China 27 February 1996 CIETAC Arbitration proceeding (Wool case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960227c1.html]
DATE OF DECISION:
DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/11
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Macao [Portugal] (respondent)
BUYER'S COUNTRY: People's Republic of China (claimanet)
GOODS INVOLVED: Wool
APPLICATION OF CISG: Yes. Note that the Tribunal refers to Portugal as a Party to the CISG.
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
53A1 [Obligation of buyer to pay price included enabling steps (common example): arranging for letter of credit)]; 71A11 [Suspension of performance (apparent that a party will not perform substantial part of obligations): grounds for suspension (serious deficiency in ability to perform or creditworthiness)]; 77A [Obligation to take reasonable measures to mitigate damages]; 78A [Interest on delay in receiving price or any other sum in arrears]; 85A ; 85B [Seller's duty to preserve goods when buyer delays taking delivery or making concurrent price payment; Seller in possession or controlling disposition of goods must take reasonable steps to preserve goods]
53A1 [Obligation of buyer to pay price included enabling steps (common example): arranging for letter of credit)];
71A11 [Suspension of performance (apparent that a party will not perform substantial part of obligations): grounds for suspension (serious deficiency in ability to perform or creditworthiness)];
77A [Obligation to take reasonable measures to mitigate damages];
78A [Interest on delay in receiving price or any other sum in arrears];
85A ; 85B [Seller's duty to preserve goods when buyer delays taking delivery or making concurrent price payment; Seller in possession or controlling disposition of goods must take reasonable steps to preserve goods]
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) 1996 vol., p. 929-934
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
English: Dong WU, CIETAC's Practice on the CISG, at nn.36, 180, 231, 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. 97Go to Case Table of Contents
|Case text (English translation)|
Wool case (27 February 1996)
Translation [*] by Zheng Xie [**]
Translation edited by Meihua Xu [***]
China's International Trade and Economic Arbitration Commission (hereafter, "the Arbitration Commission") accepts the present case according to:
|-||Clause 1 of the "Other Terms in Contracts for Sale of Wool" of sixteen contracts signed by Claimant Shenzhen XX Stock Corporation [Buyer] and Respondent Macau XX Trade Company [Seller] which stipulates as the general terms the General Trading Terms of Buying Wool and Wooltop issued by China XX Import and Export Corporation on 1 July 1990:|
|-||Clause 13, the Arbitration Clause of these contracts, and the written arbitration application submitted by [Buyer] on 27 February 1995.|
The Chairman of the Arbitration Commission appointed Mr. P as Presiding Arbitrator according to the Arbitration Rules. The Presiding Arbitrator and Mr. A, appointed by Buyer, and Mr. D, appointed by Seller, formed the Arbitration Tribunal to hear the case.
On 4 September, [Seller]'s arbitration representative, the XX Law Firm submitted a statement of defense to the Arbitration Commission.
On 18 September 1995, the Arbitration Tribunal held a court session in Beijing. Both parties' representatives presented, made oral statements and answered the Tribunal's questions. In the session, [Seller]'s agent withdrew its authorization to XX Law Firm and the statement of defense, authorized XY Law Firm as agent, and submitted a new statement of defense. After the session, the parties submitted supplementary materials.
The case has been concluded. The Arbitration Tribunal handed down its award within the time limit set by the Arbitration Rules. The following are the facts, the Arbitration Tribunal's opinion and the award.
From June to September 1992, [Buyer] and [Seller] signed sixteen contracts for sale of wool. The contracts stipulate that [Seller] shall ship the wool from an Australian port in September, October and November 1992. The contracts contain the terms:
|-||Destination Port:||Haiphone, Vietnam|
|-||Payment Term:||T/T for Contracts 92K- 0870826AU, 92K- 0870827AU
L/C for other contracts
After signing the contracts, [Seller] prepared the goods for shipment, but [Buyer] did not issue the L/C on time. Under such circumstances, [Seller] changed the destination port of the sixteen contracts from Haiphone to Hong Kong, shipped the goods to Hong Kong, and changed the Bill of Lading to make it out to [Seller]'s agent.
The goods arrived at Hong Kong. Through negotiation, [Buyer] took the delivery of the goods by documents against payment, and reshipped the goods from Hong Kong to Haiphone, Vietnam. [Buyer] paid the added storage and transshipment expense. It is [Buyer]'s position that added expense caused by [Seller]'s actions should be borne by [Seller]. The parties did not reach any agreement. [Buyer] filed for arbitration.
- [Buyer]'s position
[Buyer] alleges that [Seller] breached the sixteen contracts:
(1) [Seller] unilaterally changed the destination port from Haiphone to Hong Kong
On 6 October 1992, [Seller] wrote to [Buyer] that it was going to alter the destination port from Haiphone Vietnam to Hong Kong, because [Buyer] did not arrange payment on time. On 13 October 1992, [Seller] wrote to [Buyer] officially changing the port. On 6 and 14 October, [Buyer] faxed to [Seller] that [Buyer] should only bear the storage fee in Hong Kong due to late payment, and that [Seller] should be responsible for the other fees and liability. [Buyer] alleges that because [Seller] unilaterally altered the destination port, [Buyer] incurred a transshipment expense of US $131,912.75 which [Seller] should pay.
(2) [Seller] unilaterally changed the Bill of Lading
From 24 September 1992 to 26 November 1992, the carrier of the goods issued seventeen Bills of Lading (two installments under Contract No. 826). Upon [Seller]'s instruction, the notifier of the seventeen B/Ls was changed from [Buyer] to Wawa Limited, a subsidiary of [Seller]. On 15 October 1992, [Buyer] wrote to [Seller] asserting that [Seller] should be liable for the storage fee, for interest, for all loss and liability due to unilaterally changing the consignee of the B/L, and that [Buyer] retains the right to claim damages.
[Seller]'s change of the notifier of the B/Ls, caused a change of ownership of the B/Ls. This meant there was a non-delivery. [Buyer], therefore, has no duty to make payment at the time stipulated in the contract and let alone interest. Accordingly, [Seller] should return to [Buyer] US $32,798.82, the so-called interest for late payment.
On the above basis, [Buyer] filed following claims:
- [Seller]'s defenses
[Seller]'s defenses are:
(1) [Buyer] only has the right to apply for arbitration for fifteen contracts; [Buyer] has no right to arbitration for Contract No. 92K-0870912 AU
On 29 November, [Seller] and [Buyer] signed a settlement agreement which stipulates that the parties have settled the dispute under Contract No. 92K-0870912 AU, and that neither party shall file a claim before any court or arbitration commission on the basis of this contract. Because this settlement agreement has been fully implemented, [Buyer] has no right to file an arbitration application for this contract.
(2) [Buyer] issued the L/C and made the payment late; this severely affected the implementation of the contracts
Thirteen of the fifteen contracts stipulate the time of issuing the L/C, and the other two contracts stipulate that payment is to be made by T/T. within seven days after the goods are shipped. However, [Buyer] did not execute any L/C or T/T on time. Because [Buyer] did not perform its obligation of payment under the contract, [Seller] doubted [Buyer]'s capacity and good faith performance.
(3) The change in destination port was a reasonable measure taken by [Seller] to mitigate damage; moreover, the parties agreed to it
Because [Buyer] did not issue the L/C on time, on 15 September 1992, [Seller] sent Letter No. 780 to ask [Buyer] to execute the L/C on time. However, when the goods were loaded at the end of September 1992, [Buyer] had not made any payment. Accordingly, [Seller] had to instruct the shipping company to change the original destination port to the nearest port, Hong Kong, in order to avoid the result that when the goods arrived at Haiphone, Vietnam, [Seller] would lose the goods and could not get the payment due to [Buyer]'s incapacity to make the payment. According to Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, the measure taken by [Seller] was a reasonable one to avoid enlarging damages.
[Seller] notified [Buyer] by phone, when it decided to change destination port. On 6 October 1992, [Buyer] in its correspondence stated, "[Buyer] will be liable for the storage fee in Hong Kong due to [Buyer]'s late payment", which shows that [Buyer] accepted the fact that the destination port was changed to Hong Kong port. On 13 October 1992, [Seller] notified [Buyer] again in writing that the destination port was changed to Hong Kong, and [Buyer] did not oppose it. The performance of the contract shows that the parties reached an agreement, and the destination port was altered from Haphone to Hong Kong.
[Buyer] promised to pay the storage fee in the fax, so [Seller] is not liable for this.
(4) [Buyer] has no right to oppose the change of the Bill of Lading
[Buyer] neither issued the L/C within a reasonable time stipulated in the contract, nor had [Buyer] paid in any other way. [Buyer] was not to be the owner of the goods before paying the price. The owner and holder of the goods and the B/L was [Seller]. [Buyer] has no right to claim for the certificate of ownership, the Bill of Lading.
(5) [Seller] has returned the expense for the transshipment due to the change of port
Because [Buyer] did not make the payment, [Seller] had to ship the goods first to Hong Kong. After contacting the supplier the expense for the transshipment from Hong Kong to Haphone was deducted, which saved US $53,583.03. The money saved was set-off against [Buyer]'s payment for the goods. Thus, [Seller] has already returned the fee for the transshipment from Hong Kong to Haiphone, Vietnam to [Buyer] in the way of setting off the balance due. Requiring [Seller] pay this expense is not justifiable
[Seller] alleges that it is reasonable to return the fee in this manner, and submitted the correspondence with the shipping company on returning the shipping fee to support its assertion. In addition, [Seller] alleged that the US $127/kg that [Buyer] paid for shipping from Hong Kong to Haiphone was too much.
(6) Interest for late payment
[Buyer] did not make the required payment in accordance with the contract; [Buyer] was therefore the party who first breached the contract. Thus, [Seller] has right to claim for interest on the balance due.
As far as the fifteen contracts of this case are concerned, [Seller] has the right to deduct US $29,891.53 from the payment of the goods as interest due to late payment. [Buyer] has no right to require [Seller] return this interest.
OPINION OF THE ARBITRAL TRIBUNAL
1. Applicable law
The contract does not stipulate the applicable law of the contract. China and Portugal, which Macau belongs to at present, are parties of the United Nations Convention on Contracts for the International Sale of Goods (CISG), and the parties did not exclude the application of CISG, so when the contract does not stipulate or not stipulate clearly the applicable law, CISG applies to this case.
2. Scope of hearing
Buyer's application for arbitration is based on sixteen contracts. However, during the court session, the parties agreed that they had solved the disputes under Contract 92K-0870912AU, so the scope of hearing of this case is the disputes under the fifteen remaining contracts. After verifying the contracts, the Arbitration Tribunal decided that the scope of the hearing is limited to the following contracts:
3. Substantive issues
[Buyer] alleges that [Seller] unilaterally altered the destination port and the notifier of the B/L, which constitute breaches of contract. [Seller] asserts that Buyer did not make the payment on time according to the contract, and that it is [Buyer] who first breached the contract, and that under such circumstances the measures taken by [Seller] are reasonable.
Thus, the main dispute in this case is which party is in breach. The issues are as follows
(1) Timeliness of [Buyer]'s payment
The Arbitration Tribunal noted that the thirteen of the fifteen contracts stipulate that the payment should be made by L/C with specific dates; the other two contracts, 92K-0870826AU and 92K-0870827AU, stipulate that payments are to be made by T/T within seven days of shipment. [Buyer] did not make any payment by L/C or T/T within the stipulated dates, but later made the payment against documents and took the delivery of the goods at Hong Kong port. [Buyer] admitted the above facts in the court session.
According to Article 53 of CISG, [Buyer] is obligated to pay the price for the goods and take delivery of them as required by the contract. Thus, the basic duty of [Buyer] is to make the payment in accordance with the contract, but [Buyer] neither executed the L/C, nor paid by T/T. The Arbitration Tribunal holds that [Buyer] therefore breached the contract, and that additional expenditure for continuing performance due to such breach shall be borne by [Buyer].
(2) Change of destination port by [Seller]
The parties stipulated the destination port as Haiphone, Vietnam, in the contract. When [Buyer] did not make the payment on time, [Seller] changed the destination port to Hong Kong. The Arbitration Tribunal concludes that [Seller]'s action was reasonable both from the law and the facts.
First, Article 85 of CISG states:
"If the buyer is in delay in taking delivery of the goods or, where payment of the price and delivery of the goods are to be made concurrently, if he fails to pay the price, and the seller is either in possession of the goods or otherwise able to control their disposition, the seller must take such steps as are reasonable in the circumstances to preserve them. He is entitled to retain them until he has been reimbursed his reasonable expenses by the buyer."
Article 71 stipulates that if one party [Buyer] has a serious deficiency in its ability to perform or in its creditworthiness, the other party, [Seller], may prevent the handing over of the goods to [Buyer]. According to the above two Articles, the Arbitration Tribunal decides that, during the performance of the contract [Buyer] did not make the payment in accordance with the contract, although [Seller] urged it many times. When a buyer has a serious deficiency in it creditworthiness, the seller has the right to take reasonable measures to control and prevent the handling over of the goods. It was a reasonable measure for [Seller] to change the destination port when [Buyer] breached the contract first.
Second, on 6 October 1994 Buyer wrote to Seller stating:
"Because you transshipped the wool we ordered from Haiphone, Vietnam, to Hong Kong, we confirm that we will be liable for the storage fee at Hong Kong port due to our late payment".
Thus, Buyer knew the goods arrived at Hong Kong port and prepared to take the delivery and pay for the storage fee in Hong Kong. In addition, when the goods arrived at Hong Kong port, Buyer did make the payment against documents and took the delivery in Hong Kong.
On the basis of the above, the Arbitration Tribunal holds that Seller was entitled to alter the destination from Haiphone, Vietnam to Hong Kong. The Arbitration Tribunal does not support Buyer's claim that Seller breached the contract by such action.
(3) Change of Bill of Lading by [Seller]
[Buyer] alleges that [Seller] unilaterally changed the notifier of the B/L. The Arbitration Tribunal holds that the B/L is the certificate of the ownership of the goods, so before making the payment, [Buyer] is not entitled to it, and has no right to request [Seller] to do or not do something. [Seller], as the owner of the goods, has right to dispose the goods according to its intention.
Moreover, as pointed out in Section 3(2), above, it was reasonable for [Seller] to change the notifier of the B/L when [Buyer] was in breach.
(4) Added storage and transshipment expense
The Arbitration Tribunal holds that Buyer shall pay for the storage fee at Hong Kong port, because it made such written commitment on 6 October 1992.
On the transshipment fee, the Arbitration Tribunal finds that [Seller] had already returned to [Buyer] US $53,583.03, the transportation expenses from Haiphone to Hong Kong. In "Agency Opinion" made on 31 October 1995, [Seller] provided detailed explanation for the calculation of the transportation expenses returned. [Buyer] did not object to this calculation in the "Agency Opinion" when receiving it. Meanwhile, by examining the freight documents provided by [Seller], the Arbitration Tribunal decides that US $53,583.03, the transportation expenses returned by [Seller] is a reasonable amount, and [Seller] is not liable for any transshipment fee. The Arbitration Tribunal does not support [Buyer]'s first claim.
(5) Interest on the late payment
Because [Buyer] did not pay on time, [Seller] deducted interest on the late payment from the payment. [Buyer] asserts that the interest should be returned to it.
Article 78 of CISG stipulates that if a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it. In this case, [Buyer] did not make payment on time, so [Seller] is entitled to a reasonable amount of interest. [Seller] got US $31,881.02, interest on the fifteen contracts. However, in the Chart of Late Payment under the fifteen contracts in the Appendix of "Agency Opinion" made on 31 October 1995, [Seller] calculated interest as US $29,891.53, which [Buyer] does not oppose. Thus, the Arbitration Tribunal decides that [Seller] shall get interest US $29,891.53, and shall return the extra amount (US $ 31,881.02 - US $29,891.53) = US $1,989.49 to [Buyer]).
[Buyer] shall pay the entire arbitration fee of this case.
Base on the above facts and analysis, the Arbitration Tribunal hands down the following award:
1. [Seller] shall return the extra interest, US $1,989.49 to [Buyer];
2. [Buyer]'s other claims are dismissed;
3. [Buyer] shall pay for the entire arbitration fee of this case.
[Seller] shall pay US $1,989.49 to [Buyer] according to above ruling within forty-five days after this award takes effective. Otherwise, [Seller] shall pay 10% annual interest.
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 Macau is referred to as [Seller]. Amounts in the currency of the United States (dollars) are indicated as [US $].
** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.
*** 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