China 30 July 1996 CIETAC Arbitration proceeding (Molybdenum iron case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960730c1.html]
DATE OF DECISION:
DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/32
CASE HISTORY: Unavailable
SELLER'S COUNTRY: People's Republic of China (respondent)
BUYER'S COUNTRY: United States (claimant)
GOODS INVOLVED: Molybdenum iron
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
47B2 [Buyer's right to fix additional final period for performance (buyer's remedies during period): buyer not deprived of right to damages for delay]; 74A [General rules for measuring damages: loss suffered as consequence of breach]; 75A2 ; 75B [Damages established by substitute transaction after avoidance: repurchase by aggrieved buyer; Relationship between avoidance and substitute transaction: reasonable substitute transaction]; 76B [Damages recoverable based on current price]; 77A [Obligation to take reasonable measures to mitigate damages]; 78A [Interest on delay in receiving price or any other sum in arrears]
47B2 [Buyer's right to fix additional final period for performance (buyer's remedies during period): buyer not deprived of right to damages for delay];
74A [General rules for measuring damages: loss suffered as consequence of breach];
75A2 ; 75B [Damages established by substitute transaction after avoidance: repurchase by aggrieved buyer; Relationship between avoidance and substitute transaction: reasonable substitute transaction];
76B [Damages recoverable based on current price];
77A [Obligation to take reasonable measures to mitigate damages];
78A [Interest on delay in receiving price or any other sum in arrears]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
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. 1575-1578
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
English: Dong WU, CIETAC's Practice on the CISG, at n.151, Nordic Journal of Commercial Law (2/2005)Go to Case Table of Contents
Queen Mary Case Translation Programme
Molybdenum iron case (30 July 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 Contract No. 94NAE - TJ026MR signed by Claimant
[Buyer], American __ Resource Company and Respondent [Seller], China __
International Trade Company; and
|-||The written arbitration application submitted by [Buyer] on 29 November 1995.|
Mr. P, the Presiding Arbitrator jointly appointed by the two parties, who was also approved by the Chairman of the Arbitration Commission according to the Arbitration Rules, Mr. A, the arbitrator appointed by the [Buyer], and Mr. D, the arbitrator appointed by the [Seller] formed the Arbitration Tribunal.
The Arbitration Tribunal examined the arbitration application, arbitration defense, and the evidence submitted by both parties. On 10 May 1996, a court session was held in Beijing. Both [Seller] and [Buyer] sent representatives to the court session. They made oral statements and arguments, and answered the Arbitration Tribunal's questions.
After the court session, both parties submitted supplementary documents.
This case has been concluded and the Arbitration Tribunal made this award based on the current material and court session.
The following are the facts, the Tribunal's opinion and award.
On 18 August 1994, both parties signed Contract 94NAE - TJ026MR in Beijing, by which the [Buyer] was going to buy 17MT Molybdenum iron with 60% Molybdenum content. The unit price was CFR ROTTERDAM US $8.5/ton, and the delivery deadline was the end of September or the beginning of October of 1994.
There were disputes during the performance of the contract, and the [Buyer] filed this arbitration application.
[POSITION OF THE PARTIES]
The [Buyer] alleges that:
For the convenience of the [Seller] to perform the contract, the [Buyer] sent a sample Bill of Lading to the [Seller] on 19 September 1994. However, even by the beginning of October, which was the deadline for contract performance, the [Seller] still had not performed the contract.
On 20 October 1994, the [Buyer] sent a fax to ask about the situation. The [Seller] responded that it had contacted a new factory and would do its best to deliver the goods in the beginning of November, and asked the [Buyer] to wait for the result. However, at the beginning of November, the [Seller] still did not perform the contract.
On 9 November 1994, the [Buyer] sent a fax to the [Seller] urging it to perform the contract by 15 November. The [Seller] replied on 14 November saying "we will deliver the goods as soon as we receive the goods from the factory".
The price of Molybdenum iron had increased tremendously both at the international and Chinese domestic market. To limit the loss, the [Buyer] signed a Molybdenum iron sales contract with Xuzhou International Trade Company on 15 November 1994 and purchased replacement goods at a price lower than the then current international market price.
It is the [Buyer]'s position that:
|-||The [Seller] fundamentally breached the contract;
|-||The [Buyer] purchased replacement goods in time and according to related articles under the United Nations Convention on Contract for the International Sales of Goods (hereafter the "CISG"), the [Seller] should compensate the [Buyer]'s loss and other reasonable costs.|
The [Buyer] asks the Arbitration Tribunal to rule that the [Seller] shall:
1. Compensate the loss of profit of the [Buyer](the difference between the replacement contract price on 15 November 1994 and the original contract price minus the difference between the shipping fees), which should be calculated as Loss of profit = (price in replacement - contract price) × weight × content of Molybdenum - (difference of shipping fee/Kg × weight) = (15.90 - 8.50) × 17,000 × 60% - (0.05 × 17,000) = 75,480 - 850 = US $74,630.
2. Compensate the [Buyer]'s attorneys' fee, which is 5% of the sum the [Buyer] should receive according to the award.
3. Bear the entire arbitration fee.
4. Pay interest from 15 November 1994 to the day the aforesaid payment is made at 8% annual rate.
The [Seller] counter argues that:
1. The contract signed by both parties on 18 August 1994 was an interim agreement with no legal effect, and there was no stipulation in the contract on the issue of contract effectiveness. In addition, the price of Molybdenum iron at the international market was unstable; signing an interim agreement gave the [Seller] time to secure the goods before the contract takes effect. The [Seller] asserts that the effectiveness of the contract is a basis for determining the rights and obligations of both parties. Without the contract being effective, there is no contract violation, nor is there responsibility for contract violation.
2. The [Seller] did not know the fact that the [Buyer] has concluded a contract with Xuzhou __ Trade Company. The [Seller] made every effort to perform the contract. It concluded a sales contract with Beijing __ Metal Factory and paid the entire price. After it knew that the Beijing __ Metal Factory could not perform the contract on time, it informed the [Buyer] of the delay in delivery, and the [Buyer] made no objection to the delay. Even on 23 November 1994, when business manager of the [Seller] and the representative of the [Buyer] went to the Beijing __ Metal Factory to urge the shipment of the goods, the representative of the [Buyer] did not indicate terminating the contract, or mitigating the loss.
Even if one regards the agreement as a valid contract, after repeatedly being informed by the [Seller] of the delay in delivery, the [Buyer] did not raise any objection, which indicated that the [Buyer] accepted the [Seller]'s demand for postponement of the delivery. Under section (2) of article 47 of the CISG, "unless the [Buyer] has received notice from the [Seller] that he will not perform within the period so fixed, the [Buyer] may not, during that period, resort to any remedy for breach of contract", which means unless the [Seller] informs the [Buyer] that he will not deliver the goods, the [Buyer] should not take any action to remedy the contract. If the [Buyer] resorts to any remedy for breach of contract, it should inform the [Seller]. Without informing the [Seller], the [Buyer] should bear the loss of price difference by itself.
3. The clause on the issue of the quality of Molybdenum iron in the contract between the [Buyer] and Xuzhou __ Trade Company is different from the same clause in the original contract, therefore, the goods in the contract the [Buyer] signed with Xuzhou __ Trade Company cannot be the replacement of the goods in the original contract.
4. The [Buyer] claims in section 4 of its arbitration application, asking for interest on the damages, the attorneys' fee and the arbitration fee from 15 November 1994 to the day the payment is made at an 8% annual rate. The [Seller] alleges that this demand is not legal. According to the Law of the People's Republic of China on Economic Contracts involving Foreign Interest, related international conventions, and international trade usages, there is no stipulation on the issue that an injured party may claim interest on the attorneys' fee or the arbitration fee. Furthermore, the attorneys' fee and the arbitration fee were not incurred on 15 November 1994; therefore, calculating from that time has no legal basis.
Above all, the [Seller] asks the Arbitration Tribunal to dismiss the [Buyer]'s claim.
II. OPINION OF THE ARBITRATION TRIBUNAL
(1) The applicable law
Both China and the United States of America are Contracting States of the CISG, therefore, the CISG should be the applicable law. Both parties agree on this issue.
(2) The effectiveness of the contract
The [Seller] argues that the contract in this case was signed as an interim agreement with no legal effect, that there was no stipulation on the issue of the effectiveness of the contract. However, both parties signed the contract (there is not only the seal of the [Seller]'s company but also the signature of the representative of the [Seller] on the contract), and the date of the performance of the contract (the shipping date) is clearly determined in the contract. In addition, the [Seller] has repeatedly promised to deliver the goods and asked the [Buyer] to wait, which indicated that the [Seller] was performing the contract and that the contract was a valid contract.
No stipulation on the issue of the effectiveness of the contract only shows that both parties did not consider it as an important issue to be specified. The letter from Mr. Wang to Mr. Mu and the testimony by Beijing __ Metal Company cannot overturn the aforesaid conclusion; therefore, the Arbitration Tribunal deems that [Seller]'s assertion that the contract has no legal effect is not acceptable.
(3) The [Buyer]'s right to claim damages
The [Seller] quotes paragraph (2) of Article 47 of the CISG, arguing that the [Buyer] did not receive notice from the [Seller] that he will not perform the contract, but resorted to remedy, therefore, the [Buyer] cannot claim damages. The Arbitration Tribunal notes that in the latter part of paragraph (2) of Article 47, it is clearly stipulated that "the [Buyer] is not deprived of any right he may have to claim damages for delay in performance". The [Seller] did not perform its obligation to deliver the goods, therefore it is reasonable for [Buyer] to claim damages.
(4) The calculation of the damages
The [Buyer] asserts that the damage should be calculated as the difference between the price under the contract with another company and the price under the original contract. Using the price list of Molybdenum iron at the international market (the [Seller] did not raise any objection to this) is a reasonable way to calculate the loss and claim damages. The [Seller], however, argues that the goods in the contract signed by the [Buyer] and Xuzhou __ Trade Company are different from the goods under the original contract (the content of Silicon and Copper is different, and the quantity of the goods is different), therefore, it should not be considered as the replacement goods to calculate the loss of the [Buyer].
The Arbitration Tribunal deems that the goods in the two contracts are different, therefore, the goods in the second contract cannot replace the goods in the original contract. However, it should not be the reason to reject calculating the [Buyer]'s loss based on the same kind of goods, therefore, the [Seller]'s assertion is not legally sound. The [Buyer]'s claim for US $74,630 is reasonable and should be accepted.
The interest on the aforesaid sum should be calculated from the last day the [Buyer] asked the [Seller] to deliver the goods, which is 15 November 1994 at an 8% annual rate.
(5) The attorneys' fee
According to Article 59 of the Arbitration Rules, the winning party may claim a reasonable sum it paid for case procedure, however, it should not exceed 10% of the compensation. The [Buyer]'s claiming for 5% of the compensation as its attorneys' fee, which is 74,630 × 5% = 3,731.50 should be accepted.
(6) The [Seller] should bear the arbitration fee
III. THE AWARD
The Arbitration Tribunal rules that
The [Buyer] shall pay the aforesaid sum within 45 days after this award takes effect. Otherwise, 8% annual interest shall be added.
This is the final award.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the United States of America is referred to as [Buyer] and Respondents of the People's Republic of China is referred to as [Seller]. Amounts in the currency of the United States (dollars) are indicated as [US $].
** 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.Go to Case Table of Contents