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CISG CASE PRESENTATION

China 6 August 1996 CIETAC Arbitration proceeding (Lacquer handicraft case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960806c1.html]

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

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Case identification

DATE OF DECISION: 19960806 (6 August 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/35

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Canada (respondent)

GOODS INVOLVED: Lacquer handicraft


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 53 ; 74 ; 78 [Also cited: Articles 30 ; 61 ]

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: Price ; Damages ; Foreseeability of damages ; Legal costs ; 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 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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Case text (English translation)

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC (PRC), Arbitration Award

Lacquer handicraft case (6 August 1996)

Translation [*] by CHEN Gang [**]

Edited by JIANG Chi [***]

     [Introduction]

  1. Facts of the Case
  2. Seller's Position
  3. Buyer's Position
  4. Opinion of the Arbitration Tribunal
  5. Award

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.

PART I:  FACTS OF THE CASE

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:

  1. The [Seller] should sell lacquer handicraft to the [Buyer];
  2. The price of the total goods should be US $27,986.00 CIF (Toronto);
  3. The shipping date should be prior to 30 May 1994; and
  4. The purchase price should be paid for by telegraphic transfer (T/T)

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:

  1. The [Buyer] should pay in lump-sum the purchase price for the Contract goods in the total amount of US $27,986.00;
  2. The [Buyer] should pay interest for the period from the date payment was due until the actual payment date; and
  3. The [Buyer] should bear the cost of the arbitration fees and the attorneys' fees.

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:

  1. The [Buyer] should pay in lump-sum for the Contract goods in the total amount of US $27,897.45;
  2. The [Buyer] should pay interest (617 days in total) for the period from the date payment was due (22 November 1994) until the actual payment date (assuming that it would be at the end of July 1996), which would amount to renmimbi [RMB] 72,538.66. The calculation method is presented as follows:

       -    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

  3. The [Buyer] should compensate the [Seller] for the arbitration fees of RMB 30,000, the attorneys' fees of RMB 20,000, and the enforcement fees of RMB 1,870 (the [Seller] appealed to Guangzhou Intermediate People's Court for enforcement), totaling RMB 51,870.

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

  1. The Arbitration Tribunal noted that no applicable law was agreed on in the Contract. Since both China and Ontario, Canada, which Toronto is subordinate to have cited the United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as the "CISG"), CISG shall be applied to the settlement of the dispute under the case.

  2. According to Article 30 of the CISG, "A seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention." The [Seller] had performed its obligation under the Contract to deliver the goods, had handed over to the [Buyer] all documents relating to them, and had placed the goods at the [Buyer]'s disposal.

    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].

  3. Pursuant to Article 74 of the CISG, "damages for breach of contracts by one party consist of a sum equal to the loss, including loss of profits, suffered by the other party as a consequence of the breach." Therefore, the [Buyer] shall first of all pay the [Seller] the price of goods, in the amount of US $22,897.45.

    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.

  4. The [Buyer] shall bear all the arbitration fees for the case.

PART V:  THE AWARD

The Arbitration Tribunal hereby decides:

  1. The [Buyer] shall pay the [Seller] the purchase price of the goods in the amount of US $22,897.45, and bank interest of US $3,058.08.
  2. The [Buyer] shall compensate the [Seller] for the attorneys' fees of RMB 20,000 and the enforcement fees of property preservation of RMB 1,870.
  3. The [Buyer] shall bear all the arbitration fee for this case in the amount of RMB xxx, which has been fully paid by the [Seller] to the Arbitration Tribunal in advance. Therefore, the [Buyer] shall also compensate the [Seller] RMB xxx.
  4. The [Buyer] shall make full payment of the aforesaid sums within 45 days after the issuance of this arbitration award. Any late payment will be subject to interest at the annual rate of 9% for any amount due in U.S. dollars and 12% for any amount due in Chinese Yuan.

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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Pace Law School Institute of International Commercial Law - Last updated November 28, 2005
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