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CISG CASE PRESENTATION

China 31 July 1996 CIETAC Arbitration proceeding (Sport shoes case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960731c1.html]

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

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Case identification

DATE OF DECISION: 19960731 (31 July 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/34

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Romania (buyer)

GOODS INVOLVED: Sport shoes


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 38 ; 50 ; 74 ; 78 [Also cited: Article 49(1)(a) ]

Classification of issues using UNCITRAL classification code numbers:

38B [Time for examining goods: when contract involves carriage of goods, postponement until after arrival at destination];

50A [Buyer's right to reduce price for non-conforming goods];

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

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

Descriptors: Examination of goods ; Reduction of price, remedy of ; Damages ; Interest

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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. 1591-1596

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.75, 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

Sports shoes case (31 July 1996)

Translation [*] by Meihua Xu [**]

Edited by Li Ke [***]

China International Economic and Trade Arbitration Commission (the original name was Foreign Trade Arbitration Committee of China Council for the Promotion of International Trade, later changed to Foreign Economic and Trade Arbitration Commission, then changed to current name. Hereinafter called "the Arbitration Commission") accepted the case according to:

   -    The arbitration clause in Sales Contract No. JJ95018 signed by Claimant [Seller], China Jiangxi Province Jiujiang City __ Company, and the First Respondent [Buyer], Romania __ International Trade Company, the Second Respondent, China Jingdezhen City __ Company [Guarantor], and the Third Respondent, Nanchang __ Real Estate Company [Guarantor], on 14 July 1995; and
 
   -    The written arbitration application submitted by [Seller] on 26 January 1996.

According to Article 64 of the Arbitration Rules, summary procedure shall apply to this case.

Because the parties failed to jointly appoint or ask the Chairman of the Arbitration Tribunal to appoint the sole arbitrator during the stipulated time, pursuant to Article 65 of the Arbitration Rules, the Chairman of the Arbitration Commission appoint Mr. P as the sole arbitrator to form the Arbitration Tribunal to hear this case.

After examining the [Buyer]'s arbitration application and the evidence as well as the [Seller]'s counterclaim and the evidence, the Arbitration Tribunal held a hearing in Beijing on 1 July 1996. The [Seller]'s arbitration agent and the three Respondents' legal representatives and arbitration agents attended the hearing. They made oral statements and arguments and answered the questions raised by the Arbitration Tribunal. After the hearing, both parties submitted supplementary documents.

Since the [Buyer] raised a counterclaim and completed relevant procedures within the time stipulated in the Arbitration Rules, the Arbitration Tribunal decided to hear the [Buyer]'s counterclaim together with the [Seller]'s claim in this case.

This case has been concluded. The Arbitration Tribunal handed down this award based on the existing written materials and the hearing.

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

I. FACTS

On 14 July 1995, the [Seller], the [Buyer], the Second Respondent [Guarantor], and the Third Respondent [Guarantor] signed Contract JJ95018 and the attachment for purchasing children's sports shoes on the following terms:

   -    Quantity and price: The [Seller] was to sell 48,000 pairs of sports shoes in seven stipulations at a unit price of US $0.82/pair, CIF Constanta, totaling US $39,360;
 
   -    Loading and shipping: 5% plus or minus loading is allowed; the [Seller] shall ship the goods within forty days after receiving [Buyer]'s deposit;
 
   -    Payment and guarantee terms set forth in the attachment: [Buyer] shall pay a deposit of renminbi [RMB] 30,000 within five days after signing the contract, and pay the total price of the contract of US $39,360, 5% of the contract price as the [Seller]'s profit, and interest of RMB 7,000 within 110 days after the day of shipment from the departure port; as the [Buyer]'s guarantors, the Second and the Third Respondents should pay the price in arrears, 5% of profit for [Seller], and interest of [RMB] 7,000 to the [Seller] unconditionally if the [Buyer] fails to make payment within the time stipulated in the contract;
 
   -    Inspection: According to the contract attachment, the [Seller] shall entrust the manufacturer to provide a quality certificate issued by China Commodity Inspection Bureau (hereinafter called the "CCIB"); the agent entrusted by the [Buyer] (A legally effective entrustment letter issued by the [Buyer] is necessary) and the [Seller] shall go to the manufacturer to spot-check the goods. The agent of the [Buyer] should confirm the quality of the goods by signature, based on which the [Buyer] cannot ask for compensation or return of the goods.

After the conclusion of the contract, the [Buyer] paid the deposit of [RMB] 30,000 to the [Seller]; however, after receiving the goods delivered by the [Seller], the [Buyer] discovered severe defects. Therefore, the [Buyer] did not make payment, with the result, a dispute arose between [Buyer] and [Seller], and the [Seller] filed the arbitration application with the Arbitration Commission on 26 January 1996.

[POSITION OF THE PARTIES]

[Seller]'s position

The [Seller] alleges that:

On 12 August 1995, the [Seller] and the agent formally entrusted by the [Buyer] went to the manufacturer to inspect the goods. After choosing samples and inspecting them, the agent of the [Buyer] signed a confirmation letter, confirming the quality of the goods and approving that the goods could be shipped on time. Later, after receiving the [Buyer]'s approval, the [Seller] delivered 799 cases of goods worth US $39,310.80 to the [Buyer] on 6 September 1995; meanwhile, the [Seller] sent the B/L, invoice, packing list and other main instruments to the [Buyer], by which the [Seller] fulfilled its contract obligations. However, after receiving the contract goods, the [Buyer] did not make payment to the [Seller] within 110 days after the shipment of the goods, alleging that the goods were not conforming.

In the middle of December 1995, not having received payment from the [Buyer], the [Seller] asked the Second and the Third Respondents to bear their guaranty responsibilities pursuant to the contract. However, so far as the [Seller] filed the arbitration application, the two Respondents had not taken the responsibility of making payment which they should have taken unconditionally.

The [Seller] asserts that it has delivered the goods to the [Buyer] according to the quality, specification, and inspection clauses stipulated in the contract, which was confirmed by the CCIB and the customs. Therefore, the [Seller] has fulfilled its obligationsof delivery, and there is no breach of contract. On the contrary, the [Buyer]'s refusing to make payment is a fundamental breach of contract. Meanwhile, the Second and the Third Respondents also violated the contract by failing to take the responsibilities as guarantors; therefore, the [Buyer] should be held liable for contract violation.

The [Seller] asks the Arbitration Tribunal to rule that:

1. [Buyer] shall pay the price for the goods of US $41,276.34 and the agreed interest of [RMB] 7,000. [Buyer] shall also bear the interest on the aforesaid sum (based on bank loan interest at that time, calculated from 29 December 1995);

2. [Buyer] shall bear the arbitration fee and the [Seller]'s attorneys' fee.

[Buyer]'s defense

The [Buyer] counter argues that:

      (1) The [Seller] delayed in delivery;

      According to Contract JJ95018, the [Seller] was obligated to deliver the goods within forty days after the [Buyer] paid the deposit. The [Buyer] paid the deposit of [RMB] 30,000 on 19 July 1995 pursuant to the contract; therefore, the [Seller] should have delivered the goods before 28 August. However, the [Seller] did not deliver the goods until 8 September 1995, which constituted a contract violation.

The [Buyer] signed a resale contract with Romania LIPAN Company on 21 August 1995 to resell the contract goods in this case. The aforesaid two parties agreed that the goods should conform to the samples and should be delivered on 6 September 1995, and that some documents such as the inspection certificate shall be provided. LIPAN Company paid a deposit of US $10,000 in advance. It was provided that if the [Buyer] violated this resale contract with LIPAN, it should repay the deposit in double. LIPAN Company paid US $10,000 on 22 August 1995.However, due to the [Seller]'s delay in delivery and the existence of defects on the goods, LIPAN Company refused to accept the goods, with the result that the [Buyer] paid US $20,000 to LIPAN Company;

      (2) The [Seller] provided non-conforming documents;

      The [Seller] only provided B/L, packing list, and invoice without bill of insurance, certificate of origin, and inspection certificate, which caused the [Buyer]to fail to take delivery of the goods. After being urged by the [Buyer], the [Seller] provided the bill of insurance and the inspection certificate. However, the inspection certificate had no signature or seal with a note indicating that it was "only for record", and it was a copy which had expired. Even though the [Buyer] took delivery of the goods after making effort, without the formal inspection certificate, the goods could not be sold according to Romania laws;

      (3) The goods delivered by the [Seller] did not conform to the sample goods, and the internal quality was not conforming either;

      After being inspected by Romania Quality Inspection Bureau and Jiangxi Province Products Quality Inspection Center, the sports shoes delivered by the [Seller] were found to be non-conforming;

      (4) The packages of the goods were not conforming; and

      (5) The settlement documents provided by the [Seller] were inconsistent with the contract.

After the hearing, the [Buyer] made supplementary statements in its defense and counterclaimed as follows.

[Buyer]'s supplementary defense statements

1. The applicable law

Since China and Romania are Contracting States of the CISG, therefore, according to Article 1 of the CISG, the CISG shall be the law applicable to the dispute in this case.

2. The effectiveness of the inspection result made before the delivery of the goods

According to the contract, the [Seller] shall have the goods inspected by the CCIB before export, and send the inspection certificate together with other documents to the [Buyer], which means providing the inspection certificate was one of the procedures for [Seller]'s completing delivery. Without this procedure, the inspection conducted before delivery was invalid. The [Seller] did not provide the inspection certificate as required by the contract; therefore, the inspection was invalid due to lack of one substantive procedure.

For inspection confirmation, the [Buyer] asserts that the entrustment letter issued by the legal representative of the [Buyer] indicated that only Deng A and Deng B were entitled to inspect the goods. They were authorized to inspect the goods at site, but had no right to entrust others to do the inspection. Therefore, the inspection conducted by Deng C, the father of Deng A (or B, which is unknown from the text) when Deng A and Deng B were unable to do the inspection is invalid. Deng A (B)'s signature could not make the inspection result effective, since he did notinspect the goods.

3. The inspection conducted at the destination port

Article 38(2) of the CISG stipulates that "if the contract involves carriage of the goods, examination may be deferred until after the goods arrive at their destination." Therefore, since the [Buyer] only formally had the right to inspect the goods, but had no chance to do so, [Buyer] should be allowed to re-inspect the goods at the destination port. Based on the aforesaid, the [Buyer] was entitled to re-inspect the goods after they arrived in Romania. The inspection report issued by the inspection organization in Romania and the conclusion made by the Romania Consumer Protection Institution based on it are legal basis for the [Buyer]'s counterclaim.

4. The quality of goods delivered by the [Seller]

According to No. 21 of the stipulations in the Decree for Consumer Protection in Romania in 1992, products imported to Romania must be legally inspected and approved by the Consumer Protection Institution before entering into the market. After receiving the inspection report issued by the Romania inspection organization from the [Buyer], the Consumer Protection Institution found that there were a series of problems with the goods, such as "shooting pressure was too high and too stiff; elasticity did not conform to the 96891-91 standard " Therefore, it concluded in the report that "the quality of the goods did not conform to the contract, and should be returned to the [Seller]; the goods shall not be resold," It also sealed the goods as "defective goods."

On 27 October 1995, the [Buyer]'s customer, LIPAN Company, went to the warehouse to check the goods, expressly indicating that it refused to accept the goods. Therefore, [Seller]'s delivery of non-conforming goods has constituted a fundamental breach of contract.

Based on the above, and according to Article 49(1)(a) of the CISG, since the [Seller] fundamentally breached the contract, the [Buyer] has the right to rescind the contract, to reject taking delivery of the goods, and to refuse to pay for the goods. The goods are still being kept in the warehouse in Romania. The [Seller] should make disposal of the goods and bear the cost.

[Buyer]'s counterclaim

The [Buyer] counterclaims that:

1. [Seller] should refund the deposit of RMB 30,000 paid by the [Buyer];

2. [Seller] should compensate the [Buyer]'s loss of profit, which is the contract price for resale of US $57,600 (US $1.20/pair 48,000 pairs) - contract price in this case of US $39,360 (US $0.82/pair 48,000 pairs) = US $18,240;

3. Due to the [Seller]'s breach of contract, the [Buyer] paid LIPAN Company US $20,000, i.e., twice the amount of the deposit. Except the deposit of US $10,000 received in advance, the [Buyer] suffered a loss of US $10,000, which should be borne by the [Seller];

4. Because the [Seller] failed to take back the goods, it should pay the extra storage fee incurred. This should be calculated from December 1995 to August 1996, i.e., US $400/month 9 months = US $3,600;

5. The [Buyer]'s losses of interest are as follows:

      (1) Loss of interest on the deposit of RMB 30,000, calculated from 19 July 1995 to the day of the [Seller]'s actual payment;

      (2) Loss of pricevariance of US $18,240, calculated from 1 November 1995, a reasonable time after the goods arrived at the destination port on 12 October 1995, to the date of the [Seller]'s payment;

      (3) Interest on US $10,000 of deposit, calculated from 28 November 1995 to the [Seller]'s actual payment date;

      (4) Interest on the storage fee of US $3,600, calculated from middle between November 1995 and August 1996, i.e., March 1996, to the day of the [Seller]'s payment. The [Seller] should bear the aforesaid interest (at 9% annual interest rate);

6. [Seller] should bear the [Buyer]'s travel expense of US $897 and RMB 4,700 for attending the hearing.

[Seller]'s response

[Seller] also submitted a supplementary document after the hearing. [Seller] alleged that:

      (1) The [Buyer] has inspected and accepted the goods, and the inspection confirmation issued by its inspector is valid. Deng A(B)'s father Deng C is a representative of the [Buyer], whose capacity is higher than an agent, and his act was admitted by the [Buyer];

      (2) The [Seller] has provided conforming goods to the [Buyer] and received export permission from China Quanzhou Commodity Inspection Bureau, which was used for customs application at Shanghai customs;

      (3) Part of the [Buyer]'s evidence for its counterclaim is false, and its counterclaim lacks of legal and factual basis, which cannot be accepted;

      (4) For theterm of delivery, the goods delivered to the carrier departed from Shanghai port on 6 September 1995; therefore, there was no delay in delivery;

      (5) The packages of the goods and the settlement documentswere all provided as requested by the [Buyer], and there is no contract violation.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. According to Article 1 of the United Nations Convention on Contracts for the International Sales of Goods (hereinafter called the "CISG"), "the Convention applies to contracts of sales of goods between parties whose places of business are in different States." In the instant case, the [Seller] and the Second and Third Respondent [Guarantors]' places of business are in China, and the business place of the [Buyer] is in Romania. Both China and Romania are Contracting States of the CISG; therefore, when there is no stipulation concerning applicable law in this contract, the CISG shall be applied.

2. For the inspection, it is stipulated in the contract attachment that "the agent entrusted by the [Buyer] (A legally effective entrustment letter issued by the [Buyer] is necessary) and the [Seller] shall go to the manufacturer to spot-check the goods. The agent of the [Buyer] should sign to confirm the quality of the goods, based on which the [Buyer] cannot claim for compensation or return of the goods." The [Buyer] entrusted Deng A and Deng B to inspect the goods. However, the person who did the inspection and signed the confirmation was Deng C, Deng A (B)'s father. Based on this, the [Buyer] argues that Deng C was not entrusted by the [Buyer], and his inspection and signing the confirmation are invalid.

The Arbitration Tribunal deems that in the letter the [Buyer] sent to the [Seller] on 29 November 1995, it was expressly indicated that "it is true that we entrusted agent and representative to the manufacturer to inspect the goods together with your employees from the report provided by our agent, the goods under inspection had no discrepancy with the samples." Therefore, the [Buyer] had known that Deng C inspected the goods, and in fact had admitted Deng C's capacity and the effectiveness of his inspection.

Based on the entire materials provided by the parties, the [Buyer] did not deny Deng C's capacity and the effectiveness of his inspection until its defense in this case, therefore, even though Deng C was not the [Buyer]'s agent when doing the inspection, according to the letter mentioned aforesaid, the [Buyer] admitted his eligibility to inspect the goods as the [Buyer]'s agent afterwards, therefore, Deng C's inspecting the goods and signing the confirmation on behalf of the [Buyer] are valid.

The Arbitration Tribunal also notes that according to the evidence submitted by the [Buyer] and the [Seller] and the statements made by the two parties, [Seller]'s representative went to the manufacturer to inspect the goods together with Deng C on 10 August 1995, which was one month before the [Seller] delivered the goods on 6 September 1995. The [Seller] also admitted that there were 6,000 pairs of shoes that had not been produced at the time of inspection. Therefore, Deng C did not spot-check the entire shipment of the goods and was unable to supervise the loading of the entire shipment of goods. This was because the [Seller] urged the [Buyer] to inspect the goods one month earlier when the entire shipment of goods had not been produced. The [Seller] shall be liable for this.

The Arbitration Tribunal holds that the [Buyer] could not execute its right to inspect the goods; therefore, the [Buyer] shall be allowed to re-inspect the goods at the destination port. The goods in this case arrived in Romania on 12 October 1995, and the [Buyer] raised quality objection on 8 November 1995, which was in conformity with article 5 of the contract that "the [Buyer] should raise any objection regarding the quality problem within 30 days after the goods arrive at the destination port". Romania Inspection Organization and Consumer Protection Institution issued the inspection result, indicating that there were certain problems with the goods. Based on this, the Arbitration Tribunal holds that the goods shall be treated as defective goods.

3. As to whether the [Buyer] has the right to return the goods, the Arbitration Tribunal deems that the [Buyer] resold the goods as the owner and informed its client, LIPAN Company, to check the goods after receiving the goods, which means it planned to make disposal of the goods by itself. This action indicated that the [Buyer] has accepted the goods and lost its right to reject the goods; therefore, the [Buyer] should have made payment to the [Seller]. The [Buyer]'s storage fee shall be borne by the [Buyer]. Since part of the goods have defects, the Arbitration Tribunal therefore, holds that the price for the goods shall be reduced by 20%, which means the [Buyer] shall pay 80% of the contract price to the [Seller];

4. Because the goods delivered by the [Seller] were non-conforming goods, the [Buyer] was unable to perform the resale contract it entered into with its client, with the result, the [Buyer] suffered a loss of price variance of (US $1.20/pair - US $0.82/pair) 60 pairs 799 boxes = US $18,217.2, which shall be borne by the [Seller]. For the extra US $10,000 deposit the [Buyer] paid to LIPAN Company, it is a business risk which should be taken by the [Buyer] itself; therefore, the [Buyer] shall bear this loss.

According to the contract attachment, the [Buyer] shall pay the contract price, 5% profit, and interest of RMB 7,000 to the [Seller] in one payment, however, in its arbitration application, the [Seller] only asks the [Buyer] to pay the contract price and the interest of RMB 7,000 and the interest on the aforesaid two items. In addition, the [Buyer] has paid a deposit of RMB 30,000 in advance, which offsets the price for the goods; therefore, the [Buyer] shall pay the [Seller] US $0.82/pair 60 pairs 799 boxes 80% + RMB 7,000 - US $18,217.2 - RMB 30,000 = US $10,460.36 (the US $ and RMB exchange rate is 1:8.3). The [Buyer] shall also pay the interest on this amount calculated from 29 December 1995 to the date of actual payment at an 8% annual interest rate.

5. In addition, the Arbitration Tribunal states that even though the award in this case only involves the [Buyer] and the [Seller], it does not affect the guarantors' responsibilities; therefore, the Second and Third Respondents still need to take responsibilities as guarantors according to the agreement.

6. Since the [Buyer] shall bear the extra deposit of US $10,000 and the storage fee of RMB 3,600 itselfwhile the deposit of RMB 30,000 and the losses of price variance of US $18,217.20 offset the price for the goods which the [Buyer] should pay to the [Seller]; therefore, the Arbitration Tribunal does not support the [Buyer]'s claim that the [Seller] should pay the interest on the aforesaid amount;

7. The [Buyer] shall bear the attorneys' fee incurred itself, and the [Seller] shall bear the travel expense incurred on its own.

8. [Seller]'s other claims and the [Buyer]'s counterclaims are dismissed;

9. The [Seller] delivered non-conforming goods, and the documents provided by the [Seller] were not complete (lack of bill of insurance which was necessary under CIF term, and inspection certificate), which made it inconvenient for the [Buyer] to apply to customs and take delivery of the goods. Therefore, the [Seller] shall bear 70% of the arbitration fee and the [Buyer] shall bear 30%. For the arbitration counterclaim fee, since most of the [Buyer]'s counterclaims were dismissed, the [Buyer] shall bear 70% of the arbitration counterclaim fee and the [Seller] shall bear 30%.

III. THE AWARD

The Arbitration Tribunal rules that:

      (1) The [Buyer] shall pay US $10,460.36 to the [Seller] and the interest on it calculated from 29 December 1995 to the day of [Buyer]'s actual payment at 8% annual interest rate within 45 days of this award, otherwise, the Second and the Third Respondents [Guarantors] shall take the responsibility to make payment;

      (2) [Seller]'s other arbitration claims and [Buyer]'s other counterclaims are dismissed;

      (3) The [Seller] shall bear 70% of the arbitration fee and the [Buyer] shall bear 30%; the [Seller] shall bear 30% of the arbitration counterclaim fee and the [Buyer] shall bear 70%. After offsetting each other, the [Buyer] still needs to pay back RMB __ to the [Seller].

      (4) The [Buyer] shall pay the aforesaid items to the [Seller] within 30 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 the Peoples' Republic of China is referred to as [Seller] and Respondent of Romania is referred to as [Buyer]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

** 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.

*** Li Ke is in her fourth year in SHISU Law School (Shanghai International Studies University). Her major is International Economic Law and she also took a minor BA degree in International Trade. International business transaction is her field of interest.

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