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CISG CASE PRESENTATION

China 16 May 1996 CIETAC Arbitration proceeding (Cashmere sweater case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960516c1.html]

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

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Case identification

DATE OF DECISION: 19960516 (16 May 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/24

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Italy (respondent)

GOODS INVOLVED: Cashmere sweaters


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 62 ; 78

Classification of issues using UNCITRAL classification code numbers:

62A [Seller may compel performance of any of buyer's obligations: payment of price];

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

Descriptors: Price ; 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 Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 1996 vol., pp. 1243-1249

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.122, 123, 180, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

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

Cashmere sweaters case (16 May 1996)

Translation [*] by Meihua Xu [**]

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

   -    The arbitration clause in Sales Confirmation No. 93NXCS08 signed by Claimant [Seller], China Ningxia __ Import & Export Company and Respondent [Buyer], Italy __ Company on 18 June 1993; and
 
   -    The written arbitration application submitted by [Seller] on 25 May 1995.

On 12 July 1995, the Secretary Office of the Arbitration Commission sent (95) Maozhongzi __ Arbitration notice, the [Seller]'s arbitration application and the attached evidence, the Arbitration Rules, and the name list of the arbitrators to the [Buyer]'s mailing address (Via Tr. Pistoiese, 14/M 54007 Prato, Italy) mentioned in the [Seller]'s arbitration application via express mail, and asked the [Buyer] to appoint an arbitrator and to submit arbitration defense following the Arbitration Rules.

The express mail company informed the [Seller] that the [Buyer] refused to take the aforesaid mail, which was later returned to the [Seller].

According to Article 77 of the Arbitration Rules, the aforesaid mail should be deemed as having been delivered to the [Buyer].

Because the [Buyer] did not appoint or asked the Arbitration Commission to appoint an arbitrator, the Chairman of the Arbitration Commission appointed Mr. D as the arbitrator on behalf of the [Buyer] based on Article 26 of the Arbitration Rules.

On 1 September 1995, the Secretary Office of the Arbitration Commission sent (95) Maozhongzi __ Arbitration Tribunal Formation notice to the [Buyer]. Mr. P, the Presiding Arbitrator appointed by the Chairman of the Arbitration Commission, Mr. A, the arbitrator appointed by the [Seller], and Mr. D formed the Arbitration Tribunal to hear this case.

The Secretary office of the Arbitration Commission was later informed by the express mail company that the [Buyer]'s mailing address and its telephone number were wrong, and the Arbitration Tribunal Formation notice was returned back. The mailing address was the last address known by the [Seller], therefore, according to Article 77 of the Arbitration Rules, it should be deemed that the mail has been delivered to the [Buyer].

The [Buyer] did not submit an arbitration defense within the time stipulated in the Arbitration Rules. The Arbitration Tribunal examined the [Seller]'s arbitration application and other attached documents and decided to hold a court session on 21 November 1995.

On 27 September 1995, the Secretary Office of the Arbitration Commission sent (95) Maozhongzi __ Arbitration Court Session notice to the [Buyer] by express mail, and due to the aforesaid reason, the mail was again returned back. According to Article 77 of the Arbitration Rules, this notice should be deemed as having been delivered to the [Buyer].

On 21 November 1995, a court session was held in Beijing as planned. The [Seller] sent representatives to the court session. They made oral statement and answered the Arbitration Tribunal's questions. During and after the court session, the [Seller] submitted supplementary documents. However, the [Buyer] did not send representative to the court session, nor did it submit any written arbitration defense.

On 24 November 1995, the Secretary Office of the Arbitration Commission sent a letter informing the [Buyer] of the court session. The written supplementary documents submitted by the [Seller] after the court session were included with this letter, and the [Buyer] was asked to submit an application to the Arbitration Tribunal before 20 December 1995 if the [Buyer] had any objection or opinion about the [Seller]'s arbitration application, its attachment, and the supplementary documents, or if the [Buyer] demanded a second court session.

For the same reason as stated before, the letter was returned back. According to Article 77 of the Arbitration Rules, this letter also was deemed as having been delivered to the [Buyer].

All the letters returned have written evidence held by the express mail company.

The Arbitral Tribunal has concluded the case and made this judgment based on Article 42 of the Arbitration Rules. The following are the facts, the Tribunal's opinion and award.

I. FACTS

POSITION OF THE PARTIES

[Seller]'s position

The [Seller] alleges that:

On 18 June 1993, the [Buyer] and the [Seller] signed Contract 93NXCS08, by with the [Buyer] was to purchase 998 cashmere sweaters with different design, color, size, manufacturing process, and delivery date. The goods were to be delivered to Milan, Italy by two shipments, which were to be on 31 July 1993 and 25 August 1993. The total price was US $159, 218.60 CIF Milan airport, and the payment term was L/C.

After signing the contract, the [Seller] immediately started manufacturing the goods. The [Buyer] sent Mr. A.M. to participate in all manufacturing and inspection process from manufacturing cashmere thread to shipping the thread.

During the negotiation of the contract, Mr. M.C. of the [Buyer] indicated that the orders this year were almost the same as the year before, however, when the manufacture was started at Shandong __ Weaving Factory, Mr. MANOEL demanded a higher thread weaving standard on 23 June 1993, which was beyond the contract and something no manufacturers had ever manufactured. The standard the [Buyer] demanded exceeded the technique held by Chinese domestic factories, and the manufacturer stated that it was too difficult to reach that standard. However, the [Buyer]'s Mr. MANOEL insisted on that standard, and the [Seller] indicated that it was not going to take the responsibility if something happened.

On 4 July 1993, 1, 037.03 Kg of cashmere thread were manufactured. Mr. MANOEL inspected the thread, stating that there were problems on thread tightening and thread stains, therefore, the thread could not be used to make cashmere sweaters.

It is the [Seller]'s position that the problems occurred because of the [Buyer]'s unreasonable demand of a higher weaving standard, which was unable to be reached by the [Seller]'s effort, therefore, the [Seller] asked to terminate the contract and sent its employee to Italy to negotiate this issue with the [Buyer]. However, the [Buyer] insisted to continue the contract and postponed the delivery date.

The [Seller] changed its weaving factory, and on 24 July 1993, the manufacture was restarted at the Zhangjiakou __ Weaving Factory. However, due to the high technical requirement, there were still problems on thread tightening and thread stain. After being inspected by Mr. MANOEL, the threads were finally dispatched to Xiamen __ Weaving Factory to manufacture cashmere sweaters.

After starting manufacturing the cashmere sweaters, Mr. MANOEL again selected the thread manufactured by Zhangjiakou __ Weaving Factory, and 30% was eliminated through the selection. Among the cashmere sweaters manufactured by __ Factory, Mr. MANOEL checked each sweater, and only 70% passed his inspection, which was 1,760 pieces. After packaging, Mr. MANOEL signed two inspection certificates on behalf of the [Buyer], one was for 1, 049 pieces and the other was for 711 pieces.

Because the technical standard required by the [Buyer] was too high and the inspections on the thread and cashmere sweater were too strict, the result was, the threads manufactured at Zhangjiakou __ Weaving Factory could not be completely used, and only half of the cashmere sweaters manufactured by Xiamen __ Factory passed the [Buyer]'s inspection, which caused severe economic loss to the [Seller], and the manufacture and delivery were also delayed.

After the goods were ready to be delivered, it was found that the L/C issued by the [Buyer] had not been effective, therefore, the delivery was again delayed. According to the contract, the L/C was to have been sent to the [Seller] fifteen days before the delivery.

On 6 July 1993, the [Seller]'s bank, the Bank of China Ningxia Branch, received L/C No. 560/75749 issued by ITALY CASSA DI RISPARMIO DI PRATO SPA on 30 June 1993, on which it was noted that the L/C had not taken effect, and that the [Seller] should wait for notice.

It was not until 26 August 1993 that the Bank of China Ningxia Branch received the L/C taking effective notice issued on 23 August 1993 by the [Buyer]'s bank. Regarding this fact and the [Buyer]'s changing the first delivery date to 11 September 1993 and the second to 22 September 1993, the [Seller] delivered the 1,049 pieces and 711 pieces of cashmere sweaters within fifteen days after the L/C took effect by the airline requested by the [Buyer]. Therefore, there was no fault of the [Seller].

When the [Seller] was asking for payment, the [Buyer] refused to pay even though it had accepted the goods. Later, the [Buyer] claimed for compensation of 1.5 times the total price of the contract, raising its so-called reasons, and tried to escape from paying the price.

The [Seller] had repeatedly urged the [Buyer] to pay and suggested to settle the dispute by negotiation, which was rejected by the [Buyer].

On 7 July 1994, the [Seller] went to Italy to ask for payment. At the [Buyer]'s guest room, the [Seller] found that the cashmere sweater was displayed as a sample. When the [Seller] asked the [Buyer] about the sales of the cashmere sweaters, the [Buyer] answered that except for a small part, which was off-season, all others had been sold. However, the [Buyer] still refused to pay. The [Seller] asked the [Buyer] to return the unsold part to the [Seller], but was refused by the [Buyer].

Based on the above facts, the [Seller] asks the Arbitration Tribunal to rule that the [Buyer] shall pay the price for 1,760 pieces of cashmere sweaters, which is US $86,740.80, and the interest on this amount.

II. OPINION OF THE ARBITRATION TRIBUNAL

(1) Applicable law

The business places of the [Buyer] and the [Seller] are the contracting states of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, "the CISG"), therefore, the CISG should be applied here.

(2) [Buyer]'s violation of the contract

As stipulated in the contract, the [Buyer] was supposed to issue an insured, dividable, irrevocable, transferable, not returnable spot L/C within fifteen days before the delivery of the goods.

After the court session and after examining the evidence submitted by the [Seller], the Arbitration Tribunal notes that even though the [Buyer] has issued L/C No. 560/75749, the [Buyer] refused to pay the price, and the [Seller] still has not received the payment for 1,760 cashmere sweaters, totaling US $83,395.47.

The Arbitration Tribunal also notes that the 1,760 cashmere sweaters are conforming goods. The [Buyer] failed to perform its obligation to pay, which has constituted a contract violation, and the [Buyer] shall take the responsibility.

According to Article 62 of the CISG, "the [Seller] may require the [Buyer] to pay the price, take delivery or perform his other obligations, unless the [Seller] has resorted to a remedy which is inconsistent with this requirement". Therefore, the Arbitration Tribunal accepts the [Seller]'s claim for the price of 1,760 cashmere sweaters.

(3) The interest on the price

According to Article 78 of the CISG, "if a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it".

The Arbitration Tribunal deems that the [Buyer]'s delay in payment caused the [Seller]'s loss of interest, therefore, the [Seller] is entitled to the interest on US $83,395.47.

It was stipulated in Contract No. 93NXCS08 that "the L/C should be effective at least ten days after the delivery day, which should be expired in China.". The [Seller] delivered 1,049 pieces and 711 pieces of goods on 11 September 1993 and 22 September 1993, therefore, the [Buyer] shall pay the interest on US $83,395.47 calculated from 2 October 1993 to the day this award takes effect at 8% annual rate.

(4) The arbitration fee

The [Buyer] shall bear the entire arbitration fee.

III. THE AWARD

(1) [Buyer] shall pay the price of US $83,395.47 and interest on this amount at the annual rate of 8%, calculated from 2 October 1993 to the day this award takes effect.

(2) [Buyer] shall bear the entire arbitration fee, which has been paid by the [Seller] in advance, therefore, the [Buyer] shall pay back renminbi [RMB]___ to the [Seller].

(3) Aforesaid fees shall be paid within 45 days after this award takes effect. Otherwise, 10% 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 the People's Republic of China is referred to as [Seller] and Respondent of Italy 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.

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Pace Law School Institute of International Commercial Law - Last updated November 3, 2005
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