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CISG CASE PRESENTATION

China 29 March 1996 CIETAC Arbitration proceeding (Caffeine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960329c1.html]

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

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Case identification

DATE OF DECISION: 19960329 (19 March 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/15

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Hong Kong (claimant)

GOODS INVOLVED: Caffeine


Classification of issues present

APPLICATION OF CISG: Yes, agreement of the parties

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 47 ; 72 ; 74 ; 75 ; 76 ; 77 ; 78

Classification of issues using UNCITRAL classification code numbers:

6B [Agreements to apply Convention: application for arbitration contains agreement to apply Convention];

47A [Buyer's right to fix additional period for performance: an optional procedure, not a mandatory procedure];

72D [Avoidance prior to date for performance (when clear that party will commit fundamental breach): party has declared it will not perform];

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

75A2 [Substitute transaction after avoidance: repurchase by aggrieved buyer];

76B1 [Avoidance (where goods not delivered) without purchase or resale under article 75: damages are to be recoverable based on current price at time of avoidance];

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

78A [Interest on delay in receiving price or any other sum in arrears: interest on damages (price difference) from date delivery was to have been made]

Descriptors: Choice of law ; Avoidance ; Nachfrist ; Anticipatory breach ; Damages ; Cover transactions ; Mitigation of loss ; 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. 1047-1051

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.23, 151, 181, 190, 232, 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. 81

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Case text (English translation)

Queen Mary Case Translation Programme

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

Caffeine case (29 March 1996)

Translation [*] by Zheng Xie [**]

Translation edited by Meihua Xu [***]

Particulars
Facts
-   Buyer's position
-   Seller's defense
Opinion of the Arbitral Tribunal
1.   Applicable law
2.   Validity of the contract
3.   Seller's liability due to anticipatory breach
4.   The substitute transaction
5.   Damages
6.   Buyer's right to avoid the contract
Award

PARTICULARS

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

   -    The arbitration clause in Contract No. CNCE/9509006 signed by Claimant Hong Kong XX Pharma & Chemical Co, Ltd. [Buyer] and Respondent China XX Construction Co. [Seller] on 5 January 1995; and
 
   -    The written arbitration application submitted by [Buyer] on 2 May 1995.

Because the amount in dispute of this case does not exceed Renminbi [RMB] 500,000, according to Article 64 of the Arbitration Rules of China's International Trade and Economic Arbitration Commission (implemented from 1 October 1995, hereafter, the Arbitration Rules), Chapter 3 Summary Procedure applies to this case.

Because the parties did not jointly appoint or authorize the Chairman of the Arbitration Commission to appoint the sole arbitrator, according to Article 65 of the Arbitration Rules, the Chairman appointed Mr. P as the sole arbitrator of the case to form the Arbitration Tribunal to hear the case.

On 15 January 1996, the Arbitration Tribunal held a court session in Beijing. Both [Buyer] and [Seller] sent representatives to present in the session; they made oral statements and answered the Arbitration Tribunal's questions.

After the session, both parties submitted supplementary materials within the stipulated period.

On 7 February 1996, the General Secretary of the Arbitration Commission upon the request of the Arbitration Tribunal made the decision to prolong the hearing of the dispute under Contract No. G XXX according to Article 73 of the Arbitration Rules, and it is prolonged to 1 April 1996. [****]

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

FACTS

On 4 January 1995, [Buyer] and [Seller] confirmed by fax that [Buyer] bought 9,000 Kg caffeine from [Seller] with the price term of CIF EMP $7.45/Kg. The parties stipulated other terms. On 5 January 1995, [Seller] printed and signed Contract No. CNCE/9509006, and faxed it to [Buyer]. [Buyer] added "CIF EMP" following "US $7,450/MT" in the "Price" column of the contract provided by [Seller], and faxed it back to [Buyer].

The time of shipment stipulated in the contract is " Between the end of March and early April 1995".

On 22 February 1995, [Seller] wrote to [Buyer] that it could not specify the date of delivery of the goods, because the caffeine manufacturer could not produce caffeine in the ordinary course of business due to a technical problem. [Seller] suggested that [Buyer] "purchase the goods from another source and set-off the damages from other later orders".

On 1 March 1995, [Buyer] and [Seller] negotiated about the delivery of the goods in Beijing. [Buyer] alleges that the parties reached agreement that [Seller] would contact the manufacture and try to deliver a portion of or all of the goods at the end of March. [Buyer] also alleges that [Seller] agreed to give [Buyer] a written reply no late than 15 March 1995 to notify [Buyer] of the definite date for delivery. [Seller] did not admit this assertion of the [Buyer].

On 15 March 1995, [Buyer] wrote to [Seller] requesting it on that day to notify [Buyer] of the delivery date. [Seller] did not reply.

On 22 March 1995, [Buyer] wrote to [Seller] again stating:

"We await your definite reply on Contract No. CNCE/9509006. We can give you one more grace day to 6:00 pm, 23 March 1995. Please notify us of the definite delivery date or agree to indemnify us for the price difference for higher price substitute goods. If we don't get your reply, we will authorize our attorney to deal with this matter, and apply for arbitration according to the arbitration clause in the contract."

On 23 March 1995, [Seller] wrote to [Buyer] stating, "Contract No. CNCE/9509006 is not established because you altered the price term in the contract, which we did not confirm in writing. We are not liable for it."

On 29 March 1995, [Buyer] wrote to [Seller] requesting it to "[r]eply before 5 April and notify either to deliver the goods before 15 April or to indemnify us", and stated "otherwise, we will file an arbitration application."

On 6 April 1995, [Buyer] sent its notice of claim to [Seller] with the confirmation of purchase of caffeine by [Buyer] from Protech Resources Co. signed on 5 April 1995. [Buyer] claims for US $57,150, the price difference between the contract price and the price of substitute goods, $13.9/Kg, due to [Seller]'s non-performance of Contract No. CNCE/9509006. Because [Seller] did not satisfy [Buyer]'s request, [Buyer] filed its arbitration application on 2 May 1995.

[Buyer]'s position

[Buyer] submitted the following claims:

  1. Contract No. CNCE/9509006, executed on 5 January 1995, should be declared avoided.

  2. [Seller] should indemnify [Buyer] for the loss of profits [added costs], US $57,150 and reasonable expenditures, US $ 2,900.

  3. [Seller] should pay the entire arbitration fee of this case.

[Buyer] asserts that Contract No. CNCE/9509006 was established according to the law; [Seller] should therefore indemnify [Buyer] for the damages due to [Seller]'s breach.

[Buyer] alleges that after signing the contract, [Buyer] inquired of [Seller] about the definite delivery date, and then [Seller] notified [Buyer] that it could not deliver the goods on time. On 23 March 1995, [Seller] stated in writing that the contract was not established, and that it was not liable for it. When [Seller] indicated that it would not perform its obligation under the contract, [Buyer] had to take measures to mitigate damages. On 5 April 1995, [Buyer] bought substitute goods at the price of US $13.8/Kg. [Buyer] therefore suffered the price difference loss of US $6.35/Kg and the total loss of US $57,150. [Buyer] asserts that this loss was caused by [Seller]'s non-performance of the established contract; [Seller] did not want to take the normal business risk. [Seller] should therefore bear the liability. [Seller] should also indemnify [Buyer]'s traveling expenses and attorneys' fee for this case.

[Seller]'s defense

To [Buyer]'s claims, [Seller] states:

First, [Buyer]'s evidence of the substitute goods is not sufficient; [Buyer]'s claim for US $57,150 as the price difference between the contract price and the price for substitute goods should not be supported. [Seller] alleges that [Buyer] only provided a sales confirmation dated 5 April 1995 as evidence when claiming the price difference of US $57,150, which cannot show that [Buyer] has bought substitute goods, so this claim lacks supporting evidence. [Seller] asked the Arbitration Tribunal to request [Buyer] to provide the B/L, warehouse receipt, invoice, certificate of origin, certificate of packaging or other evidence to prove that such transaction really occurred.

Second, the time when [Buyer] bought the substitute goods is not proper or unfair to [Seller] - if [Buyer] really bought the substitute goods - and that this is so because:

  1. Article 18 of Law of the People's Republic Of China on Economic Contracts Involving Foreign Interest stipulates that one party's breach is the precondition of "reasonable remedial measures". The contract in this case stipulates that the time of shipment is "Between the end of March and early April 1995", which means the latest date for delivery is 10 April. The date of 5 April when [Buyer] allegedly bought the substitute goods is not the latest date of delivery, so [Seller] did not breach the contract and [Buyer] is not entitled to purchase such substitute goods.

  2. [Seller] had the right to buy goods to perform the obligation of delivery at a lower price, if it knew [Buyer] planned to buy substitute goods at the price of US $13.80/Kg. However, [Buyer] did not notify [Seller] before buying substitute goods, which is unfair to [Seller].

In addition, [Seller] points out that Article 47 CISG states:

"(1) The buyer may fix an additional period of time of reasonable length for performance by the seller of his obligations.

"(2) Unless the buyer has received notice from the seller that he will not perform within the period so fixed, the buyer may not, during that period, resort to any remedy for breach of contract."

In this case, [Buyer] did not fix "an additional period of time", but bought substitute goods before the latest date for delivery without notifying [Seller] that it was not going to perform the contract, which is unreasonable.

[Seller] insists that it be called upon to indemnify [Buyer] at the market price when the goods were to be delivered, but not at the price difference claimed by [Buyer].

During the court's session, [Seller] acknowledged that Contract No. CNCE/9509006 is valid.

After the court session, [Buyer] submitted supplementary evidence regarding the substitute goods and [Seller] cross-examined the evidence. [Seller] alleges that [Buyer]'s sale confirmation for substitute goods stipulates that the term of payment is "D/P", which means this transaction is document against payment, and the documents shall include warehouse receipt, invoice, certificate of origin, certificate packaging. If [Buyer] really completed the transaction, it would be easy to provide the documents under this transaction. However, among the documents provided by [Buyer], the invoice was not sealed and signed, and the warehouse receipt was replaced by a warehouse delivery order. The other documents were replaced by those under another transaction. Accordingly, [Seller] asserts that [Buyer] has not provided sufficient evidence to prove the substitute transaction.

[Seller] in its supplementary defense and evidence alleges that [Buyer] unreasonably bought the substitute goods, and cannot prove the transaction really occurred. According to Article 76 CISG, [Seller] shall indemnify [Buyer] at the current price at the place where delivery of the goods should have been made. The transaction is CIF, so the place for delivery is China, and [Seller] only accepted the price difference between the contract price and caffeine export price, US $ 9.03/Kg, reported by China Custom in April 1995. The amount to be indemnified is the quantity under Contract x (FOB price reported by China Custom + freight and Insurance /Kg - the contract price), i.e., 9,000 Kg x (US $9.03/Kg + US $0.2 /Kg - US $7.45/Kg) = US $16,020. [Seller] provided Hong Kong market price in April 1995, i.e., HK $65. [Seller] asserts that this price is similar to the one reported by China Custom, and reflects the real market price at the contract time of delivery.

OPINION OF THE ARBITRAL TRIBUNAL

1. Applicable law

The parties did not stipulate the applicable law in the contract. However, when the application for arbitration was filed, the parties agreed that the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG) should be applied to this case. According to the facts, the court session and the parties' intention, the CISG is applied to this case.

2. Validity of the contract

The contract of this case was signed by the parties. [Seller] did not object to the term "CIF EMP" added by [Buyer] when receiving the contract sent by [Buyer]. In addition, the parties had confirmed the above price term on 4 January 1995. During the court session, [Seller] acknowledged that the contract was validly established. On the basis of the facts and the parties' unanimous intention, the Arbitration Tribunal decides that the contract was validly established.

3. [Seller]'s liability due to anticipatory breach

[Seller] wrote to [Buyer] on 22 February 1995 notifying that it could not decide the definite date for delivery, and suggested that [Buyer] "purchase the goods from another source and set-off the damages from other later orders" Then, [Buyer] urged [Seller] to specify the delivery date. On 23 March 1995 [Seller] wrote to [Buyer] asserting that "Contract No. CNCE/9509006 is not established, because you altered the price term in the contract, which we did not confirm in writing. We are not liable for it." Although before early April 1995 was the delivery date stipulated in the contract, [Seller]'s above action indicated that it would not bear any liability, which constitute an anticipatory breach. [Seller] is liable for this breach.

4. The substitute transaction

[Buyer] has the right to take reasonable measures to mitigate damages when [Seller] indicated that it would not perform the obligation. The Arbitration Tribunal cannot support [Seller]'s assertion that it is not reasonable for [Buyer] to buy substitute goods before the time of delivery.

5. Damages

Once the contract is established, the parties are obligated to perform their obligations in accordance with the contract. [Seller] breached the contract in this case, so it shall be liable for damages. [Buyer] asserts that it bought substitute goods at the price of US $13.8 and requests that [Seller] indemnify the price difference. The Arbitration Tribunal holds that [Buyer] must provide sufficient evidence to prove the substitute transaction. However, the evidence provided by [Buyer] cannot prove that it bought the substitute goods. Thus, the Arbitration Tribunal cannot support [Buyer]'s claim that it bought the substitute goods and that [Seller] should indemnify at the price difference sought. The Arbitration Tribunal decides that [Seller] shall reimburse [Buyer] the price difference between the contract price and the price at the place where the goods should have been delivered in April 1995. Accordingly, [Buyer] shall be indemnified in accordance with the quantity under Contract x FOB price + freight and Insurance /Kg - the contract price, i.e., 9,000 Kg x (US $9.03/Kg + US $0.2 /Kg - US $7.45/Kg) = US $16,020.

Furthermore, according to Article 78 CISG, [Seller] shall pay [Buyer] interest at 9% annual rate on the above price difference from April 1995 to the date when the payment is made.

To [Buyer]'s claim for reasonable expenditures, the Arbitration Tribunal holds that [Seller] shall pay [Buyer] US $1,600 to indemnify [Buyer] for expenditures of this case.

6. [Buyer]'s right to avoid the contract

The Arbitration Tribunal holds that [Buyer] was entitled to avoid Contract No. CNCE/9509006.

AWARD

In accordance with the above opinion, the Arbitration Tribunal hands down the following award:

  1. Contract No. CNCE/9509006, signed by the parties on 5 January 1995, is avoided;

  2. [Seller] shall pay [Buyer] the price difference of US $16,020, and interest at the annual rate of 9% from April 1995 to the date when the payment is made

  3. [Seller] shall pay [Buyer] US $1,600 to indemnify [Buyer] for expenditures of this case.

  4. [Seller] shall pay the arbitration fee of this case. [Buyer] has paid this fee in advance; [Seller] shall therefore repay US $___ to [Buyer].

[Seller] shall pay the above amount within 45 days when this award takes effective. Otherwise, interest at 9% annual rate 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 Hong Kong is referred to as [Buyer]; 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].

** 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.

**** Translator's note: Although the award states that the hearing was "prolonged to 1 April 1996", the published opinion is dated 29 March 1996.

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