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CISG CASE PRESENTATION

China 18 September 1996 CIETAC Arbitration proceeding (Agricultural products case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960918c2.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19960918 (18 September 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/43

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: New Zealand (claimant)

GOODS INVOLVED: Agricultural products


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8(3) ; 35 ; 38 ; 39 ; 50 ; 74 ; 75

Classification of issues using UNCITRAL classification code numbers:

8C [Interpretation of party's statements or other conduct: interpretation in light of surrounding circumstances];

35B3 [Conformity of goods to contract: quality of goods held out as sample or model];

38A [Buyer's obligation to examine goods];

39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];

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

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

75B [Damages established by substitute transaction: reasonable substitute transaction]

Descriptors: Intent ; Conformity of goods ; Examination of goods ; Lack of conformity notice, timeliness ; Reduction of price, remedy of ; Damages ; Cover transactions

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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., p. 1824-1831

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.64, 75, 106, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation)

Joint translation project:
New York University School of Law
and Pace University School of Law


 

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

Agricultural products case 18 September 1996

Translation [*] by Kun Fan [**]

Translation edited by Meihua Xu [***]

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

   -    The arbitration clause in Sales Contract EMB/HUI 9501 signed by Claimant [Buyer], New Zealand ___ Company and Respondent [Seller], Hunan Provincial ___ Group Company on 14 July 1994; and
 
   -    The written arbitration application submitted by the [Buyer] on 22 April 1996.

In accordance with Article 64 of the Arbitration Rules, the Summary Procedure shall apply to this case because the amount of the claim totals less than renminbi [RMB] 500,000.

Mrs. P, the Sole Arbitrator appointed by the Chairman of CIETAC with the parties' joint authorization following Article 65 of the Arbitration Rules, formed the Arbitral Tribunal to hear the case.

An oral hearing was held in Beijing on 28 June 1996 after the Arbitral Tribunal checked and approved the arbitration application and evidence submitted by the [Buyer] as well as the written defense and evidence submitted by the [Seller]. Both the [Seller] and the [Buyer] sent representatives to the oral hearing. They made oral statements and presented arguments on the facts and law of the case, and answered the Arbitral Tribunal's questions. The [Buyer] presented relevant material evidence at the hearing. After the hearing, both parties submitted supplementary materials.

Article 73 of the Arbitration Rule provides: "Where a case is heard orally, the arbitral tribunal shall make an arbitral award within 30 days from the date of the oral hearing. This time limit may be extended if such extension is necessary and justified." Since the parties failed to submit sufficient materials stating the facts of the case before the first oral hearing, the Arbitral Tribunal deemed that though the case was heard orally, there were still important questions of fact to be ascertained and verified, and asked the Secretary-General of CIETAC for a one-month extension of the time limit. The Secretary-General of CIETAC extended the time limit to 28 August 1996. The Secretariat of CIETAC notified the parties on 3 July 1996.

The second oral hearing was held on 21 August 1996 in Beijing. Both the [Seller] and the [Buyer] sent representatives. They made further oral statements, presented further arguments, and answered the Arbitral Tribunal's questions. The [Buyer] presented at the hearing materials and explanation pertaining to its altered claim. The [Seller] submitted a written reply to the [Buyer]'s alteration soon after that.

The Arbitral Tribunal has concluded the case and made its award on the basis of the available documents and materials within a month of the date of the second oral hearing, 21 August 1996. The following are the facts, the Arbitral Tribunal's opinion and the award.

I. THE FACTS

On 14 July 1995, the [Seller] and the [Buyer] concluded Sales Contract EMB/HUI 9501 with the total amount of US $11,405.725. The Contract stipulates the sale to [Buyer] of non-staple food, including mushrooms, rolls of dried bean-milk cream, ground sesame seed oil, fermented bean curd, dried sheets of bean curd, dried lily, seeds of Job's tears, and Pulin hot pickled mustard tuber. The details of the first four items are as follows:

Commodity Quantity Unit price Total price
Mushrooms 80 boxes×10 kg/box US $5.75 / kg US $4,600
Rolls of dried
bean-milk cream
265 boxes×44bag/box
(250g/bag)
US $0.26/bag US $3,031.6
Ground sesame
seed oil
200bottles×480ml/bottles
240bottles×225ml/bottles
US $1.10/bottle
US $0.60/bottle
US $220
US $144
Fermented bean curd 1080bottles×380g/bottles US $0.30 US $324

It was also stipulated that the delivery terms was FOB Huang Pu; the payment term was irrevocable L/C in favor of the [Seller]; and that the goods should be loaded within 40 days of the [Seller]'s receipt of the irrevocable L/C.

After the contract was signed, the [Buyer] issued the irrevocable L/C pursuant to the contract and, on 24 August 1995, the [Seller] shipped and delivered goods under the contract except for ground sesame seed oil and fermented bean curd. The parties thereafter had a dispute over the quality of the mushrooms and rolls of dried bean-milk cream that had already been delivered. The [Buyer] submitted an application for arbitration to CIETAC.

II. POSITION OF THE PARTIES

[Buyer]'s position

The [Buyer] claimed that:

The goods were delivered on 24 August 1995. At that time, ground sesame seed oil and fermented bean curd were not shipped and delivered due to insufficient purity and failure in the commodity inspection. Consequently, the [Buyer] had to provide its Customer, who had already ordered the aforesaid goods, with substitute goods that were bought on other markets by the [Buyer] himself. Therefore, the [Seller] should be held liable for all responsibilities arising therefrom.

Upon the arrival at the port of destination, the goods that were delivered were immediately unpacked and examined. It was found that:

   -    The mushrooms differed in sizes and were seriously inconsistent with and obviously of lower quality than the samples provided in the contract;
 
   -    The rolls of dried bean-milk cream were nibbled by the worms, were of low quality and could not be resold to the [Buyer]'s Customer.
 
   -    In addition, it was stipulated in all documents, including the L/C, commercial invoice, sales contract, B/L and commodity inspection certificate, that the mushrooms should be packed in 80×10 kg/box, but actually, the mushrooms were separately packed in 32 gunny sacks, 25 kg/sack.

Therefore, the [Seller]'s delivery was not in conformity with the Sales Contract.

Since the [Seller]'s serious breach of the Contract caused material losses to the [Buyer], the [Buyer] alleged that the [Seller] should assume all responsibilities arising therefrom.

On the basis of the foregoing, the [Buyer] requested the Arbitral Tribunal to order the [Seller] to pay:

1. US $23,305.83, the economic losses incurred by the [Buyer], consisting of:

     (1)     Mushrooms: 800kg × US $575 /kg = US $4,600
     (2) Rolls of dried bean-milk cream: 265 boxes × 44bag/box × US $11.44 /box = US $3,031.60
     (3) Ground sesame seed oil: 480ml × 200 bottles × US $2.35/bottle + 225ml × 240 bottles × US $1.07/bottle = US $726.80
     (4) Fermented bean curd: 380g × 1,080 bottles × US $1.50/bottle = US $1,620.00
     (5) Freight: US $1,362.69
Insurance premium: US $50.65
Import duties: US $448.67
Import consumption tax (payment for goods + freight + premium + duties) × 12.5% = US $1,177.75 (mushroom and rolls of dried bean-milk cream)
     (6) Customs clearance fee: US $868.13
L/C fee: US $86.73
SGS inspection fee: US $340
Warehousing: US $350/month × 10 months = US $3,500
     (7) Moth-eaten and rat-bite prevention expenses: US $95/month × 10 months = US $950
Interest: 15.5% pa × 10 months = US $2,423.56
     (8) Commercial losses (calculated at rate of 110%): US $2,118.71.

2. The arbitration fee and other expenses.

[Seller]'s position

The [Seller] counter argued as follows:

1. The mushrooms

      1.1 The samples should not be regarded as reflecting the quality requirements of the goods stipulated in the Contract. The description in the faxes between the parties that they should be "1995 fresh goods and in similar sizes" should prevail. The [Seller]'s delivery was consistent with those requirements.

      1.2 The conclusions drawn on the basis of the comparison between the [Seller]'s delivery and the goods of another company and the dispatched samples in the SGS report could not prove the [Seller]'s breach of the Contract.

      1.3 The [Buyer]'s re-sale of the goods under the Contract to others constituted de facto acceptance of the gunny bag packing.

2. The rolls of dried bean-milk cream

      2.1 The commodity inspection certificate demonstrated that the goods were qualified for import and met the Contract requirements.

      2.2 Since the commodity inspection report indicated that the goods were clean, far from going mouldy or being in pieces, and normally saleable, the [Seller] should not bear responsibility for that which occurred due to external reasons such as high temperature, improper loading and unloading, and so on.

      2.3 The rolls of dried bean-milk cream were produced between 10 August 1995 and 20 August 1995; therefore, they were not stored in the warehouse for a long time prior to shipment.

      2.4 The SGS inspection report was made in December 1995 or January 1996. This means that the quality and other conditions of the goods were determined according to an inspection conducted at almost the end of the warranty period. Therefore, the [Seller] questioned the rationality of the report.

3. Liability for non-delivery of fermented bean curd and ground sesame seed oil

The [Seller] is willing to pay an appropriate proportion of the freight, the interest (from the date of issuance of L/C to the date of notification) and the price difference incurred by the [Buyer] purchasing substitute goods at another market provided that the [Buyer] submits relevant authoritative and original commercial documents.

[Buyer]'s supplementary arguments

After the first oral hearing, the [Buyer] presented the following supplementary arguments in the "Statement of the Advocate" and supplementary materials:

1. The quality and packing of the mushrooms

The [Buyer] called the attention of the Arbitral Tribunal to the [Seller]'s promise of the quality of mushrooms ("we will provide you with the mushrooms of this year (1995), with much better quality than that of the samples you received"), in the fax of 16 June 1995 prior to the conclusion of the Contract on 14 July 1995. And on the delivery date (24 August), the [Seller] stated in its fax to the [Buyer] that "the mushrooms with which we provide you are the thick mushrooms produced in the spring and summer of 1995, a comparatively better kind of spring mushrooms, in comparatively small but even size. However, they don't smell as fragrant as the winter mushrooms."

After the arrival of the goods at the port on 28 September, the [Buyer] immediately found that the mushrooms were very small, "the smallest one of the samples is of the same size as or even bigger than that of the biggest one of the goods. Even so, the mushrooms of such size, 2 to 3 cm, account for only 10% of the goods, 80% are of 1.5 cm or so and 10% are smaller than 1 cm."

As for the packing, the [Buyer] raised opposition in it fax to the [Seller] of 3 October; therefore, it is groundless for the [Seller] to believe that the [Buyer] accepted the packing de facto.

2. The rolls of dried bean-milk cream

The [Seller] stated in the fax to the [Buyer] on 24 August 1995 that "Of the delivery, the rolls of dried bean-milk cream and dried sheets of bean curd are A-grade products and of better quality than the samples." Upon the arrival of the goods at the port on 28 September, the [Buyer] immediately found that the rolls of dried bean-milk cream, look black and yellow and taste like chewing wax; they are of very bad quality and much worse than the samples. Consequently, [Buyer] requested return of the goods to the [Seller]. The [Seller] alleged that the rolls of dried bean-milk cream were produced between 10 August 1995 and 20 August 1995, with a 6-to-8-month warranty period. However, the [Seller] detected the quality problem during the inspection and acceptance of the goods on 28 September. Furthermore, the SGS inspection report was also made within the warranty period. How does the [Seller] explain that?

3. The SGS inspection report

The [Buyer], early in the consultation between the parties on the indemnity, notified the [Seller] by fax on 28 October 1995 that if the issue could not be settled through consultation, he would "invite the New Zealand SGS Company to conduct an inspection of the goods". The [Buyer] notified the [Seller] of the receipt of the SGS inspection report on 10 March 1996. The [Seller] raised no opposition. Therefore, the validity of the SGS inspection report ought not to be questioned.

[Seller]'s supplementary defenses

The [Seller] presented the following supplementary defenses in the "Supplementary Written Defense" and "Supplementary Materials to the Written Defense" submitted after the first oral hearing:

1. The SGS inspection report

(1) The SGS inspection report was issued on 29 February 1996, not within 30 days of the date of arrival at the port of destination, 24 September 1995; (2) The [Buyer] had not suggested to the [Seller] whether to invite an acceptable independent person to inspect the goods prior to the 30-day period (by 24 October) in accordance with the contract; and (3) Since it was made five months after the date of shipping, the SGS inspection report should not be taken as the basis for claim.

2. Quality of the mushrooms

The final standards decided in the faxes between the parties should be: (1) fresh and thick mushrooms; (2) better color and fragrance than those of the samples; (3) no requirement for size and stem, but those of the similar size to be packed in the same box.

3. The [Buyer]'s fictitious losses due to "non-delivery"

The [Seller] notified the [Buyer] of his failure to deliver fermented bean curd and ground sesame seed oil on 24 August 1995 so as to enable the [Buyer] to have enough time to avoid losses. However, in his reply on 27 August, the [Buyer] only stated that "it will cause a certain additional transportation costs", but did not point out that more losses might arise therefrom. Furthermore, till the first oral hearing (28 June 1996), the [Buyer] had not offered any proof certifying the price difference loss arising from purchase of substitute goods on the market. The purchase invoice, provided as the proof by the [Buyer] on 1 July 1996 after the oral hearing, was dated 11 October 1995. This was more than forty days from the [Seller]'s notification of 24 August. From the face of the [Buyer]'s invoice, the goods specifications shown thereon were inconsistent with the [Buyer]'s requirements when the [Buyer] ordered the goods from the [Seller] before, and the invoice was not proved in any way, even without the [Seller]'s signature or seal usually on the sales invoice to prove the genuineness and accuracy thereof. Therefore, it was fictitious for the [Buyer] to allege that he "had to provide his Customer who had already ordered the aforesaid goods with the substitute goods that were bought on other market by himself" and incurred the losses arising therefrom. The invoice offered by the [Buyer] was an invalid proof, and actually, the [Buyer] did not incur any loss due to the [Seller]'s failure to deliver the goods. The [Seller] hereby rejects this claim and any other claim regarding this.

[Buyer]'s additional presentation

In the supplementary materials submitted during the second oral hearing, the [Buyer] altered his claims as follows:

Mushrooms (thick mushroom)
Rolls of dried bean-milk cream
Ground sesame seed oil
Fermented bean curd
Freight
Insurance Premium
Import duties
Import consumption tax
Customs clearance fee
L/C fee:
SGS inspection fee:
Warehousing:
Moth-eaten and rat-bite prevention expenses:
Interest:   (at annual rate of 15.5%)
Commercial losses (calculated at rate of 10%):  
Travel Expenses:

Total

US $  3,088.17
US $  3,031.60
US $     795.74
US $  1,620.00
US $  1,607.20
US $       33.89
US $     384.99
US $  1,241.68
US $     974.14
US $       72.26
US $     389.33
US $     343.77
US $     641.46
US $  2,077.11
US $     927.27
US $  1,267.31

US $20,495.98

[Buyer] alleged that the arbitration fee and attorneys' fee should also be borne by the [Seller].

The [Buyer] explained that:

      (1) 775kg of mushrooms (except one bag for SGS inspection) were finally sold at the price of New Zealand (NZ) $2.55 plus consumption tax per kg, totaling NZ $2,223.28, converted into US $1,511.83 at the exchange rate of 0.68. The present amount of claim was the original one, US $4,600, minus the revenue, US $1,511.83;

      (2) As for ground sesame seed oil, since there was no sesame oil of the contract specifications in the local markets in New Zealand, the [Buyer] had to find a substitute one of similar specifications, with the same total quantities under contract. The original amount of claim for sesame oil was miscalculated.

[Seller]'s reply

The [Seller] stated in his reply:

1. The mushrooms

      1.1 The [Buyer] unilaterally disposed of the mushroom at low price prior to notifying and consulting the [Seller], therefore the [Buyer] should bear all responsibilities and losses;

      1.2 It is unbelievable that a whole bag of 25 kg mushroom needed to be scrapped for SGS inspection;

      1.3 From other foreign trade documents, the FOB price of Grade-3 thick mushroom is US $5.8 / kg at least, therefore, the low price offered by the [Buyer] is unreasonable and unacceptable;

      1.4 In the SGS report, Shiitake mushroom that are totally different from thick mushrooms is taken as the frame of reference, which therefore led to wrong conclusions.

2. Whether the non-delivery caused any loss

      2.1 The [Seller] notified the [Buyer] of the non-delivery on 24 August and collected no payment for goods from the [Buyer] henceforth. On 27 August, the [Buyer] only complained about increased freight and had not pointed out that any more loss may arise therefrom until the submission of the application for arbitration;

      2.2 The amounts of the price difference loss claimed by the [Buyer] are self-contradictory, and the documentary evidence (purchase invoice) is inconsistent with the Contract and doubtful in terms of integrity and validity; therefore, the loss claimed is fictitious;

      2.3 The [Buyer] made comparison between the local market retail price (import duties, consumption tax and customs clearance duty paid) and contract FOB import price, which is absolutely unreasonable;

3. The rolls of dried bean-milk cream

From the liabilities and risks partition line of FOB, the [Seller] should not be held responsible for losses of changed quality caused by high temperature over time in the process of transportation due to the [Buyer]'s improper transport arrangement, and rolls that were moth-eater due to improper management upon the arrival at the port of destination.

III. OPINION OF THE ARBITRAL TRIBUNAL

1. Applicable law

The parties (one is registered in China and the other is registered in New Zealand) did not stipulate the applicable law for dispute resolution in the Contract. Both China and New Zealand are Contracting States of the United Nations Convention on Contracts for the International Sales of Goods (hereinafter referred to as the "CISG"), and did not exclude the application of the CISG in the Contract; therefore, the CISG should be applied here.

2. Time for filing claims and the SGS Inspection Report submitted by [Seller]

As for the time for filing claims, the Contract stipulated that "any claim should be filed within 30 days upon the arrival of the goods at the port of destination. Certifications supporting the Buyer's claims must be issued by any independent person with the Seller's approval."

The goods concerned in the case arrived on the port of destination on 24 August 1995. On 28 August when [Buyer] took the delivery of the goods, the [Buyer] immediately notified the [Seller] by fax expressing disappointment in the quality of the mushrooms and rolls of dried bean-milk cream and requiring the returns of goods and indemnity. In accordance with the provision stipulating "any claim should be filed within 30 days upon the arrival of the goods at the port of destination", the [Buyer] fulfilled that requirement.

However, pursuant to the foregoing clause, the [Buyer] should provide a related certification when filing the claim, as stipulated in the clause. But whether such certification has to be provided within the foregoing 30-day time limit is not clearly and definitely stipulated in the Contract. The Arbitral Tribunal holds that, in the event of the lack of time limit for the submission of the certification, it should be submitted within a reasonable period.

After the [Buyer] filed the claim, the parties consulted over the matters concerning return of goods and the claim. Since the aforesaid matters in dispute could not be settled through consultation, the [Buyer] notified the [Seller] that it was requesting New Zealand SGS Company to conduct an inspection on 28 October. The [Buyer]'s request for inspection by SGS on 28 October is deemed within a reasonable period. The [Seller] made no reply to the [Buyer]'s request of 28 October. On 21 November, the [Buyer] once again wrote to the [Seller], saying: "Please notify us if you think this dispute cannot be settled through consultation, and we will ask the inspection company recommended by Chinese Economic and Commercial Counselor's Office for inspection on the goods and claim full indemnity in the proper way. All expenses arising therefrom should be borne by your company." The [Seller] made neither reply nor opposition to the question of the commodity inspection body, which indicated that the [Seller] had no intent to implement the clause sating "Certifications supporting the Buyer's claims should be issued by any independent person with the Seller's approval".

If the [Seller] is held entitled not to answer the aforesaid question raised by the [Buyer], it means that the [Buyer] is entitled not to implement such clause, and the [Seller] has no right or opportunity to claim any indemnity. Subject to general international trade practices and specific provisions of the Contract, the [Seller] violated the claim clause of the Contract, and the inspection report issued by New Zealand SGS Company at the [Buyer]'s request is reasonable and valid, therefore, the Arbitral Tribunal can adopt the inspection report. On the contrary, the [Seller]'s argument that the [Buyer] is deprived of any right of claim due to failure to file the claim through effective means within stipulated period is not considered by the Arbitral Tribunal in accordance with Article 39 of the CISG and the provisions of the Contract.

3. The mushrooms

The Arbitral Tribunal notes that the parties have comparatively large differences in measuring the quality of the mushroom. The [Buyer] alleged, it was stipulated in the Contract that the thick mushrooms were to be delivered and that the goods were sold by sample. The [Buyer] ordered the goods from the [Seller] after the receipt of the samples. Though during later consultation, the [Buyer] did not accept the samples because they were old stock and differed in sizes, yet the [Seller] made it definite that he would dispatch newly produced mushrooms of better quality than that of the samples. Therefore, the [Buyer] may well believe that the quality of the goods would be no worse than that of the samples. The [Seller] counter argued that the parties had never stipulated the sizes of the mushroom when consulting about the quality of the mushroom. Since the [Buyer] did not accept the dispatched samples that were old stock produced in July or August 1994, it meant the samples were rejected; therefore, the final standards for the delivery were fresh and thick mushrooms, better color and fragrance than those of the samples, no size requirement and those of the similar size to be packed in one packing.

After two oral hearings and reviewing all materials submitted by the parties, the Arbitral Tribunal holds that the parties have never denied sale by sample. On the contrary, the [Seller] clearly stated that the delivery would be much better than the samples. Therefore, the samples were the basis of the Contract. During the transaction, the [Buyer] always cared about the sizes of the mushrooms and the [Seller] should have been aware of it. The [Seller] should not use "un-flowered small thick mushroom with high nutritional value" to replace those under his prior description as "thick mushroom which is so named because it is picked off before its stem wholly flowered and its cap is thicker when dried. It is usually selected by hand from the common mushrooms, for which it is also called hand-selected thick mushroom, and is usually used for export." The Arbitral Tribunal holds that the [Seller]'s delivery does not conform to the quality standards agreed between the parties.

As for the packing of the mushrooms, the [Seller] used gunnysacks instead of paper box and thus violated the Contract.

On the basis of the aforesaid facts and reasons, the Arbitral Tribunal holds that the [Seller] should bear liabilities arising in connection with failure to deliver the mushrooms in accordance with the Contract. The [Buyer] claimed US $4,600 for loss associated with the mushrooms at the contract price and claimed damages for other related economic losses in the application for arbitration. However, during the oral hearing on 21 August 1996, the [Buyer] stated that the mushrooms had been sold at a reduced price of NZ $2.55 plus consumption tax per kg. The [Seller] argued that it was unacceptable for the [Buyer] to sell the mushrooms at such an unreasonable low price without seeking the [Seller]'s opinion. However, the [Seller] did not define the reasonable reduced price. Therefore, the Arbitral Tribunal, in accordance with Article 50 of CISG, rules that the [Seller] shall pay to the [Buyer] the price difference as the remedy for his breach of contract, calculated as follows: US $4,600 US $1,511.83 = US $3,088.17.

The [Buyer]'s other mushroom claims shall not be considered.

4. The rolls of dried bean-milk cream

The [Buyer] alleged that, the quality of rolls of dried bean-milk cream delivered by the [Seller] was seriously inconsistent with that of the samples. As the SGS report pointed out, the delivery was obviously darker than the samples; the finding of moth's excrement in some part of the delivery showed they were stored in the warehouse for a time before shipment; the water and protein composition of the delivery were also inconsistent with those of the samples. As for the color of the delivery, in his reply of 29 September, the [Seller] explained that the color became darker because the goods were made of 100% soya bean. And, during the process of arbitration, the [Seller] argued it was because of the [Buyer]'s improper transportation, but [Seller] failed to present any proof in favor of this argument. After examination, the Arbitral Tribunal holds that, the quality problem of the rolls of dried bean-milk cream is quite obvious, and the [Buyer] called attention to the fact that the color of the delivery is darker than the samples immediately upon the receipt of the delivery. Therefore, the Arbitral Tribunal rules that, the rolls of dried bean-milk cream cannot be sold and shall be returned to the [Seller] and the [Seller] shall pay to the [Buyer] US $3,031.60 at the contract price as well as other related losses:

      (1) Freight: US $1,750 (already paid by the [Buyer]) × 67.84% (the proportion that the bulk of rolls of dried bean-milk cream accounts for of the total) = US $1,187.20.

      (2) Insurance premium: US $50.65 (already paid by the [Buyer]) × 26.85% (the proportion that the value of rolls of dried bean-milk cream accounts for of the total) = US $13.46.

      (3) Import consumption tax: US $474.12.

      (4) Customs clearance expense: US $1,060.69 (already paid by the [Buyer]) × 67.84% = US $719.57.

      (5) L/C Fee: {NZ $113.97 (issuance charges already paid by the [Buyer]) + NZ $30 (delivery order charges)} × 0.68 (exchange rate) × 26.58% = US $26.02.

      (6) Warehouse: US $2,343.77 (total) × 67.84% = US $1,590.

      (7) Moth-eaten and rat-bite prevention expenses: US $641.45 (already paid by the [Buyer]) × 67.84% = US $435.16.

The [Buyer]'s other dried bean-milk cream claims are not accepted due to insufficient evidence.

5. The ground sesame seed oil and fermented bean curd

According to Article 75 of the CISG, "If the contract is avoided and if, in a reasonable manner and within a reasonable time after avoidance, the buyer has bought goods in replacement or the seller has resold the goods", the party claiming damages may recover the difference between the contract price and the price in the substitute transaction. However, the [Seller] argued that, before the application for arbitration, the [Buyer] had never referred to buying substitute goods and instead just complained about the increased transportation costs. And the [Seller] alleged that even during the arbitration, the amounts of the price difference loss with respect to the substitute goods claimed by the [Buyer] were self-contradictory, and the related documentary evidence (purchase invoice) was inconsistent with the Contract and doubtful in terms of integrity and validity. The Arbitral Tribunal holds that the [Buyer] shall be entitled to claim a reasonable price difference loss due to the [Seller]'s breach of the Contract.

For this purpose, the Arbitral Tribunal requested the [Buyer] to provide the contract concerning the purchased substitute goods, the contract between the [Buyer] and its customer and related evidences during these two oral hearings. However, the [Buyer] did not submit the aforesaid evidence by 30 August 1996, the deadline set by the Arbitral Tribunal. Due to insufficient evidence, the [Buyer]'s claim for price difference loss of ground sesame seed oil and fermented bean curd is rejected.

6. The SGS inspection fee

In consideration of the inconsistency between the [Buyer]'s delivery and the samples, the [Seller] shall pay the SGS inspection expenses arising therefrom, calculated as follows: NZ $572.63 × 0.68 = US $389.39.

7. Travel expenses

The [Buyer] did not present sufficient evidence to prove that his travel to China in February 1996 was for the settlement of the dispute. Therefore, this claim is rejected.

8. The [Buyer]'s other claims are rejected.

9. The [Seller] is the losing party in the case, but not all of the [Buyer]'s claims have been accepted. The [Buyer] shall bear 30% of the arbitration fee, and the [Seller] shall bear 70%.

IV. THE AWARD

The Arbitral Tribunal rules:

1.  For the mushrooms, the [Seller] shall pay US $3,088.17 for the [Buyer]'s loss of price difference;

2.  For the rolls of dried bean-milk cream, the [Seller] shall pay US $7,477.13 for the [Buyer]'s loss; and

3.  The [Seller] shall pay US $389.39 to reimburse the [Buyer] for the SGS inspection fee.

4.  The [Buyer]'s other claims are dismissed.

5.  The [Seller] shall bear 70% of the arbitration fee and the [Buyer] shall bear 30%. Since the [Buyer] has paid in advance entire arbitration fee, the [Seller] shall pay to the [Buyer] US $ ___.

The [Seller] shall pay the aforesaid 1, 2, 3 and 5 sums totaling US $13,484.49 within 45 days after this award takes effect, otherwise, 11% annual interest shall be added.

The award is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Respondent of the People's Republic of China is referred to as [Seller] and Claimant of New Zealand is referred to as [Buyer]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of New Zealand (dollars) are indicated as [NZ $]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

** Kun Fan, LL.M. in Corporate Law, New York University, School of Law.

*** 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.

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Pace Law School Institute of International Commercial Law - Last updated May 26, 2006
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