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CISG CASE PRESENTATION

China 10 May 1996 CIETAC Arbitration proceeding (Hot-rolled steel plates case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960510c1.html]

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

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Case identification

DATE OF DECISION: 19960510 (10 May 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/22

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Singapore (claimant)

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

GOODS INVOLVED: Hot-rolled steel plates


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 29 ; 32 ; 74 ; 78

Classification of issues using UNCITRAL classification code numbers:

8C [Interpretation in light of surrounding circumstances];

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

32A [Shipping arrangements: obligation to notify of consignment specifying goods];

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

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

Descriptors: Intent ; Modification of contract ; Estoppel ; Identification of goods ; 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. 1221-1225

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.132, 166, 181, 229, 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

Hot-rolled steel plates case (10 May 1996)

Translation [*] by Meihua Xu [**]

Edited by John W. Zhu [***]

The China's International Trade and Economic Arbitration Commission Shenzhen Commission (hereafter, the "Arbitration Commission") accepted this case according to:

   -    The arbitration clause in Sales Contract No. 4EH04604006SP signed by Claimant [Seller], Singapore __ International Private Company, and Respondent [Buyer], China Jiangsu __ Trade Company; and
 
   -    The written arbitration application submitted by [Seller] on 4 September 1995.

According to the Arbitration Rules, both parties jointly appointed Mr. P as the Presiding Arbitrator. Mr. P, Mr. A, the arbitrator appointed by the [Seller], and Mr. D, the arbitrator appointed by the [Buyer] formed the Arbitration Tribunal to hear this case.

The Arbitration Tribunal examined the [Seller]'s arbitration application, the [Buyer]'s defense, and the evidence submitted by both parties, and held a court session in Beijing on 18 January 1996. Both parties sent representatives or agents to the court session. They made oral statements of the case and answered the Arbitration Tribunal's questions. After the court session, the [Seller] submitted supplementary document, but the [Buyer] did not submit supplementary document within the time limit stipulated by the Arbitration Tribunal.

After discussion, the Arbitration Tribunal has concluded this case, and made this award within the time limit stipulated in the Arbitration Rules.

The following are the facts, the Tribunal's opinion and award.

I. FACTS

On 18 March 1994, the [Seller] and the [Buyer] signed Contract No. 4EH04604006SP contract, providing for the sale of:

   -    Goods. 10,000 tons of hot-rolled steel plates;
   -    Unit price. US $283.50 per metric ton;
   -    Shipping term. C&FFO Zhangjiagang;
   -    Delivery date. No later than April 1994;
   -    Terms of payment. After received the notice of loading date and the quantity of the delivered the goods, the [Buyer] is to issue an irrevocable Letter of Credit [L/C] with the [Seller] as the beneficiary through the Bank of China Beijing Branch twenty days before loading.

After concluding the contract, the [Buyer] sent a letter to the [Seller] on 6 April 1994, with the title of "L/C ARRANGEMENT TO CONTRACT No. 4EH04604004SP/6SP", and stated in the second paragraph that:

"We will issue the L/C for Contract No. 4EH04604004SP/6SP no later than 12 April 1994, and the loading date would be before 15 May 1994. The quantities on the L/C would be:

2.5mm × 1,250 × C 4,000MT
2.75mm × 1,250 × C 2,000MT
3.0mm × 1,250 × C 1,000MT
3.25mm × 1,250 × C          500MT
3.5mm × 1,250 × C    500MT
8,000MT

We hope this arrangement would not cause you trouble".

The [Seller] loaded 7,989.145 tons of hot-rolled steel plates on 14 April 1994. After the goods had arrived at the destination port, the [Buyer], in a separate arbitration proceeding [the "R94595 case"], which was filed with the Arbitration Commission on 27 December 1994, claimed compensation in that case alleging that the quantity and quality of the goods did not conform to the contract.

The Arbitration Commission formed an Arbitration Tribunal to hear that case, and handed down the award [in the R94595 case] on that dispute on 4 August 1995. Regarding the remaining 2,000 tons of goods, the [Seller] asserts that the [Buyer] should accept the goods and pay the price. However, the [Buyer] argues that the contract has been modified, and the [Buyer] has no obligation regarding the remaining 2,000 tons of goods. With no result after negotiation, the [Seller] filed this arbitration application.

II. POSITION OF THE PARTIES

[Seller]'s position

1. The [Buyer] acknowledges that it was clearly stipulated in the contract that the sale was for 10,000 tons of first class hot-rolled steel plates, and that the quantity may be 10% more or less, which means the [Seller] had the right to load as much as 11,000 tons of goods. The letter the [Buyer] sent to the [Seller] was titled as an L/C arrangement, not a modification of the contract. It only postponed the L/C issuing date, and issued an L/C for 8,000 tons as a temporary arrangement. The [Buyer] did not ask to decrease the quantity of the goods from 10,000 tons to 8, 000 tons nor did the [Buyer] cancel the remaining 2,000 tons of goods.

According to the contract, "monthly delivery must be finished in two shipments, and installment is not allowed", which means the 10,000 tons of goods may be delivered by two deliveries across two months. Therefore, the [Seller] reasonably expected that the [Buyer] was going to issue the L/C for the remaining 2,000 tons later. However, the [Buyer] did not issue the L/C as provided in the contract, which violated the contract, and it should take the responsibility for breaching the contract.

2. The [Buyer]'s violation of the contract caused severe economic loss to the [Seller]. At that time, the manufacturer of the goods for the [Seller], Ukraine Yilieqi Steel factory, had delivered all of the goods to the port. However, because of the [Buyer]'s violation of the contract, the 11,000 tons of goods (because the [Seller] chose to load the goods 10% more), except the 7,989.145 tons of goods actually delivered, there are still 3,010.855 tons of goods that have been stored at Mariupol for four months, with the result that the Yilieqi Steel factory suffered a huge loss of storage fee.

The supplier of the [Seller], Delta Company, had to resell the goods, suffering a loss due to the price difference. On 3 November, Delta Company claimed for compensation from the [Seller] for non-performance of the 2,000 tons of goods, which included the four months' loss of storage fee of US $433,629.60 calculated from April to August, and the loss due to price difference of US $61,196.43, which totals US $494,826.03.

After discussion by the [Seller] and Delta Company, and on the condition that Delta Company would compensate the quality and quantity claim under the contract, the [Seller] agreed to pay US $292,052.93 to settle this claim. It actually paid the aforesaid sum and settled the claim for loss of storage fee and loss due to price difference.

The unit price of this contract was US $283.50/ton, and the price with the supplier was US $270/ton. The L/C for 3,010.85 tons of goods was not issued, therefore, the loss of profit by the [Seller] was (283.50 - 270) × 3,010.855 = US $40,646.54.

It is a total of twelve months from 15 August 1994 (the original payment day, which was ninety days after receiving the document) to 15 August 1995. If calculated at an interest rate of 1.6% per month, the loss of interest of the [Seller] would be (292,052.93 + 40,646.50) × 1.6% × 12 = US $63,878.29.

According to Article 74 of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), "Damages for breach of contract by one party consists of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach". Therefore, the [Buyer] should compensate not only the sum the [Seller] has paid to Delta company, but also the [Seller]'s loss of profit and loss of interest.

Based on the aforesaid facts and reasons, the [Seller] asks the Arbitration Tribunal to order that:

  1. [Buyer] shall pay the [Seller]'s actual loss of US $292,052.93;

  2. [Buyer] shall pay the loss of profit of US $40,646.54;

  3. [Buyer] shall pay the loss of interest of US $63,878.29 and the interest from 15 August 1995 to the date this award takes effect;

  4. [Buyer] shall bear the entire arbitration fee.

[Buyer]'s position

The [Buyer] counter argues that

1. The letter sent to the [Seller] on 6 April 1994 changed the original contract. Even though the title of the letter was "L/C arrangement", not "contract modification letter." It was a significant alteration of the quantity, size, contract performance date, and L/C issuance date. The [Buyer]'s aforesaid act was agreed to by the Mr. Chi, who was in charge of this contract for the [Seller].

2. Even if as alleged by the [Seller] that the letter was not a modification of the contract, the [Seller] had not asked the [Buyer] to accept the goods within five months after receiving the letter. On 26 October 1994, the [Seller] raised the problem of the delivered 2,000 tons of goods as a defense when the [Buyer] claimed problems associated with the quantity and quality of the 8,000 tons of goods [in the R94595 case], which was obviously to avoid the responsibility for the non-conformity of the quantity and quality of the goods. The [Seller]'s aforesaid behavior should be deemed as accepting the changes to the contract by acquiesence; therefore, the [Seller] has no right to demand that the [Buyer] accept the remaining 2,000 tons of goods.

Based on the aforesaid facts and reasons, the [Buyer] asks the Arbitration Tribunal to dismiss all of the [Seller]'s claims.

III. OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The parties in this case did not determine the applicable law in their contract. However, the Arbitration Tribunal notes that the [Seller] filed this arbitration application after the time limit for it to bring the counterclaim in the R94595 Hot-rolled steel plates case had expired following the Arbitration Rules. In that case, the two parties agreed to apply the CISG, and the Arbitration Tribunal decided the case based on the CISG.

In addition, the instant case has direct connection with the R94595 arbitration case both in substantive and procedural issues; therefore, based on the principles of fairness and reasonableness, the Arbitration Tribunal concludes that the CISG should be the applicable law in this case, as was the case with the R94595 arbitration.

2. The contractual effectiveness of the 2,000 tons of goods

The Arbitration Tribunal notes that the letter the [Buyer] sent to the [Seller] titled "L/C ARRANGEMENTS TO CONTRACT No. 4EH04604004SP/6SP" was to postpone the L/C issuing date and the expiration date of the L/C, and to inform the [Seller] that the quantity of the L/C would be 8,000 tons and the size of the goods. From the content of the letter, it was an arrangement of the delivery date and quantity by the [Buyer], but not a notice of contract modification; The [Buyer] did not provide enough evidence to prove that Mr. Chi acting for the [Seller] had agreed to modify the contract in accordance with the Letter; therefore, the Letter should not be deemed as an agreement by both parties, and the [Buyer] and the [Seller] should perform the contract for the remaining 2,000 tons of goods.

3. The goods in dispute

The Arbitration Tribunal notes that on 25 April 1994, the [Buyer] issued the L/C, based on which the [Seller] delivered 7,899.145 tons of goods. Within the following four months, there was no evidence to show that the [Seller] had asked the [Buyer] to issue the L/C for the 3,010.855 tons of goods piled at the port, to perform its obligation to take delivery of the goods and to pay the price for these goods. After the goods had been resold, the [Seller] still did not inform the [Buyer] of the aforesaid fact. It was not until 15 September 1994 and 25 October, when [in the R94595 arbitration proceeding] the [Buyer] claimed for the quantity and quality problem with the 7,899.145 tons of goods that had been delivered, that the [Seller] asked the [Buyer] to accept the remaining 3,010.855 tons of goods and raised the claim of the loss of storage fee and the price difference resulting from leaving the good at the port.

The Arbitration Tribunal deems that if the aforesaid goods had been specified in the contract, with the [Buyer] not issuing the L/C for the 2,000 tons of goods on time, this constituted a violation of the contract; however, the [Seller] did not inform the [Buyer] to issue the L/C and take delivery of the goods within a reasonable time, and resold the goods to a third party without giving notice to the [Buyer]. The Arbitration Tribunal deems that the [Seller]'s aforesaid conduct has violated the contract; therefore, the [Seller] has no right to claim for any loss resulting from this.

The Arbitration Tribunal also notes that [Seller] did not provide any evidence to show that the 3,010.855 tons of goods was the goods under this contract. According to Article 32(1) of the CISG:

"If the seller, in accordance with the contract or this Convection, hands the goods over to a carrier and if the goods are not clearly identified to the contract by markings on the goods, by shipping documents or otherwise, the seller must give the buyer notice of the consignment specifying the goods."

The [Seller] did not submit any evidence to show the 3, 010.855 tons of goods was identified by marking on the goods, by shipping documents or otherwise, nor did it give notice of the consignment specifying the goods until the goods had been resold to a third party, therefore, the Arbitration Tribunal deems that the goods were not specified under this contract.

On the condition that the 3,010.855 tons of goods were not the goods under this contract, the [Seller] had the right to resell the goods based on international trade usage. Specifying the goods is a condition when the risk of loss passes from the [Seller] to the [Buyer], therefore, the [Seller]'s claim for the loss of storage fee and loss of price difference lacks legal basis and should not be accepted.

4. The [Buyer]'s responsibility for compensation

The [Buyer] did not issue the L/C for the remaining 2,000 tons of goods, which constitutes a violation of the contract. According to Article 74 of the CISG provides that, "Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Therefore, the [Buyer] should compensate the difference between the unit price of this contract, US $283.5/ton and the price with its supplier, US $270/ton, which is the profit the [Seller] had expected to receive if the contract had been performed.

The [Seller] calculated the loss of profit based on 3,010.855 tons with the reason that 10% more loading was allowed. However, the Arbitration Tribunal deems that under the CIF term, the purpose for determining the more or less loading clause is to resolve the problem when the quantity of goods to be delivered conflicts with the space of the carrier. Therefore, when 2,000 tons of goods have not been performed, the remaining goods should be calculated as "10,000 tons of goods minus the goods that had been delivered, 7,899.145 tons, which is 2,010.85 tons".

The [Buyer] shall compensate the [Seller] (283.50 - 270) × 2,010.85 = US $27,146.50 and interest on that from 26 November 1994, the day one month later than the day the [Seller] asked the [Buyer] to perform the 2,000 tons of goods, which is 26 October 1994, to the day this award takes effect at a 6% annual rate.

IV. THE AWARD

The Arbitration Tribunal rules that:

     (1) [Buyer] shall pay the [Seller] US $27,146.50 and interest from 26 November 1994 to the day this award takes effect at a 6% annual rate.

     (2) [Seller]'s other claims are dismissed.

     (3) [Seller] shall bear 80% of the arbitration fee and the [Buyer] shall bear 20%. The [Seller] has paid US $__ to the Arbitration Tribunal in advance, therefore, the [Buyer] shall pay US $__ back to the [Seller].

The [Buyer] shall pay the aforesaid sum within forty-five days after this award takes effect. Otherwise, 8% annual interest 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 Singapore is referred to as [Seller] and 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 $].

** 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.

*** 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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