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CISG CASE PRESENTATION

China 29 March 1996 CIETAC Arbitration proceeding (Natural rubber case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960329c2.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19960329 (29 March 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/16

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Thailand (respondent)

BUYER'S COUNTRY: United Kingdom (claimant)

GOODS INVOLVED: Natural rubber


Classification of issues present

APPLICATION OF CISG: The tribunal states: "[E]ven though the parties' places of business are located in non-Contracting States of CISG, they made reference to CISG in the statement of claim and the statement of defense too. Considering the foregoing facts, the Arbitration holds that on the condition that Chinese law is applied to the instant case, the relevant provisions of the CISG may be referred to."

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 19 ; 29(1) ; 71

Classification of issues using UNCITRAL classification code numbers:

19C [Acceptance of offer with modifications: modification that are material];

29A [Parties by agreement my modify or terminate the contract];

71A1 [Grounds for suspension of performance]

Descriptors: Acceptance of offer ; Modification of contract ; Suspension of performance

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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. 1056-1063

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

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

Natural rubber case (29 March 1996)

Translated [*] by Yan Tianhuai [**]

Edited by John W. Zhu [***]

The China International Economic and Trade Arbitration Commission (hereinafter, "Arbitration Commission") Shenzhen Sub-Commission (hereinafter, "Shenzhen Sub-Commission") accepted this case on 4 April 1995, according to:

   -    The arbitration clause in Contract No. TVRS94/001 (hereinafter, the "Contract") signed by and between Claimant, British __ Trade Company (hereinafter, "[Buyer]"), and Respondent, Thailand __ Company Ltd. (hereinafter, "[Seller]"), on 10 September 1994 in Hong Kong; and
 
   -    The written arbitration application submitted by the [Buyer] on 31 March 1995.

In accordance with the Arbitration Commission's Arbitration Rules (effective 1 June 1994, hereinafter, "Arbitration Rules"), Mr. A, appointed by the [Buyer] as its arbitrator, Mr. D, appointed by the Chairman of the Shenzhen Sub-Commission as an arbitrator due to the [Seller]'s failure to appoint an arbitrator within the time limit prescribed by the Arbitration Rules and Mr. P, the presiding arbitrator appointed by the Chairman of the Shenzhen Sub-Commission formed the arbitration tribunal (hereinafter, "Arbitration Tribunal") on 1 June 1995 to hear this case.

The Arbitration Tribunal asked the Secretariat of the Shenzhen Sub-Commission to arrange a hearing on 11 July 1995. The hearing was, however, postponed to 2: 30 p.m. on 14 July 1995. Each party's attorney attended the hearing on time. Because the [Buyer] had submitted an erroneous text of the Contract, at the hearing, the [Buyer] raised the problem with respect to the subjects of the contract. After investigation, the Arbitration Tribunal found that the [Buyer] was at fault in submitting erroneous evidence regarding the contract. The Arbitration Tribunal requested the [Buyer] to submit evidence again and granted to the [Seller] another 45-day period of time in which to file an arbitration defense and another 60-day period in which to file a counterclaim, both periods starting to run from the day of the hearing. Thereafter, the Arbitration Tribunal examined the [Buyer]'s arbitration application, the [Seller]'s written defense and statement of counterclaims, and other relevant evidence, and held the second hearing on 16 October 1995. Each party's attorney attended. The Arbitration Tribunal heard the parties' statements and arguments and investigated the facts of this case. After the hearing, both parties submitted supplementary material to the Arbitration Tribunal.

Due to the delay of the arbitration proceedings caused by the [Buyer]'s submission of an erroneous text of the Contract at the first hearing and the parties' repeated submissions of supplementary material after the second hearing, the Arbitration Commission, on 27 February 1996, extended the deadline for rendering the award to 31 March 1996.

The Arbitration Tribunal renders this award as of the date hereof. The following are the facts, the issues, the Arbitration Tribunal's opinion and the award.

I. FACTS

On 10 September 1994, the [Buyer] entered into the Contract with the [Seller] to purchase from the [Seller] 1,000 tons of I.T. RSS-3 Natural rubber at a unit price of US $1,300 per ton, C&F Fangcheng, China with a total value amounting to US $1,300,000. The Contract provided that the date of shipment should be in October 1994; the payment should be made through a letter of credit (L/C) issued in September 1994; and that all disputes in connection with the Contract or its performance shall be settled through amicable negotiation; in case no settlement can be reached, the dispute shall be submitted to China International Economic and Trade Arbitration Commission for arbitration which shall be conducted in accordance with its arbitration rules in China; and the arbitral award is final and binding upon both parties. The Contract also specified the documents to be presented, the inspection of the goods, as well as other matters.

During the performance of the Contract, a dispute arose. Because the parties failed to settle the dispute through negotiation, the [Buyer], pursuant to the arbitration clause in the Contract, filed an application for arbitration with the Shenzhen Sub-Commission, claiming:

1. The [Seller] should compensate the [Buyer] for economic losses in the amount of US $333,000; and

2. The [Seller] should bear the arbitration fee and the [Buyer]'s attorneys' fee.

On 13 September 1995, the [Seller] filed a counterclaim stating that:

1. The [Buyer] should compensate the [Seller] for the storage fee and shipping space cancellation fee; and

2. The [Buyer] should bear the entire arbitration fee and other fees incurred in arbitrating this case.

II. [POSITION OF THE PARTIES]

[Buyer]'s Position

The [Buyer] asserts that:

     After execution of the Contract, on 16 September 1994, the [Buyer] signed a sales agreement numbered MS94/0023 with A Company to sell to A Company 1,000 tons of natural rubber under the Contract at a unit price of US $1,480 per ton. The sales agreement provided, inter alia, that A Company should cause a L/C to be issued by 30 September 1994 with the [Seller] as the beneficiary and in case the [Buyer] failed to supply the goods to A Company according to the agreement, [Buyer] should pay 10 percent of the total agreement price to A Company as liquidated damages. On 27 September 1994, A Company caused the L/C to be issued. However, the [Seller] failed to deliver the goods to the [Buyer]. Due to the [Seller]'s breach of its Contract with the [Buyer], the [Buyer] suffered substantial economic losses because it not only lost anticipated profit under its resale agreement but also had to bear the liabilities for breach of its resale agreement. The [Buyer] tried to settle the dispute with the [Seller] through negotiation, but the [Seller] refused to cooperate and repeatedly rejected [Buyer]'s settlement proposals. The [Buyer] had no choice but to refer the dispute to arbitration. The economic losses claimed by the [Buyer] included (1) the loss of anticipated profit in the amount of US $180,000; (2) the liquated damages paid to A Company in the amount of US $148,000; and (3) the compensation in the amount of US $5,000 paid to A Company for L/C issuance fee and interest accrued on L/C issuance deposit.

[Seller]'s position

The [Seller] contends that:

     The facts the [Buyer] stated in its arbitration application are very far from the truth. After conclusion of the Contract, the [Seller] prepared the goods according to the quality and quantity specified in the Contract and booked shipping space with SONGKHLA UNION MARINE LIMITED PARTNERSHIP on time. Later, the [Buyer] asked the [Seller] to load the 1,000 tons of Natural rubber onto a vessel with less than 2,000 tons capacity. Upon the [Buyer]'s repeated request, the [Seller] agreed to do so, but asked that the L/C be amended accordingly. However, the [Buyer] made no response. The [Seller] had no choice but to take appropriate measures to preserve and dispose of the goods, and to cancel the shipping space it had booked on HANG WAN vessel. The SONGKHLA UNION MARINE LIMITED PARTNERSHIP claimed for damages against the [Seller], for which the [Seller] had to pay the damages. It is apparent that the [Seller] was not in breach of the Contract. The [Seller]'s non-delivery of the goods was caused by the [Buyer]'s breach of the Contract, which resulted in economic losses to the [Seller].

[Buyer]'s response

In response to the [Seller]'s defense, the [Buyer] states:

1. Extension of validity of L/C

     (1) The [Buyer] never received from the [Seller] the fax requesting extension of the validity of the L/C. First, the [Seller] did not provide sufficient evidence to prove that it ever sent such a fax to the [Buyer] and that the [Buyer] ever received such a fax. Second, the [Seller] submitted to the Arbitration Tribunal not only that fax but also other faxes. However, the [Seller], with the expectation that the [Buyer] would deny receipt of such a fax, submitted in advance the transmission report of that fax but not the transmission reports of the other faxes. Such premeditated action on the part of the [Seller] raises in the [Buyer]'s mind a question about the truthfulness of the evidence presented.

     (2) The [Seller] failed to state a firm request for extension of the validity of the L/C in the said fax but raised only one assumption, i.e., the extension was requested on the condition that the [Seller] could find the vessel with less than 2,000 tons capacity in 10 months. The [Buyer] was neither necessitated nor obligated to reply to such an assumption and needless to say, to have the validity of the L/C extended. Thereafter, the [Seller] never informed the [Buyer] whether it found the vessel and requested for extension of the validity of the L/C. So, the [Seller]'s argument that the [Buyer]'s failure to reply to the said fax showed that the [Buyer] lacked good faith in performing the Contract is unjustifiable.

     (3) Even assuming as argued by the [Seller] that it did ask for extension of the validity of the L/C at the same time as its acceptance of the [Buyer]'s request for shipping the goods through a vessel with less than 2,000 tons capacity, this defense is still groundless under the law. Article 19(1) of United Nations Convention on Contracts for the International Sale of Goods ("CISG") provides that a reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer. Article 19(3) of the CISG further provides that additional or different terms relating to the place and time of delivery are considered to alter the terms of the offer materially. In the instant case, the [Seller]'s asking for an extension of the validity of the L/C meant to change the time of delivery. So, the [Seller]'s fax containing such a material change was not an acceptance of the [Buyer]'s request; it in fact constituted a counter-offer. The [Buyer] had no obligation to reply to a counter-offer. Therefore, the [Seller], without receiving reply from the [Buyer], should have been aware that the parties failed to reach an agreement to change the vessel and that the parties were not bound by the [Buyer]'s offer requesting shipment of the goods through a vessel with less than 2,000 tons capacity, because the [Buyer]'s offer had become invalid upon the [Seller]'s refusal and counter-offer. Under such circumstances, the [Seller] should have performed its obligation to deliver the goods according to the Contract as originally agreed upon. However, it failed to do so. Thus, the [Seller]'s suspension of the performance of the Contract constituted a breach of the Contract, it should take the liability to compensate for the damages suffered by the [Buyer].

2. Shipment of the goods via a vessel with less than 2,000 tons capacity

     (1) Considering the convenience to unload the goods at the destination port, the [Buyer] did requested the [Seller] to ship the goods via a vessel with less than 2,000 tons capacity provided that the Contract was not violated. This request was not a new offer, because it wasnot intended to alter any term of the Contract. It was only an additional proposal of the [Buyer]; the [Seller] was free to consent or not to consent. Even if the [Seller] consented to the request, its consent did not amount to an acceptance. So, the [Seller] was not bound to ship the goods via a vessel with less than 2,000 tons capacity. According to the Contract, the [Seller]'s obligation was to deliver the goods on aboard on time and to cause the goods to be shipped to the designated place via a vessel suitable for shipment of the goods. The [Seller]'s failure to do so, therefore, constituted a breach of the Contract. It should be liable for the damages caused to the [Buyer].

     (2) The [Seller] had actually confirmed its consent to ship the goods via a vessel with less than 2,000 tons capacity in the fax sent to Mr. Cheng of Hong Kong Ng Feng Hong Limited on 5 October 1994. The [Seller] argued in its defense that it completely accepted the [Buyer]'s request for shipping the goods via a vessel with less than 2,000 tons capacity on 22 October 1994. In fact, the [Seller]'s fax dated 22 October 1994 contained no words expressing its complete acceptance of the [Buyer]'s request; it was in the fax dated 5 October 1995 that the [Seller] made such expression.

3. Evidence proving the [Seller]'s booking and cancellation of shipping space

     (1) Before filing its counterclaim, the [Seller] never informed the [Buyer] of its booking and cancellation of shipping space as well as the damages it suffered there from nor provided any supporting materials. The [Buyer] deems that the evidence submitted to the Arbitration Tribunal by the [Seller] to prove the [Seller]'s booking and cancellation of shipping space for the goods as well its damages suffered there from is unreliable. Moreover, according to the C&F term provided in the Contract, the [Seller] was responsible to contract at its own expense for the carriage of the goods and to deliver the goods on board at the designated loading port, so the cost incurred by the [Seller] related to booking and cancellation of shipping space should not be borne by the [Buyer].

     (2) The destination place designated in the Contract as well as in the L/C was FANG CHENG, but the evidence presented by the [Seller] shows that the destination place of HANG WAN vessel was FANG CHANG and another document provided by the [Seller] shows the destination place was FANG CHAND, both places were completely different from the place designated in the Contract and in the L/C. In addition, the documents provided by the [Seller] show no connection between the 1,000 tons of Rubber listed on them and the Contract as well as the L/C. So, the evidence provided by the [Seller] has nothing to do with the instant case.

[Seller]'s supplementary defense

1. Shipping the goods via a vessel with less than 2,000 tons capacity

     (1) On 22 October 1994, the [Buyer] twice made the same request in writing that the [Seller] should ship the goods via a vessel with less than 2,000 tons capacity. The [Buyer]'s request was a new offer to the [Seller], which was completely accepted by the [Seller] in written form. So, the loss suffered by the [Seller] from cancellation of the reservation for shipping space should be borne by the [Buyer].

Pursuant to Article 28 ofthe Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, which provides that "a contact may be modified if the parties reaches a consensus through consultation," as well as Article 29(1) of CISG, the agreement reached by the [Seller] and the [Buyer] on change of the shipping vessel constitutes a valid modification to the Contract.

     (2) The fax sent to Hong Kong Ng Feng Hong Limited on 5 October 1994 was intended to reply to Shenzhen Guixing Trading Company regarding the shipment of the remaining 2,000 tons of Rubber under the contract numbered 94GSR242. The testimony of Mr. Cheng presented by the [Buyer] lacks relevancy because (1) the fax was sent to Hong Kong Ng Feng Hong Limited rather than A Company; and (2) it was the A company, rather than Hong Kong Ng Feng Hong Limited, who was the end-user of the goods under the Contract and a real party in interest to the Contract.

     (3) During the hearing held on 16 October 1995, the [Buyer]'s attorney advised the Arbitration Tribunal that the [Buyer]'s request for shipment of the goods via the vessel with less than 2,000 tons capacity was first made to the [Seller] on 15 October 1994. So, it was totally impossible for the [Seller] on 5 October 1994 to have accepted the [Buyer]'s request made on 15 October 1994.

2. Request for extension of validity of L/C

The [Buyer]'s allegation that it never received the fax from the [Seller] asking for extension of the validity of the L/C is nothing but a lie. The [Seller] sent two faxes to the [Buyer] on the same day; it is implausible that the [Buyer] received only one of them. The [Seller] has presented to the Arbitration Tribunal the originals of the two faxes; if the [Buyer] doubts their truthfulness; it may apply for verification of them.

At the same time, when the [Seller] accepted the [Buyer]'s repeated request for shipping the goods via a vessel with less than 2,000 tons capacity, it made a reasonable request that the [Buyer] should extend the validity of the L/C. However, the [Buyer] failed to make any response to the [Seller]'s request. The [Buyer]'s non-response not only made it impossible for the [Seller] to perform its obligation to deliver the goods but also caused the [Seller] to believe that the [Buyer] lacked good faith in performing the Contract. In order to protect its interest, the [Seller] had no choice but to suspend the performance of its obligation under the Contract. The [Seller] acted completely in compliance with Article 71(1) of CISG, which provides that:

"A party may suspend the performance of his obligation if, after the conclusion of the contract, it becomes apparent that the other party will not perform a substantial part of this obligations as a result of: a serious deficiency in his ability of perform or in his creditworthiness."

3. Liability for non-performance of the Contract

Despite the fact that the parties disputed whether the Contract was modified as a matter of law, the indisputable fact is that when the [Seller] started to perform the Contract, the [Buyer]'s request for modification of the Contract made it impossible for the [Seller] to perform the Contract as originally agreed upon. It is obvious that repeated negotiations by the parties on modification of the Contract delayed the [Seller]'s performance of its obligation according to the Contract, because the cancellation by the [Seller] of the original reservation of the shipping space had been confirmed by the shipping company and time was needed to look for a new vessel. The delay caused by the [Buyer] made it impossible for the [Seller] to load the goods on board before 31 October 1994. Therefore, the [Buyer] should be liable for the non-performance of the Contract.

4. Evidence proving the [Seller]'s reservation and cancellation of shipping space

The [Buyer] has no reason or legal ground to allege that the evidence provided by the [Seller] to prove its reservation and cancellation of shipping space is ineffective. The [Seller] was not obligated to show to the [Buyer] the evidence proving its reservation and cancellation of shipping space as well as the damage it suffered before it filed the counterclaim. The [Seller] considers that the evidence provided by it is objective, true, and adequate.

As to the [Buyer]'s question about whether the destination of HANG WAN vessel was FANG CHENG port or FANG CHANG port, in the [Seller]'s opinion, the inconsistency was caused by the difference between English words and Chinese Pinyin. There also exists such difference between Mandarin and Cantonese. However, no matter FANG CHENG port or FANG CHANG port, it refers to only Fangcheng port of China, because no other port in China shares the same pronunciation with the Fangcheng port. As for the reference to FANG CHAND, because the CHAND is not a correct Chinese Pinyin, nor is there a port in China named FANG CHAND, it is just a typo. All such differences in Chinese Pinyin are just a word game; they have nothing to do with the substantive issue of the instant case.

III. OPINION OF ARBITRATION TRIBUNAL

1. Applicable law

The parties did not specify the applicable law in the Contract nor did they agree on the applicable law otherwise. However, they made reference to the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest in the statement of claim and the statement of defense. The Arbitration Tribunal holds that the parties' references to the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest expressed their consent to the application of Chinese law to the instant case. Also, even though the parties' places of business are located in non-Contracting States of CISG, they made reference to CISG in the statement of claim and the statement of defense too. Considering these facts, the Arbitration Tribunal holds that on the condition that Chinese law is applied to the instant case, the relevant provisions of CISG may be referred to.

2. Verification of the facts by the Arbitration Tribunal

After the hearing and investigation of the supplementary evidence submitted by the parties, the Arbitration Tribunal verified the following facts:

     (1) On 10 September 1994, the [Buyer] and the [Seller], after mutual negotiation, signed the Contract in Hong Kong.

     (2) On 16 September 1994, the [Buyer], as a reseller, signed a resale agreement with A Company (THE ANDAR CORPORATION LTD), as a customer, pursuant to which:

     -    The [Buyer] agreed to sell to A Company 1,000 tons of the Rubber under the Contract at a unit price of US $1,480 per ton on the basis of C&F Fangcheng port in a total value of US $1,480,000;
 
     -    A Company agreed to cause a L/C to be issued to the [Seller] at unit price of US $1,360 per ton on the basis of C&F Fangcheng port;
 
     -    In the event that the L/C was not issued, A Company was required to pay the [Buyer] 10 percent of the total value as liquidated damages; and in the event that the goods were not delivered according to the sales agreement, the [Buyer] was required to pay A Company 10 percent of the total value as liquidated damages.

     (3) On 27 September 1994, Hong Kong Ng Feng Hong Limited, upon delegation by A company, caused an irrevocable documentary L/C numbered A-01-L-07447 to be issued by Bank of China Hong Kong Branch with the [Seller] as the beneficiary. The L/C provided that the expiry date was 21 November 1994, the shipment date was on or before 31 October 1994, and the unit price of the goods was US $1,360 per ton on the basis of C&F Fangcheng port.

     (4) On 12 October 1994, Songkhla Union Marine Limited Partnership (hereinafter "Songkhla Union Marine"), a Thai shipping company, accepted the [Seller]'s reservation for shipping space on HANG WAN vessel for 1,000 tons of the Rubber under the Contract.

     (5) On 22 October 1994, the parties exchanged several faxes:

          (i) At first, the [Buyer] sent to the [Seller] a fax, stating that:

"Because the Rubber price in the Chinese market is falling, our clients do not accept higher price. If you accept the foregoing price, please ship another 300 tons of goods together with the 1,000 tons of goods; if you cannot accept the foregoing price, please ship only the 1,000 tons of goods according to the Contract. Please be sure that the 1,000 tons of the goods is shipped via a vessel with less than 2,000 tons capacity ..."

          (ii) The [Seller] replied to the [Buyer] with a fax, stating:

"PHATANA 188 is a vessel with 1,300 tons capacity. Please confirm whether you accept another 300 tons of goods at a unit price of US $1,360. If not, we have to ship the 1,000 tons of goods via a big ship instead of PHATANA 188 ..."

          (iii) The [Buyer] sent to the [Seller] another fax, stating:

"We decide to cancel the order for another 300 tons of the goods because the price is unacceptable. Please keep arranging the shipment of the 1,000 tons of the goods. The goods shall be shipped via a vessel with less than 2,000 tons capacity ..."

          (iv) The [Seller] replied to the [Buyer] again with a fax, stating:

"We did our best effort to look for a vessel with lees than 2,000 tons capacity but failed. We will keep looking for the vessel satisfying your request. In case such a vessel is available within this month, you should cause the validity of the L/C to be extended."

The [Buyer] asserts that it did not receive the second fax from the [Seller]. However, the Arbitration Tribunal does not think that the [Buyer]'s denial and rebuttal of the [Seller]'s evidence is convincing.

     (6) The evidence submitted by the parties shows that they failed to negotiate further as to how to ship the 1,000 tons of goods and how to perform the Contract after 22 October 1994.

     (7) On 27 October 1994, the Songkhla Union Marine sent a notice to the [Seller], claiming damages suffered from the [Seller]'s cancellation of the reservation for shipping space on HANG WAN vessel.

On 22 November, the Songkhla Union Marine issued to the [Seller] an invoice indicating that the shipping company had received from the [Seller] the payment for the damages suffered from the [Seller]'s cancellation of the reservation for shipping space in the amount of Thai baht [THB] 437,500.

     (8) On 10 November 1994, the [Seller] signed with Thailand __ Company Ltd. a contract numbered STVR 94/083, under which the former provided to sell to the latter 1,000 tons of Rubber at a unit price of US $1,200 to be shipped in November 1994.

3. The Arbitration Tribunal's analyses and holdings

     (1) The Contract was concluded by the parties based on mutual consent; it reflected the true intent of the parties; and its conclusion by the parties satisfied the validity requirement of Law of the People's Republic of China on Economic Contracts Involving Foreign Interest. Therefore, it was legally effective and binding upon both parties.

     (2) According to the Contract, the [Buyer] was required to cause an irrevocable L/C to be issued to the [Seller] and the [Seller] was required to ship the goods in October 1994. The verified facts show that the [Buyer] caused the L/C to be issued to the [Seller] on 27 September 1994 and that the [Seller] booked the shipping space for the 1,000 tons of Rubber on 12 October 1994. Both parties started on the performance of the Contract very smoothly.

     (3) While the Contract was being performed, the [Buyer] made a request that the [Seller] should ship the goods via a vessel with less than 2,000 tons capacity.

          (i) There is a dispute between the parties over when the [Buyer] made the request and whether the [Seller] accepted the request. The [Buyer], based on the fax sent by the [Seller] to Hong Kong Ng Feng Hong Limited on 5 October 1994, claims that it made the request to the [Seller] on 5 October 1994 and that the request was accepted by the [Seller] on the same day. The [Seller] insists that the [Buyer] made the request first on 22 October 1994 and that it was impossible for the [Seller] to have accepted the request before such a date or, as asserted by the [Buyer], on 5 October 1994. Based on the Arbitration Tribunal's investigation, it is confirmed that the [Seller] did send to Hong Kong Ng Feng Hong Limited a fax on 5 October 1994, stating that "we have received the payment from your company; as to next shipment, we will look for a vessel with 2,000 tons capacity." The Arbitration Tribunal notes that the [Seller] did mention "look for a vessel with 2,000 tons capacity" in the above fax. However, the fax was sent to Hong Kong Ng Feng Hong Limited instead of the [Buyer]. No evidence shows that Hong Kong Ng Feng Hong Limited acted as the [Buyer]'s agent to negotiate with the [Seller] the issue concerning the shipping vessel. Therefore, the above fax should not be adopted as evidence to prove the acceptance of the [Buyer]'s request by the [Seller].In accordance with the evidence provided by the parties, it is concluded that the [Buyer] made the request on 22 October 1994.

          ii) The nature of the [Buyer]'s request for shipping the goods via a vessel with less than 2,000 tons capacity

     The [Buyer] asserts that this request was not a new offer because it made no change to the Contract terms; it was only an additional proposal that might or might not be adopted by the [Seller]; and even if it was adopted by the [Seller], the [Seller]'s adoption was not deemed as an acceptance. The [Seller] argues that the [Buyer] twice requested the [Seller] to ship the goods via a vessel with less than 2,000 tons capacity; that the request was a new offer and was accepted by the [Seller]; that the acceptance of the new offer by the [Seller] was legally effective.

It is noted by the Arbitration Tribunal that the Contract failed to specify the shipping requirement on the transportation vehicle except that the trade term was C&F Fangcheng port. According to the Incoterms published by International Chamber of Commerce in 1980, under the C&F term, the seller has the responsibility to:

"contract on usual terms at his own expense for the carriage of the goods to the named port of destination by the usual route in a seagoing vessel of the type normally used for the transport of goods of the contract description and to pay the freight and charges for unloading the goods at the port of discharge which may be levied by regular shipping lines when contracting for carriage."

Thus, under the C&F term, the seller is generally required to use a regular ship line to ship the goods, and the seller has the discretion to choose to chart a vessel or to book a shipping space for the goods. The [Buyer]'s request to the [Seller] to ship the goods via a vessel with less than 2,000 tons capacity was actually to ask the [Seller] not to use a "vessel of the type normally used for transport of the goods". It amounted to a special condition and a restriction on the [Seller]'s discretion. The Arbitration Tribunal holds that the [Buyer]'s request was to ask for change of the shipping mode provided in the Contract. As the provision relating to the shipment of the goods is one of the main clauses of a sales contract, the [Buyer]'s request for shipment of the goods via a special vessel constituted in fact a material alteration of the terms and conditions of the Contract. Therefore, the [Buyer]'s assertion that its request was only an additional proposal rather than an offer modifying the Contract is unjustifiable.

According to Article 28 of Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, "a contact may be modified if the parties reach a consensus through consultation." Article 29(1) CISG also provides that "a contract may be modified or terminated by the mere agreement of the parties." The facts of the instant case indicate that the parties negotiated the [Buyer]'s request for shipping the goods via a vessel with less than 2,000 tons capacity on 22 October 1994. The [Buyer] first made an express request to the [Seller] that the goods be shipped via a vessel with less than 2,000 tons capacity. After the [Seller] found a vessel with 1,300 tons capacity, it advised the [Buyer] to increase the order by another 300 tons. Due to the [Buyer]'s refusal of this advice, the [Seller] was unable to charter the vessel with 1,300 tons capacity. Again, the [Buyer] made an express request to the [Seller] that the goods should be shipped via a vessel with less than 2,000 tons capacity. The [Seller] replied to the [Buyer] that it was looking for such a vessel as requested by the [Buyer] and demanded that the [Buyer] cause the validity of the L/C to be extended; the [Buyer] failed to make any response to the [Seller]'s demand for extension of the validity of the L/C. The above facts show that on 22 October 1994, after several rounds of negotiation between the parties, the [Seller] conditionally accepted the [Buyer]'s request to ship the goods via a vessel with less than 2,000 tons capacity and at the same time cancelled the reservation for shipping space on the HANG WAN vessel.

While the [Seller] accepted the [Buyer]'s request, it made a demand to the [Buyer] that the validity of the L/C should be extended. Calculated from 22 October 1994, there were only nine days left for the [Seller] to ship the goods as required by the Contract on or before 31 October 1994. It was obvious that nine days was far from enough time for the [Seller] to look for a vessel with less than 2,000 tons capacity and to complete the necessary formalities. So, in exchange for the [Seller]'s satisfaction of the [Buyer]'s request to ship the goods via a vessel with less than 2,000 tons capacity, the [Buyer] should have agreed to the [Seller]'s demand for extension of the validity of the L/C. If the validity of the L/C was not extended, the [Seller] would bear the risk of failure to receive the payment under the L/C as a result of late delivery of the goods. It was unfair to ask the [Seller] to bear such a risk. Therefore, the Arbitration Tribunal holds that it was reasonable for the [Seller] to make the demand for extension of the validity of the L/C; that, in return for accepting the [Buyer]'s request to ship the goods via a vessel with less than 2,000 tons capacity, the [Buyer] should agree to amend the L/C to extend the shipment date for an adequate period. On the one hand, under the circumstances that the [Seller]'s original reservation for shipping space was cancelled and the time did not permit the [Seller] to ship the goods according to the original shipment date, the [Buyer]'s ignoring the [Seller]'s demand for extension of the validity of the L/C contravened the principle of good faith of Chinese law. On the other hand, under the circumstances that no reply to its demand was given by the [Buyer], the [Seller] should have urged the [Buyer] to reply; to the contrary, it failed to keep negotiating with the [Buyer]. In the Arbitration Tribunal's opinion, both parties were in fault regarding the non-performance of the Contract.

The Arbitration Tribunal holds that because both parties acted wrongfully in performing the Contract, each party should bear the losses suffered by itself. Therefore, both the [Buyer]'s claim and the [Seller]'s counterclaim are dismissed.

IV. AWARD

Based on above analyses and holdings, the Arbitration Tribunal renders the following award:

1. The [Buyer]'s claim is dismissed;

2. The [Seller]'s counterclaim is dismissed; and

3. The arbitration fee, totaling RMB_____, shall be borne by both parties. The [Buyer] prepaid RMB _____ in advance when applied for arbitration; the [Seller] prepaid RMB _____ in advance when it filed its counterclaim. Each of the prepayments is used to offset the arbitration fee and cost that should be borne by each of the parties.

This is the final award.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of the United Kingdom is referred to as [Buyer] and the Respondent of the Kingdom of Thailand 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 (renmimbi) are indicated as [RMB]; amounts in the currency of Thailand (Thai baht) is referred to as [THB].

** Tianhuai Yan, LL.M., Golden Gate University Law School; LL.M. Nanjing University Law School; Becon, Nanjing University Business School. Attorney at Law, admitted in P.R. China and California, USA; Partner, G & D Law Firm, Nanjing, China.

*** John W. Zhu, LL.M. China University of Political Science and Law (National Graduate Scholarship); Bachelor of Law, Southwest University of Political Science and Law; Double Degree, English Literature, Sichuan International Studies University, Chongqing, China. Focus: International Economic Law.

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Pace Law School Institute of International Commercial Law - Last updated October 11, 2006
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