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CISG CASE PRESENTATION

China 10 October 1996 CIETAC Arbitration proceeding (Petroleum coke case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/961010c1.html]

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

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Case identification

DATE OF DECISION: 19961010 (10 October 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/45

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Germany (claimant)

GOODS INVOLVED: Petroleum coke


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 75 ; 78 [Also cited or relevant: Articles 25 ; 49 ; 64(1) ]

Classification of issues using UNCITRAL classification code numbers:

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

75A [Substitute transaction after avoidance];

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

Descriptors: Damages ; Cover transactions ; Substitute goods ; 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. 1949-1954

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.57, 96, 115, 139, 146, 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

Petroleum coke case (10 October 1996)

Translation [*] by Meihua Xu [**]

Edited by John W. Zhu [***]

The China International Trade and Economic Arbitration Commission (the Foreign Trade Arbitration Committee of the China Council for the Promotion of International Trade, hereafter, the "Arbitration Commission") accepted the case on 23 November 1995 according to:

   -   The arbitration clause in Sales Contract No. 92GOI01005 signed by Claimant [Buyer], Germany __ Trade Company, and Respondent [Seller], China __ Cooperative Company on 28 September 1992; and
 
   -   The written arbitration application submitted by [Buyer] on 27 October 1995.

The [Buyer] appointed Ms. A as its arbitrator, and the [Seller] appointed Ms. D as its arbitrator. The two parties jointly appoint Mr. P as the Presiding Arbitrator. On 10 January 1996, the aforesaid three arbitrators formed the Arbitration Tribunal to hear this case.

On 21 May 1996, a court session was held in Beijing. Both parties attended the court session. They made statements and arguments and answered the Arbitration Tribunal's questions regarding the facts in this case. After the court session, both parties submitted supplementary documents.

This case has been concluded. The Arbitration Tribunal handed down this award by consent within the time limit.

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

I. FACTS

[POSITION OF THE PARTIES]

[Buyer]'s position

On 28 September 1992, the [Buyer] and the [Seller] reached an agreement that the [Seller] was to sell 10,000 tons of petroleum coke to the [Buyer] (contract number was 92GOI01005). Quality of the goods was clearly stipulated in the contract attachment. Later, the two parties agreed to change the quantity of the goods to 15,000 tons, and the [Buyer] issued a L/C based on this.

As requested by the [Seller], the [Buyer] paid US $7,000 for the costs of storage size and shipping capacity of the rented ship.

Since the [Seller] mixed the 10,000 tons of goods with the additional 5,000 tons of goods together, the quality of the goods was lower than the original contract. After negotiation, the two parties reached an agreement on 18 November 1992 to reduce the price for the 15,000 tons of goods from US $51/ton to US $49/ton (the sulphur content should be 0.6 and the ash content should be 0.3). The shipping period was changed to 19 December 1992. The [Buyer] repeatedly modified the L/C as requested by the [Seller]. The most important modification was made on 4 December 1992, after the two parties reached an agreement on quality and price of the goods on 18 November 1992. On 7 December 1992, the [Seller] notified the [Buyer] of the modification, and on 9 December, the [Buyer] faxed the modification letter issued by the L/C issuing bank to the [Seller].

The [Buyer]'s ship arrived at the departure port, and the L/C was modified as requested by the [Seller], however, the [Seller] refused to deliver the goods because it was unable to deliver conforming goods as required by the contract. Consequently, the [Buyer]'s ship could not lie at anchor, and the demurrage charge was increasing day by day. The [Buyer] had to find substitute goods.

Due to the [Seller]'s non-delivery of the goods, the [Buyer] suffered a severe economic loss of US $300,000.

After giving notice to the [Buyer] that it would not deliver the goods on 9 December 1992, the [Seller] faxed the [Buyer] again on 13 December, asking to modify the L/C by deleting inspections on contents of four kinds of metals. The [Buyer] refused this request of the [Seller], but agreed to modify the expiration date of the L/C and change the shipping date to 22 December 1992. The [Buyer] alleges that the [Seller] accepted the modification on shipping date since it did not raise objection to this, and that [Seller]'s allegation that the shipment date was 6 ~ 7 December 1992 was not true.

The [Buyer] alleges the two parties reached an agreement on quantity, quality, price, and delivery date of the goods after several modifications. The [Seller] accepted the L/C without raising any objection; therefore, it should have delivered the goods in accordance with the modified contract. However, the [Seller] refused to deliver the goods after knowing that the goods it prepared were non-conforming goods even though it had known the ship's arrival date, which was a fundamental breach of the contract. According to Articles 18, and 19 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest and Article 74 of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), the [Seller] should compensate the [Buyer]'s losses as follows:

1. [Buyer]'s loss of profit (difference between the purchase price and resale price).

The [Buyer] has resold the contract goods to its client at US $80.50 C&F FO. Due to the [Seller]'s breach of the contract, the [Buyer] purchased the same goods which should have been delivered by the [Seller] as substitute goods from __ Oil Refining Factory. Because of the quality problems with the goods, the [Buyer]'s client accepted the goods at US $68.94 C&F FO, which was US $11.56/ton lower than the original price. The [Buyer] suffered a loss of US $172,937.60 based on a quantity of 14,960 tons.

The [Buyer]'s aforesaid loss was caused by the [Seller]'s breach of contract. The goods were non-conforming, and the [Seller] planned to violate the contract when the ship arrived to avoid the result of delivering non-conforming goods. The loss would have been greater if the [Buyer] had not taken measures to mitigate it; therefore, the [Buyer]'s aforesaid compensation claim has sufficient legal and factual basis.

The [Buyer] also can accept compensation calculated as follows:

US $80.5 (resale price) - US $49 (purchasing price) - US $28 (transportation fee) = US $3.5 (profit). US $3.5 ◊ 15,000 tons = US $52,500

However, this would support [Seller]'s conniving at contract violation.

2. Demurrage charge incurred due to [Seller]'s contract violation

The ship rented by the [Buyer] arrived at the port on 16 December 1992; however, the ship could not lie at anchor due to the [Seller]'s contract violation, with the result, a loading demurrage charge of US $45,576,35 and unloading demurrage charge of US $35,802, totaling US $81,378,35, was incurred, which should be borne by the [Seller];

3. [Seller] should return the storage charge and dispatch money of US $7,000;

4. [Seller] should return 50% of the SGS inspection fee; this amounts to US $7,819.90;

5. It cost the [Buyer] US $41,140 in order to have its client accept the non-conforming goods in January 1993, which should be borne by the [Seller];

6. [Seller] should bear the interest on the aforesaid sum calculated from the day incurred to the day of the award. The interest rate should be determined by the Arbitration Tribunal.

[Seller]'s defense

The [Seller] presents the following defense to the [Buyer]'s arbitration application and the facts and reasons it is based on.

1. The [Buyer] violated the contract first

After signing the contract, the [Buyer] faxed the draft of the L/C to the [Seller] on 12 October 1992, increasing the quantity of the goods to 15,000 tons unilaterally and requesting to add metal inspection. The [Seller] replied that the [Buyer] should modify the L/C on the basis of the contract; however, ignoring the contract stipulations, the [Buyer] issued the L/C on 14 October 1992, asking the [Seller] to deliver 15,000 tons of goods; therefore, the original contract cannot be performed because of the [Buyer]'s breach of contract.

2. After negotiation, on 18 November 1992, the two parties reached an agreement on price, quality, and quantity of the goods: quantity: 15,000 tons; unit price: US $49/ton; sulphur content: 0.6; ash content: 0.3. The [Seller] asked the [Buyer] to modify the L/C within two days in this fax.

3. The [Buyer] faxed to the [Seller], promising to modify the L/C in accordance with the contract and modifying the shipment date to 6 ~ 7 December 1992. However, on 4 December, the [Seller] received the L/C modification, discovering that the [Buyer] did not modify the quality requirement; therefore, the [Seller] sent a fax immediately, asking the [Buyer] to make the modification again.

4. On 7 December 1992, the [Seller] notified the [Buyer] that it would not wait for the [Buyer]ís performance of the contract if it was not able to receive the modification notice of the L/C before 9 December. On 9 December 1992, the [Seller] still had not received the modification notice after contacting the bank, therefore, the [Seller] notified the [Buyer] of its refusal to deliver the goods.

Because the [Buyer] did not issue the L/C properly and failed to modify it in time, the [Seller] had to refuse to deliver the goods, which was in accordance with laws and international trade usages. Pursuant to Article 28 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, Article 62(1) and 62(2) of the Unified Law on International Sales of Goods, and Article 64(1) of the CISG, the [Seller] had the right to declare the contract avoided;

5. On 7 December 1992, the [Seller] sent a fax to the [Buyer], suggesting that if the [Buyer] could send the modified L/C before 9 December, the shipment date could be postponed to 19 December. Since the [Buyer] failed to modify the L/C on time, the shipment date of 19 December could not be established.

6. Following the [Buyer]'s notice sent on 15 December 1992, the [Seller] transferred the L/C to Zhenhai Oil Refining Company, indicating that: (1) The [Buyer] accepts the [Seller]'s notice sent on 9 December, agreeing that the [Seller] would not provide the goods; (2) [Seller]'s transferring the L/C on behalf of the [Buyer] decreased the loss caused by [Buyer]'s contract violation.

7. The [Seller] never received [Buyer]'s so-called L/C modification on 4 December 1992.

The [Buyer] has no evidence to prove its allegation that the [Seller] was contacting the [Buyer] for L/C modification after 9 December 1992, because Attachment 12, the evidence submitted by the [Buyer], was not sent by the [Seller], it was sent by [Buyer]'s representative, Zhou Changyi.

Based on above, the [Seller] asks the Arbitration Tribunal to dismiss [Buyer]'s claims.

[Buyer]'s response

Regarding Attachment 12, the [Buyer] asserts that Zhou Changyi was not the representative of the [Buyer], but was a middleman who introduced this transaction and Zhou Changyi stated clearly in this Attachment that he represented the [Seller].

II. OPINION OF THE ARBITRATION TRIBUNAL

      (1) The applicable law

      The parties did not stipulate the applicable law in their contract. Considering that both parties mentioned the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest and the CISG in the written statements and defense, and that the places of business of the [Buyer] and the [Seller] are Contracting States of the CISG, therefore, the Arbitration Tribunal deems that aforesaid two laws shall be applied to this case.

      (2) L/C modification and contract violation

      After investigation, it was found that

            1. The total amount of the goods in this case was 10,000 tons. The [Buyer] issued a L/C for 15,000 tons of goods on 14 October 1992 even after the [Seller] reminded that the [Buyer] shall issue the L/C in accordance with the contract on 12 October 1992. This violated the contract stipulations. The fact that the two parties agreed to change the total amount of the goods to 15,000 tons cannot release the [Buyer] from bearing the responsibility for issuing a non-conforming L/C.

            2. On 18 November 1992, after negotiations, the two parties reached an agreement on quantity, quality, and the price of the goods, to which the parties have no objections. After modification, the total quantity of the goods was 15,000 tons, the unit price was US $49/ton; quality: the sulphur content should be 0.6 and the ash content should be 0.3.

            3. L/C modification. After reaching the agreement on 18 November 1992, the [Buyer] had the obligation to modify the L/C immediately; however, in the L/C modified on 26 November ([Buyer]'s so-called "the second modification"), the [Buyer] only modified the shipment date to 15 December 1992 and the expiration date to 30 December 1992 without changing the quality stipulation, and the [Seller] urged the [Buyer] to modify the L/C again. The Arbitration Tribunal notes that the [Buyer] should take certain responsibility for its failure to modify the quality stipulation in the L/C one week after the two parties reached their agreement on 18 November 1992.

For the [Buyer]'s so-called "the third modification" made on 4 December 1992, since the [Seller] received the third modification notice from Bank of China on 10 December 1992, but not on 4 December 1992, and the [Buyer] failed to provide evidence to prove that it modified the L/C four times (evidence from the L/C issuing bank) and the [Seller] could not prove that it had received three L/C modification notices (evidence from Bank of China), therefore, the Arbitration Tribunal does not pass judgment on this.

As requested by the [Seller] on 7 December 1992, the [Buyer] faxed the so-called "third modification" of 4 December 1992 to the [Seller] in the morning of 9 December. Without knowing clearly that the [Buyer] did not modify the L/C or notifying the [Buyer] that it did not receive modification notice after contacting the bank, the [Seller] informed the [Buyer] that it would not deliver the goods on the same day (9 December 1992). This lacks legal and factual basis, which constitutes a breach of contract, and the [Seller] shall take the responsibility for non-delivery of the goods.

            4. For the shipping date, the [Buyer] modified the shipping date in the L/C issued on 26 November 1992 to 15 December 1992, and there was no modification on the shipping date in the L/C issued by the [Buyer] on 4 December 1992, and the [Seller] terminated the contract unilaterally on 9 December 1992; therefore, the Arbitration Tribunal deems that 15 December 1992 should be the proper shipping date.

      (3) Compensation

            1. The [Buyer] alleges that it suffered a loss of US $172,937.60 due to the [Seller]'s contract violation. This loss is the price difference between the contract price and the price for purchasing the substitute goods. The Arbitration Tribunal holds that the [Seller]'s refusing to deliver the goods without sufficient reasons was a contract violation. [Buyer] had a legal basis for the purchase of substitute goods in order to perform its contract with its client. The [Seller] shall be liable for the loss caused by this.

However, the two calculation methods provided by the [Buyer] did not reflect the actual loss of the [Buyer]. The actual loss of the [Buyer] is the difference between the contract price of US $49/ton and the price for the substitute goods of US $49.50/ton (which was stated by the [Buyer] at the court session), i.e., US $0.5/ton ◊ the quantity of the goods of 14,960 = US $7,480 plus interest.

   -   For the [Buyer]'s first calculation, it was not based on the contract price with its client, but on the lowered price for the defective goods. In additional, the quality of the substitute goods purchased by the [Buyer] is a different legal issue that the [Buyer] purchased the substitute goods; therefore, even though the substitute goods had been the goods prepared by the [Seller] for performing this contract, it has no legal basis to shift the responsibility to the [Seller]. Thus, the Arbitration Tribunal does not accept this calculation of the [Buyer].
 
   -   For its second calculation, the [Buyer] ignored the fact that it had delivered the goods to its client. Normally, the [Buyer] should have received profit, and its loss should be limited to the difference between the contract price and the price for purchasing the substitute goods; therefore, the Arbitration Tribunal does not accept the second calculation, since it was double calculated.

            2. Demurrage charge

            The [Buyer]'s ship arrived at the port on 16 December 1992, which was later than the shipment date. First, the [Buyer] failed to prove that the ship could not lie at anchor due to the [Seller]'s breach of contract. Second, the [Buyer] did not provide evidence showing that it had paid the demurrage charge. Therefore, the Arbitration Tribunal does not support [Buyer]'s claim for demurrage charge on the delays in loading and unloading.

            3. Storage fee and dispatch money amounting to US $7,000 were paid by the [Buyer], therefore, the [Seller] should pay back this amount to the [Buyer];

            4. The two parties shall bear the SGS inspection fee equally, i.e., US $7,819.90 each. The [Seller] should compensate this amount to the [Buyer];

            5. Since the [Buyer]'s payment of US $41,140 to its client due to the non-conformity of the goods was a separate legal issue, the Arbitration Tribunal does not support this claim of the [Buyer].

            6. As to the interest, the [Seller] shall pay the interest on the sum it should compensate or refund to the [Buyer] from the date incurred to the date of the award at a 7% annual interest rate.

III. THE AWARD

The Arbitration Tribunal rules that:

      (1) [Seller] shall pay US $7,480 to the [Buyer] and the interest on it calculated from 1 January 1993 to the day of this award at a 7% annual interest rate;

      (2) [Seller] shall refund the [Buyer] the storage fee and dispatch money of US $7,000 and the interest on it calculated from 28 October 1992 to the day of this award at a 7% annual interest rate;

      (3) [Seller] shall pay its share the inspection fee (US $7,819.90) and the interest on it calculated from 2 April 1993 to the day of this award at 7% annual interest rate;

      (4) [Buyer]'s other claims are dismissed;

      (5) [Buyer] shall bear 30% of the arbitration fee and the [Seller] shall bear 70%. The [Buyer] has paid the entire arbitration fee, therefore, the [Seller] shall pay US $ __ directly to the [Buyer];

The [Seller] shall compensate or refund the aforesaid sum within 45 days of this award, otherwise, 8% 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 Germany is referred to as [Buyer] and Respondent of the Peoples' Republic of China is referred to as [Seller]. Amounts in the currency of the United States (dollars) are indicated as [US $].

** 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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