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CISG CASE PRESENTATION

China 12 July 1996 CIETAC Arbitration proceeding (Nickel-plating machines production-line equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960712c2.html]

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

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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/1996/30

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (claimant)

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

GOODS INVOLVED: Nickel-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

Classification of issues using UNCITRAL classification code numbers:

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

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

Descriptors: Damages ; Cover transactions

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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. 1496-1499

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

Nickel-plating machine production-line equipment case (12 July 1996)

Translation [*] by Wei Xia, Yang [**]

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 YN129-MS7139DE (hereinafter, the "Contract") signed by and between Claimant, German XXX Company (hereinafter, the [Seller]), and two Respondents, Shanghai XXX Trading Company and China XXX Import and Export Company (hereinafter individually and collectively, the [Buyers] or the [Buyer]); 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 24 August 1995, the Arbitration Tribunal held a court session in Beijing. The representatives of the [Seller] and of one of the [Buyers], Shanghai XXX Trading Company, attended the court session, made oral statements and arguments, and answered the Arbitration Tribunal's questions. The other [Buyer], China XXX Import and Export Company, neither attended the court session nor gave any reason to the Arbitration Tribunal for its absence. Pursuant to Article 42 of the Arbitration Rules, the Arbitration Tribunal held the session by default. After the session, the [Seller] and the [Buyer] submitted supplementary materials.

The Arbitration Commission twice extended the time limit for rendering the award on 1 March 1995 and 8 May 1995, respectively, with the final deadline set for 12 July 1996. As of the date hereof, the arbitration is concluded. Based on the written materials and the result of the court session, the Arbitration Tribunal handed down its arbitration award.

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

I. FACTS OF THE CASE

On 25 July 1992, the [Seller] and the [Buyer] signed the Contract, which provides the sale a set of nickel-plating machine production-line equipment at the price of CIF Shanghai 1,550,000 German Marks. Appendix VI of the Contract states that:

   -   10% of the total Contract price, i.e., 155,000 German Marks, shall be paid by the [Buyer] as an advance payment against the [Seller]'s surrender of the letter of guarantee issued by the [Seller]'s bank;
 
   -   90% of the total Contract price shall be paid by the [Buyer] 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 [Buyer]'s end user's inspection and acceptance report; and
 
   -   The goods shall be delivered within eight months after receiving the advance payment by the [Seller].

After signing the contract, the [Seller] received the [Buyer]'s advance payment, 10% of the total price. However, because the [Buyer] failed to open the L/C for 90% of the total price, the [Seller] suspended its delivery of the goods. A dispute arose therefrom between the parties, and the [Seller] filed this arbitration application.

POSITION OF THE PARTIES

1. The [Seller]'s position

The equipment under this Contract was made according to the request of the [Buyer]'s customer, end user Shanghai XXX Equipment 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 set production line under four separate contracts, one of which 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.

Upon completion of the manufacture of the goods by April 1993 in accordance with the Contract, the [Seller] promptly informed the [Buyer] that the goods were ready to be shipped and demanded that the [Buyer] open the L/C. The [Buyer] responded that it had difficulty in opening the L/C and asked for a postponement. Even under the circumstance that the [Buyer] had been in breach of the Contract, the [Seller] still urged the [Buyer] to open the L/C, and at the same time, provided for the [Buyer] with technical documents, charts, training and assistance pursuant to the Contract expressing the wish that the Contract would be carried out smoothly. The [Buyer] repeatedly promised the [Seller] that it would open the L/C. However, it failed to keep its promise and no L/C was opened. As a consequence, the [Seller] not only was unable to collect the Contract price from the [Seller] and bore the interest on it but also had to rent a warehouse to store the goods and suffered additional losses. Therefore, the [Seller] filed the following claims:

  1. Requesting the [Buyer] to perform the Contract;
  2. Requesting the [Buyer] to compensate the [Seller] for economic loss of 265,094 German Marks; and
  3. Requesting the [Buyer] to bear the arbitration fee and the [Seller]'s attorneys' fee.

Considering the fact that the [Buyer]'s end user has gone bankrupt and the [Buyer] is incapable of opening the L/C and accepting the goods, the Arbitration Tribunal ordered the [Seller] to resell the goods at a reasonable price as soon as possible and to report to the Arbitration Tribunal the result.

On 5 December 1995, the [Seller] submitted to the Arbitration Tribunal a resale report, which states that the [Seller] resold the goods to Swiss ECOGRPH AG at a price of 354,380 German Marks. In the meantime, the [Seller] amended its arbitration claims as follows:

  1. Requesting the [Buyer] to compensate the [Seller] for the price difference of 1,040,620 German Marks and loss of interest of 537,779.7 German Marks;
  2. Requesting the [Buyer] to compensate the [Seller] for the storage fee of 16,330 German Marks;
  3. Requesting the [Buyer] to compensate the [Seller] for communication fee, travel and accommodation fee incurred during the resale of the goods amounting to 2,378 German Marks; and
  4. Requesting the [Buyer] to bear the arbitration fee and the [Seller]'s attorneys' fee of US $6,000.

2. The [Buyer]'s position

  1. The [Buyer] agrees with the [Seller]'s resale of the goods at the price of 354,380 German Marks.
  2. The [Buyer] refuses to compensate the [Seller] for the difference between the original Contract price and the resale price.
  3. The Buyer argues that the Contract was negotiated by and between the [Seller] and the [Buyer]'s end user, Shanghai XXX Equipment Factory. The [Buyer] signed the Contract only as a foreign trade agent of the Shanghai XXX Equipment Factory as required by then effective Chinese foreign trade policy. During the performance process, the [Seller] kept a direct contact with Shanghai XXX Equipment Factory and was aware that Shanghai XXX Equipment Factory was unable to pay the Contract price and went to bankruptcy on July 17,1995. As an agent of Shanghai XXX Equipment Factory, the [Buyer] performed its duty in good faith and did nothing wrong. Therefore it was the [Seller] itself who should bear the losses incurred therefrom.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

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

2. Liabilities for breach of contract

The [Seller] and the [Buyer] have no dispute over the fact that the [Buyer] failed to open the L/C according to the Contract. However, the parties dispute on the following issues:

The [Seller] alleges that the [Buyer]'s failure to open the L/C as required by the Contract constituted a fundamental breach of the Contract and therefore all losses incurred by the [Seller] shall be borne by the [Buyer].

The [Buyer] argues that it signed the Contract only as a foreign trade agent of its end user as required by then effective foreign trade policy. The [Seller] kept a direct contact with the [Buyer]'s end user and was aware that the [Buyer]'s end user was unable to pay the Contract price and went to bankruptcy. As an agent of its end user, the [Buyer] performed its duty in good faith and did nothing wrong. Therefore it was the [Seller] itself who should bear the losses incurred therefrom.

The Arbitration Tribunal holds that according to Article 15 of the Provisional Rules on Foreign Trade Agency System enacted by the Ministry of Foreign Economic and Trade of P. R. China on 29 August 1991,which provides that "The foreign trade agent shall undertake the obligations under, and enjoy the rights granted by, the foreign trade contract," the [Buyer], as a foreign trade agent, is obligated to perform the Contract independently. The [Buyer]'s failure to perform its obligation to open the L/C as required by the Contract constituted a material breach of the Contract, it shall be liable for all the losses incurred by the [Seller] thereof.

3. The damages

     (1) The Arbitration Tribunal holds that according to Article 74 of the CISG, which provides:

"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",

as well as Article 75 of the CISG, which provides:

"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"

the [Seller]'s resale of the goods at 354,380 German Marks after it learned at the court session that the [Buyer] would not take goods not only was reasonable but also was agreed by the [Buyer], therefore the [Seller] is entitled to recover from the [Buyer] the price difference of 1,040,620 German Marks (1,395,000 German Marks minus 10% of the original Contract price paid by the [Buyer] as well as the resale price 354,380 German Marks). In addition, The [Buyer] shall compensate the [Seller] for the storage fee of 16,330 German Marks and loss of interest of 537,779.70 German Marks.

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

     (3) The Arbitration Tribunal holds that the [Seller]'s claim for the expenses of 2,378 German Marks incurred during the resale process shall be dismissed, because [Seller] did not provide sufficient evidence to prove such expenses.

     (4) The Arbitration Tribunal holds that the [Buyer] shall bear the entire arbitration fee.

III. AWARD

The Arbitration Tribunal rules that:

1. The [Buyer] shall compensate the [Seller] for the price difference of 1,040,620 German Marks and loss of interest of 537,779.70 German Marks;

2. The [Buyer] shall compensate the [Seller] for the storage fee of 16,330 German Marks;

3. The [Buyer] shall compensate the [Seller] for the [Seller]'s attorneys' fee of US $6,000;

4. The [Seller]'s claim for communication fee, travel and accommodation fee incurred during the resale of the goods amounting to 2,378 German Marks is dismissed; and

5. The [Buyer]shall bear the entire arbitration fee. Because the arbitration fee was prepaid to the Arbitration Commission by the [Seller], the [Buyer] shall pay directly to the [Seller] a sum of money equal to the arbitration fee.

The [Buyer] shall make aforesaid payment within thirty days of the date this award is handed down.

This award is final.


FOOTNOTES

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

** Wei Xia Yang, Master of Business Law. Monash University, Australia. BA in English (Translation), Beijing Foreign Studies University.

*** 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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