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CISG CASE PRESENTATION

China 14 March 1996 CIETAC Arbitration proceeding (Dried sweet potatoes case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960314c1.html]

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

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Case identification

DATE OF DECISION: 19960314 (14 March 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/14

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Switzerland (claimant)

GOODS INVOLVED: Argricultural products (dried sweet potatoes)


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 75 ; 76 ; 78 ; 79(1)

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];

75A [Damages established by substitute transaction after avoidance];

76B [Damages based on current price];

78A [Interest on delay in receiving price or any other sum in arrears: interest on damages];

79B [Impediment excusing party from liability for damages]

Descriptors: Damages ; Profits, loss of ; Exemptions or impediments ; Interest

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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. 987-991

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.152, 169, 245, 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

Dried sweet potatoes case (14 March 1996)

Translation [*] by WANG Chenghong [**]

Translation edited by Meihua Xu [***]

      [Introduction]

  1. Facts of the case and arguments of the parties
  2. Opinion of the Arbitration Tribunal
    1. Applicable law
    2. Force majeure
    3. Claim for compensation
  3. The award

[INTRODUCTION]

In accordance with the arbitration clause contained in Sales Confirmation Letter No. 95HN001 signed by and between Claimant Swiss XX Company [Buyer] and Respondent Henan XX Import and Export Company [Seller] and the [Buyer]'s written application for arbitration on May 22, 1995, the China International Economic & Trade Arbitration Commission (which was originally named the Foreign Trade Arbitration Commission, subsequently renamed as the Foreign Economic and Trade Arbitration Commission and currently is called the China International Economic & Trade Arbitration Commission, hereinafter "CIETAC") accepted this arbitration case.

In accordance with the Arbitration Rules of CIETAC (effective as of June 1, 1994), the Chairman appointed Mr. P as the presiding arbitrator, the [Buyer] appointed Mr. A and the [Seller] appointed Mr. D as the other two arbitrators. The three arbitrators formed the Arbitration Tribunal to jointly hear this case.

The Arbitration Tribunal held oral hearings with respect to this case in Beijing on 2 November 1995. Both the [Buyer] and the [Seller] had sent their respective attorney to attend the hearing. After the hearing, neither the [Buyer] nor the [Seller] has presented any written supplementary materials to the Arbitration Tribunal.

The trial of this case is completed. The Arbitration Tribunal renders the arbitral award after panel hearing on the basis of the written materials submitted by the [Buyer] and the [Seller] before the hearing and the oral presentation made by the [Buyer] and the [Seller] during the hearing.

I. FACTS OF THE CASE AND ARGUMENTS OF THE PARTIES

On 27 September 1994, the [Buyer] and the [Seller] signed Sales Confirmation Letter No. 95HN001 (hereinafter the "Contract"). Under the Contract, the [Seller] was to sell 20,000 tons of dried sweet potatoes to the [Buyer] at the unit price of US $103/ton FOBT major ports of China. The total price was US $2,060,000 and the goods would be delivered for shipment in January 1995 and paid by sight Letter of Credit ["L/C"].

After the Contract was signed, the [Buyer] opened a Letter of Credit accordingly but the [Seller] did not deliver the goods under the Contract. As a result, the [Buyer] initiated this arbitration process.

[Buyer]'s position

The [Buyer] alleged that:

In reliance on the [Seller], two days after the Contract was signed between the [Buyer] and the [Seller], i.e., on 28 September 1994, the [Buyer] signed a Resale Contract No. 2646 with Vanden Avenne Company, a company registered in Belgium, under which the [Buyer] agreed to resale the a.m. 20,000 tons of dried sweet potatoes to the Belgium company at the unit price CIF/FO Eurosilo Ghent US $136.75/ton, with the period of shipment being January 1995.

Since the [Seller] did not deliver the goods, the [Buyer] could not perform Contract No. 2646 and consequently Vanden Avenne Company raised a claim for compensation against the [Buyer]. The Belgium Chamber of Commerce determined as per the application of Vanden Avenne Company that the market price for dried sweet potatoes as of 27 February 1995 should be US $171.70/ton. Therefore, the price difference at the time of the delivery of the goods under Contract No. 2646 should be US $34.95/ton and the total compensation should be US $699,000. Vanden Avenne Company issued an invoice of US $699,000 to the [Buyer] on 8 May 1995 requesting the [Buyer] to pay the compensation before 20 May 1995.

In addition, the loss of profit the [Buyer] incurred was US $68,800. Under Contract No. 2646, the insurance premium should be US $3.31/ton and the freight should be US $27/ton. As a result, the CIF price of US $136.75/ton would equal the FOB price of US $106.44/ton, and the price difference between Contract No. 2646 and the Contract between [Buyer] and [Seller] is US $3.44/ton. Therefore, if the [Seller] had performed the Contract, the [Buyer] would have obtained a profit of US $68,800.

In addition, the [Buyer] spent US $2,978.25 for issuance and withdrawal of the Letter of Credit.

Due to the breach of the Contract committed by the [Seller], the [Buyer] incurred the a.m. losses. Now, the [Buyer] raised a petition to the Arbitration Tribunal asking for compensation by the [Seller] of the following:

  1. Loss of profit of US $68,800;

  2. US $2,978.25 for opening and withdrawal of the Letter of Credit;

  3. The interest for the a.m. loss of profit of US $68,800 and the cost for issuance and withdrawal of Letter of Credit of US $2,978.25, accrued since the [Seller] breached the Contract (1 February 1995) until the [Buyer] received the a.m. compensation from the [Seller];

  4. The compensation of US $699,000 paid by the [Buyer] to Vanden Avenne Company;

  5. The interest for the a.m. compensation of US $699,000, accrued since the [Buyer] paid the US $699,000 to Vanden Avenne Company until the [Buyer] received the a.m. compensation from the [Seller];

  6. The arbitration fee and attorneys' fee paid and to be paid by the [Buyer].

[Seller]'s position

The [Seller] argued that:

The reason that the [Seller] delayed the performance of its obligation as per clauses and provisions of the Contract is the occurrence of force majeure events.

In 1994, the crop belts over China incurred flooding and there was a wide range reduction of output of crops. On 5 October 1994, five authorities of Henan province jointly promulgated an URGENT NOTICE REGARDING RESTRICTION ON THE TRANSPORT OF AUTUMN GRAIN AND OIL OF HENAN OUTSIDE HENAN [YULIANG (1994) 181] to strictly restrict the transport of autumn grain and oil outside Henan province. Under such circumstances, the [Seller] had to acquire the goods under the Contract at Donggang District of Rizhao City, that is the port of shipment, to facilitate the shipment. However, the People's Government of Donggang District of Rizhao City also issued a notice on 25 October 1994 regarding the purchase of grain and oil, indicating that during the period of grain and oil purchase of the State, the grain and oil market of the district would be closed and even foreign trade entities were not permitted to purchase grain and oil at the district. Therefore, it is almost impossible for the [Seller] to complete the purchase of the goods within the term as prescribed in the Contract.

Meanwhile, during the corresponding period in 1994 when the potatoes were to be dried by the sun, the dried sweet potatoes belt over the China rained from time to time. As a result, the quality of the dried sweet potatoes could not be assured and many quality problems occurred regarding dried sweet potatoes exported to the Europe. On 17 January 1995, China Chamber of Commerce of Import and Export of Foodstuffs, Native Produce & Animal By-Products (the "CFNA") convened a session and issued minutes to implement compulsory shipment arrangement with respect to the port of Rizhao city and improve the market of dried sweet potatoes to assure the quality of the goods to be exported to the Europe. According the minutes of the CFNA, the shipment period of the [Seller] could not be earlier than April 1995 which further made it difficult for the [Seller] to arrange the shipment before April.

Based on the foregoing, force majeure events occurred during the course of the performance of the Contract by the [Seller]. Such events did not occur at the time of signature of the Contract and were unconventional and accidental. The [Seller] could not foresee the occurrence of the events and could not avoid or circumvent the influence of such events. The [Seller] had notified the [Buyer] of the occurrence of the events several times and asked for an extension of the shipment period. After negotiation with the [Buyer] in the Chinese Export Commodities Fair of the spring in 1995, the [Seller] was still actively seeking a source of the goods to perform the Contract as soon as possible. However, the [Buyer] filed the application for arbitration and avoided the Contract, thus all the losses incurred thereof should be borne by the [Buyer].

In addition, the [Buyer]'s method of calculating losses is to some extent unreasonable. According to CISG, the [Buyer] may request the difference between the price under the Contract and the market price at the time of the avoidance of the Contract. It is unacceptable to the [Seller] and inappropriate for the [Buyer] to calculate the difference in price on the basis of the price on 27 February 1995. Meanwhile, the [Buyer] did not provide evidence of payment of the compensation to the Vanden Avenne Company and hence the compensation should not be repaid by the [Seller].

[Buyer]'s rebuttal

With respect to the argument, the [Buyer] rebutted that:

Neither of the force majeure events could satisfy the provisions regarding force majeure as indicated in Article 79 of CISG and Article 24 of THE LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON ECONOMIC CONTRACTS INVOLVING FOREIGN INTEREST.

If the crop belts over the China incurred widespread floods in 1994, such flooding would have occurred before signature of the Contract (27 September 1994). As an import/export company specialized in foodstuffs, the [Seller] should be able to foresee difficulties in the purchase of the goods. In addition, the URGENT NOTICE REGARDING RESTRICTION ON THE TRANSPORT OF AUTUMN GRAIN AND OIL OF HENAN OUTSIDE HENAN [YULIANG (1994) 181] promulgated by the government of the Henan province on 5 October 1994 did not prohibit the transport of grain and oil outside Henan province and did not mention the goods under the Contract, i.e., dried sweet potatoes. What is more, the Contract does not indicate that the dried sweet potatoes to be provided by the [Seller] had to be produced in Henan province. Therefore, the obstacles for purchase alleged by the [Seller] were avoidable and surmountable. The obstacles for purchasing the dried sweet potatoes in Rizhao city as alleged by the [Seller] were similar to the foregoing.

Meanwhile, the minutes of CFNA were issued on 27 January 1995 and only made arrangement for the shipment period of Rizhao City during the period from March 1995 to December 1995, while the shipment period as prescribed in the Contract was to be January 1995. The [Seller] should have delivered the goods under the Contract for shipment before it obtained these minutes. In addition, the [Seller] had another month, i.e., February 1995, to arrange the shipment. What is more, it is not required by the Contract that the [Seller] must make the shipment at the port of Rizhao City; hence the [Seller] could have found another port to remedy the default even if the shipment at the port of Rizhao City was impeded. Therefore, the dispatch in time by the [Seller] was not influenced by the shipment arrangement as indicated in the a.m. minutes at all.

It is provided in Article 25 of THE LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON ECONOMIC CONTRACTS INVOLVING FOREIGN INTEREST:

"The party which fails to perform wholly or in part its contractual obligations owing to force majeure shall promptly inform the other party so as to mitigate possible losses inflicted on the other party, and shall also provide a certificate issued by the relevant agency within a reasonable period of time."

The force majeure clause in the Contract also provided that:

"If either the buyer or the seller encounters force majeure events, the buyer or the seller, as the case may be, may delay the performance of the contract or cancel this confirmation letter, with a certificate issued by a government authority or chamber of commerce evidencing the occurrence of the event".

In December 1994, the [Seller] mentioned the a.m. force majeure events when sending letters to the [Buyer] but failed to provide a relevant certificate issued by a competent authority according to the a.m. laws and the Contract. Only when the [Buyer] initiated the arbitration proceeding, did the [Seller] bring forward the so-called governmental injunction. What is worthy to be pointed out is that, at the time the [Seller] refused to perform the Contract, it was dispatching to another foreign client the same kind of goods.

Based on the foregoing, the so-called force majeure event alleged by the [Seller] is foreseeable, avoidable and surmountable and the [Seller] cannot take force majeure as the excuse for its default under the Contract.

In addition, until April 1995, the [Seller] alleged that it could perform the Contract, thus the [Buyer] did not avoid the Contract. The [Buyer] filed the application for arbitration on 22 May 1995 when the market price for dried sweet potatoes was higher than that of 27 February 1995. Therefore, it is appropriate for the [Buyer] to calculate the loss on the basis of the market price on 27 February 1995. Regarding the US $699,000 claimed by Vanden Avenne Company against the [Buyer], the [Buyer] is obliged to pay that amount, but since the [Buyer] has reached agreement with Vanden Avenne Company that the US $699,000 will be paid after the [Buyer] completed the indemnification claim against the [Seller], the US $699,000 has not yet been paid to the Vanden Avenne Company.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. Applicable law

Whereas the [Buyer] and the [Seller] did not make an explicit choice of law regarding the Contract, according to Article 145 of THE GENERAL PRINCIPLES OF THE CIVIL LAW OF THE PEOPLE'S REPUBLIC OF CHINA and Article 5 of THE LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON ECONOMIC CONTRACTS INVOLVING FOREIGN INTEREST, the disputes concerning the Contract shall be governed by the law of the country which has the closest connection with the Contract. According to Article 6.1 of section two (deciding the applicable law in handling contract disputes involving foreign interest) of the Explanation for Several Questions regarding the Application of the Law on Economic Contracts involving Foreign Interest promulgated by the Supreme People's Court, the disputes under the Contract shall be governed by the law of the place of business of the Seller at the time the Contract was concluded, i.e., the law of the People's Republic of China.

In consideration that both the People's Republic of China and Switzerland are Contracting States of the CISG, the CISG is also the governing law of the Contract.

2. Force majeure

The [Seller] admitted that it did not deliver the goods and argued for exemption only on the basis of force majeure. Therefore, whether the events alleged by the [Seller] constitute force majeure is the core of this case.

According to Article 153 of THE GENERAL PRINCIPLES OF THE CIVIL LAW OF THE PEOPLE'S REPUBLIC OF CHINA, "force majeure" means unforeseeable, unavoidable and insurmountable objective conditions. It is indicated in Article 79(1) CISG that:

"A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences."

Based on the foregoing, the Arbitration Tribunal is of the opinion that the [Buyer] has brought forward enough evidence and reasoning to deny the existence of force majeure alleged by the [Seller] (see the rebutment made by the [Buyer] in the "Facts of the Case and Arguments of the Parties" part hereinbefore) and thus the argument for exemption based on force majeure made by the [Seller] is not sustained.

3. Claim for Compensation

The compensation claimed by the [Buyer] includes three parts: (1) loss of profit; (2) expense for the Letter of Credit; (3) the compensation to be paid to the Belgium Company. Hereunder is our analysis:

      (1) According to Article 76 CISG, the [Buyer] is entitled to claim against the [Seller] for anticipated profit. The [Buyer] calculated its loss of profit based on the price difference between the price under Contract No. 2646 (converted to the price comparable to the Contract between [Buyer] and [Seller]) and the price under the Contract between [Buyer] and [Seller]. This method of calculation is not in line with the a.m. article of CISG, but the [Seller] did not raise any objection to it. Hence the loss of profit in the amount of US $68,800 shall be sustained and shall be paid by the [Seller]. Regarding the interest accrued from such loss of profit, in consideration that such loss of profit is determined in the arbitration award of this Tribunal, the right to interest does not exist before the handing down of the arbitration award.

      (2) Whereas the claim for loss of profit is satisfied, the expense for opening and withdrawal of the Letter of Credit borne by the [Buyer] shall be regarded the normal expense that the [Buyer] must spend to obtain the anticipated profit and thus shall be borne by the [Buyer] rather than compensated by the [Seller].

      (3) According to Articles 74 and 75 CISG, in addition to the loss of profit that the [Buyer] is entitled to claim against the [Seller], the [Buyer] shall be entitled to claim for other losses against the [Seller]. The compensation of US $699,000 under Contract No. 2646 to be paid by the [Buyer] to Vanden Avenne Company is due to the failure of the [Seller] to deliver the goods according to the Contract, hence such loss shall be indemnified by the [Seller]. Although the [Seller] argued that it is not appropriate to calculate the compensation on the basis of the market price for dried sweet potatoes on 27 February 1995 as determined by the Belgium Chamber of Commerce, [Seller] failed to provide any price it thought would be appropriate or bring forward any objection to the rationality of the determination of the Belgium Chamber of Commerce. Therefore, we consider that the [Seller]'s accepted that Vanden Avenne Company could calculate the compensation claimed against the [Buyer] on the basis of the a.m. price. In addition, it is not sustainable for the [Seller] to invoke Article 76 CISG to argue that the [Buyer]'s calculation of such loss is inappropriate, as this amount is due to the claim made by the Vanden Avenne Company against the [Buyer] rather than calculated on the basis of Article 76 CISG. What is more, according to the governing law of the Contract, the actual occurrence of losses is not a condition for the claim of losses. Since the Vanden Avenne Company has already raised its claim against the [Buyer] and issued an invoice, the loss of the [Buyer] is inevitable. Hence, the argument of the [Seller] that it could refuse to compensate since such losses did not happen is not sustainable. However, since the payment of the losses has not yet happened, the interest accrued thereon shall not be borne by the [Seller].

In addition to the foregoing claim, the [Buyer] claimed against the [Seller] for the attorneys' fee paid by the [Buyer] but failed to provide the amount of the attorneys' fee; hence, the Arbitration Tribunal cannot sustain such claim. The arbitration fee of this case shall, however, be borne by the [Seller].

III. THE AWARD

The Arbitration Tribunal hereby decides:

  1. The [Seller] shall pay the [Buyer] US $68,800 to indemnify the [Buyer]'s anticipated profit;

  2. The [Seller] shall pay the [Buyer] US $699,000 as indemnification of compensation;

  3. The [Buyer]'s other claims shall be dismissed;

  4. The arbitration fee shall be borne by the [Seller].

The a.m. payments adding up to US $791,660 and shall be paid in 45 days from the date of the award. 8% annual interest will accrue on any amount delayed.

This award is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Respondent of the People's Republic of China is referred to as [Seller]; Claimant of Switzerland is referred to as [Buyer]. Amounts in the currency of the United States (dollars) are indicated as [US $].

** WANG Chenghong, LL.B., LL.M., 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.

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