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CISG CASE PRESENTATION

China 12 July 1996 CIETAC Arbitration proceeding (Chromate plating machine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960712c3.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/1996/29

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Switzerland (claimant)

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

GOODS INVOLVED: Chromate plating machine


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 rules 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. 1493-1496

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

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

Chromate plating machine production line equipment case (12 July 1996)

Translation [*] by Meihua Xu [**]

Edited by Yan Tianhuai [***]

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

   -    The arbitration clause in Sales Contract No. 92YN129 - MS7138CH (hereinafter, the "Contract") signed by and between Claimant of Switzerland (hereinafter, the [Seller]) and two Respondents (hereinafter collectively and individually, the [Buyers] or the [Buyer]), Shanghai XXX Trading Company and China XXX Import & Export Company; and
 
   -    The written arbitration application submitted by the [Seller] on 27 December 1994.

On 2 June 1995, an Arbitration Tribunal was formed by Mr. A, the arbitrator appointed by the [Seller], Mr. D, the arbitrator appointed by the Chairman of the Arbitration Commission on behalf of the [Buyer], and Mr. P, the presiding arbitrator appointed by the Chairman of the Arbitration Commission according to the Arbitration Rules (hereinafter, the "Arbitration Tribunal").

On 25 August 1995, the Arbitration Tribunal held a court session in Beijing. The representatives of the [Seller] and 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 & Export Company, neither attended the court session nor gave any reason to the Arbitration Tribunal for its absence. According to Article 42 of the Arbitration Rules, the court session was held without its presence. After the court session, the [Seller] and one of the [Buyers], Shanghai XXX Trading Company, submitted supplementary materials.

The Arbitration Commission made two decisions on 1 March 1995 and 8 May 1995 respectively to extend the deadline for rendering an arbitral award twice to 12 July 1996. As of the date hereof, this case is concluded and the Arbitration Tribunal hands down its award.

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

I. FACTS

On 25 July 1992, the [Seller] and the [Buyer] signed the Contract which provides the sale of one set of chromate plating machine production line equipment at a total price CIF Shanghai 272,930 Swiss francs. Annex II of the Contract states that:

   -    10% of the total Contract price, i.e., 27,293 Swiss francs, shall be paid by the [Buyer] as an advance payment against the [Seller]'s surrender of a 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 10% advance payment from the [Buyer]. 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 manufactured according to the request of the [Buyer]'s 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 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.

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 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 51,584 Swiss francs; 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 to bankruptcy and the [Buyer] is incapable of opening the L/C and acceptance of 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] provided to the Arbitral Tribunal a resale report, which states that the [Seller] resold the goods to XXX Enterprise Co., Ltd. (a Taiwanese company) at the price of 77,785 Swiss francs. In the meantime, the [Seller] amended its arbitration claims as follows:

(1) Requesting the [Buyer] to compensate the [Seller] for the price difference of 167,852 Swiss francs and loss of interest of 104,907 Swiss francs;
(2) Requesting the [Buyer] to compensate the [Seller] for the 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; and
(4) Requesting the [Buyer] to bear the arbitration fee and the [Seller]'s attorneys' fee of 6,000 Swiss francs.

2. The [Buyer]'s position

The [Buyer] refused to compensate the [Seller] for the difference between the original Contract price and the resale price. It argued that the Contract was negotiated by and between the [Seller] and its end user, Shanghai XXX Equipment Factory, and that [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 17 July 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. 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 the United Nations Convention on Contracts for the International Sales of Goods (hereinafter, the "CISG"), the CISG shall be applied.

2. The liability for breach of the 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 Shanghai XXX Equipment Factory as required by then effective foreign trade policy. 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. 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.

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 fundamental breach of the Contract and it shall be liable for all the losses incurred by the [Seller] therefrom.

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 77,785 Swiss franc after it learned at the court session that the [Buyer] would not take the goods was reasonable in time and in manner, therefore, the [Seller] is entitled to recover from the [Buyer] the price difference of 167,852 Swiss francs (245,637 Swiss francs minus 10% of the original Contract price paid by the [Buyer] as well as the resale contract price). In addition, the [Buyer] shall compensate the [Seller] for loss of interest of 104,907 Swiss francs and the storage fee of 15,000 Swiss francs.

     (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 expenses of 8,900 Swiss francs 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. THE AWARD

The Arbitration Tribunal rules that

1. The [Buyer] shall compensate the [Seller] for the price difference of 167,852 Swiss francs and loss of interest of 104,907 Swiss francs;

2. The [Buyer] shall compensate the [Seller] for the storage fee of 15,000 Swiss francs;

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

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; and

5. The [Buyer] shall bear the entire arbitration fee. Because the arbitration fee was prepaid 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 30 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, Claimant of Switzerland is referred to as [Seller] and Respondents of the People's Republic of China are referred to as [Buyer].

** 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.

*** 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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