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CISG CASE PRESENTATION

China 18 September 1996 CIETAC Arbitration proceeding (Lanthanide compound case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960918c1.html]

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

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Case identification

DATE OF DECISION: 19960918 (18 September 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/01

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: P.R. China (respondent)

BUYER'S COUNTRY: U.S. Buyer's Assignee] (claimant)

GOODS INVOLVED: Metal (lanthanide compound)


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 64 ; 73 ; 74

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

64A1 [Seller's right to avoid contract (grounds for avoidance): fundamental breach of contract];

73A [Avoidance in installment contracts: fundamental breach with respect to installment];

74A ; 74A1 [General rules for measuring damages: loss suffered as consequence of breach; Includes loss of profit]

Descriptors: Fundamental breach ; Avoidance ; Anticipatory breach ; Letters of credit ; Damages ; Profits, loss of

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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): Chinalaw Retrieval System, Database of Arbitration Cases and Awards by Beijing Peking University Yinghua Technology Ltd. Co.; see also Zhongguo Guoji Jingji Maoyi Zhongcai Caijueshu Xuanbian [Selected Compilation of Awards of CIETAC] (1995-2002), Law Press, at page 16; 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. 1835

Translation: (English): Text presented below.

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.140, 143, 174, 237, 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), Shanghai Commission Arbitration Award

Lanthanide compound case (18 September 1996)

Translation [*] by YUAN Xiaotong [**]

Edited by JIANG Chi [***]

[Introduction]
I.   Details of the Case and Positions of the Parties
II.  Opinion of the Arbitration Tribunal
      1. Applicable law
      2. Breach of the contract
      3. Separate installments of goods
      4. The direct loss
      5. The indirect loss
III. The Award

[Introduction]

In accordance with the arbitration clause contained in the lanthanide compound sales contract between Company A [Buyer], a US company, and Respondent [Seller], the supplementary agreement which transferred the aforesaid Contract to Claimant [Buyer's Assignee], and [Buyer's Assignee]'s written Application for Arbitration, the China International Economic & Trade Arbitration Commission, Shanghai Commission ("CIETAC Shanghai Commission") accepted this arbitration case.

In accordance with the Arbitration Rules of CIETAC, the presiding arbitrator and two arbitrators formed the Arbitration Tribunal to jointly hear this case.

The Arbitration Tribunal held oral hearings on 4 April 1996. [Buyer's Assignee] and [Seller] attended. Both parties addressed their understanding of the facts and reasons, each cross-examined the evidence provided by the other party, answered the questions of the Arbitration Tribunal and debated with each other. After the Arbitration Tribunal heard the arguments of both parties and undertook investigations into relevant facts, the arbitral award was rendered.

The facts of the case, the opinions of the Arbitration Tribunal and the award are presented as follows.

I. Facts of the Case and Arguments of the Parties

On 10 January 1995, [Buyer], a US company, and [Seller], of China, entered into a sales contract of lanthanide compound [the "Contract"]. [Under the Contract,] [Seller] was to provide to [Buyer] 85 tons of blended lanthanide metal. The terms of payment were stipulated to be US $5,300 CIF Baltimore. The goods would be delivered in five separate containers for five installments separately on 15 March, 15 May, 15 July, 15 September and 15 November 1995. In addition, the Contract provided that [Buyer] should open an irrevocable Letter of Credit [L/C] at sight with the full price for the goods [to be delivered in the next immediate installment] 30 days before such installment was to be delivered for shipment.

On 23 February 1995, [Buyer] and [Seller] signed an agreement by fax to modify the initial Contract [the "Agreement"]. Under the Agreement, the parties made changes to the original Contract as follows:

  1. The dates of delivery for the first three installments under the Contract were changed to be 15 April 1995 but no later than 30 April 1995, 15 May 1995 but no later than 31 May 1995, and 15 July 1995 but no later than 31 July 1995, respectively;
  2. The Contract between [Buyer] and [Seller] could be assigned to [Buyer's Assignee] on the condition that the legal status of [Buyer] under the Contract was to remain unchanged;
  3. Other terms and provisions of the Contract would remain unchanged.

On 28 March 1995, [Buyer's Assignee] sent a fax to inform [Seller] that [Buyer's Assignee] would assume all the legal rights and obligations of the Buyer under the Contract effective 28 March 1995. Meanwhile, a sales contract between [Buyer] and its client, Company B, also was assigned to [Buyer's Assignee].

[Translator's note: For presentation purposes, the term [Buyer] is hereinafter used to refer to both [Buyer] and [Buyer's Assignee], unless otherwise indicated.]

[Buyer] failed to open the [L/C] 30 days before the first installment of the goods (namely, before 30 March 1995) as stipulated in the contract and the agreement. The first [L/C] was not issued until 17 April 1995. [Seller] returned the first [L/C] to [Buyer] on 17 April 1995 and claimed that its obligations to deliver the goods under the Contract had ceased. Claimant [Buyer] alleged that [Seller]'s rejection to perform the contract led to [Buyer]'s failure to perform its obligations under the contract between [Buyer] and Company B. [Buyer] therefore suffered economic loss.

[Buyer]'s claims against [Seller] included:

  1. Direct loss of US $95,000 arising out of [Seller]'s non-performance;
  2. Indirect loss of US $51,000 arising out of [Seller]'s non-performance;
  3. All of the arbitration fees for the arbitration procedure.

[Buyer] explained that the direct loss in the amount of US $95,000 was the amount which [Buyer] had to compensate Company B as a result of [Buyer's] breach of its contract with Company B, and that the indirect loss in the amount of US $54,333.70 was the anticipated profit from resale of the goods. [Buyer] claimed only US $51,000 for the indirect loss.

[Seller] presented the following defense:

      -   The Contract was terminated because of [Buyer]'s failure to open the [L/C] in time, which constituted a material breach of Contract. The Contract stipulated that the [L/C] should be opened 30 days before the date of delivery, that is, before 15 March 1995. Even taking the last day of delivery, 30 April 1995, as the deadline, the [L/C] should have been issued before 31 March 1995. [Buyer] did not open the first [L/C] until 17 April 1995; this constituted a material breach of Contract.
 
- The date of the order between [Buyer] and Company B was 9 December 1994 and their contract was concluded on 14 December 1995. But the Contract in dispute was entered into on 10 January 1995. It is obvious that the transaction between [Buyer] and Company B had come into existence before the Contract in dispute was concluded. Moreover, based on the contents of the two contracts, the term of delivery and the quantity of the goods stipulated in the two contracts had little connection to one another. Therefore, [Buyer] should bear the liability for breaching the contract between Company B and itself. Thus, [Buyer]'s claim for the indirect loss had no reasonable basis.

II. Opinion of the Arbitration Tribunal

      1. Applicable Law

The Contract in dispute contains no provision on governing law. [Buyer] quoted the Law of the People's Republic of China on Economic Contracts Involving Foreign Interests (Law on Economic Contracts Involving Foreign Interests) and the United Nations Convention on Contracts for the International Sale of Goods (CISG) in its application materials. [Seller] also agreed that the Law on Economic Contracts Involving Foreign Interest and the CISG should be the applicable laws in this case. Therefore, the Arbitration Tribunal will render its decisions on the basis of the treaty and the law aforesaid.

      2. Breach of the Contract

According to the terms of the provision of payment under the Contract, [Buyer] was obligated to open the [L/C] for the first installment before 30 March 1995. But [Buyer] did not open the first [L/C] until 17 April 1995. [Buyer], therefore, violated its obligation of opening the [L/C] for the first installment of the goods.

      3. Separate Installments of Goods

Under the Contract, goods were to be delivered in five installments each with one container. [Buyer] failed to promptly open the [L/C] for the first installment. Article 73 CISG provides:

"In the case of a contract for delivery of goods by instalments, if the failure of one party to perform any of his obligations in respect of any instalment constitutes a fundamental breach of contract with respect to that instalment, the other party may declare the contract avoided with respect to that instalment.

"If one party's failure to perform any of his obligations in respect of any instalment gives the other party good grounds to conclude that a fundamental breach of contract will occur with respect to future instalments, such party may declare the contract avoided for the future."

In the fax dated 17 April 1995, [Buyer] clearly expressed its intention to open the [L/C] on 17 April 1995 as the payment for the second installment. [Buyer] did not indicate any intention to decline to open the letters of credit for the remaining installments in the future. Therefore, [Seller] made a wrong judgment of "anticipatory breach of contract" by returning the [L/C] to [Buyer] and claiming its obligations had terminated. [Seller] had violated its obligations under the Contract. Accordingly, [Seller] should bear the consequence for its failure to deliver the second through fifth installments of the goods and compensate [Buyer] for the direct loss incurred.

      4. The Direct Loss

The results of investigation show that the dates of delivery stipulated in the contract between [Buyer] and Company B were 3 February, 3 April, 3 June, 3 August, 3 October and 4 December 1995. [Buyer] opened the first [L/C] on 17 April 1995. Given the fact that it took about one month to complete the shipment and to clear customs, the first installment of goods would not have reached [Buyer] until the end of June, [even if the shipment had been made in a timely manner as required under the Contract]. Therefore, the liability for the failure to deliver goods to Company B for the installments on 3 February, 3 April and 3 June should be assumed by [Buyer] itself. The liability for the failure to deliver the remaining three installments on 3 August, 3 October and 4 December should be borne by [Seller]. As a result, the direct loss [Seller] should compensate [Buyer] for shall be US $47,5000 (95,000 3 6).

     5. The Indirect Loss

Since [Buyer]'s conduct constituted breach of the contract during its performance and because [Buyer] provided insufficient evidence supporting its claims of compensation against [Seller], the Arbitration Tribunal dismisses [Buyer]'s claims against [Seller] for loss of profits (the indirect loss claimed by [Buyer]).

III. The Award

The Arbitration Tribunal hereby decides:

  1. [Seller] shall compensate [Buyer] US $47,000 for the direct economic loss;
  2. [Buyer]'s claim for the indirect loss of profit shall be dismissed;
  3. The arbitration fees shall be shared between the two parties, 30% by [Buyer] and 70% by [Seller].

This award is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Respondent of China is referred to as [Seller]. Claimant, who took the status of the original U.S. buyer, is generally referred to as [Buyer], unless otherwise indicated. Amounts in the currency of the United States (dollars) are indicated as [US $].

** YUAN Xiaotong, LL.M. candidate, Faculty of Law McGill University, Montreal Canada, 2001 to present; LL.B. Renmin University of China Law School, 2001.

*** JIANG Chi is an Associate with the New York office of Debevoise & Plimpton LLP.

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