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CISG CASE PRESENTATION

China 12 February 1996 CIETAC Arbitration proceeding (Art paper case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960212c1.html]

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

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Case identification

DATE OF DECISION: 19960212 (12 February 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/08

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (respondent)

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

GOODS INVOLVED: Art paper


Case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission 12 February 1996 (Art paper case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/84],
CLOUT abstract no. 856

Reproduced with permission of UNCITRAL

Abstract prepared by Anna Lin

A Chinese buyer and an American seller entered into a contract for the purchase of art paper. In pursuance of the contract, the buyer issued an irrevocable letter of credit, but the seller failed to deliver the goods.

The Arbitration Commission accepted the buyer's application for arbitration. The Arbitral Tribunal rendered its opinion and award based on documents submitted by the buyer, and the court session, ex parte.

The Tribunal considered the fact that the buyer had performed its obligations under the contract and that the non-delivery by the seller caused significant economic loss to the buyer. Since the contract did not stipulate compensation for non-delivery, the Tribunal applied article 74 CISG and concluded that the seller had violated the terms of the contract and was liable to compensate the loss, including the loss of profit.

Examining the various claims submitted by the buyer, the Tribunal rejected the claim for damages under the penalty clause for late delivery. The Tribunal also rejected the buyer's claim for cost associated with the issuance of the letter of credit, since the cost was a normal cost of conducting business.

The Tribunal, however, accepted the buyer's claim for loss on the down payment, considering that as a result of the seller's non-delivery, the buyer had to pay twice the down payment to its own customer. The Tribunal also granted the buyer's claim for loss of profit, i.e. the difference between the contract price and resale price. In addition, the Tribunal condemned the seller to bear the costs related to the arbitration proceedings.

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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 ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Includes loss of profit; Outer limits of damages: foreseeability of loss]

Descriptors: Damages ; Foreseeability of 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. 896-899

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.144, 145, 169, 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

Art paper case (12 February 1996)

Translation [*] by Meihua Xu [**]

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

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

   -    The arbitration clause in Sales Contract No. CMCBJ940811CDR signed by Claimant [Buyer], China Shantou City __ Trade Company, and Respondent [Seller], United States of America __ Company; and
   -    The written arbitration application submitted by [Buyer] on 11 January 1995.

On 22 February 1995, The Secretary Office of the Arbitration Commission sent a (95) Mao Zhong Zi No. __ arbitration notice and its attachment to the [Seller] by registered mail. The receipt from the post office indicated that the [Seller] had received the aforesaid arbitration notice and its attachment on 2 March 1995, However, the [Seller] never responded as required by the arbitration notice.

The Secretary Office of the Arbitration Commission sent a fax to the [Seller] on 19 April 1995 asking the [Seller] to appoint an arbitrator before 30 April 1995, otherwise, the Chairman of the Arbitration Commission would appoint one in accordance with the Arbitration Rules. However, the [Seller] again did not respond.

On 25 May 1995, following the Arbitration Rules, the Chairman of the Arbitration Commission appointed Mr. P as the Presiding Arbitrator. Mr. P, Mr. A, the arbitrator appointed by the [Buyer], and Mr. D, the arbitrator appointed by the Chairman of the Arbitration Commission on behalf of the [Seller] according to Article 26 of the Arbitration Rules, formed the Arbitration Tribunal to hear this case.

The Arbitration Commission first sent a fax then sent a registered letter to inform the [Seller] of the (95) Mao Zhong Zi No. __ Arbitration Tribunal formation notice. The receipt from the post office evidenced that the [Seller] had received the mail on 7 June 1995.

On 11 July 1995, the Arbitration Commission first sent a fax then sent a registered letter to inform the [Seller] of the (95) Mao Zhong Zi No. __ Arbitration Court Session notice.

On 4 August 1995, the Arbitration Commission first sent a fax then sent a registered letter to inform the [Seller] of the (95) Mao Zhong Zi No. __ Arbitration Court Session postponement notice, and asked the [Seller] to present in the court session to be held in Beijing on 21 September 1995.

On 21 September 1995, the court session was held in Beijing. The [Seller] did not attend the session, nor did it state any reason for its absence. According to Article 42 of the Arbitration Rules, the Arbitration Tribunal processed this case by default. The [Buyer] made statement of its arbitration claim and answered the Arbitration Tribunal's questions. After the court session, the [Buyer] submitted supplementary materials.

On 12 October 1995, the Arbitration Tribunal sent another (95) Mao Zhong Zi No. __ notice first via fax then by TNT express mail to the [Seller], and attached the materials the [Buyer] submitted after the court session. The aforesaid communication documented the court session by default, and the [Seller] was asked to notify the Arbitration Tribunal by 5 November 1995 whether it wanted to have a second court session and to present material for defense. From the receipt of TNT express mail company, it could be found that the [Seller] received the aforesaid document on 18 October 1995, however, no response has been received from [Seller[.

The case has been concluded. The Arbitration Tribunal has decided this case based on the existing documents and handed down this judgment by default within the time stipulated in the Arbitration Rules.

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

I. FACTS

The [Buyer] asserts:

On 11 August 1994, the [Buyer] and the [Seller] signed Contract CMCBJ940811. According to the contract, the [Seller] was to provide 200 tons of art paper to the [Buyer] at a unit price of US $975/ton CNF Shantou for a total price of US $195,000. The loading date was within 60 days after the L/C was issued.

After concluding the contract, the [Buyer] issued an irrevocable L/C for US $195,000 on 1 September with the [Seller] as the beneficiary, and paid US $97,500 insurance fee and US $3,505 procedural fee to the bank. The [Seller] did not perform its obligation to deliver the goods as provided in the contract, as a result, the [Buyer] could not perform its contract with its customer and had to pay back twice the customer's down payment, which caused a severe economic loss to the [Buyer]. Regarding this, the [Buyer] has repeatedly contacted the [Seller] to settle the dispute, but was ignored by the [Seller]. Therefore, the [Buyer] filed this arbitration application and asks to have the Tribunal rule that:

  1. The [Seller] shall pay US $10,000 to the [Buyer] as a contract violation fee determined in Article 17 of the contract. The delay of delivery clause in Article 17 stipulates that the penalty for late delivery should be 5/1000 of the total price every seven days. The [Seller] has delayed for over ten weeks, and the total price includes US $5,000 the [Buyer] paid to the middleman. Therefore, the contract violation fee should be:

    (US $195,000 + US $5,000) 0.5/1000 10 = US $10,000

  2. The [Seller] shall pay the actual loss of the [Buyer], which includes:

    (1) The interest on the L/C issuing fee of renminbi [RMB] 35,970 at the monthly rate of 10. 98/1000 for four months. The exchange rate between RMB and US $ is 8. 4 : 1, which should be calculated as:

    US $195,000 50% 8.4 10. 98/1000 4 = RMB 359,700

    (2) The procedural fee for issuing and changing the L/C of US $3,505, which is RMB 29, 442;

    (3) Loss as a result of down payment of penalty to the [Buyer]'s customer of RMB 500,000;

    (4) Loss of profit resulting from the difference between the contract price and the resale price RMB 33,600;

    (5) Traveling fee of RMB 20,000.

  3. The [Seller] shall bear the entire arbitration fee.

II. THE OPINION OF THE ARBITRATION TRIBUNAL

(1) The applicable law

The parties did not stipulate the applicable law in their contract. Both China and the United States are Contracting States of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), and the parties did not exclude the application of the CISG in their contract, therefore, when it is not stipulated or unclear in the contract, the CISG should be the applicable law.

(2) The responsibility for contract violation

According to the evidence provided by the [Buyer], after signing the contract, the [Buyer] issued an irrevocable L/C with the [Seller] as the beneficiary, which indicates that the [Buyer] has performed its obligation to pay, and should be deemed as having performed its obligations under the contract.

The [Seller] was obligated to deliver the goods as provided in the contract. However, it did not deliver the goods, which caused a severe economic loss to the [Buyer]. The [Seller] did not submit any defense to justify its non-delivery of the goods; therefore, the [Seller] should take the responsibility for contract violation. The Arbitration Tribunal holds that the [Seller]'s non-delivery of the goods has constitutes a contract violation, and it should take the responsibility.

There is no clause in the contract regarding compensation for non-delivery, therefore, this issue should be resolved by applying Article 74 of the CISG, which says, "damages for breach of contract by one party consists of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach". Therefore, the [Seller] shall compensate the [Buyer]'s actual loss including the loss of profit.

(3) The [Buyer]'s arbitration claim

    1. First, the [Buyer] asks the [Seller] to pay a contract violation fee for late delivery as defined in Article 17 of the contract. The Arbitration Tribunal examined the article in the contract, and found that Article 17 on late delivery and its penalty stipulates the responsibility for late delivery, but not non-delivery. In the instant case, the [Seller] did not deliver the goods late; the [Seller] did not deliver the goods. Therefore, the [Seller]'s responsibility for contract violation should not be decided by Article 17 of the contract, and the [Buyer]'s first claim should not be accepted.

    2. Second, the [Buyer] asks the [Seller] to compensate the actual loss resulting from the [Seller]'s violation of the contract. After investigating, the Arbitration Tribunal deems that the [Buyer] in fact did sign a sales contract with its customer. The [Buyer] is a trading company, therefore, the [Seller] should have known that the [Buyer] was not buying goods for its own use. Regarding this fact and No. (2) Arbitration Tribunal opinion, the Arbitration Tribunal deems that the [Seller] shall compensate the loss of the [Buyer] including the loss of profit. The details are as follows:

  1. The interest cost on issuing the L/C, the procedural fee, and the cost for changing the L/C are all normal costs for contract performance, which should be included in the loss of profit, and should not be considered an actual loss. Therefore, the Arbitration Tribunal does not accept this claim of the [Buyer].

  2. About the loss of down payment: because of the [Seller]'s violation of the contract, the [Buyer] could not perform its contract with its customer, with the result, the [Buyer] had to pay twice of the down payment back to the customer, which is a loss of RMB 500,000. This should be paid by the [Seller].

  3. The loss of profit is the difference between the contract price and the price for reselling to the [Buyer]'s customer, which is:

    After examining the related evidence, the Arbitration Tribunal deems that this price difference is true and reasonable, and should be accepted.

  4. The [Seller] violated the contract, therefore, it shall pay the traveling fee of RMB 20,000 to the [Buyer].

    3. The [Seller] shall bear the entire arbitration fee.

III. THE AWARD

Based on the aforesaid facts and reasons, the law, and article 42 of the Arbitration Rules, the Arbitration Tribunal rules by default:

(1) [Seller] shall pay the actual loss of the [Buyer] of RMB 853,600.
(2) [Buyer]'s other arbitration claim are dismissed.
(3) [Seller] shall bear the entire arbitration fee.

As above, the [Seller] shall pay the [Buyer] a total of RMB 886,848. The [Seller] shall pay this to the [Buyer] before 27 March 1996. 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 the People's Republic of China is referred to as [Buyer] and Respondent of the United States of America 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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Pace Law School Institute of International Commercial Law - Last updated June 4, 2009
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