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CISG CASE PRESENTATION

China 4 April 1996 CIETAC Arbitration proceeding (Three-ply board case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960404c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19960404 (4 April 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/18

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Hong Kong (respondent)

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

GOODS INVOLVED: Three-ply boards


Classification of issues present

APPLICATION OF CISG: CISG cited but does not appear to have been applied

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: [-]

Classification of issues using UNCITRAL classification code numbers:

Unavailable

Descriptors: Unavailable

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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. 1080-1083

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.23, 24, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation)

Joint translation project:
New York University School of Law
and Pace University School of Law


 

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

Three-ply board case (4 April 1996)

Translation [*] by Kun Fan [**]

Translation edited by Meihua Xu [***]

China's International Trade and Economic Arbitration Commission Shenzhen Sub-Commission (hereafter, "Shenzhen Sub-Commission") accepted the case on 7 July 1995, according to:

   -    The arbitration clause in the "Export Contract" signed by Claimant [Buyer], Shenzhen ___ Trading Company and Respondent [Seller], Hong Kong ___ Industrial Company Limited on 21 June 1993 in Shenzhen; and
 
   -    The written arbitration application submitted by the [Buyer].

In accordance with the Arbitration Rules of the China International Economic & Trade Arbitration Commission (version effective as of 1 June 1994, hereafter, "Arbitration Rules"), Mr. P, the Presiding Arbitrator appointed by the Chairman of Shenzhen Sub-Commission, Ms. A, the arbitrator appointed by the [Buyer], and Mr. D, the arbitrator appointed by the [Seller], formed the Arbitration Tribunal on 24 August 1995 to hear the case.

An oral hearing was held on 10 October 1995 after the Arbitration Tribunal carefully checked the Request for Arbitration, the State of Defense and relevant evidence and documents submitted by the parties. The [Buyer]'s agent attended the oral hearing; the [Seller], however, was absent. The Arbitration Tribunal listened to the [Buyer]'s statement and investigated the facts related to this case.

The Tribunal concluded the case on 4 April 1996. The following are the facts, the Arbitration Tribunal's opinion and award.

I. FACTS

On 21 June 1993, the [Buyer] and the [Seller] entered into an Export Contract (hereinafter, the "Contract") in Shenzhen. The Contract stipulated that:

(1) The [Buyer] will purchase from the [Seller] 500 square meters of 3-mm three-ply board (84) at the unit price of US $570, totaling US $285,000;

(2) The place of origin of the three-ply board shall be India, and the certificate of quality, quantity and origin shall be issued from India in duplicate; the [Seller] shall entrust the Chinese Commodity Inspection Authorities to inspect the goods under the Contract and issue the certificate of inspection seven days before shipment, and the [Buyer] shall entrust the Chinese Commodity Inspection Authorities to re-inspect the goods upon their arrival at the port of destination (Chinese port);

(3) The quality and specifications of the goods shall be in conformity with the contract and the quality assurance; the quality guarantee period shall be one month upon the arrival of the goods at the port of destination;

(4) During the quality guarantee period, the [Seller] shall be responsible for any damage to the goods due to any defect that occurred in the process of design and manufacture;

(5) The [Buyer] shall made an advance payment of US $85,500 to the [Seller] before 30 June 1993 and shall pay the balance after the arrival of the goods;

(6) If the contracting place or the place of residence of the goods at the time of dispute is within the People's Republic of China, or the respondent is a Chinese legal person, the laws of the People's Republic of China shall apply, otherwise, the CISG shall apply;

(7) The terms FOB, CIF, CFR, DDU used in the contract shall have the meaning stipulated in Incoterms 1990.

A dispute arose in relation to the performance of the contract.

[BUYER]'S CLAIM

The [Buyer] asked the Shenzhen Sub-Commission to order the [Seller] to pay:

(1) RMB 700,000 and HK $400,000, twice the advance payment; and

(2) The entire arbitration fee and all relevant expenses.

After the oral hearing, the [Buyer] submitted written materials for additional claims but failed to make advance payment of the arbitration fee in accordance with the Arbitration Rules, therefore, it is deemed that the [Buyer] waived the additional claims.

POSITION OF THE PARTIES

[Buyer]'s position

The [Buyer] alleged that:

          The [Buyer] made advance payments of RMB 350,000 and HK $200,000 on 29 June 1993. After the advance payments, the [Seller] covenanted to deliver the goods at the end of August 1993. However, at the end of August, the [Seller] alleged that he could not make the delivery due to the strike of Indian workers. On 18 October 1993, immediately after being informed of the arrival of two containers of three-ply board, the [Buyer] sent staff to check and accept the goods at Wenjindu Customs. During the inspection, the [Buyer] found that the goods neither had any certificate of quality and quantity nor had they been inspected by any Chinese Commodity Inspection Authorities. Moreover, the quality and specifications of the goods were not in conformity with the contract. Therefore, the [Buyer] refused to accept the goods. After that, the [Buyer] continually urged the [Seller] to deliver goods in accordance with the contract. On 8 December 1993, the [Buyer] was informed of a shipment of two containers of three-ply board, but did not receive the goods that were allegedly shipped. The [Buyer] learned later that the [Seller] had resold the goods in Hong Kong. The [Buyer] asked for a refund and compensation for losses, but the parties failed to reach agreement.

[Seller]'s defense

As for the [Buyer]'s allegation, the [Seller] defended that:

(1) After the export contract was signed, the [Seller] only received an advance payment of US $60,347.16 (converted); this was short of the sum agreed in the contract.

(2) The first delivery of two containers of goods was postponed due to the strike in India. The [Buyer] entrusted another company to go through the formalities for customs clearance two days after the goods arrived at the port of destination on 21 October 1993. After the customs clearance, it was detected that there was some problem with the quality of the goods in one container. The [Seller] requested an inspection by the Chinese Commodity Inspection Authorities and return of the goods. However, since the customs clearance company entrusted by the [Buyer] had changed the place of origin from "India" to "Indonesia" and hesitated to correct it, the goods could not be inspected and returned. Later, the [Seller] resold the goods to other customers;

(3) The [Seller] supplied two containers of goods in December 1993. But due to the [Buyer]'s failure to clear customs, the [Seller] suffered losses.

Therefore, the [Seller] asked the Arbitration Tribunal to dismiss the [Buyer]'s application for arbitration.

[Buyer]'s response

During the oral hearing, the [Buyer] pointed that since the three-ply board supplied by the [Seller] was of lower quality compared with that stipulated in the contract, the goods were rejected by the [Buyer]. Then, the [Seller] resold the goods at his own discretion and asked the [Buyer] to collect the proceeds from the resale as compensation. But the [Buyer] did not agree with that. After the oral hearing, the [Buyer] submitted relevant evidence that was transmitted by the Shenzhen Sub-Commission to the [Seller], but the [Seller] neither made any reply nor provided any evidence or documents.

II. OPINION OF THE ARBITRATION TRIBUNAL

Based on the evidence, documents and oral hearing, the Arbitration Tribunal determined the facts and provided the following analysis:

(1) Article 21 of the Export Contract signed by the parties on 21 June 1993 stipulates that, "if the contracting place or the place of residence of the goods at the time of dispute is within the People's Republic of China, or the respondent is Chinese legal person, the laws of the People's Republic of China should apply, otherwise, the CISG should apply", and Article 22 stipulates that, "the terms FOB, CIF, CFR, DDU used in the contract should have the same meaning as stipulated in Incoterms 1990". The Arbitration Tribunal holds that the choice of applicable laws by the parties should be respected and therefore the aforesaid laws should be applied to the settlement of the dispute.

(2) The Arbitration Tribunal concludes that the Export Contract was signed by the parties on an equal, voluntary and consultative basis, and in conformity with Law of the People's Republic of China on Economic Contracts Concerning Foreign Interests in terms of form and contents, and therefore was valid and binding on the parties.

(3) The evidence shows that the [Buyer] made advance payments of RMB 350,000 and HK $200,000 for the purchase of three-ply board and that the [Seller] received these payments on 24 August 1993.

(4) After investigation, the Arbitration Tribunal confirms that the [Buyer] rejected the [Seller]'s delivery of two containers of three-ply board due to lower quality and then the [Seller] resold the goods to other customers. The [Seller] wanted the [Buyer] to collect the proceeds from the resale as compensation but the [Buyer] did not agree. The evidence shows that, the Hong Kong Li___, He____ and Zhou ____Law Firm, acting on behalf of the Everyday Shipment Co., Ltd wrote to the [Seller] on 21 January 1994 criticizing the [Seller] for his refusal to take the goods that arrived at Hong Kong in December 1993 and for his refusal to pay the warehousing and demurrage charges. The Law Firm demanded such relevant payment from the [Seller]. The Law Firm indicated that there were goods arriving at Hong Kong in December 1993 but the [Seller] failed to pick up the goods in a timely manner. In addition, there was no evidence showing that the [Seller] had notified the [Buyer] of clearing customs for the goods arriving in December 1993, nor was there evidence showing that the [Seller] did not deliver the goods due to the [Buyer]'s failure to declare at the customs.

The Arbitration Tribunal concludes that:

   -    Although the [Buyer] did not make the full advance payment in accordance with the contract, there was no evidence to indicate that the [Seller] objected to this; therefore, it should be deemed that the [Seller] accepted the [Buyer]'s variation in the currency and amount of the advance payment.
 
   -    The [Buyer] did not entrust the Chinese Commodity Inspection Authority to re-inspect the goods in accordance with Article 16 of the contract when detecting the lack of conformity of the specifications and quality of the goods with the requirements stipulated in the contract. However, the Arbitration Tribunal notes that the [Seller] acknowledged that there was a problem with the quality of the goods and at the same time he pointed out that he resold the goods because he could not return the goods due to the [Buyer]'s failure to entrust the Chinese Commodity Authorities to re-inspect the goods. The Arbitration Tribunal deems that [Buyer]'s failure to reinspect the goods violates the contract, however, the [Seller] neither provided any relevant evidence nor raised any corresponding claims.

As the evidence showed, the [Seller] accepted the [Buyer]'s advance payment but failed to make delivery in conformity with the quality and quantity agreed in the contract, and therefore should undertake the liability for breach of contract.

The Arbitration Tribunal holds that, pursuant to the applicable laws, the [Buyer] has no legal basis to claim the refund of twice the advance payment. The [Seller] should return the advance payment of RMB 350,000 and HK $ 200,000 to the [Buyer] and assume the liability for breach of contract in accordance with the contract. In that connection, the contract states that:

"Except for any force majeure event agreed by the parties, if the [Seller] makes any delivery later than the time limit stipulated in the contract but the [Buyer] agrees to delayed delivery, the [Seller] shall agree to revise the relevant terms in the L/C and allow the bank to deduct the liquidated damages from the payment at the time of negotiation. The sum of the liquidated damages shall in no case exceed 5% of the total value of the goods, and the variable rate will be 0.5% for seven days. The rate for a period less than seven days shall be the same rate as that for seven days. In the absence of payment by L/C, the [Seller] shall immediately pay the liquidated damages calculated in accordance with the aforesaid method to the [Buyer]."

As the results of the investigations demonstrated, the [Seller] postponed the time of delivery from the end of August 1993 to 15 October 1993 due to the strike in India, and later notified the [Buyer] of the shipment on 8 December 1993 due to the quality problems of the goods delivered. The [Buyer] did not dissent to the variation in the time of delivery. The [Seller] prepared another batch of goods and sent the notification of shipment on 8 December 1993, but actually did not deliver any goods to the [Buyer]. The Law of the People's Republic of China on Economic Contracts Concerning Foreign Interests stipulates that the liquidated damages agreed by the parties should be deemed as the indemnity for the loss arising from breach of contract.

In accordance with the law and the contract, the [Seller] should pay to the [Buyer] the liquidated damages equal to 5% of the total contract value, calculated as follows:

US $ 285,000 5% = US $ 14,250

III. AWARD

The Arbitration Tribunal rules that:

(1) The [Seller] shall pay to the [Buyer] RMB 300,000 and HK $200,000 within 30 days after this award is made, otherwise, 15% annual interest shall be added to the amount in RMB and 10% annual interest be added to the amount in HK $.

(2) The [Seller] shall pay to the [Buyer] US $14,250 in liquidated damages within 30 days after the award is made, otherwise, 8% annual interest shall be added.

(3) The entire arbitration fee and related expenses are RMB ___, among which RMB ___ is borne by the [Buyer] and RMB ___ is borne by the [Seller]. The [Buyer] has made advance payment of RMB ___, which offsets the arbitration fee and related expenses. Therefore, the [Seller] shall pay to the [Buyer] RMB___ within 30 days after this award is made, otherwise, 15% annual interest shall be added.

The award is final.


FOOTNOTES

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

** Kun Fan, LL.M. in Corporate Law, New York University School of Law.

*** 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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