China 6 August 1996 CIETAC Arbitration proceeding (Lacquer handicraft case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960806c1.html]
DATE OF DECISION:
JURISDICTION:
TRIBUNAL:
JUDGE(S):
DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/35
CASE NAME:
CASE HISTORY: Unavailable
SELLER'S COUNTRY: People's Republic of China (claimant)
BUYER'S COUNTRY: Canada (respondent)
GOODS INVOLVED: Lacquer handicraft
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
53A [Buyer's obligation to pay price of goods]; 74A ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Outer limits of damages: foreseeability of loss]; 78B Rate of interest
Descriptors:
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 Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 1996 vol., p. 1621-1623
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
English: Dong WU, CIETAC's Practice on the CISG, at n.207, Nordic Journal of Commercial Law (2/2005)
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Lacquer handicraft case (6 August 1996)
Translation [*] by CHEN Gang [**]
Edited by JIANG Chi [***]
In accordance with the arbitration clauses contained in the sales confirmation letter (No. 9418) executed by Claimant Anhui Chaohu XX Trade Co. of China [Seller] and Respondent XX Co. of Canada [Buyer] on 2 May 1994 and the written Application for Arbitration filed by the [Seller] with the China International Economic & Trade Arbitration Commission (formerly known as China Council for the Promotion of International Trade Foreign Economic and Trade Arbitration Sub-commission, hereinafter referred to as "the Arbitration Commission"), the Arbitration Commission accepted this arbitration case arising out of the contract aforesaid.
After accepting this case, the Secretariat of the Arbitration Commission (hereinafter referred to as "the Secretariat") sent the arbitration notice and the relevant materials (hereinafter referred to as "the Documents") to the Respondent [Buyer] via express mail according to the address provided by the [Seller] on 11 January 1996. However, the documents were returned by the express mail company due to "Closed ... address building is empty (for lease) Phone out of service". The Secretariat timely informed the [Seller] of this situation. The [Seller] asked the Secretariat to send the Documents to the Representative Office of the [Buyer] in Guangzhou city, P.R.C and faxed the address, telephone number and fax number of this Representative Office as well on 3 April 1996. The Documents were sent by the Secretariat as requested by the [Seller] by express mail on 5 April 1996. The express mail company issued to the Secretariat proof evidencing that the Documents concerned had been successfully sent to the addressee. The [Buyer] did not follow the proceedings stated in the arbitration notice. The Secretariat informed the [Seller] of this situation as well. The [Seller] replied by fax requesting the Tribunal to proceed with the arbitration procedure.
As the two parties in this case failed to jointly designate or entrust the Chairman of the Arbitration Commission to appoint a sole arbitrator within the time limit specified in Article 65 of the Arbitration Rules of the Arbitration Commission (the "Arbitration Rules"), the Chairman of the Arbitration Commission appointed Mr. P as the sole arbitrator to form the Arbitration Tribunal to hear this case in accordance with Article 65 of the Arbitration Rules.
Afterwards, the Secretariat successively delivered the notices concerning the formation of the Arbitration Tribunal and the holding of a hearing to the [Buyer] to the address and the fax number contained in the [Seller]'s fax on 3 April 1996.
The Arbitration Tribunal held a hearing in Beijing on 8 July 1996. The [Seller]'s attorney attended the hearing. The [Buyer], however, did not attend the hearing, and did not provide any excuse for its absence. The Arbitration Tribunal held a hearing by default according to article 42 of the Arbitration Rules. The [Seller]'s attorney made a statement, answered all questions by the Arbitration Tribunal and submitted evidence and materials at the hearing. After the hearing, the [Seller] submitted supplemental materials as required by the Arbitration Tribunal within the time limit. The Secretariat forwarded these materials submitted by the [Seller] to the [Buyer] via express mail according to the address provided in the [Seller]'s fax on 3 April 1996, notified the [Buyer] of the situation of the hearing, and requested the [Buyer] to make defenses as to the substantive issues within the time limit. The [Buyer] failed to respond as requested.
The Arbitration Tribunal thereupon rendered this award based on the results of the hearing and written evidence on hand. The facts of the case, the opinion of the Arbitration Tribunal and the award are as follows.
The [Buyer] and the [Seller] concluded a contract for the sales of lacquer handicraft (hereinafter referred to as the "Contract") on 2 May 1994. The Contract provided that:
In May 1994, the [Seller] shipped the goods as per the Contact. After the goods arrived in Toronto, the [Buyer] contended there was a serious defect in the goods, and therefore, refused to make the payment. Afterwards, a supplemental agreement regarding the reduction of the price was reached through consultation between the two parties, and as a consequence, the total price of the goods was reduced to US $22,897.45. This was confirmed by the [Buyer]'s correspondence on 8 November 1996. Although the [Seller] sent the [Buyer] an invoice for US $ 22,897.45 on 22 November 1994, the [Buyer] still did not perform the obligation of payment according to the supplemental contract aforesaid. Accordingly, the [Seller] applied to the Arbitration Commission for arbitration.
PART II: CLAIMANT [SELLER]'S POSITION
The Claimant had performed the obligations as Seller by shipping the goods in accordance with the Contract. The [Buyer] failed to provide any evidence to justify its allegation that there was a serious defect in the goods, and did not perform the obligation of payment, and thus committed a fundamental breach of the Contract. The [Buyer] shall be liable for the losses of the [Seller], in compliance with the applicable laws.
The [Seller]'s arbitration claims are:
The arbitration claims were amended by the [Seller] when the [Seller] submitted the supplemental materials after the close of the hearing. The amended arbitration claims are:
| - | Due to the breach of Contract by the [Buyer], the [Seller] cannot timely pay back its bank loan, and to make things worse, a penalty interest was imposed by the bank. |
| - | The monthly interest rate of the bank loan is 17.25% and the penalty interest rate for one month overdue is 50%. The [Seller] had to pay back the bank loan 92 days later than the maturity date due to the breach of Contract by the [Buyer]. |
| - | The purchase price for the goods under the Contract is US $22,897.45, which equals RMB 190,277.8 at the exchange rate of US $/RMB: 8.31. Accordingly, the interest loss totals: [190,277.80 X 617 X (17.25% ÷ 30)] + [190,277.80 X 92 X (17.25% ÷ 30) 50%] = RMB 72,538.66 |
PART III: RESPONDENT [BUYER]'S POSITION
As the [Buyer] did not attend the hearing or respond to the issues; the [Buyer]'s position could not be ascertained.
PART IV: OPINION OF THE ARBITRATION TRIBUNAL
According to Article 53 of the CISG, "the buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention." The [Buyer] did not pay the price for the goods that it had taken delivery of as required by the Contract. Thereafter, both parties entered into an agreement to reduce the price of the goods from US $27,986.00 to US $22,897.45, with regard to which effective amendments were made to the Contract. Nevertheless, the [Buyer] failed to fulfill his commitment in the amendment to pay the [Seller] US $22,897.45, which constituted a breach of the Contract. In accordance with Article 61 of the CISG, the [Seller] is entitled to claim damages against the [Buyer].
The [Seller] alleged that due to the breach of the Contract by the [Buyer], the [Seller] failed to timely pay back its bank loan, and was penalized by being required to pay extra interest for the overdue loan. Therefore, the [Seller] contended that the [Buyer] should compensate the [Seller] the loss incurred as a result of the increased interest rate for the period from the date when the payment was due to the date when it was actually settled as well as the penalty interest during the same period.
The aforesaid loss claimed by the [Seller] was, however, unreasonable, because according to Article 74 of the CISG, damages for breach of contract 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 has known, as a possible consequence of the breach of the contract. In this case, there exists no evidence indicating that the [Buyer] knew that the [Seller] had borrowed bank credit at the time of the conclusion of the Contract. Accordingly, the [Buyer] could not have foreseen that the [Seller] would suffer the loss of bank interest in arrears and penalty interest arising out of the breach of the Contract. Therefore, it is unacceptable to penalize the [Buyer] by requiring the [Buyer] to compensate the [Seller] for the loss incurred as a result of increased bank interest rate.
Nevertheless, in light of Article 78 of the CISG, which provides that "if a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it", the [Buyer] shall compensate the [Seller] interest loss in a reasonable sum. The [Seller] had sent its invoice to the [Buyer] by post on 22 November 1994. As such, the [Buyer] should have honored this invoice within a period of time of reasonable length, that is, by 10 December 1994. In view of the failure by the [Buyer] to perform the obligation of payment on schedule as required, the [Buyer] shall compensate the [Seller] the loss of bank interest for the period from 10 December 1994 to the date of the conclusion of the arbitration (6 August 1996) at an annual interest rate of 8%, amounting to US $3,058.08. (22,897.45 X (1+241 ÷360) X 8% = US $3,058.08)
The [Buyer] shall compensate the [Seller] the attorneys' fees of RMB 20,000 for this case and the enforcement fees of property preservation of RMB 1,870.
The Arbitration Tribunal hereby decides:
This award is final.
FOOTNOTES
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of The People's Republic of China is referred to as [Seller]; Respondent of Canada 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 (renmimbi) are indicated as [RMB].
** CHEN Gang, LL.M. University of International Business and Economics; LL.B. Shanxi Finance and Economics University.
*** JIANG Chi is an Associate with the New York office of Debevoise & Plimpton LLP.
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