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CISG CASE PRESENTATION

China 17 April 1996 CIETAC Arbitration proceeding (Air purifier case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960417c1.html]

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

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Case identification

DATE OF DECISION: 19960417 (17 April 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/19

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (claimant)

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

GOODS INVOLVED: Air purifiers


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 26 ; 39 ; 48 ; 49 ; 74 ; 78

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

26A [Notification of avoidance: effective declaration of avoidance];

39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];

48A [Cure by seller after date for delivery: seller's right to remedy any failure to perform];

49A1 ; 49B [Buyer's right to avoid (grounds for avoidance): fundamental breach of contract; Timeliness of declaration of avoidance];

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

78A [Interest on delay in receiving price or any other sum in arrears]

Descriptors: Fundamental breach ; Avoidance ; Cure ; Lack of conformity notice, timeliness ; Damages ; 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. 1120-1127

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.98, 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

Air purifier case (17 April 1996)

Translation [*] by Meihua Xu [**]

Edited by Yan Tianhuai [***]

The China International Trade and Economic Arbitration Commission (hereinafter, "Arbitration Commission") accepted this case according to:

   -    The arbitration clause in Contract No. SI002/93 (hereinafter, the "Contract") signed by and between the Claimant [hereinafter, "Seller"], America ___ Technology Company and the Respondent [hereinafter, "Buyer"], China Shenzhen ___ Semiconductor Company, on 1 March 1993; and
 
   -    The written arbitration application submitted by the [Seller] on 13 December 1994.

After receiving the arbitration notice from the Arbitration Commission, the [Buyer] filed its counterclaims, which also were accepted by the Arbitration Commission.

According to the Arbitration Rules, the Chairman of the Arbitration Commission appointed Mr. P as the presiding arbitrator. Mr. P, Ms. A, the arbitrator appointed by the [Seller], and Mr. D, the arbitrator appointed by the [Buyer], formed the Arbitration Tribunal to hear this case.

After examined the [Seller]'s arbitration application as well as the [Buyer]'s defense and counterclaims, the Arbitration Tribunal held its first hearing of the case on 16 October 1995. Each party attended the hearing, presented its case, made oral arguments, and answered the Arbitration Tribunal's questions through its representative and attorney. After the first hearing, the [Seller] sent a representative to Shenzhen to inspect the goods on 19 October 1995 and both parties submitted supplementary documents to the Arbitration Tribunal. The [Seller] also asked the Arbitration Tribunal to make an on-site inspection of the goods and to hold another hearing to find the facts in dispute. The Arbitration Tribunal accepted the [Seller]'s request, holding a second hearing on 7 February 1996 in Shenzhen. Both parties sent representatives and attorneys to the hearing. They made further statements of the facts and law related to the case. On the same day, the Arbitration Tribunal made an on-site inspection of the goods in both parties' presence. After the second hearing, the [Seller] submitted supplementary documents to the Arbitration Tribunal again.

In the arbitration clause of the Contract, the name of the Arbitration Commission was written as the "China International Trade and Economic Arbitration Commission Hong Kong Sub-Commission". Because the Arbitration Commission has no Hong Kong Sub-Commission, the [Seller] filed its arbitration application directly to the Arbitration Commission, and the [Buyer] raised no objection. At the beginning of the first hearing, the Arbitration Tribunal confirmed the forgoing issue with both parties, they agreed that their dispute should be settled by the Arbitration Commission in Beijing.

This case has been concluded, and the arbitral award has been handed down. The following are the facts, the Tribunal's opinion and award.

I. FACTS

On 1 March 1993, the [Buyer] and the [Seller] signed the Contract, which provides, among other clauses:

Goods:    One Automatic Hydrogen Purifier: Model LXV - 600 - CPP;
One Automatic Oxygen Purifier: Model LXV - 600 - CPP; and
One Automatic Nitrogen Purifier: Model LXV - 3A1 - SLF.
All above machines shall be manufactured by United States Dynamics (hereinafter, "USD Company").

Delivery deadline: 31 July 1993;

Port of loading: New York, U.S.A.;

Port of destination: Shenzhen, China;

Packaging: The goods shall be packaged in the manner suitable for international transportation;

Transportation: Through road and by air; and

Payment: The [Buyer] shall open an irrevocable L/C for the total price of the goods with the [Seller] as the beneficiary through Shenzhen International Fiduciary Investment Company within 20 days after the Contract is concluded; 90 percent of the L/C amount, US $150,300, shall be drawn by the [Seller] upon presentation of the documents prescribed in Article 12 of the Contract after the goods arrive at the [Buyer]'s place, the remaining 10 percent, US $16,700, shall be drawn by the [Seller], either upon presentation of a quality confirmation certificate issued by the [Buyer] after its inspection of the goods, or after 90 days from date the goods arrive at the [Buyer]'s place.

The specifications and the technical standards of the goods were stipulated in the annex to the Contract.

On 26 May 1993, the [Buyer] opened a L/C for US $167,000 with the [Seller] as the beneficiary. On 3 November 1993, the [Buyer] amended the L/C, changing the loading date to 15 November 1993 and the expiration date to 31 December 1993.

On 19 November 1993, the [Buyer] sent a letter to the [Seller], stating: "Please send the goods as soon as possible, but in no case later than 22 December 1993. We will pay 90% of the price, i.e., US $150,300."

On 20 December 1993, the [Seller] sent the goods by air from Boston airport. On 24 December 1993, the goods arrived at Hong Kong, and on 5 January 1994, the goods were transported from Hong Kong to Shenzhen by truck.

On 17 January 1994, the [Buyer] and the [Seller]'s representative opened the packages and inspected the goods. After inspection, they signed the "H2. N2. O2 Air Purifiers Inspection Memorandum" (hereinafter, "Inspection Memorandum"). The Inspection Memorandum states that:

  1. The goods were poorly packaged;

  2. No operation manual is found, and the models of the three air purifiers are different from those described in the Contract;

  3. The inside cable lines are in disorder, and the pipes were poorly welded; and

  4. The air pipes were sealed.

On 18 January 1994, Citizen Bank of Paris Shenzhen Branch notified the L/C applicant entrusted by the [Buyer] that the documents presented by the [Buyer] were not in compliance with the L/C, asking whether the [Buyer] would accept the discrepancies. The [Buyer] refused to accept the discrepancies, and the [Seller]'s demand for payment under the L/C was dishonored.

On 2 March 1994, China Import & Export Commodity Inspection Bureau Shenzhen Office issued the Inspection Certificate numbered 4403/9400081 (hereinafter, "Inspection Certificate") for the three air purifiers under the Contract. The Inspection Certificate states that:

  1. The Packaging was unsuitable for international transportation, and as a consequence, the goods were damaged;

  2. The goods were poorly installed; some parts had already fallen apart or become loose before the packages were opened;

  3. The names of the goods are different from those defined in the Contract, without the word "Automatic" as well as the specifications and model numbers. The diameters of air pipes are not in conformity with the Contract; and

  4. The goods carry no manufacturing numbers, without which it cannot be confirmed that the goods mentioned in the [Buyer]'s inspection report and certificate of origin are the same goods as delivered by the [Seller] (the model number of the Automatic Hydrogen Purifier indicated in the [Buyer]'s inspection report is different from that defined in the Contract).

The China Import & Export Commodity Inspection Bureau Shenzhen Office concluded in the Inspection Certificate that it was the [Seller] who should be responsible for all of the above-mentioned defects.

On 15 March 1994, the [Buyer] sent a notice to the [Seller], declaring the Contract avoided and claiming for compensation. Both parties failed to settle their disputes on the quality of the goods after repeated negotiations. Therefore, the [Seller] filed the application for arbitration with the Arbitration Commission, and the [Buyer] raised its counterclaims.

POSITION OF THE PARTIES

[Seller]'s position

The [Seller] alleges that it delivered the goods according to the Contract, however, the [Buyer] did not make the payment. In response to the quality complaint, the [Seller] asserts that it packaged the goods in a manner suitable for international shipment, that the problems claimed by the [Buyer] occurred during the transportation, and that such problems could be fixed by simple repair and maintenance.

The [Seller] also raises objection to the notice given by the [Buyer] on 15 March 1994, asserting that the damages that occurred during the transportation as well as the installation problems did not amount to a fundamental breach of the Contract by the [Seller], such defects were curable and were not severe enough to merit the [Buyer]'s avoidance of the Contract. The [Seller] asks the [Buyer] to reconsider its request for avoidance of the Contract.

The [Seller] argues that even after the [Seller] promised to repair the goods, the [Buyer] still refused to pay the price, so the [Buyer] was in breach of the Contract.

The [Seller] claims that:

     1. The [Buyer] should pay the total price of US $167,000;

     2. The [Buyer] should pay interest on the total price at a reasonable rate calculated from 30 December 1994; and

     3. The [Buyer] should bear the arbitration fee, the [Seller]'s attorneys' fee and traveling fee.

[Buyer]'s position

The [Buyer] counter argues that:

1. There were severe defects in the goods

Both the [Seller]'s and the [Buyer]'s representatives signed the Inspection Memorandum, in which both parties confirmed that fourteen quality problems existed with the goods. China Import & Export Commodity Inspection Bureau Shenzhen Office also inspected the goods and issued its Inspection Certificate, confirming that were quality problems with the goods. In addition, the [Seller] itself admitted in letters sent to the [Buyer] that there were severe quality problems with the goods.

2. The [Seller]'s goods and its sale of such goods violated Chinese regulations on product quality

     (1) No proper quality certificate was provided with the goods, and the model number of the Automatic Hydrogen Purifier on the [Seller]'s quality inspection certificate is inconsistent with the Contract.

     (2) The goods carry no names, specifications, manufacturing numbers, power marks, and manufacturer's name and address.

     (3) The goods failed to meet the criteria of design, manufacture, installation, and inspection and bear unreasonable risks of danger to personal or property safety.

     (4) No drawings, pressure strengthen calculation table, quality certificate, safe operation manual, and safety valve discharging capacity calculation table were provided with the goods.

     (5) The [Seller] provided defective goods as non-defective ones, and provided no evidence to show that the goods were manufactured by USD Company.

3. The goods delivered by the [Seller] are not in conformity with the Contract

     (1) The goods delivered by the [Seller] are not the goods described in the Contract.

The names of the three purifiers lack the words "automatic"; the goods carry no model numbers, specifications, and manufacturing numbers as stipulated in the Contract; and the model number of the Hydrogen Purifier delivered by the [Seller] is LXV - 200 - CPP rather than LXV - 600 - CPP defined in the Contract.

     (2) The packaging of the goods violated the Contract.

China Import & Export Commodity Inspection Bureau Shenzhen Office stated in the Inspection Certificate that: the machines were packed with paper boards, but the bottoms of the machines were covered with nothing, nor were they supported by wood boards; the surfaces of the machines were covered with soft cushion, while the machines and the paper boards were tied together by steel belts running through the holes on the frame of the machines, so there was no protection between the paper boards and the machines; and the paper boards were found to be the packaging of the machine shells originally used by the manufacturer of the machine shells, the [Seller] just used such used paper boards to pack the machines. The Inspection Bureau concluded that the packaging of the goods was unsuitable for international transportation; as a consequence, the goods were damaged.

     (3) The documents provided by the [Seller] were not in conformity with the Contract.

Article 11 of the Contract provides that the [Seller] shall draw the money form the L/C issuing bank by presenting the documents prescribed in Article 12 of the Contract. However, the [Seller] failed to provide the following documents required by Article 12 of the Contract: quality and quantity certificate issued by the manufacturer, testing operation report or function statement, installation instruction, wiring scheme, and certificate of origin.

     (4) The size of the pipes is inconsistent with the requirement of the Contract.

Article 1 of the annex to the Contract stipulates that the size of the pipes of the purifiers should be inch. However, the size of pipes of the Hydrogen Purifier Oxygen Purifier delivered by the [Seller] is inch.

4. Other defects in the goods and the results these defects may cause

     (1) Defect in electrical circuit

The electric wires were improperly designed and installed, some of them reached the high-temperature molecule sifter. The wires were common plastic wires, while the high-temperature molecule sifter might reach 300 degrees centigrade under normal operation. The contact of the electric wires with the high-temperature molecule sifter would probably lead to an accident.

     (2) Defect in welding

Most pipes of the purifiers were poorly welded by hand, and the welded parts were so severely oxidized to meet the requirement for purifying air.

     (3) Defects in cleanness protection

All pipes of the three purifiers had no protective end caps. Without such protective end caps, the insides of the pipes would incur permanent pollution, which would subsequently affect the purity of the air.

     (4) Other defects

Other problems, such as that the relays were dislocated, the thermal layers fell off, and the transformers were improperly fixed, were design defects which would have negative impact on the operation of the purifiers.

5. The goods delivered by the [Seller] cannot be used

Chinese law prohibits the use of products which have severe quality problems or defects, so the [Seller]'s goods and its sale of such goods have violated the Chinese regulations on product quality. The goods delivered by the [Seller] present unreasonable risk of danger to personal or property safety, and the defects in the [Seller]'s goods could not be cured by repair and maintenance. Furthermore, the goods were intended to be used in matching with the high power semiconductor production line invested by the [Buyer] with US $15 million. If an incident occurs, a great loss will be incurred. For the above reasons, the [Buyer] cannot use the goods delivered by the [Seller].

6. The [Buyer]'s avoidance of the Contract was to protect its interests.

The [Buyer]'s giving a notice to the [Seller] on 15 March 1995 to avoid the Contract was in conformity with the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG") and the Foreign Economic Contract Law of the People's Republic of China. Although, on 4 April 1994, the [Buyer] sent a letter to the [Seller], asking the [Seller] to deliver conforming goods in replacement for the defective ones and to compensate the [Buyer], the [Seller], however, failed to answer the [Seller]. So, the [Seller]'s assertion that the [Buyer] did not agree to avoid the Contract is untrue.

7. Economic losses suffered by the [Buyer]

The three purifiers were purchased to match the [Buyer]'s semi-conductor production line. Because of the purifiers' quality problems, the production line could not be put into operation as planned. As a consequence, the [Buyer] suffered substantial economic losses, including:

     (1) Loss of inspection fee of renminbi [RMB] 7,264 (equivalent to US $864.82);

     (2) Loss of interest of US $11,550.83 on the price of the goods, calculated from 26 May 1993 the date the L/C was issued to 15 March 1994 the date the [Buyer] notified the [Seller] of avoidance of the Contract as follows: US $1,670,000 8.3% (annual interest rate) 12 10 = US $11,550.83; and

     (3) Loss of interest on US $5,080,000 the fund the [Buyer] invested in the semi-conduct production line during the period from 15 November 1993 the deadline for delivery of the goods to 15 March 1994 the date the [Buyer] notified the [Seller] of the avoidance of the Contract. The calculation is: US $5,080,000 8.3% 12 4 = US $1,450,000.

8. The [Buyer]'s counterclaims

     (1) The [Seller] shall compensate the [Buyer] for direct economic loss of US $152,361;

     (2) The [Seller] shall pay interest on the aforesaid sum at a reasonable interest rate calculated from 15 March 1994; and

     (3) The [Seller] shall bear the arbitration fee and the [Buyer]'s attorneys' fee and traveling fee.

[Seller]'s rebuttal to [Buyer]'s counterclaims

The [Seller] submitted a rebuttal to the [Buyer]'s counterclaims, which includes the following arguments:

1. There are no severe defects in the goods delivered by the [Seller]

     (1) One can not draw from the Inspection Certificate the conclusion that the goods are severely defective.

     (2) In the [Seller]'s opinion, not all of the ten quality problems raised by the [Buyer] are related to the quality of the goods. Some problems are surface damages incurred during transportation, which could be resolved by simple repair. No protective cap at the end of each pipe was due to the [Seller]'s neglect under time pressure, but the operation of the purifiers could not be negatively affected if a cleaner is used. The change of the diameters of the air pipes from inch to inch was an improvement made by the manufacturer to accommodate the air volume of the purifiers, and the [Seller] notified the [Buyer] of this change on 9 December 1993, to which the [Buyer] raised no objection.

     (3) As to the nameplates, since there was no prior agreement between the parties on them, the [Seller] had no obligation to provide them. Nevertheless, the [Seller] provided them afterward.

     (4) The [Seller] never admitted in its letters to the [Buyer] that there were severe defects in its goods.

2. The applicable law

The [Seller] is of the opinion that the CISG should be the governing law of this case, while Chinese law, because the [Seller] had no knowledge about it at the time the Contact was concluded, should not be applied herein.

3. The [Seller] has delivered the goods in accordance with the Contract, although some of the goods are defective, the [Seller] is not in a fundamental breach of the Contract

     (1) The model number of the Hydrogen Air Purifier delivered by the [Seller] was "LXV - 600 - CCP" as required by the Contract. The entry of "LXV - 600 - CPP" in the [Seller]'s inspection certificate was a typing error.

     (2) The carrier's agreeing to ship the goods indicated that the packaging of the goods was suitable for international transportation.

     (3) Some of the documents claimed by the [Buyer] were not mentioned in the L/C, and the [Seller] agreed to provide them afterward.

4. The explanations of other defects claimed by the [Buyer]

The [Seller] provided explanations of the defects in electrical circuit, welding, cleanness protection, and other defects, pointing out that these problems were not fundamental or substantial, and could be cured by repair.

5. The goods delivered by the [Seller] could be used

6. The [Buyer]'s refusal to make payment and avoidance of the Contract constituted breach of the Contract

     (1) The [Seller] did not violate the Contract on delivery date.

     (2) On 4 April 1994, the [Buyer] sent a letter to the [Seller], asking the [Seller] to solve the problems with the goods by making certain compensation to the [Buyer], not as the [Buyer] asserted asking the [Seller] to deliver conforming goods in replacement for the defective ones.

     (3) The [Seller] has repeatedly proposed reasonable solutions to the problems, but these solutions were rejected by the [Buyer].

According to the CISG, a party may avoid the Contract only when there is a fundamental breach by the other party. However, the [Seller] did not fundamentally breach the Contract.

7. The [Buyer]'s counterclaim should be dismissed

After the first hearing, both the [Buyer] and the [Seller] submitted supplementary materials to the Arbitral Tribunal.

[Seller]'s supplementary assertions

1. The CISG is the applicable law.

2. On 19 October 1995, the [Seller] sent a representative to inspect the three purifiers, finding that the purifiers had been used.

3. The [Buyer] had lost the right to return the goods to the [Seller].

4. The [Buyer]'s asking for price reduction is unreasonable.

5. The Inspection Memorandum dated 17 January 1994 was signed by Mr. C. K. Yu on behalf of the [Seller]. Mr. C.K. Yu was temporarily hired by the [Seller] to do the job. He did not participate in the process of execution and performance of the Contract nor had any idea about the purifiers and relevant technology. Although he signed the Inspection Memorandum, he was unaware of the erroneous conclusions contained in it.

6. The [Buyer] mentioned at the first hearing that the valve of the Nitrogen Air Purifier was closed, while the valves of other two Purifiers were open, one of them was closed by the [Buyer] after the examination. The [Seller] alleges that this would be a severe quality problem if it were true. But the fact was that the manufacturer would not have handed over the goods to the [Seller] had the valves been open. So all the valves must have been closed at the time the goods were shipped from the manufacturer's factory. This conclusion is underscored by the fact that the Inspection Certificate did not mention such a problem, and the fact that the [Buyer] did not raise such problem within one year after receiving the goods. Thus, if one of the valves is open now, it must be the [Buyer]'s wrong and the purifiers must have been used by the [Seller].

7. The [Seller] asks the Arbitration Tribunal to examine the goods and to hold a hearing again.

[Buyer]'s supplementary rebuttals

The [Buyer] points out that the [Seller]'s statement that the goods have been used by the [Buyer] is completely a lie, and that the [Seller]'s denial of the fact that its representative has confirmed the quality defects in the goods is unacceptable. The [Seller] neglected to put end caps on the pipes, so it is highly probable that it also neglected to close the valves. Therefore, the [Seller] cannot exonerate itself from the liability of being negligent in failure to close the valves by blaming the [Buyer].

[Seller]'s final statement

The [Seller] submitted a final written statement after the second hearing held in Shenzhen after the Arbitration Tribunal examined the goods. The [Buyer] did not submit further written materials.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The Contract is an international sales contract, and the places of business of the [Buyer] and the [Seller] are separately located in China and the United States, both are Contracting States of the CISG, therefore, the CISG should be applied. However, the sale of goods to China should not violate Chinese law. The application of Chinese law is not in conflict with the application of CISG.

2. The goods delivered by the [Seller]

     (1) On 17 January 1994, the [Buyer] and the [Seller] jointly inspected the goods and signed the Inspection Memorandum. The [Seller]'s denial of the Inspection Memorandum by claiming that its representative was unaware of the conclusion contained in the memorandum is unacceptable.  

     (2) According to the Inspection Memorandum and the Inspection Certificate, the models of the goods delivered by the [Seller] do not conform to the Contract, and there is no evidence to prove that the goods delivered by the [Seller] are the goods defined in the Contract. 

     (3) Pursuant to the Contract, the diameters of the air pipes should be inch, while those the [Seller] delivered were inch. The [Seller] asserted that it had informed the [Buyer] of the change of the diameters of the pipes on 9 December 1993. However, after the Arbitration Tribunal's investigation, it was found that the [Seller] had already changed the diameters of the pipes without getting consent from the [Buyer]. Therefore, the Arbitration Tribunal holds that the [Seller]'s modification of the Contract unilaterally without the [Buyer]'s consent as well as delivery of non-conforming goods constituted a breach of the Contract.

     (4) According to the Inspection Memorandum and the Inspection Certificate, the goods were poorly packaged and the packaging was not suitable for international shipment, with the result that the goods were damaged. Although the carrier accepted shipment of the goods, however, after examining the goods, it was found that the [Seller] failed to package the goods properly, and that the bottoms of the goods were covered with nothing. The Arbitration Tribunal adopts the conclusion on the packaging stated in the Inspection Memorandum and the Inspection Certificate.

     (5) The [Seller]'s failure to provide the quality certificate and other documents defined in the Contract constituted a breach of the Contract. The [Seller] argued that some documents were not mentioned in the L/C. However, the L/C is independent of the Contract; the [Seller] should have fulfilled its obligation strictly in conformity with the Contract.

     (6) The [Seller] did not deny the existence of the defects in the goods, such as no protective caps at the end of each pipe.

     (7) The [Seller] provided some evidence to support its allegation that the goods had been used by the [Buyer], such as that the dust covering 3 to 4 inches of the end of some pipes had been wiped off and that the pipes seem to have once been connected to gas transmission pipes. After the Arbitration Tribunal's investigation, no affirmative evidence was found to prove that the goods had been used.

3. [Seller]'s claims

     (1) The [Buyer] opened the L/C through the issuing bank. The reason the [Seller] failed to receive the money under the L/C is that the documents it presented were not in conformity with the L/C. So, it is the [Seller] itself who should take the responsibility for not receiving the payment.

     (2) According to the Inspection Memorandum and the Inspection Certificate, the goods delivered by the [Seller] have the defects mentioned above section 2, and there is no evidence to prove that the goods delivered by the [Seller] are the goods described in the Contract. Therefore, the [Buyer] is entitled to reject the goods. The title to the goods still belongs to the [Seller], so it has no right to ask for payment.

     (3) After receiving the Inspection Certificate on 2 March 1994, the [Buyer] sent a notice on 15 March 1994 to the [Seller] "declaring the Contract avoided and asking for compensation". Although the [Seller] did not grant its consent to the [Buyer]'s notice, the [Buyer]'s giving the notice was in conformity with Articles 39, 26, and 49(2)(b)(i) of the CISG, that is, the [Buyer] declared the Contract avoided within a reasonable time. Therefore, the [Buyer] has no obligation to pay.

     (4) The [Seller] shall be responsible for disposal of the goods at its cost, and the [Buyer] shall provide necessary cooperation.

4. [Buyer]'s counterclaims

     (1) The Arbitration Tribunal upholds the [Buyer]'s counterclaim for the loss of inspection fee of RMB 7,264 as well as the interest on it calculated at an annual rate of 10% from 2 March 1994 to the date of this award in the amount of RMB 1,546.

     (2) The Arbitration Tribunal upholds the [Buyer]'s counterclaim for the interest on the L/C value, but decides that the interest shall be calculated at an annual rate of 5% from 26 May 1993 to 31 December 1993 the expiry date of the L/C, that is, US $167,000 5% 360 219 = US $5,080. The Arbitration Tribunal also holds that the [Buyer] is entitled to interest on the forgoing interest at an annual interest of 5% calculated from 1 January 1994 to the date of this award, that is US $5,080 5% 360 828 = US $584.

     (3) The Arbitration Tribunal rejects the [Buyer]'s counterclaim for loss of interest of US $140,400 on the fund the [Buyer] invested in the semi-conductor production line, because the Arbitration Tribunal found that the [Buyer]'s delay in putting into operation of the production line was caused by problems other than the defective purifiers.

     (4) The Arbitration Tribunal rejects the [Buyer]s' counterclaim for its attorneys' fee and traveling fee, because the [Buyer] failed to provide the evidence to prove such fees.

5. Arbitration fee

The [Seller] shall bear the entire arbitration fee for its claims. As to the arbitration fee for the [Buyer]'s counterclaims, the [Seller] shall bear 40%, and the [Buyer] shall bear 60%.

The arbitrator's traveling fee is RMB 6,000, and the cost the Arbitration Tribunal spent in conducting investigation and holding a hearing in Shenzhen is RMB 18,000. The total amount of the forgoing extra cost is RMB 24,000, of which, the [Seller] shall bear RMB 16,000, and the [Buyer] shall bear RMB 8,000.

III. THE AWARD

The Arbitration Tribunal rules that:

     1. All of the [Seller]'s claims are dismissed. The goods shall be disposed by the [Seller] itself.

     2. The [Seller] shall bear the [Buyer]'s loss of inspection fee and the interest on it, totaling RMB 8,810. The [Seller] also shall compensate the [Buyer] for the loss of interest on the L/C value as well as the interest on such interest, totaling US $5,664.

     3. The [Buyer]'s other counterclaims are dismissed.

     4. The [Seller] shall bear the entire arbitration fee for its claims, which has been prepaid by the [Seller]. The [Seller] shall also bear 40% of the arbitration fee for the [Buyer]'s counterclaims, the [Buyer] shall bear the remaining 60%. The arbitrator's traveling fee is RMB 6,000, and the cost the Arbitration Tribunal spent in conducting investigation and holding a hearing in Shenzhen are RMB 18,000. The total amount of the forgoing extra cost is RMB 24,000, of which, the [Seller] shall bear RMB 16,000, and the [Buyer] shall bear RMB 8,000. The [Seller] has prepaid RMB 9,000 and the [Buyer] has prepaid RMB15,000. The [Seller] shall reimburse the [Buyer] RMB 7,000.

     5. The [Seller] shall pay the aforesaid (2) and (4) sum within 45 days of the date of this award, otherwise, 12% annual interest shall be charged on the RMB payment and 7% annual interest on the US $ payment.

This award is the final


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of The United States of America is referred to as [Seller]; Respondent of the People's Republic of China is referred to as [Buyer]. 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].

** 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.

*** 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.

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Pace Law School Institute of International Commercial Law - Last updated June 23, 2006
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