the Arbitration Tribunal deems that the [Seller] should take the main responsibility for the delay in disposing the goods and the increasing of the loss. As a party who violated the contract, the [Buyer] should also take certain responsibility.

According to Articles 75 and 77 of the CISG, the [Seller]'s claim that the [Buyer] should pay US $65,000 of the total price difference is reasonable and should be accepted.

2. The [Seller]'s claim for loss of interest of the price for two months with a 12/1000 interest rate is also reasonable and should be accepted. The [Buyer] shall pay:

US $465,000 12/1000 2 = US $11,160.

3. The [Buyer] shall pay RMB 20,000 for the [Seller]'s cost of attorneys' fee and traveling fee.

4. The [Buyer] shall bear the entire cost of the arbitration fee.

IV. THE AWARD

The Arbitration Tribunal rules:

1. [Buyer] shall pay the price difference resulting from the [Buyer]'s violation of the Contract of US $65,000.

2. [Buyer] shall pay the [Buyer]'s loss of bank interest resulting from the [Buyer]'s violation of the Contract.

3. [Buyer] shall pay the part of the [Buyer]'s attorneys' and traveling fee.

4. [Buyer] shall bear the entire arbitration fee.

The total is US $76,160 and RMB 43,159. [Buyer] shall pay the aforesaid sum to the [Seller] within 45 days after this award takes effect. Otherwise, a 7/1000 monthly interest will be added.

This award is final.


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 [Seller] and Respondent of Hong Kong is referred to as [Buyer]. 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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