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CISG CASE PRESENTATION

China 28 September 1996 CIETAC Arbitration proceeding (Gloves case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960928c1.html]

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Case identification

DATE OF DECISION: 19960928 (28 September 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/44

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Germany (claimant)

GOODS INVOLVED: Gloves


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 38 ; 39 ; 74

Classification of issues using UNCITRAL classification code numbers:

38A [Buyer's obligation to examine goods: time for examining goods];

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

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

Descriptors: Examination of goods ; Lack of conformity notice, timeliness ; Damages

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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. 1898-1903

Translation (English): Text presented below; see also Selected Works of CIETAC Awards (1989-1995) updated to 1997 (Sweet & Maxwell Asia) No. 96 [579-587]

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.76, 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

Glove case (28 September 1996)

Translation [*] by Ning Zhao [**]

Translation edited by Meihua Xu [***]

On 11 March 1996, the China International Economic & Trade Arbitration Commission (hereinafter referred as the Arbitration Commission) accepted this case on the basis of:

   -    The arbitration clauses written in ten contracts for the sale of gloves (Contracts W9950406, W9950109, W9950206, W9950216, W9950403, W9950301, W9950302, W9950316, W5941212 and W9950212), signed by Claimant Germany ___ Company (hereinafter referred as [Buyer]) and Respondent Shen Zhen ___ Trading Company (hereinafter referred as [Seller]); and
 
   -    The arbitration application submitted by Claimant [Buyer] on 11 March 1996.

In accordance with Article 64 of the Arbitration Rules, the simplified procedure shall apply to the present case. Since both parties failed to appoint an arbitrator, or to delegate the Chairman of the Arbitration Commission to assign an arbitrator, the Chairman of the Arbitration Commission, in accordance with Article 65 of the Arbitration Rules, appointed Arbitrator P as a single arbitrator and formed the Arbitration Tribunal (hereinafter referred as the Tribunal) on 24 June 1996.

After reading the arbitration application, defense and other evidence documents, the Tribunal held a hearing in Beijing on 2 August 1996. Both parties attended, presented their statements and answered questions from the Tribunal. After the hearing, both parties submitted supplementary documents. In [Seller]'s supplementary document, he requested a counterclaim. Since [Seller] did not submit his counterclaim within the fixed period of time in accordance with Article 66 of the Arbitration Rules, the Arbitration Commission referred [Seller]'s document to [Buyer] and asked whether [Buyer] agreed to include the counterclaim in the current case. [Buyer] did not agree to that. Therefore, the Tribunal ruled that it would not hear the [Buyer]'s application and [Seller]'s counterclaim together.

The case has been concluded. On the basis of the written materials, evidence and the hearing, the Tribunal handed down its award. The followings are the facts, the Tribunal's opinion and award.

FACTS

During the period 26 December 1994 through 7 April 1995, the parties signed ten contracts for the purchase and sale of gloves (Contracts W9950406, W9950109, W9950206, W9950216, W9950403, W9950301, W9950302, W9950316, W5941212, and W9950212).

The contracts provide:

   -    Goods. [Buyer] purchases from [Seller] various models of glove, in total 96,000 dozen (10 pairs/dozen);
   -    Price. The total contract price is US $889,290;
   -    Destination port. The destination port is Hamburg;
   -    Delivery term. The delivery term is CIF Hamburg.

A dispute arose after [Buyer] discovered wet gloves and a shortage of the goods. [Buyer] commenced this arbitration proceeding.

POSITION OF THE PARTIES

[Buyer]'s position

[Buyer] claims:

From December 1994 to April 1995, [Buyer] purchased from [Seller] various models of gloves at a price of Deutsche Mark [DM] 5,550,200.00. After the goods arrived at the destination port, [Buyer] did not raise any dispute, since the first several batches of goods were in conformity with contract. However, problems were encountered with goods that arrived afterward. The details on each of the contracts are:

1. W9950406 Contract, Receipt No. 950208, dated 17 January 1995

175 boxes of HK/V gloves out of 500 boxes (5,000 dozen) have problems because the gloves were loaded in China under moist condition. According to Inspection Report No. 950319 provided by the Gellatly, Hankey & Co. Inspection Company, 25 boxes of gloves are valueless; 55 boxes of gloves are wet, but still acceptable; the other 95.5 boxes of goods are moist, faded and mildewed. After dealing with the damaged 150 boxes of goods, [Buyer] suffered a total damage of US $12,533.67.

2. W9950109 Contract, Receipt No. 950306, dated 25 January 1995

According to Inspection Report No. 950320 from the Gellatly, Hankey & Co. Inspection Company, 100 boxes (note: those 100 boxes goods shall be 1,000 boxes, as stipulated in the contract), in total 10,000 dozen 88 PASA and 88PBSA working gloves were loaded under moist condition. Not only are the upper sides and surroundings of the cardboards wet, but the packing bags inside the cardboards are also wet and mildewed. It is obvious that the seepage of wet gloves caused the wet cardboards.

3. W9950206 Contract, Receipt No. 950403, dated 12 May 1995

25 boxes of HK/V working gloves out of 500 boxes (5,000 dozen) were discovered moist. It is not necessary to prove this by the Inspection Report.

4. W9950216 Contract, Receipt No. 950501, dated 26 April 1995

[Seller] was obligated to deliver 5,000 dozen of pairs of gloves under this contract. In fact, only 4,790 dozen were delivered in Hamburg. And those goods were packed in totally wet cardboards. According to Inspection Report No. 950429 from the Gellatly, Hankey & Co. Inspection Company, 223 boxes contain wet and mildewed gloves. The sampling test conducted on the other 256 boxes showed that those goods had been affected as well.

5. W9950403 Contract, Receipt No. 950508, dated 5 May 1995

21 boxes of 88PBS working gloves out of 500 boxes (5,000 dozen) were wet. It is not necessary to prove this by the Inspection Report.

6. W9950301 Contract, Receipt No. 950607, dated 7 June 1995

95 boxes of 131PASA working gloves out of the delivered 4,700 dozen were wet. According to the appearance of the wet cardboards, the inspector believes that the cardboards became wet during the loading process, which was most probably due to the rain.

7. W9950301 Contract, Receipt No. 950616; W9950302 Contract, Receipt No. 9506017, dated 20 June 1995

Of the 9,400 dozen goods delivered, 7,810 pairs of gloves are single pieces or untied pairs, which need to be repacked; 4,250 pairs of gloves are half wet. According to the inspector, "it is certain that the cardboards were wet before loading into the containers or during the loading process."

8. W9950316 Contract, Receipt No. 950624, dated 23 June 1995

The contract obligates the [Seller] to deliver 2,500 dozen Arktis working gloves. However, there was a shortage. 50 boxes were not delivered, and 37 boxes were wet. The inspector believes that the cardboards became wet before being transferred into the container or during the loading process in China, and that it might have been due to the rain.

9. W5941212 Contract, Receipt No. 900625, dated 23 June 1995

According to the Contract, [Seller] was obligated to deliver 4,800 dozen pair of leather gloves. However, 30 dozen were not delivered.

10. W9950212 Contract, Receipt No. 950412, dated 23 June 1995

According to the Contract, [Seller] was obligated to deliver 10,000 dozen 88PASA working gloves. However, 30 dozen have not yet been delivered to [Buyer].

[Buyer]'s total claim

Due to [Seller]'s breach of contracts, [Buyer] suffered a total damage of US $56,413.80. [Buyer] submits its arbitration claim and requests that:

   -    [Seller] pay [Buyer] US $56,413.80; with
   -    12% interest added from 26 February 1996.

[Seller]'s response

[Seller] alleges:

1. The statement that [Seller] loaded wet gloves is not true.

[Seller] inspected the gloves and there is no possibility that they were wet before loading. The goods under Receipt No. 950501 were examined before being transferring into the warehouse for loading and where there were cardboards that were seeped by rain, the [Seller] changed cardboards immediately and the goods were not damaged.

2. Under the terms of the contracts, [Seller] should not be held liable for wet gloves.

The parties agreed on the delivery term CIF Hamburg. In accordance with INCOTERMS 1990, "the seller must bear all risks of loss of or damage to the goods until such time as they have passed the ship's rail at the port of shipment."

The clean Bills of Lading involved were signed by a reliable carrier, who was also approved by [Buyer]. These clean Bills of Lading prove that the appearance of the delivered goods was clean and was not contaminated. Therefore, according to the contracts, [Buyer] should claim against the insurance company or the carrier.

[Buyer] started claiming reimbursement of the damaged goods, through its insurance agent, against the insurance company, and the insurance company accepted the claim. It is clear that both [Buyer] and its insurance agent confirmed that the damaged gloves are under the scope of insurance, and that the damage should be claimed against the insurance company.

3. The Inspection Reports from Gellatly, Hankey & Co. Inspection Company cannot be held as an evidence to claim damages.

Both parties did not agree on the inspection bureau in the contract. Also, Gellatly, Hankey & Co. Inspection Company is not a well-known inspection bureau. Therefore, the Inspection Report from Gellatly, Hankey & Co. Inspection Company cannot constitute acceptable evidence to claim damages.

In addition, [Buyer] always applies for inspection of the goods one to three months after unloading the goods. However, Article 39(1) of United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred as CISG) provides that:

"The buyer loses the right to rely on a lack of conformity of the goods if he does not give notice to the seller specifying the nature of the lack of conformity within a reasonable time after he has discovered it or ought to have discovered it."

It is obvious that [Buyer] did not exercise its inspection right within a reasonable time, therefore, it shall be considered that it waived its right to claim the non-conforming goods.

Some of the Inspection Reports [Buyer] submitted state that "the wet gloves might have been caused by rain before loading or during the loading process." This lacks evidence and is not convincing. The clean Bill of Lading signed by the carrier can reverse the above Inspection Reports. Furthermore, those Inspection Reports cannot preclude the possibility that the goods could have become contaminated during a period between the unloading and the inspection. It is clear that the inspection results are not convincing and are not satisfactory evidence for claiming damages.

4. The issue of the shortage of the goods under Receipt No. 950501

W9950216 Contract states that [Seller] shall deliver 5,000 dozen HK/V gloves before 30 March and another 5,000 dozen before 30 April 1995. Since the container could not accommodate 5,000 dozen on 30 April, [Seller] could only deliver 4,770 dozen in that shipment; the remaining 23 boxes were sent to the [Buyer] with another bulk shipment of the same model gloves on 25 May.

5. The issue of the shortage of goods under Receipt No. 950624

[Seller] was obligated to deliver 2,500 dozen (500 bulks) of Arktis gloves to [Buyer] on 23 June 1995. However, since the cardboard was too big to be put into the container, [Seller] only sent 250 dozen of them (50 bulks). The remaining goods are still stored in [Seller]'s warehouse, and [Seller] requested to send another 250 dozen to [Buyer].

6. [Buyer] should compensate [Seller] the damages caused by [Buyer]'s non-payment

On 27 February 1995, [Buyer] and [Seller] concluded W9950301 Contract, according to which [Seller] delivered 4,700 dozen 131PASA/A gloves to [Buyer] in June, July and August. However, [Buyer] refused to pay for the goods delivered in August. This directly caused damages to [Seller] in a total amount of US $16,315.05. Therefore, [Seller] requests the Tribunal to decide that [Buyer] shall pay for the goods (US $77,080) and compensate the damages suffered by [Seller] (US $16,315.05).

[THE TRIBUNAL'S OPINION]

1. Applicable law

The Tribunal noted that the contracts did not identify the applicable law, so the applicable law will be determined by the Tribunal. Section 2 Article 6(1) of the Supreme Court's Explanation to the Application of Chinese Foreign Economic Contract Law states that:

"Contracts for the international sales of goods shall be governed by the law of the State where the seller has his place of business at the time of conclusion of the contract."

The Tribunal holds that Chinese law applies to these contracts. Additionally, since China and Germany are parties to the CISG, the provisions of the CISG shall prevail in the current case.

2. The issue of wet gloves

The Tribunal noted that the main evidence held by [Buyer] to claim [Seller]'s liability for the wet gloves consists of the six sets of Inspection Report provided by Gellatly, Hankey & Co. Inspection Company and Burmester, Duncker & Joly Inspection Company. The Tribunal also noted that, after the goods arrived at the Hamburg Port, [Buyer] did not inspect the goods under W9950206 Contract, W9950403 Contract, W5941212 Contract and W9950212 Contract, instead claimed the quality and quantity problem of those goods and requested [Seller] for compensation.

     1) In regard to W9950206 Contract (Receipt No. 950403), W9950403 Contract

(Receipt No. 950508), W5941212 Contract (Receipt No. 950625) and W9950212 Contract (Receipt No. 950412), [Buyer] did not inspect those goods after the goods arrived at Hamburg Port. In accordance with Article 38(1) CISG:

"The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances."

Although Article 38(3) CISG also states:

"If the goods are redirected in transit or re-dispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or re-dispatch, examination may be deferred until after the goods have arrived at the new destination."

However, [Buyer] did not examine the goods under those four contracts within a reasonable time; therefore, the Tribunal believes that [Buyer]'s allegation that [Seller] delivered wet gloves cannot be upheld.

     2) In regard to W9950406 Contract (Receipt No. 950205), W9950109 Contract (Receipt No. 950306), W9950216 Contract (Receipt No. 950501), W9950301 Contract (Receipt No. 950607 and 950616), W9950302 Contract (Receipt No. 9506017) and W9950316 Contract (Receipt No. 950624), [Buyer] applied for inspections to Gellatly, Hankey & Co. Inspection Company and Duncker & Joly Inspection Company, and those companies produced inspection reports thereafter.

The Tribunal noted that the inspection of the goods under W9950216 Contract (Receipt No. 950501), W9950301 Contract (Receipt No. 950607), W9950316 (Receipt No. 950624) were done one to two months after unloading the goods.

Article 38(1) of CISG states that:

"The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances."

The Tribunal believes that, after unloading the goods, it takes only one day from the place of unloading to the place of inspection. However, [Buyer] did not exercise its inspection right within as short a period as is practicable. Therefore, the Inspection Report on the goods under the above contracts cannot sufficiently prove that the goods were contaminated before loading. Since [Buyer]'s claim of wet gloves lacks supporting evidence, the Tribunal does not uphold [Buyer]'s allegation.

In respect of W9950406 Contract (Receipt No. 950208) and W9950109 Contract (Receipt No. 950306), [Buyer] inspected these goods three to four days after the unloading. The Tribunal believes that [Buyer] inspected these goods within a reasonable time. Inspection Reports No. 950319 and No. 950320 issued by Gellatly, Hankey & Co. Inspection Company state that container sweat caused wet gloves. Thus, the Tribunal holds that those two Inspection Reports cannot sufficiently prove that the gloves were wet before loading, and that therefore [Buyer]'s claims against [Seller] for damages to the goods in these contracts cannot be supported.

In respect of W9950302 Contract (Receipt No. 9506017) and W9950301 Contract (under another Receipt No. 950616), [Buyer] had the goods inspected by Burmester, Duncker & Joly on 25 August 1995, which is the third day after the goods arrived the port on 23 August 1995. Inspection Report No. 95/1059 from this inspection company states, "100.5 boxes of goods are wet, ... it is certain that the gloves were contaminated before or during the loading process". Since this inspection was within a reasonable time, the Tribunal believes that the Inspection Report sufficiently proves that the goods were wet before or during the loading process. Therefore, the Tribunal upholds [Buyer]'s allegation that the goods under the above contracts were wet before loading, and rules that [Seller] breached the contract and shall be liable for the damages to the 100.5 boxes of goods.

3. The issue of the shortage of the goods

The Tribunal also notes that [Buyer] alleges that [Seller] breached the contracts, since the quantities of goods under W9950216 Contract, W9950316 Contract, W5941212 Contract and W9950212 Contract were less than the contractual amounts.

     1) With respect to W9950216 Contract (Receipt No. 950501), [Buyer] alleges that the delivered goods by [Seller] were 210 dozen less.

The Tribunal noted that [Seller] sent a fax to [Buyer] on 31 May 1995, in which [Seller] informed [Buyer] of 23 boxes (230 dozen) of gloves shortage under the current contract, due to some reasons, and promised that the 23 boxes of goods would be sent on 25 May. On 3 July 1995, [Buyer] raised, by a fax, a complaint about the wet gloves under the contract, and did not complain the shortage of the goods.

[Seller] submitted the Bill of Lading dated 25 May 1995, which proves the delivery of 500 boxes of HK/V gloves by ship Xingan No. 2 V.9567. However the Bill of Lading does not prove that the delivery including the other 23 boxes of goods which were supposed to be sent with the last delivery.

Therefore, the Tribunal believes that [Seller] does not have evidence to prove that the 23 boxes of goods were re-supplied. In accordance with the principle of verification, the Tribunal holds that [Buyer]'s allegation can be established. Therefore, [Seller] shall be held liable for the shortage of 23 boxes of goods.

     2) With respect to W9950316 Contract (Receipt No. 950624), [Seller] admitted that 250 dozen (150 bulks) of goods were not delivered. The Tribunal rules that [Seller] shall be liable for this breach of the contract.

     3) With respect to W5941212 Contract (Receipt No. 950625) and W9950212 Contract (Receipt No. 950412), since [Buyer] did not inspect the goods, there is no evidence to prove that the goods under these two contracts are less than the contractual amounts. Therefore, the Tribunal does not support [Buyer]'s claim of the shortage of the goods under these contracts.

4. The [Seller]'s counterclaim

The Tribunal did not hear the [Buyer]'s claim and [Seller]'s counterclaim together, therefore, [Seller]'s counterclaim is not under the scope of the present arbitration.

5. The arbitration cost

[Buyer] shall bear 60% of the arbitration cost, and [Seller] shall bear 40% of the arbitration cost.

[AWARD]

  1. The Tribunal decides that [Buyer]'s allegation in regard to the goods under W9950301 Contract (Receipt No. 950616) and W995032 Contract shall be upheld, and that [Seller] shall be liable for the damages suffered by [Buyer]. According to Inspection Report No. 95/1959, the damages suffered by [Buyer] are calculated as follows:

    1)     The compensation for 100.5 boxes of goods (Art. No. 131PBSA/A and Art. No.131 PASA/A gloves) shall be reduced by 50%, so [Seller] shall refund to [Buyer] 50% of the payment:
     
       -    4,250 pairs of gloves shall be reduced by 50%, thus for 850 pairs of 131 PBSA gloves (at a price of US $0.7083/pair), the price shall be US $301 after 50% discount;
     
       -    In which for 3,400 pairs of 131PASA gloves (at a price of US $1.3667/pair), the price shall be US $2,323.40 after 50% discount;
     
    2) Since [Buyer]'s claim that 6.8% of tax to the above amounts of payment shall be reimbursed lacks supporting evidence, the Tribunal does not uphold it;
     
    3) Additional cost suffered by [Buyer]: re-inspection fee DM 300 (according to the exchange rate 1:1.3667, equal to US $219), repacking fee DM 700 (according to the exchange rate 1:1.3667 equals US $512);
     
    4) The commodity inspection fee is not subject to the damages suffered. The Tribunal does not uphold this claim.

    The total compensation for these claims shall be US $3,355.40.

  2. The Tribunal upholds [Buyer]'s claim that there was a shortage of 21 boxes and 250 dozen pairs of gloves under W9950216 Contract and W9950316 Contract, respectively, and rules that [Seller] shall refund [Buyer] the payment of US $5,122. The calculation is based on the following:

       -    W9950216 Contract: 21 boxes @ 10 dozen/box @ US $5.7/dozen = US $1,197;
     
       -    W9950316 Contract: 250 dozen @ US $15.7/dozen = US $3,925.

  3. [Buyer]'s other claims are rejected.

  4. [Buyer] shall bear 60% of the arbitration cost, [Seller] shall bear 40% of the arbitration cost. The deposit for the arbitration paid by [Buyer] will be calculated as the arbitration cost. So [Seller] shall pay [Buyer] the portion of the arbitration cost which [Buyer] has paid to the Arbitration Commission on [Seller]'s behalf.

    In total, [Seller] shall pay [Buyer] US $9,923. [Seller] shall make the payment to [Buyer] within 45 days after the date of this award. For late payment, 8% interest will be added.

This award is final.


FOOTNOTES

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

** Ning Zhao, LL.M. (cum laude) Groningen University, the Netherlands; LL.B., Nan Kai University, Tianjin, P.R. China.

*** 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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