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CISG CASE PRESENTATION

China 30 July 1996 CIETAC Arbitration proceeding (Ferro-molybdenum alloy case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960730c2.html]

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

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Case identification

DATE OF DECISION: 19960730 (30 July 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/33

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: United States (claimant)

GOODS INVOLVED: Ferro-molybdenum alloy


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 47 ; 75 ; 76 ; 78 ; 79 [Also cited: Article 74 ]

Classification of issues using UNCITRAL classification code numbers:

25A [Effect of fundamental breach: avoidance of contract];

47A [Buyer's right to fix additional period for performance];

75B1 [Damages established by substitute transaction (relationship between avoidance and substitute transaction): reasonable substitute transaction];

76B [Damages recoverable based on current price];

78A1 [Interest on delay in paying damages];

79A ; 79C [Impediment excusing party from damages; Non-performance attributable to third-party contractor]

Descriptors: Avoidance ; Nachfrist ; Damages ; Cover transactions ; Substitute goods ; Interest ; Exemptions or impediments

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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. 1579-1582

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.149, 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

Ferro-molybdenum case (30 July 1996)

Translation [*] by Meihua Xu [**]

Edited by LIN Zhongming [***]

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. 94YCHB-015 signed by Claimant [Buyer], America __ Resource Company, and Respondent [Seller], China Import & Export Company Hebei Branch; and
 
   -    The written arbitration application submitted by [Buyer] on 29 November 1995.

Mr. P, the Presiding Arbitrator appointed 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 to hear this case.

The Arbitration Tribunal examined the arbitration application, arbitration defense, and the related evidence submitted by the two parties in detail, and held a court session in Beijing on 8 May 1996. Both parties sent representatives to the court session. They made oral statements and answered the Arbitration Tribunal's questions. After the court session, both parties submitted supplementary evidence.

The Arbitration Tribunal handed down this award by consent based on the existing written materials and the court session.

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

I. FACTS

On 14 July 1994, the [Buyer] and the [Seller] signed Contract No. 94YCHB-015 (hereafter, "the Contract"), by which the [Buyer] was to purchase 20 tons of ferro-molybdenum containing 60% molybdenum at a unit price of US $8.4/kg CNF Pusan; the shipping period was 30 August 1994, and the payment term was by letter of credit [L/C].

After signing the contract, the [Seller] failed to deliver the goods; the [Buyer], therefore, filed this arbitration application to the Arbitration Commission.

[POSITION OF THE PARTIES]

[Buyer]'s position

The [Buyer] alleges that:

After concluding the contract, for the [Seller]'s accommodation, the [Buyer] sent a form and sample of the B/L to the [Seller]. On 10 August, the [Seller] notified the [Buyer] that the goods had been produced, but the sulphur content was 0.13%, which was 0.03% higher than 0.1% as stipulated in the Contract, and asked for the [Buyer]'s confirmation. The [Buyer] sent the confirmation by fax on the same day.

On 22 August 1994, the [Seller] informed the [Buyer] that it could not deliver the goods within the stipulated time, asking for a postponement to September. The [Buyer] accepted this request by fax on the same day. At the end of September, the [Seller] asked for a price increase, which was rejected by the [Buyer]. On 27 September and 29 September 1994, the [Buyer] sent faxes to the [Seller], asking it to perform its obligation to deliver the goods, but the [Seller] never delivered the goods. In October 1994, the [Buyer] repeatedly contacted the [Seller], urging it to deliver the goods, but with no result. On 8 November 1994, the [Buyer] sent a fax to the [Seller], stating that it would give the [Seller] the last chance to perform the contract, and that if the [Buyer] did not receive a confirmation letter from the [Seller] immediately promising to deliver the goods before 5 pm on 15 November 1994, the [Buyer] was going to purchase substitute goods at the market price on that day, and was going to ask the [Seller] to compensate the price difference. On 11 November 1994, the [Seller] sent a fax to the [Buyer], suggesting the two parties negotiate the price and the time of delivery for the next delivery of ferro-molybdenum.

The [Buyer] alleged that the [Seller] has violated the contract, and in order to mitigate the loss, the [Buyer] signed a ferro-molybdenum sales contract with Xuzhou International Business Company on 15 November to purchase substitute goods.

The [Buyer] argued that it did nothing wrong during the performance of the contract, and the [Seller] should compensate the [Buyer]'s losses and other reasonable fees and costs incurred by the [Buyer]. The [Buyer]'s claims in detail are as follows:

1. [Seller] should compensate the [Buyer]'s loss of profit (which is the price difference between the price for purchasing the substitute goods on 15 November 1994 and the contract price). The calculation is: Loss of profit = Price for purchasing the substitute goods on 15 November 1994 - Contract price) weight molybdenum content = (15.90 - 8.40) 20,000 60% = US $90,000.

At the court session, the [Buyer] alleged that if the Arbitration Tribunal considers that the [Buyer]'s behavior of purchasing the substitute goods is not acceptable, the [Seller] still should compensate the [Buyer]'s loss of profit based on Article 76(1) and 76(2) of the United nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), because on 8 November 1994, the [Buyer] clearly stated that if the [Seller] did not deliver the goods before 15 November, the [Buyer] was to purchase the substitute goods. This loss in detail is: Loss of profit = (price for ferro-molybdenum at international market on 15 November 1994 - contract price) weight molybdenum content - difference on transportation fee = (17 - 8.4) 20,000 60% - 1000 = US $102,200 (the difference of transportation fee from Xingang to Rotterdam and from Xingang to Pusan is US $0.05/kg, the contract goods weight 20,000 kg, therefore, the transportation fee difference is US $1,000).

2. The [Seller] should pay 5% of the award to the [Buyer] as the [Buyer]'s attorneys' fee.

3. The [Seller] should bear the entire arbitration fee;

4. The [Seller] should pay interest from 15 November 1994 to the date of actual payment at an 8% annual interest rate.

[Seller]'s defense

The [Seller] counter argues that:

In August 1994, the [Seller] received notice from its supplier, Beijing __ Ferro-alloy Smelting Factory (hereafter, "the Smelting Factory"), informing that a flood had occurred around the area where the mine is located inundated the gallery, with the result, the production had to be stopped and the goods could not be delivered on time, and asked the [Buyer]'s agreement to postpone delivery. The [Seller] also stated that it could help the [Buyer] to find other suppliers. Later, the Smelting Factory notified the [Seller] that there was a factory which could provide 20 tons of ferro-molybdenum with the same quality as the contract goods, but the sulphur content was 0.13%, which was 0.03% higher than the original contract. The [Seller] informed the [Buyer] of this situation. The [Buyer] replied that it could accept the goods. However, the Smelting Factory could not purchase the aforesaid goods, and the [Seller] had to wait until the Smelting factory could resume production. The Smelting Factory indicated that it could not deliver the goods before September 1994 due to the effect of the flood; therefore, the [Buyer] considered the purchase of substitute goods from other suppliers.

The price for ferro-molybdenum was increasing at domestic and international markets, thus, the [Seller] telephoned the [Buyer], asking whether it could increase the contract price. The representative of the [Buyer] replied by phone call that it could consider the suggestion to increase the price. The supplier of the [Seller] was unable to deliver the goods, and the [Seller] telephoned the [Buyer], suggesting giving preferential treatment to the [Buyer] in future business or re-signing a ferro-molybdenum contract. The [Seller] sent a fax on 11 November 1994, asking the [Buyer] to confirm the aforesaid suggestions. The [Buyer] never replied, the [Seller], therefore, concluded that the [Buyer] agreed to terminate the contract.

The [Seller] alleges that the loss of the [Buyer] was caused by natural disaster, which was force majeure, but not the [Seller]'s fault. According to the contract stipulation, the [Seller] is not liable for its failure to deliver the goods within the stipulated time or to be unable to deliver the goods due to force majeure, therefore, the [Seller] is not liable for the [Buyer]'s losses.

The loss of profit stated in the [Buyer]'s arbitration application is the price difference between the price for purchasing the substitute goods on 15 November 1994 and the contract price. The [Seller] noticed that there were three batches of goods with different stipulations. The molybdenum content of the three batches of goods were 65%, 60%, and 65%, and the quantities were 20 tons, 18 tons, and 18 tons, among which 18 tons of goods contained 60% molybdenum with a price term of CFR Rotterdam. However, there was only one batch of 20 tons of goods in the Contract in this case with 60% molybdenum content, CFN Pusan.

The quantity of the substitute goods and the destination port provided by the [Buyer] were inconsistent with those stipulated in the Contract, and there was a huge difference between the transportation fee to Pusan and to Rotterdam. The [Buyer] failed to provide sufficient evidence showing that the contract it entered into with Xuzhou International Trade Company was to mitigate the loss in the Contract; therefore, the [Seller] asserts that the [Buyer]'s calculating the loss based on the difference between the price for purchasing the substitute goods and the contract price lacks factual and legal basis.

The price for ferro-molybdenum delivered to Europe provided by International Economy and Trade News on 1 November was US $12.5/kg, which was much lower than the price provided by the [Buyer], i.e., US $15.9/kg. According to Article 77 of the CISG, the [Buyer] shall take reasonable measures to mitigate the loss. Under the situations that the [Seller] could not deliver the goods in September, and the market price for the goods was increasing, (according to International Economy and Trade News, the price for ferro-molybdenum at international market on 11 October was US $10.20/kg, and it increased to US $12.5/kg on 1 November), the [Buyer] should have purchased the substitute goods immediately, and should not have waited until the price had increased to a very high level. Therefore, the [Buyer] should be liable for the loss due to its failure to purchase the substitute goods in time.

In addition, when calculating the loss, the [Buyer] used an 8% annual interest rate. After investigation, the [Seller] found that Bank of China's annual interest rate for short term US $ loan was only 6.25%. Therefore, the [Seller] alleges that even if the [Buyer]'s loss is held to be acceptable, the [Buyer] has no reason to use 8% as the annual interest rate.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

Since China and America are Contracting States of the CISG, therefore, the CISG should be applied.

2. [Seller]'s liability for breach of contract

After signing the contract, the [Seller] failed to deliver the goods either within the stipulated time in the Contract or within the additional period of time as agreed by the two parties. After filing the arbitration claim, the [Seller] mentioned that its supplier suffered a loss caused by flood. However, the [Seller] did not ask for termination of the Contract, but indicated that it was going to perform its obligation, therefore, its assertion of force majeure is not acceptable. Later, the [Buyer] fixed an additional period of time to urge the [Seller] to deliver the goods, and the [Seller] indicated that it would like to negotiate the issue by sending a fax to the [Buyer]. Therefore, it can be concluded that the [Seller] shall be liable for breach of contract. According to Article 74 of the CISG, it is reasonable for the [Buyer] to claim damages from the [Seller].

3. Compensation

The [Buyer] alleges that it purchased the substitute goods from Xuzhou; however, the Arbitration Tribunal notes that the goods purchased from Xuzhou were delivered to Rotterdam, which clearly were not the substitute goods (the contract goods were to be delivered to Pusan), therefore, it is irrational to claim loss of price difference based on this substitute transaction. However, the [Buyer] could have asked for compensation separately.

The [Buyer] alleges that the loss should be calculated based on the price for ferro-molybdenum at the international market on 15 November 1994, i.e., US $17/kg, and the [Seller] should compensate the [Buyer] US $102,000 (calculation formula mentioned above). The Arbitration Tribunal considered that this price alleged by the [Buyer] is too high; the price should be calculated based on the price of the same kind of goods, such as the goods purchased by the [Buyer] from Xuzhou (with 60% molybdenum content) at US $15.9/kg, i.e., (15.9 - 8.4) 20,000 60% - transportation fee difference = US $90,000 - US $1,000 (the difference between shipping to Rotterdam and to Pusan) = US $89,000, which should be paid by the [Seller] to the [Buyer]. In addition, the [Seller] shall pay interest from 15 November 1994 (the delivery deadline determined by the [Buyer]).

4. Attorneys' fee

The [Buyer] asks the [Seller] to pay 5% of the awarded sum as the attorneys' fee. Based on Article 56 of the Arbitration Rules, the Arbitration Tribunal accepts this claim. The [Seller] shall pay US $89,000 5% = US $4,450 to the [Buyer].

5. The arbitration fee

The [Seller] shall bear 90% of the arbitration fee, and the [Buyer] shall bear 10%.

III. THE AWARD

The Arbitration Tribunal rules that:

      (1) [Seller] shall pay US $89,000 to the [Buyer] plus the interest on it calculated from 15 November 1994 to the date of actual payment at a 7% annual interest rate;

      (2) [Seller] shall pay [Buyer]'s cost for processing this case of US $4,450;

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

      (4) [Buyer] shall bear 10% of the arbitration fee, and the [Seller] shall bear 90%. The [Buyer] has paid the entire arbitration fee of US $__ in advance, therefore, the [Seller] shall pay back US $__ to the [Buyer];

[Seller] shall pay the aforesaid (1), (2), and (4) items within 45 days of this award.

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 America 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 $].

** 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.

*** LIN Zhongming, LL.M. China University of Political Science and law. Major: International Economic Law.

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