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CISG CASE PRESENTATION

China 12 July 1996 CIETAC Arbitration proceeding (Chrome-plating machines production-line equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960712c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19960712 (12 July 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/28

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Switzerland (claimant)

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

GOODS INVOLVED: Chrome-plating machines production-line equipment


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 75 ; 77 ; 78 ; 87

Classification of issues using UNCITRAL classification code numbers:

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

75A1 [Damages established by substitute transaction (substitute transaction after avoidance): resale by aggrieved seller];

77A [Obligation to take reasonable measures to mitigate damages];

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

87A [Preservation of goods by deposit in warehouse: reimbursement of reasonable expenses]

Descriptors: Damages ; Cover transactions ; Mitigation of loss ; Interest ; Storage

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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., po. 1490-1493

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.146, 214, 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

Chrome plating machines production line equipment case (12 July 1996)

Translation [*] by Zheng Xie [**]

Translation edited by Yan Tianhuai [***]

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

   -   The arbitration clause in Contract No. 92 MXW-129(62) 903CH (hereinafter, the "Contract") signed by and between Claimant (hereinafter, the "[Seller]"), Swiss XXX Company, and Respondent (hereinafter, the "[Buyer]"), China XXX Import and Export Company; and
 
   -   The written arbitration application submitted by the [Seller] to the Arbitration Commission on 27 December 1994.

The [Seller] appointed Mr. A as an arbitrator, the [Buyer] appointed Mr. D as an arbitrator, and the Chairman of the Arbitration Commission appointed Mr. P as the presiding arbitrator in accordance with the arbitration rules. The three arbitrators formed the Arbitration Tribunal (hereinafter, the "Arbitration Tribunal") on 12 June 1995.

On 2 August 1995, the Arbitration Tribunal held a court session in Beijing. Both the [Seller]'s and the [Buyer]'s representatives attended the session, made oral statements and arguments, and answered the Arbitration Tribunal's questions. After the session, the parties submitted supplementary materials.

The Arbitration Commission twice extended the time limit for rendering an award for this case on 1 March 1996 and 8 May 1996 respectively, with the final deadline set for 12 July 1996. As of the date hereof, this case is concluded. The Arbitration Tribunal hands down the arbitral award based on the written materials submitted by the parties and the result of the court session.

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

FACTS

On 14 August 1992, the [Seller] and the [Buyer] signed the Contract which provides for sale of a set of Chrome-plating machines production-line equipment at the price CIF Shanghai 257,070 Swiss francs. Appendix III of the Contract stipulates that:

   -    The [Buyer] shall pay 10% of the total Contract price, i.e., 25,707 Swiss francs, as an advance payment against [Seller]'s surrender of a letter of guarantee issued by the [Seller]'s bank;
 
   -    The [Buyer] shall pay 90% of the total Contract price through a letter of credit (hereinafter, the "L/C"), of which 80% shall be available against the shipping documents and the remaining 10% shall be available against the end user's inspection and acceptance report; and
 
   -    The [Seller] shall deliver the goods within four months after receiving the advance payment.

After signing the Contract, the [Seller] received the [Buyer]'s advance payment, 10% of the total Contract price. However, due to the [Buyer]'s failure to open the L/C for 90% of the total Contract price, the [Seller] had to suspend delivery of the goods under the Contract. A dispute arose therefrom between the parties, and the [Seller] filed the application for arbitration with the Arbitration Commission.

POSITION OF THE PARTIES

The [Seller]'s position

The [Seller] asserts that:

The Chromium-plating machines production-line equipment under this Contract was manufactured according to the request of the [Buyer]'s end user, Shanghai XXX Equipments Factory. It was specially designed and is not commonly used in the world. The equipment under this Contract is one of four sets of equipment ordered by the [Buyer] as a whole production line set under four separate contracts. One of four contracts was performed by the parties and the remaining three were not. The Contract in this case is one of those three contracts that was not performed. The [Seller] manufactured all of the goods according to the Contract and urged the [Buyer] many times to perform its obligation to open the L/C. However, the [Buyer] failed to open the L/C, so the [Seller] had to rent a place to store the goods. As a consequence, the damages caused to the [Seller] were increasing. Therefore, the [Seller] filed the following claims:

  1. Requesting the [Buyer] to perform the Contract;
  2. Requesting the [Buyer] to compensate the [Seller] for loss of interest and storage charge totaling 46,486 Swiss francs; and
  3. Requesting the [Buyer] to bear the arbitration fee and the [Seller]'s attorneys' fee.

During the hearing, the [Seller] learned that the [Buyer]'s end user, Shanghai XXX Equipment Factory, had gone bankrupt and that the [Buyer] would not take the goods. The Arbitration Tribunal ordered the [Seller] to resell the goods at a reasonable price as soon as possible and to submit a report after the resale. On 21 March 1996, the [Seller] submitted to the Arbitration Tribunal a resale report stating that the [Seller] resold the goods to XXX Enterprise Co., Ltd. (a Taiwanese enterprise) at the price CIF Taiwan 73,012 Swiss francs. In the meantime, the [Seller] amended its arbitration claims as follows:

  1. Requesting the [Buyer] to compensate the [Seller] the price difference of 158,351 Swiss francs as well as loss of interest of 98,811 Swiss francs;
  2. Requesting the [Buyer] to compensate the [Seller] for storage fee of 15,000 Swiss francs;
  3. Requesting the [Buyer] to compensate the [Seller] for communication fee, travel and accommodation fee as well as appraisal fee incurred during the resale of the goods, amounting to 8,900 Swiss francs;
  4. Requesting the [Buyer] to bear the [Seller]'s attorneys' fee; and
  5. Requesting the [Buyer] to bear the arbitration fee.

The [Buyer]'s defenses

The [Buyer] raised the following defenses:

1. The [Seller]'s claim for the price difference lacks legal basis

The resale price reached by and between the [Seller] and the third party does not reflect the true value of the goods under the Contract. To reduce the price of the goods by 158,351 Swiss francs lacks legal basis.

2. The [Seller] did not fulfill the duty of mitigation

It is true that the fundamental reason the Contract was not performed is that the [Buyer]'s end user failed to pay the price of the goods under this Contract and the other two contracts. However, the [Seller] did not take measures to mitigate the damages according to Article 77 of United Nations Convention on Contracts for the International Sale of Goods (1980), and therefore incurred added storage fees and interest. So it is the [Seller] who should be liable for the depreciation of the goods, storage charge and interest incurred during the three years. Moreover, the [Seller] calculated the interest at a rate obviously higher than the normal rate. The [Buyer] could not foresee such an abnormal interest rate.

3. The [Seller]'s claim did not deduct expenses saved

According to the Contract, the [Seller] should bear the freight and insurance fee. Because the contract was not performed, the [Seller] saved freight in the amount of US $3,100 and insurance fee in the amount of 1,285 Swiss francs, which should be deducted from the [Seller]'s damages.

OPINION OF THE ARBITRATION TRIBUNAL

1. Applicable law

The parties did not make a choice of the applicable law in the Contract. Because both China and Switzerland are Contracting States of United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG), the CISG shall be applied.

2. Liability for breach of contract

There is no dispute over the fact that the [Buyer] failed to open the L/C according to the Contract. Accordingly, the Arbitration Tribunal holds that the [Buyer] is liable for its breach of the Contract and shall fully compensate the [Seller] for the losses incurred therefrom.

3. The damages

     (1) The [Seller]'s claim for storage charge and interest

The [Buyer] argues that the [Seller] did not take reasonable measures to mitigate the damages and therefore caused added storage charges and interest, for which the [Seller] should be liable. The Arbitration Tribunal finds that the equipment under this Contract is part of a whole set of production line equipment ordered by the [Buyer] for its end user, which was manufactured according to the end user's special requirements and is not commonly used in the world. In addition, the [Buyer] had never expressed its intent in writing to cancel the Contract before the court session. Thus, the Arbitration Tribunal cannot support the [Buyer]'s assertion that the [Seller] did not fulfill its duty to mitigate damages. The [Buyer] shall compensate the [Seller] for the storage fee and loss of interest incurred during the three years.

The [Buyer] further argues that [Seller] calculated the interest at a rate obviously higher than normal European interest rate, but failed to submit any evidence to prove how much the normal European interest rate is. To the contrary, the [Seller] submitted evidence of correspondence from the Swiss Bank to show the interest rate is 12.5%, which the Arbitration Tribunal holds is reasonable and shall be accepted.

Therefore, the [Buyer] shall pay the [Seller] storage charges of 15,000 Swiss francs and interest on the total Contract price calculated from 1 April 1993 to 30 June 1996 in the amount of 91,581 Swiss francs.

     (2) The [Seller]'s claim for the price difference

According to Article 74 of CISG:

"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. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract."

Article 75 CISG states:

"If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods, the party claiming damages may recover the difference between the contract price and the price in the substitute transaction as well as any further damages recoverable under article 74."

Based on the resale report submitted by the [Seller], the Arbitration Tribunal holds that the [Seller] took reasonable measures to resell the goods and the [Buyer] shall compensate the [Seller] for the price difference of 158,351 Swiss francs. As to the [Buyer]'s argument that the price difference should deduct the freight and insurance saved, the Arbitration Tribunal notes that no freight and insurance were saved under the price term CIF Taiwan in the resale contract signed by the [Seller] and the Taiwanese enterprise in comparison with the price term CIF Shanghai in the original contract. The Tribunal therefore decides that the [Buyer]'s claim should be dismissed.

     (3) Expenses incurred during the resale of the goods

The Arbitration Tribunal does not support the [Seller]'s claim for the expenses of 8,900 Swiss francs incurred during the resale process, because [Seller] did not provide sufficient evidence to prove such expenses.

     (4) Attorneys' fee

The Arbitration Tribunal holds that the [Buyer] shall compensate the [Seller] for attorneys' fee of US $6,000.

     (5) Arbitration fee

The Arbitration Tribunal holds that the [Buyer] shall pay the entire arbitration fee.

AWARD

  1. The [Buyer] shall compensate the [Seller] for the price difference of 158,351 Swiss francs;
  2. The [Buyer] shall compensate the [Seller] for the loss of interest of 91,581 Swiss francs;
  3. The [Buyer] shall compensate the [Seller] for storage charges of 15,000 Swiss francs;
  4. The [Seller]'s claim for communication fee, travel and accommodation fee as well as appraisal fee incurred during the resale of the goods, amounting to 8,900 Swiss francs, is dismissed.
  5. The [Buyer] shall compensate the [Seller] for attorneys' fee in the amount of US $ 6,000.
  6. The [Buyer] shall pay the entire arbitration fee.

The [Buyer] shall pay the [Seller] the above amount within thirty days following the issuance of this award.

This award is final.


FOOTNOTES

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

** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.

*** Yan Tianhuai, 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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