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CISG CASE PRESENTATION

China 7 November 1996 CIETAC Arbitration proceeding (Stone products case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/961107c1.html]

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

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Case identification

DATE OF DECISION: 19961107 (7 November 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/50

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Japan (respondent)

GOODS INVOLVED: Stone products


Classification of issues present

APPLICATION OF CISG: The tribunal ruled that "Chinese laws should be applied" and that "considering that China and Japan are both members of the CISG ... the CISG will also be applied."

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 53 ; 74 ; 78

Classification of issues using UNCITRAL classification code numbers:

53A [Buyer's obligation to pay price of goods];

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

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

Descriptors: Price ; Damages ; Foreseeability of damages ; 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. 2057-2061

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.35, Nordic Journal of Commercial Law (2/2005); Fan Yang, The Application of the CISG in the Current PRC Law and CIETAC Arbitration Practice (December 2006) n. 104

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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

Stone products case (7 November 1996)

Translation [*] by Jun Wang [**]

Translation edited by Meihua Xu [***]

Shanghai Sub-Commission of China International Trade and Economic Arbitration Commission (hereinafter CIETAC or CIETAC Shanghai Sub-Commission) accepted this dispute according to:

   -    The arbitration clause in the agreement signed by the Claimant [Seller], China Fujian __ Trade Center Group, and the Respondent [Buyer], Japan ___ Corporation, on 7 August 1995; and
 
   -    The written arbitration application submitted by the [Seller] to CIETAC on 17 January 1996.

The [Seller] appointed Mr. A as an arbitrator. Since the [Buyer] failed to appoint an arbitrator in accordance with the CIETAC Arbitration Rules (hereinafter Arbitration Rules) after he received the Notice of Arbitration and relevant materials sent by registered mail by the Secretariat of the CIETAC Shanghai Sub-Commission, and since the [Seller] and the [Buyer] failed to jointly appoint or jointly entrust the Chairman of CIETAC to appoint the presiding arbitrator in accordance with the Arbitration Rules, the Chairman of CIETAC appointed Ms. D as arbitrator for the [Buyer], and Mr. P as the presiding arbitrator in accordance with the Arbitration Rules. Together they formed an Arbitral Tribunal to hear this case.

The Arbitration Tribunal reviewed the Request for Arbitration and supplemented materials submitted by [Seller] and held a court session on 7 June 1996 in Shanghai. The representatives of the [Seller] attended the court session, made a statement, and answered the questions raised by the Arbitration Tribunal. The [Buyer] did not attend the court session, nor did it submit a Statement of Defense after [Buyer] received the Notice of Arbitration sent by Secretariat of the CIETAC Shanghai Sub-Commission. In accordance with the Arbitration Rules, the Arbitration Tribunal held the court session by default. After the court session, the Arbitration Tribunal entrusted the Secretariat of the CIETAC Shanghai Sub-Commission to inform the [Buyer] of the court session, and to again provide to [Buyer] an opportunity to submit a Statement of Defense within a specified period of time. However, the [Buyer] did not react or respond within the specified period.

The Arbitral Tribunal has now made its award. The following are the details of the case, the opinion of the Arbitral Tribunal, and the award.

DETAILS OF THE CASE

In February, April and May of 1995, the [Seller] and the [Buyer] signed four contracts: No. HK95-2033, No. HD95-2052 & 2055, No. HD95-2053 (YA-008), and No. HD95-2075 & 2076 for stone products of ___ ___ and ___. It was stipulated in the contractS that the [Seller] agreed to supply the stone products to the [Buyer] upon the [Buyer]'s order, with the payment of the goods in T/T.

In August 1995, the parties signed another two contracts: Nos. 95-YA-013 and 012 (hereinafter referred to as Contract 013 and Contract 012, respectively).

On 7 August 1995, the [Seller] and the [Buyer] signed an agreement on payment and on quality flaws of the goods in the four contracts -- No. HK95-2033, No. HD95-2052 & 2055, No. HD95-2053 (YA-008), and No. HD95-2075 & 2076 -- that had been signed in February, April and May 1995, and on the performance of Contract 013 and Contract 012. The parties agreed that:

   -    The [Seller] had fully performed the sales contracts between the parties;
 
   -    The [Seller] admitted that there had been quality flaws in his performance, which caused loss to the [Buyer]; The [Seller] will compensate the [Buyer] in the amount of US $20,000, which will be deducted from the payment of the goods that the [Buyer] was to pay to the [Seller];
 
   -    The [Buyer] shall provide to the [Seller] at least fifteen photos of the products with quality flaws as evidence, as well as a list of damages. The five censers which had been given back to the [Seller] as evidence were not sufficient as evidence.
 
   -    The payment for the goods that the [Buyer] owed the [Seller] according to the contracts was US $47,641.22 less US $20,000 to be deducted as compensation, with US $27,641.22 left to be paid. The [Buyer] will remit US $15,000 to the account of his office in Fujian before 15 August 1995;
 
   -    After confirming the remittance, the [Seller] will produce the goods under Contract 013 and Contract 012 and sell them to the [Buyer]. The total value of Contract 012 is US $1,908.88; the total value of Contract 013 is US $11,047.40: the sum of the two is US $12,956.28;
 
   -    The sum of US $15,000 that the [Buyer] is to remit into the account of his office in Fujian shall be used designedly as the payment of the goods under contracts and shall not be used otherwise; According to the agreement, the [Buyer] shall pay the [Seller] US $40,597.50, and remit another US $7,679.25 to the account of his office in Fujian before 21 August 1995, as the payment for the goods under contract and shall not be used otherwise.
 
   -    Among the goods under production, only those that have stamps by the inspector of the [Buyer]'s Fujian office are deemed to be qualified products. The [Buyer] will not bring forward dissent; the [Seller] will send the B/L and effective documents of the qualified goods stamped by the [Buyer] to the [Buyer]'s Fujian office, and the [Buyer]'s Fujian office will transfer US $22,679.25 to the account of the [Seller]. The [Buyer] agreed that the goods are to be delivered to Osaka on the 21st of the same month, and that after the arrival and the inspection of the goods by the [Buyer], the [Buyer] shall remit the rest of payment for the goods, at the latest on 10 September 1995.

The [Seller] and the [Buyer] had a dispute over the performance of the above agreement. The parties were not able to resolve the dispute, therefore, the [Seller] applied to the CIETAC Shanghai Sub-Commission for arbitration, requesting that:

1. The [Buyer] provide the payment for the goods that is arrears, amounting to US $59,753.05;

2. The [Buyer] compensate the [Seller] the loss caused by the delay of the payment, amounted to US $10,538.62;

3. The [Buyer] bear the arbitration fee.

With the permission of the Arbitration Tribunal, during the court session, the [Seller] amended his claim item 2, seeking compensation from the [Buyer] for the loss caused by the delay of the payment, amounting to US $14,184.64.

The [Seller] pointed out that the [Seller] had provided stone products to the [Buyer] in February, April and May, but the [Buyer] had not paid for the goods, amounting to US $47,641.22, and that on 7 August 1995, the parties signed an agreement on this payment in arrears issue and on the future method of operation after consultation.

   -    In accordance with that agreement, the [Seller] sent out the goods under Contract 012 and Contract 013.
 
   -    However, the [Buyer] did not perform his obligations under the agreement: the [Buyer] did not pay any money on the goods, whether old or new.
 
   -    On 11 September, the [Buyer] faxed an Inspection Report on the goods under Contract 012 and Contract 013 - this report did not have a signature of the inspector or any stamp of the functional department.
 
   -    The [Seller] replied to the report fairly and reasonably and requested the [Buyer] to respond. But the [Buyer] did not react or pay for the goods at all. The [Seller] called, faxed and even sent items to the [Buyer], but all these efforts failed.

The [Seller] alleged that:

   -    The [Buyer] did not provide sufficient evidence of unqualified goods according to the agreement; therefore, [Seller] should not bear the US $20,000 that the [Seller] had agreed to compensate the [Buyer] in the agreement;
 
   -    It is appropriate for the [Seller] to cancel the reserved payment of US $1,729.10 noted in the Inspection Reporter, demanding that the [Buyer] pay off the exact amount due;
 
   -    The loss caused by the delay of the payment, such as interest loss, tax return loss, collection fee and telephone and fax costs, should be compensated by the [Buyer].
 
   -    There is reasonable basis for the petition of the [Seller] and it is supported by evidence; accordingly, the [Seller] requested the Arbitration Tribunal to support it.

The [Buyer] did not present any defense.

OPINION OF THE ARBITRAL TRIBUNAL

Reviewing the relevant material and holding the court session, the Arbitration Tribunal, rendered its opinion as follows:

1. The agreement of 7 August 1995

The agreement signed by the [Seller] and the [Buyer] on 7 August 1995 and other relevant contracts are expressions of their will after consulting and were signed by the parties after confirming their contents; therefore, these provisions are legally binding. The parties shall perform their obligations according to the agreement and relevant contracts.

2. Applicable law

The [Seller] and the [Buyer] did not stipulate the applicable law when they signed the agreement and relevant contracts. Based on the fact that the place of signing and executing of the agreement and the place of holding the arbitration are all in China, according to the doctrine of the most significant relationship, the Arbitration Tribunal thinks that Chinese laws should be applied. And, considering that China and Japan are both member countries of the CISG (UN Convention on Contracts for International Sale of Goods), the CISG will also be applied.

3. The performance of the contracts by the [Seller] and the [Buyer]

According to the relevant documents submitted by the [Seller], there are five groups of goods involved. Among them are:

   -    The goods under Contract No. HD95-2033 sent on 15 March 1995 worth US $8,976.53;
 
   -    The goods under Contract No. HD95-2052 & 2055 sent on 16 April worth US $12,467.35;
 
   -    The goods under Contract No. HD95-2053 (YK008) sent on 19 April worth US $19,158.76;
 
   -    The goods under Contracts No. HD95-2075 & 2076 sent on 14 May worth US $24,650.47; and
 
   -    The goods under Contract 012 and Contract 013 sent on 20 August worth $12,684.04.

The [Seller] alleged that the [Buyer] still owes the [Seller] US $47,641.22 for four groups of goods sent between March and May, after deducting the amount that had been paid. In accordance with the agreement signed by the [Seller] and the [Buyer] on 7 August 1995, the Arbitration Tribunal concludes that:

   -    Both parties have agreed on the fact that the [Seller] had performed his obligations and that the [Buyer] owes the [Seller] US $47,641.22 in payment for goods in arrears; and
 
   -    The Inspection Report sent to the [Seller] by the [Buyer] on 11 September 1995 demonstrates that the [Buyer] confirmed the receipt of goods worth US $12,684.04 under Contract 012 and Contract 013. The price of ___ was found not in accord with what had been stipulated by the parties; however, the [Seller] accepted the request of reducing the extra payment of US $527.21. Thus, the [Buyer] should pay US $12,111.83 for those goods, which he did not pay.

The Arbitration Tribunal holds that the [Seller] delivered the goods and the [Buyer] confirmed the quantity and price of the goods sent; therefore, the [Buyer] should pay for the goods according to the payment clause of the contracts. In this case, the [Buyer] paid for part of the goods after he received the goods sent by the [Seller], leaving the rest unpaid. Pursuant to the contracts of the parties and the relevant rules in the Foreign Economic Contract Law of the People's Republic of China and the CISG, the behavior of the [Buyer] not paying has constituted a breach of contract and the [Buyer] shall bear corresponding liability.

4. Factors influencing the amount of the payment in arrears

      a) The [Buyer]'s notification of quality flaws in the four groups of goods sent by the [Seller] in March and May

The Arbitration Tribunal noted that it is written in the agreement signed by the parties on 7 August 1995 that the [Seller] admitted that there had been quality flaws in his performance, which caused loss to the [Buyer] and that the [Seller] would compensate the [Buyer] for US $20,000, which would be deducted from the payment of the goods that the [Buyer] was to pay to the [Seller]; that the [Buyer] would provide to the [Seller] at least fifteen photos of the unqualified products as evidence, as well as a list of damage. The five censers, which had been given back to the [Seller] as evidence are not sufficient. The above agreement indicated that the [Buyer] thought the [Seller] should compensate US $20,000 for the flaws of the goods; and that the [Buyer] would provide relevant evidence. However, the fact is the [Buyer] broke his promise and did not provide relevant material as evidence pursuant to the agreement. The goods referred to as flawed in the Inspection Report submitted by the [Buyer] on 11 September 1995 are under Contract 012 and Contract 013, and have nothing to do with the four groups of goods in the agreement; thus, the report is not evidence of claiming for compensation for flaws in those goods. Herein, the claim for compensation of US $20.000 by the [Buyer] became invalid. Accordingly, the [Buyer] shall pay the [Seller] for the above four groups of goods worth US $47,641.22. Deducting the five censers returned to the [Seller] which are worth US $20.00, the [Buyer] shall pay US $47,621.22.

      b) The notification of quality flaws in the goods under Contracts 012 and 013

The [Buyer] submitted an Inspection Report to the [Seller] on 11 September 1995 after he received the goods under Contract 012 and Contract 013 and claimed compensation for quality flaws of these goods and other issues. The [Seller] replied fairly and reasonably toward every claim of compensation. Except for the price of ___, agreeing to reduce the extra US $572.21, the [Seller] did not assent to the other compensation items in the report. The parties had disputes on issues of the burden of liability when ___collapsed in the loading and the multiple fallings and over the lack of inspection stamps of ___ and ___. The Arbitration Tribunal holds that, according to the "agreement", the fact the [Buyer] would have the inspector in the Fujian office inspect the goods does not mean that every piece of goods will be inspected and stamped; therefore, it cannot be objectively excluded that there are goods without stamps by the inspector. Considering the whole case, there is no further written material on this issue by the parties, and the goods were not sent back to the [Seller]. In this case, the claim for compensation for ___ and ___is not reasonable and is not supported by the Arbitration Tribunal. The collapse of the ___ in the container, is not the responsibility of the [Seller], thus has nothing to do with the [Seller]; the claim for compensation for this is also not supported. The [Buyer] shall pay the [Seller] for this group of goods worth US $12,111.83.

5. Interest loss, tax return loss and collection fee

Based on the above facts, the behavior of the [Buyer] not paying for the goods has constituted a breach of contract. According to the relevant rules in the Foreign Economic Contract Law of the People's Republic of China and the CISG, the [Buyer] shall pay the [Seller] US $59,733.05 for the goods, and compensate for the loss caused by his non-payment.

In his Request for Arbitration, the [Seller] also requested compensation for the interest loss, tax return loss and collection fee, amounting to US $14,184.64. The Arbitration Tribunal concludes:

      a) Interest loss

The Tribunal supports the request to compensate for the interest loss.

   -    The interest on the price of the goods delivered on 5 March 1995, worth $47,621.22, shall be calculated from 21 August 1995 for twelve months;
 
   -    For the goods under Contract 012 and Contract 013, worth US $12,111.83, interest on $10,897.53 shall be calculated from 10 September 1995 as requested by the [Seller] for twelve months, the remaining US $1,214.30 for ___ and ___ , which was noted to be reserved in the "Inspection Report" shall be calculated from 1 January 1996 when the [Seller] withdrew his reservation and for nine months.
 
   -    The interest rate the [Seller] used in his calculation is 15.678%, the loaning interest rate of China Bank. The Arbitration Tribunal considers this higher than the rate the [Buyer] was able to foresee, thus not applicable. The Arbitration Tribunal, takes reference of the international market rate and sets 8% as the calculation rate. The interest loss is thus $47,621.22 * 8% + 10,897.53 * 8% + 1,214.30 * 8% * 9/12 = US $4,754.34.

      b) Tax return loss

The [Seller] requested the [Buyer] to compensate for the 3% tax return loss, since the export tax return rate decrease from 17% to 14% from 1 July 1995. The Arbitration Tribunal holds that according to the export tax return policy, the tax return is calculated based on the date when the goods are sent out of customs. The former four groups of goods were sent out before 1 July 1995, while the fifth was sent after 1 July. In such circumstance, it is not reasonable to demand that the [Buyer] bear the tax return loss. As regards to what the [Seller] alleged that the tax return would be obtained in three years, there is no evidence for it, besides, it is not the responsibility of the [Buyer]. Therefore, the Arbitration Tribunal does not support the [Seller]'s request for compensation for tax return loss.

      c) Collection fee and related expenses

The Seller also sought to have the [Buyer] compensate for the plane tickets and accommodation expended to send person to Japan for collection in late August 1995 totalling US $2,542.93. The Arbitration Tribunal holds that the parties signed the agreement on August 7, the [Seller] sent person for collection in late August when the evidence which the [Buyer] was supposed to mail to the [Seller] pursuant to the agreement had not been sent and when it was not long after the fifth group of goods was sent out on 21 August, at a time when there seemed no special necessity of collection. The collection fee sought by the [Seller] is only a general business fee, and not to be compensated. The telephone and fax costs worth US $400 are also regular business costs. Therefore, this request is not supported by the Arbitration Tribunal.

6. Arbitration fee

Based on the performance of the contracts by the [Seller] and the [Buyer] and the extent to which the Arbitration Tribunal supports the claims of the [Seller], the Arbitration Tribunal concludes that 10% of the arbitration fee should be paid by the [Seller] and 90% of the arbitration fee by the [Buyer].

AWARD

1. The [Buyer] shall return the payment of the goods in arrears and its interest for US $64,487.39 to the [Seller] within 45 days from the date the award is made;

2. The petition that the [Buyer] compensate the [Seller] of the loss of tax return and the collection fee is dismissed;

3. The arbitration fee of this case is RMB ___. The [Seller] shall pay 10%; while the [Buyer] shall pay 90%. The [Seller] has paid RMB ___ in advance; the [Buyer] shall pay to the [Seller] RMB ___ or the foreign currency equivalent thereof within 45 days from the date the award is made.

The award is final.


FOOTNOTES

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

** Jun Wang, LL.M. in Corporate Law, Law School of New York University; LL.B. Law School of Peking University; B.A. in Economics, CCER (China Center for Economic Research) of Peking University.

*** 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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