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CISG CASE PRESENTATION

China 9 August 1996 CIETAC Arbitration proceeding (Silk shirts case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960809c2.html]

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

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Case identification

DATE OF DECISION: 19960809 (9 August 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/37

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Italy (respondent)

GOODS INVOLVED: Silk shirts


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 30 ; 53 ; 78

Classification of issues using UNCITRAL classification code numbers:

30A [Summary of seller's obligations: obligation to deliver];

53A [Summary of buyer's obligations: obligation to pay price];

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

Descriptors: Delivery ; Price ; 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. 1656-1660

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.106, 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

Silk shirts case (9 August 1996)

Translation [*] by Meihua Xu [**]

Edited by John W. Zhu [***]

The China's International Trade and Economic Arbitration Commission (hereafter, the "Arbitration Commission") accepted the case according to:

   -    The arbitration clause in Sales Contracts HA93072, HA93074, and HA93085 signed by Claimant [Seller], China Hainan __ Group Company and Respondent [Buyer], Italy __ Company; and
 
   -    The written arbitration application submitted by [Seller] on 26 June 1995.

On 24 July 1995, the Secretariat Office of the Arbitration Commission sent by registered mail an Arbitration Notice and its attachment (the [Seller]'s arbitration application and its attachment, the Arbitration Rules that became effective on 1 June 1994, and the name list of the arbitrators) to the [Buyer]'s address provided by the [Seller], and the [Buyer] was asked to appoint an arbitrator and to submit its answer following the Arbitration Rules; however, by 1 September 1995, the Arbitration Commission had not received any response from the [Buyer].

On 1 September 1995, the Secretariat Office of the Arbitration Commission sent a notice to the [Buyer] and the [Seller], asking them to appoint the Presiding Arbitrator in accordance with the Arbitration Law of the People's Republic of China, which took effect on 1 September 1995. The notice was sent to the [Buyer] by TNT express mail, and the acknowledgment of receipt provided by the TNT Company indicated that the [Buyer] received this mail. However, no response was received from the Respondent [Buyer].

According to Article 16 of the Arbitration Rules, the Respondent should appoint or ask the Director of Arbitration Commission to appoint an arbitrator from the name list of the arbitrators provided by the Arbitration Commission, and according to Article 26 of the Arbitration Rules, within 20 days after the Respondent received the Arbitration Notice, if the Respondent does not appoint or ask the Director of the Arbitration Commission to appoint an arbitrator, the Director of the Arbitration Commission should appoint an arbitrator for the Respondent. Therefore, the Director of the Arbitration Commission appointed Mr. D as the Respondent [Buyer]'s arbitrator.

Article 31 of the Arbitration Law of the People's Republic of China provides that:

"Whereas the parties concerned agree that the arbitration tribunal is composed of three arbitrators, each of them shall chose one arbitrator or entrust the appointment to the chairman of the arbitration commission, with the third arbitrator jointly chosen by the parties concerned or appointed by the Chairman of the Arbitration Commission jointly entrusted by the two parties. The third arbitrator shall be the chief arbitrator. Whereas the parties concerned agree to have the Arbitration Tribunal composed of single arbitrator, the two parties shall jointly choose the arbitrator or entrust the choice of the arbitrator to the Chairman of the Arbitration Commission."

It is stipulated in Article 32 of the Arbitration Law of the People's Republic of China that:

"Whereas the parties concerned fail to decide on the composition of the arbitration tribunal or fail to choose arbitrators within the time limit prescribed in the arbitration rules, the Chairman of the Arbitration Commission shall make the decision for the parties."

Because the parties failed to appoint or ask the Arbitration Commission to appoint the Presiding Arbitrator within the time limit stipulated in the notice, the Director of the Arbitration Commission appointed Mr. P as the Presiding Arbitrator.

On 16 November 1995, Mr. P, Mr. A, the arbitrator appointed by the [Seller], and Mr. D, the arbitrator appointed by the Director of the Arbitration Commission on behalf of the [Buyer] based on Article 26 of the Arbitration Rules, formed the Arbitration Tribunal to hear this case.

The Secretariat Office of the Arbitration Commission sent the Arbitration Tribunal Formation Notice to the [Buyer] and the [Seller] by TNT express mail. The [Buyer] received the notice, and the documents sent to the [Buyer] afterwards were also received by the [Buyer]. As a matter of fact, all arbitration documents in this case were sent by TNT express mail, and both [Seller] and [Buyer] have received all of these documens.

On 5 February 1996, the Secretariat Office of the Arbitration Commission sent a letter to the [Buyer], asking the [Buyer] to contact the Secretariat Office if it had any question on the arbitration process or wanted to summit arbitration defense, but no response has been received from the [Buyer].

On 28 February 1996, the Arbitration Tribunal examined the [Seller]'s arbitration application and its evidence and decided to hold a court session in Beijing on 17 April 1996. The Secretariat Office of the Arbitration Commission sent notice of the court session to both the [Buyer] and the [Seller].

On 17 April 1996, as planned, the court session was held in Beijing. The [Seller] sent a representative to the court session. The [Buyer] did not send a representative to the court session, nor did it state the reason for its absence, or submit its answer.

According to Article 42 of the Arbitration Rules, "if one party is absent from the court session, the Arbitration Tribunal may process and decide the case by default." Therefore, the Arbitration Tribunal ruled on the case by default.

During the court session, the [Seller] explained the claims stated in its arbitration application, and answered the Arbitration Tribunal's questions. After the court session, the [Seller] submitted supplementary documents.

On 3 May 1996, the Secretariat Office of the Arbitration Commission sent to the [Buyer] by TNT express mail a notice and the supplementary documents submitted by the [Seller] after the court session, and asked the [Buyer] to inform the Arbitration Commission before 3 June 1996 if it wanted a second court session or if it had questions on the arbitration procedure or defenses on the substantive issues in this case. The [Buyer] was supposed to submit its arbitration defense within the aforesaid time limitation; however, no response has been received from the [Buyer] since it received the aforesaid documents.

This case has been concluded. After discussion, the Arbitration Tribunal issued an award by default in accordance with Article 52 of the Arbitration Rules. The award is based on the existing available documents and the facts found through the court session.

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

I. FACTS

[POSITION OF THE PARTIES]

[Seller]'s position

The [Seller] alleges that:

On 25 August and 12 September 1993, the [Buyer] and the [Seller] signed Contracts HA93072, HA93074, and HA93085 (hereafter "the contracts"). In all of these contracts, the claimant in this case is the [Seller] and the Respondent is the [Buyer]. The main clauses in the contracts were:

     1. The HA93072 contract

     -    Goods: Men's imitation silk shirts;
     -    Quantity: 10,200 pieces;
     -    Price: Unit price US $8/piece, C&F Rotterdam by air shipping; total price: US $81,600;
     -    Delivery date: Before 4 October 1993;
     -    Payment term:   D/P at sight

     2. The HA93074 contract

     -    Goods: Men's imitation silk shirts;
     -    Quantity: 4,200 pieces;
     -    Price: Unit price US $8/piece, C&F Rotterdam by air shipping; total price: US $33,600;
     -    Delivery date: Before 24 September 1993;
     -    Payment term:   D/P at sight

     3. The HA93085 contract

     -    Goods: Men's silk shirts;
     -    Quantity: 4,050 pieces;
     -    Price: Unit price US $11. 4/piece, FOB Hangzhou; total price: US $46,170;
     -    Delivery date: Before 15 October 1993;
     -    Payment term:   D/P at sight

After signing the contract, the [Seller] delivered the goods, and the [Buyer] accepted the goods without raising objection to the quality of the goods within the time stipulated in the contract. However, the [Buyer] has not paid the price, totaling US $128,276.54.

On 25 July 1994, the parties reached a repayment agreement after negotiation, by which the [Buyer] was to pay

  1. US $20,000 before 10 September 1994;

  2. US $30,000 before 10 October 1994;

  3. US $30,000 before 10 November 1994;

  4. The remaining amount before 30 November 1994; and

  5. The [Buyer] would pay interest on the price calculated from the loading date at a 10% annual rate (it was written as "10% monthly rate" by mistake in the agreement).

After signing this payment agreement, the [Buyer] broke its promise and failed to perform its obligation to pay after being repeatedly urged by the [Seller], therefore, the [Seller] filed this arbitration application.

The [Seller] asserts that:

On 29 September 1993, 12 October 1993, and 19 October 1993, the [Seller] separately delivered the goods by air shipment to the address specified by the [Buyer]. The [Buyer] accepted the goods without claiming quality problems. However, the [Buyer] has not paid the price, totaling US $128,276.54.

There are two invoices under Contracts HA93072 and HA93074 (numbered 91WH32052 and 91WH32057, respectively), totaling US $27,849.50 and US $27,930.24, respectively. However, the price in invoice 91WH32057 was not the actual contract price. The quantity of the goods in this invoice was 7,488 pieces, and the unit price was US $8/piece C&F Rotterdam, totaling US $59,904.

According to the agreement between the [Buyer] and the [Seller], the [Buyer] was supposed to return US $0.27/piece to the [Seller], totaling US $2,021.76, and this sum was to be deducted from the total price. Therefore, the actual unit price was US $7.73/piece, and the total price would be US $57,882.24.

In accordance with the repayment agreement between the [Seller] and the [Buyer], the [Buyer] was suppose to pay the US $57,882.24 by two payments in which US $27,930.24 would be paid as indicated in invoice 91WH32057 (US $3.73/piece 7,488 pieces), and the remaining US $29,952 would be paid under invoice 913WH2028/33/34.

The [Seller]'s aforesaid repayment arrangement was made in consideration of the company's financial situation, and it did not release the [Buyer] from paying the price. Based on the aforesaid two contracts, the [Buyer] is obligated to pay US $27 849.50 (under invoice 91WH32052) and US $57,882.24 (US $27,930.24 is under invoice 91WH32057 and US $29,952). The price in the invoice for Contract HA93085 is US $42,544.80; therefore, the [Buyer]'s total payment in arrear is US $128,276.54.

Although the parties reached a repayment agreement, the [Buyer] failed to perform its obligation and broke its promise to pay after being urged by the [Seller].

The [Seller] asserts that the [Buyer] has fundamentally breached the contract, and according to the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), the [Seller] is entitled to the price and the interest on it.

The interest should be calculated from fifteen days after the issue date of the Bill of Lading (B/L) to 30 June 1996 (the date the award is to be made) at an 8% annual rate, calculated as follows:

Invoice No.
Price (US$)  B/L Issue Date   Interest Rate
Interest Period
Interest (US$)
91WH32052  $27,849.50   09/27/1993
8%
10/12/1993 to 06/30/1996 
(a total of 922 days)
$ 6,055.20
91WH32057   27,930.24
  29,952.00
  10/12/1993
8%
10/27/1993 to 06/30/1996
(a total of 979 days)
  12,420.10
91WH32060   42,544.80   10/19/1993
8%
11/03/1993 to 06/30/1996
(a total of 972 days)
    9,063.80
     Total interest: $27,539.10

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

  1. [Buyer] shall pay the price, US $128,276.54 and the interest on it, totaling US $27,539.10;

  2. [Buyer] shall bear the [Seller]'s attorneys' fee and other costs of renminbi [RMB] 60,000;

  3. [Buyer] shall bear the arbitration fee.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The People's Republic of China and Italy are Contracting States of the CISG, and the parties did not exclude the application of the CISG, therefore, the Arbitration Tribunal deems that the issues which are not stipulated or not clear in the contract should be governed by the CISG in this case.

2. [Buyer]'s obligation to pay

Once a contract is concluded, it has binding effect on the parties, and the parties should perform their obligations under the contract. The Claimant in this case is the [Seller] in three contracts, and the Respondent is the [Buyer] in the three contracts. According to the CISG, [Seller]'s main obligation is to deliver the goods and to hand over the documents relating to them; [Buyer]'s main obligation is to pay the price and to take delivery of the goods. From the actual performance of the contract, the [Seller] has fulfilled its obligation, which is to deliver the goods and to hand over the documents needed. However, the [Buyer] has not paid the price after taking delivery of the goods, which is a violation of the contract.

After signing the repayment agreement, the [Buyer] again failed to pay the price, which violated the principle of honesty and good faith in international trade, and also constituted a contract violation.

Above all, the Arbitration Tribunal notes that the [Buyer] shall perform its obligation to pay US $128,276.54.

Regarding the agreement signed by the parties on 25 July 1994 and Article 78 of the CISG, the [Seller] is entitled to the price and interest on it. The Arbitration Tribunal deems that the [Seller]'s interest calculation is reasonable and the interest should be calculated to the day the award is made (which is 9 August 1996) at 8% annual rate. The calculation is as follows:

Invoice No.
Price (US$)  B/L Issue Date  Interest Rate
Interest Period
Interest (US$)
91WH32052  $27,849.50   09/27/1993
8%
10/12/1993 to 08/09/1996 
(a total of 1,032 days)
$  6,299.30
91WH32057   27,930.24
  29,952.00
  10/12/1993
8%
10/27/1993 to 08/09/1996
(a total of 1,017 days)
  12,902.20
91WH32060   42,544. 80   10/19/1993
8%
11/03/1993 to 08/09/1996
(a total of 1,010 days)
    9,418.10
     Total interest: $28,619.60

The Arbitration Tribunal deems that the [Buyer] shall pay to the [Seller] the total price of US $128,276.54 and interest in the amount of US $28,619.60.

The [Seller]'s attorneys' fee and other costs were incurred because of the [Buyer]'s violation of the contract; therefore, the [Buyer] shall bear the aforesaid costs.

The [Buyer] shall bear the entire arbitration fee.

III. THE AWARD

The Arbitration Tribunal rules that:

(1) [Buyer] shall pay the price of US $128,276.54 and the interest on it to the [Seller], which is US $28,619.60.

(2) [Buyer] shall bear the [Seller]'s attorneys' fee and other costs actually incurred of RMB 60,000.

(3) [Buyer] shall bear the entire arbitration fee. The [Seller] has paid RMB __ in advance, therefore, the [Buyer] shall pay back RMB __ to the [Seller].

The above totals US $156,896.14 and RMB 116,941. The [Buyer] shall pay this sum within 45 days after this award takes effect in one payment, otherwise, 9% annual interest shall be added.

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 People's Republic of China is referred to as [Seller]; Respondent of Italy 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.

*** John W. Zhu, LL.M. China University of Political Science and Law (National Graduate Scholarship); Bachelor of Law, Southwest University of Political Science and Law; Double Degree, English Literature, Sichuan International Studies University, Chongqing, China. Focus: International Economic Law.

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