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CISG CASE PRESENTATION

China 29 May 1996 CIETAC Arbitration proceeding (Handicrafts case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960529c1.html]

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

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Case identification

DATE OF DECISION: 19960529 (29 May 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/26

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Hungary (claimant)

GOODS INVOLVED: Handicrafts


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 35 ; 74

Classification of issues using UNCITRAL classification code numbers:

35A ; 35B3 [Conformity of goods to contract: quality, quantity and description required by contract; Requirements implied by law: quality of goods held out as sample or model];

74A [General rules for measuring damages: loss suffered as consequences of breach]

Descriptors: Conformity of goods ; damages

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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.1286-1289

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 & Trade Arbitration Commission
CIETAC (PRC) Arbitration Award

Handicrafts case (29 May 1996)

Translation [*] by Meihua Xu [**]

Edited by John W. Zhu [***]

The China International Trade and Economic Arbitration Commission (formerly known as the Foreign Economic and Trade Arbitration Committee of China Council for the Promotion of International Trade, hereafter, the "Arbitration Commission") accepted the case according to:

   -    The arbitration clause in Sales Contract No. 95EMHUTECTO3003 signed by Claimant [Buyer], Hungary __ Industrial Trade and Technology Development Company, and Respondent [Seller], China Tianjin __ Joint Import & Export Company; and
 
   -    The written arbitration application submitted by [Buyer] on 28 February 1996.

According to Article 64 of the Arbitration Rules, the summary procedure is applicable to this case.

Because the parties failed to jointly appoint or ask the Director of the Arbitration Commission to appoint the sole arbitrator, pursuant to Article 65 of the Arbitration Rules, the Director of the Arbitration Commission appointed Mr. P as the sole arbitrator to form the Arbitration Tribunal to hear this case.

The Arbitration Tribunal examined the [Buyer]'s arbitration application and the evidence attached thereunder and the [Seller]'s defense and the evidence attached thereunder, and held a court session in Beijing on 30 April 1996. Both the [Buyer]'s representative and its arbitration agent and the [Seller]'s representative and its arbitration agent attended the court session. They made oral statements on the facts of this case, presented arguments, and answered the Arbitration Tribunal's questions. Both parties presented relevant evidence at the court session. After the court session, the [Buyer] and the [Seller] submitted supplementary documents.

This case has been concluded. The Arbitration Tribunal rendered this award based on the written material, relevant documentary evidence and material evidence, and the court session.

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

I. FACTS

On 25 July 1995, the [Buyer] and the [Seller] signed Contract No. 95EMHUTECTO3003, by which the [Buyer] was to purchase handicrafts from the [Seller] on the following terms.

   -    Products and pricing: The goods shall include 21,000 denim handbags for a unit price of US $0.75/per bag, totaling US $15,750 and 22,000 baskets for a unit price of US $0.43/per basket, totaling US $9,460;
   -    Delivery term: FOB Tianjin, China;
   -    Shipment period: Before 25 August 1995;
   -    Payment term: [Buyer] shall issue an irrevocable sight Letter of Credit [L/C];
   -    Samples, specifications and inspection: The contract also stipulated that the raw material should be based on the samples admitted by Mr. Chen in Tianjin, that the size, the specifications, and the workmanship should be based on the samples provided by the [Buyer], and that the inspection should be based on the sealed samples.

After the conclusion of the contract, the [Seller] delivered the goods on time, and the [Buyer] paid for the goods; however, there was a dispute over the quality of handbags, and the [Buyer] filed this arbitration application.

[POSITION OF THE PARTIES]

[Buyer]'s position

The [Buyer] alleges that:

After receiving the goods, the [Buyer] discovered severe defects in the handbags. Compared with the samples kept by the two parties, there were problems in size, specifications, the print of the trademark, and with the sewing seams. Therefore, the [Buyer] and the user of the goods, __ Advertising Company, together with the insurance staff of Regional Administration and Business Control Office of ___ Autonomous Region Government, Budapest No. 18 District, Hungary, conducted an inspection on the quality of part of the handbags. Among the 10,200 handbags checked on the spot, 5,640 of them did not conform to the contract. They had the following quality problems:

   -    Trademarks were rolled up;
   -    Prints on many bags were crooked;
   -    Fasteners were improperly sewed and broke after first zippering;
   -    Handbags were deformed after sewing;
   -    Inner fabric separations were in different colors; and
   -    Hooks of the fasteners fell off and could not be re-attached.

Several times, the [Buyer] sent to the [Seller] written objections on the quality of handbags, asking for compensation; however, the [Seller] never gave a clear answer.

Based on the above facts and reasons, the [Buyer] asks the Arbitration Tribunal to rule that:

1. [Seller] should pay the loss of the [Buyer] of US $17,186.21 (calculated as follows: The total price of the handbags, US $15,750 the percentage of non-conforming goods, 55% + transportation fee, US $9,935.10 55% + round ticket cost of US $3,059.40 = US $17,186.21);

2. [Seller] should bear the arbitration fee and [Buyer]'s other costs relevant to this arbitration.

[Seller]'s defense

The [Seller] counter argues that:

      (1) In the middle of July 1995, based on [Buyer]'s requests and samples, [Seller]'s export agent made sample handbags with substitute materials and mailed those samples to the [Buyer] together with two kinds of cloth from which the raw materials were to be chosen. The [Buyer] liked the color of one cloth and raised no objection to the workmanship or quality of the sample bags. Later, the two parties signed the contract, in this case, on 25 July 1995.

      (2) The inspection record the [Buyer] relied on should not be admitted, nor should it be the basis for compensation or quality objection. The following are the reasons:

            a. An "inspection record" is not the same as an "inspection certificate". They have completely different legal meanings.

            b. The inspection record was issued by the [Buyer], the insurance staff of Regional Administration and Business Control Office of ___ Autonomous Region Government, Budapest No. 18 District, Hungary and the user of the goods, ___ Advertising Company, which was contrary to the principle that the inspection must be conducted independently without interference or influence by a third party, especially those who have concerns in the goods. Thus, this inspection record should be regarded as void, and its method of issuance illegal.

            c. The Region Administration and Business Control Office of ___ Autonomous Region Government, Budapest No. 18 District is simply a governmental agency; it is not a qualified inspection agency. It is not authorized to issue inspection certificates and its inspection record has no legal effect. Moreover, the [Seller] has never agreed to have the goods inspected by it.

            d. The content in the record is not precise, and the words used were ambiguous and stretched.

      (3) After the conclusion of the contract, Mr. Chen, [Buyer]'s representative in Tianjin, accepted the cloth materials provided by the [Seller] by written document. Later, before the entire goods were delivered, the [Seller] asked Mr. Chen to inspect the goods; however, Mr. Chen agreed to dispatch the goods without inspection, which indicated that the [Buyer] accepted the quality of the goods.

The [Seller] asks the Arbitration Tribunal to dismiss all of [Buyer]'s arbitration claims.

[Buyer]'s response

After the court session, the [Buyer] added the following in its arbitration representation statement:

      (1) Compared with the sample handbags provided by the [Buyer], the handbags delivered by the [Seller] had the following defects. The non-conforming percentage was 55%.

            a. Appearance: The surfaces of the handbags were uneven; the trademarks were improperly sewed, and the prints of the trademarks were crooked.

            b. Size and specification: There were major errors on material size; the radians of two sides were different.

            c. Sewing workmanship: Trademarks were unevenly sewed; belts were not sewed in the middle; prints of trademarks were crooked.

      (2) The [Seller] sent the sample handbags too late when quality problems had occurred, and the samples had no meaning.

      (3) The inspection conducted by three parties including the [Buyer] was based on Article 1 of No. 7/1978 (III) Directors Meeting's Act (promulgated in 1978), "Provisions on Dealing with Problems Involving Quality and Quantity Defects", and it was legal and effective.

      (4) The [Seller] alleged at the court session that the [Buyer] had brought a lawsuit in court against the carrier in April 1996 for the damages of the goods that were soaked with water during transportation; therefore, it had lost the right to claim damages from the [Seller]. However, the [Buyer] argued that the lawsuit brought in court was for a damage claim, but this arbitration was for a quality dispute; they have no necessary connection. In addition, apart from the damage caused by water soaking, there were many quality problems with the handbags.

      (5) [Buyer] alleged that during the performance of the contract, the [Buyer] never entrusted Mr. Chen to inspect the goods, and the quality of the goods should be based on the terms and conditions of the contract.

Therefore, the [Buyer] asserts that according to Article 74 of the CISG and Articles 18 and 19 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, the [Seller] should compensate the entire losses of the [Buyer] due to [Seller]'s breach of contract.

[Seller]'s response

The [Seller] further defends in its supplementary materials submitted after the court session, stating:

      (1) Regarding the time [Seller] mailed the sample handbags: The [Seller] made the sample handbags as fast as possible after signing the contract and mailed them to the [Buyer] on 12 August 1995. They arrived in Budapest on 16 August 1995; however, the [Buyer] failed to contact the Customs in time.

      (2) The entire goods were being transported to the place specified by the [Buyer] from 16 August 1995, and arrived at Beijing airport on 23 August. The exact departure date of the goods was 25 August. The [Buyer] admitted that it received the samples of the goods on 23 August; therefore, if the [Buyer] did not think the samples were conforming, it should have notified the [Seller] to stop delivering the goods; however, [Buyer] did not do so.

      (3) The goods delivered by the [Seller] were the same as the sample goods. Even though there are differences, they are in accordance with the industrial standards promulgated in the Peoples' Republic of China regarding backpacks and handbags, and they are merchantable for sale.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. The place of business of the [Seller] is in China. According to Article 2(6) of the Response of the Supreme People's Court to Certain Questions Concerning the Application of the Foreign Economic Contract Law, the laws of China should be applied. Moreover, the places of business of the [Buyer] and [Seller] are in Hungary and China, respectively, which are Contracting States of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"); therefore, the CISG has priority when its provisions are applicable.

2. The contract stipulates that: "the material should be based on the samples admitted by Mr. Chen in Tianjin, that the sizes, the specifications, and the workmanship should be based on the samples provided by the [Buyer], and that the inspection should be based on the sealed samples." However, during the performance of the contract, there were no sample goods kept and admitted by both parties, and no inspection place was specified; therefore, whether the goods delivered by the [Seller] were conforming goods can only be decided by comparing the goods actually delivered with the specifications in the contract, [Buyer]'s samples, materials admitted by the [Buyer], and [Seller]'s sample handbags.

3. Compared with the samples provided by the [Buyer] and [Seller]'s sample handbags, the goods delivered by the [Seller] had defects, such as uneven surfaces and that the trademarks were printed in the wrong positions. However, the evenness was relevant to the raw materials (which was admitted by the representative of the [Buyer]), and affected by moisture; therefore, the [Seller] should not bear the entire responsibility.

4. For the [Buyer]'s compensation claims

      (1) Loss caused by quality defects: The [Buyer] asks for compensation of US $8,662.5 based on the percentage of the non-conforming goods. This is a claim against all of the goods delivered. The Arbitration Tribunal does not accept it. The Arbitration Tribunal holds that since part of the goods delivered by the [Seller] had defects, it is reasonable for the [Seller] to compensate 30% of the FOB price of the goods (without considering damages caused by moisture), i.e., US $4,725 (US $15,750 30%);

      (2) Loss of transportation fee: The goods were delivered to the place specified by the [Buyer] at Tianjin; thus, the Arbitration Tribunal does not accept [Buyer]'s claim for air transportation fee;

      (3) The air ticket fee claimed by the [Buyer]: Since the [Buyer] failed to prove that the air ticket fee had connection with the quality problems in this case, the Arbitration Tribunal will not consider this claim;

5. The [Seller] shall bear 2/3 of the arbitration fee and the [Buyer] shall bear 1/3.

III. THE AWARD

The Arbitration Tribunal rules that:

      (1) The [Seller] shall pay to the [Buyer] loss of quality difference of 30% of the contract price, US $4,725;

      (2) [Buyer]'s other arbitration claims are dismissed;

      (3) The [Seller] shall bear 2/3 of the arbitration fee and the [Buyer] shall bear 1/3. The [Buyer] has paid US $__ in advance; therefore, the [Seller] shall pay back US $__ to the [Buyer].

      (4) The [Seller] shall pay the aforesaid sum within 40 days after this award takes effect.

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 Hungary is referred to as [Buyer] and Respondent of the Peoples' Republic of China 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 (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 a 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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