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CISG CASE PRESENTATION

China 15 November 1996 CIETAC Arbitration proceeding (Oxytetrecycline case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/961115c1.html]

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

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Case identification

DATE OF DECISION: 19961115 (15 November 1996)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/52

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Hong Kong (claimant)

GOODS INVOLVED: Oxytetrecycline


Classification of issues present

APPLICATION OF CISG: Yes. In their contract, the parties failed to agree on the applicable law. However, both parties pleaded the CISG during the course of the arbitration. The Tribunal regarded this as an agreement to apply the CISG to the dispute.

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 47 ; 75 ; 77

Classification of issues using UNCITRAL classification code numbers:

47A [Buyer's right to fix additional final period for performance];

75A2 [Damages established by substitute transaction: substitute transaction after avoidance (repurchase by aggrieved buyer)];

77A [Obligation to take reasonable measures to mitigate damages]

Descriptors: Nachfrist ; Cover transactions ; Mitigation of loss

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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. 2105-2108

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.23, 57, 99, 152, 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. 83

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

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

Oxytetracycline case (15 November 1996)

Translation [*] by Meihua Xu [**]

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

   -    The arbitration clause in Contract No. 96WK-1009 (hereafter, "the Contract") signed by Claimant [Buyer], Hong Kong __ Chemical Company and Respondent [Seller], China Shenzhen __ Company; and
 
   -    The written arbitration application submitted by [Buyer] on 5 August 1996.

According to the Arbitration Rules, which became effective on 1 October 1995, the amount in dispute in this case is less than renminbi [RMB] 500,000, therefore, it is qualified to use summary procedure.

Because the two parties did not jointly appoint the sole arbitrator, the Chairman of the Arbitration Commission appointed Mr. P as the sole arbitrator, forming the Arbitration Tribunal to hear this case on 22 August 1996.

The Arbitration Tribunal examined the arbitration application, arbitration defense, and the attached evidence submitted by the two parties. On 24 October 1996, the Arbitration Tribunal decided that it was not going to hold a court session, and would process this case based on the written documents and evidence.

The Arbitration Tribunal handed down this award on 15 November 1996. The following are the facts, the Tribunal's opinion and award.

I. FACTS

On 8 February 1996, the [Seller] sent Contract No. 96WK-1009 with its seal and signature to the [Buyer]. The contents of the contract [Seller] sent to [Buyer] are:

   -    Goods: Oxytetracycline HCL BP88;
 
   -    Quantity: 1,000 kg;
 
   -    Price: Unit price: US $12.75 CFR Manila; total price: US $12,750;
 
   -    Payment: D/P at sight;
 
   -    Shipping: Goods to be shipped from Shanghai to Manila;
 
   -    Delivery date: Before 9 March 1996;
 
   -    Insurance: [Buyer] shall insure the goods at 110% of the price on receipt.
 
   -    Dispute resolution: All disputes arising from the contract should be settled by arbitration conducted by the China's International Trade and Economic Arbitration Commission following the Arbitration Rules. The arbitration place is to be at Shenzhen, China. The final decision of the arbitration has binding effect on both parties;
 
   -    Applicable law: The law of the People's Republic of China should be applied if the claimant is a Chinese corporation, or if the contract formation place or the place where the goods are located when the dispute arises is in China. Otherwise, the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG") should be applied.
 
   -    The FOB, CFR terms are based on Incoterms 1990, and both the English version and Chinese version of the contract shall have the same legal effect. However, if dispute on interpretation of the text of the contract arises, the Chinese version of the contract should be the basis.

On 9 February 1996, the [Buyer] sent Contract Confirmation No. CATHAY/QD/96/09026 to the [Seller], by which the [Buyer] accepted most provisions of this contract, except demanding that the law of Hong Kong be the applicable law.

After that, the two parties were preparing to perform the contract. On 29 February 1996, the [Buyer] gave shipping notice to the [Seller], and the [Seller] sent receipt, packing list, and the carrier's information to the [Buyer]. However, the [Seller] had not delivered the goods before 9 March 1996 as determined in the contract.

On 13 March 1996, the [Seller] sent a fax to the [Buyer], saying that the price for the goods had increased tremendously that the [Seller] was unable to perform the contract.

On 29 March 1996, the [Buyer] sent a fax to the [Seller], stating that "we asked you to deliver 1,000 kg of goods last time, but you may try 1FCL instead at a reasonable price".

On 1 April 1996, the lawyer of the [Buyer] sent a letter to the [Seller], urging it to deliver the entire goods before 15 April.

Later, on 22 April 1996, the [Buyer] signed a contract with __ Chemical Company to purchase the goods in replacement at a price of US $17/kg FOB Hong Kong.

The two parties could not reach an agreement on compensating the price difference, therefore, the [Buyer] filed this arbitration application.

POSITION OF THE PARTIES

A. [Buyer]'s position

The [Buyer] argues that on 8 February 1996, the [Seller] sent a contract form to the [Buyer], and after the [Buyer] signed and sealed the contract form, the contract between the [Buyer] and the [Seller] was concluded. The [Buyer] informed the [Seller] that the goods were to be resold to customers in Europe.

On 9 and 19 February 1996, the [Buyer] sent its contract confirmation and shipping instruction to the [Seller], in which it was added that Incoterms 1990 and the law of Hong Kong should be applied. Regarding this, the [Seller] has never raised any objections.

On 29 February 1996, the [Seller] sent receipt, packing list, and the information of the carrier to the [Buyer]. However, the [Seller] did not deliver the goods on time even though being urged by the [Buyer].

On 13 March 1996, the [Seller] sent a fax to the [Buyer], stating that the price for the goods had increased tremendously that the [Seller] was unable to deliver the goods, and that as a compensation, the [Seller] was going to give a preferential price to the [Buyer] in future business.

On 22 April 1996, after being given an additional reasonable time to perform the contract, the [Seller] still did not deliver the goods, with the result, on 22 April 1996, the [Buyer] had to purchase the goods in replacement at US $17/kg FOB Hong Kong, which incurred a price difference of US $4,550.

On 24 April 1996, the [Buyer] asked the [Seller] for compensation, which was rejected by the [Seller].

Considering the fact that after concluding the contract, the [Seller] did not perform its obligation to deliver the goods because it was unwilling to bear the risk of the price increase, which has constituted a fundamental breach of the contract, the [Seller] shall compensate the entire loss of the [Buyer]. The [Buyer] asks the Arbitration Tribunal to rule that:

1. Contract No. 96WK - 1009 signed by the two parties on 8 February 1996 shall be terminated;

2. [Seller] shall pay the price difference of US $4,550, arbitration fee of US $450, and attorneys' fee of US $250, totaling US $5,500 (Renminbi [RMB] 45, 815 calculated at an exchanging rate of 1: 8. 33);

3. [Seller] shall bear the entire arbitration fee.

[Seller]'s defense

The [Seller] argues that after signing the contract, the [Seller] was preparing to perform the contract, however, due to the price increase, the factory refused to deliver the goods at the original contract price. After several failures of negotiation with factory, on 13 March 1996, the [Seller] had to tell the [Buyer] the difficult situation it was in, and asked the [Buyer] for understanding. The [Seller] also offered a new price of US $13.60/kg FOB Shanghai to remedy the contract.

On 29 March 1996, the [Buyer] asked the [Seller] to increase the quantity of the goods to replace the original contract, and because the quality requested by the [Buyer] was too much the [Seller] could not make response immediately.

On 1 April 1996, the lawyer of the [Buyer] sent a fax to the [Seller], asking to the [Seller] continue performing the contract. The [Buyer]'s changing its mind repeatedly confused the [Seller], and the [Seller] could not make any decision.

It was impossible at that time to ask the factory to provide the goods at the original price, unless the [Buyer] agreed to increase the price to US $13.60/kg. Even though the [Seller] could not deliver the goods at US $12.75/kg, it was able to deliver 1,000kg of goods at US $13.60/kg.

On 22 April 1996, without giving notice to the [Seller], the [Buyer] purchased the replacement goods in Hong Kong at a high price of US $17/kg, which the [Seller] could not understand.

According to Article 77 of the CISG:

"A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated."

[Seller]'s position is:

1. [Seller] agrees to terminate the contract;

2. [Seller] agrees to bear the arbitration fee;

3. It was the [Buyer]'s fault to purchase the replacement goods not at US $13 60/kg FOB Shanghai, but at a much more higher price of US $17.00/kg CFR Hong Kong. The [Seller] agrees to bear the price difference between the contract price and the price of US $13.60/kg FOB Shanghai plus the shipping fee to Manila at US $0.20/kg, which is a total of US $13.80/kg, therefore, the price difference is US $1.05/kg, totaling US $1,050. The [Buyer] shall bear the remaining part.

[Buyer]'s counter argument

Regarding the [Seller]'s defense, the [Buyer] argues that the [Seller] agrees to terminate the contract and to bear the arbitration fee, and raises no objection on the evidence provided by the [Buyer]. However, both parties still have objection on the price difference.

The [Buyer] asserts that the price increase is not a good reason for the [Seller] to avoid delivering the goods. The business between the [Seller] and its factory has no connection with the business between the [Buyer] and the [Seller].

The [Seller] stated that it was able to deliver the goods at US $13.60/kg, then why didn't it deliver the goods within the additional time fixed by the [Buyer]? This is obviously the [Seller]'s excuse. If the [Seller] had delivered the goods within the additional time fixed by the [Buyer] and the [Buyer] had not accepted the goods, then Article 77 of the CISG should be applied; otherwise, it will twist the meaning of this Article.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. The [Seller] stated in its contract form that Chinese law and Incoterms 1990 should be applied, but the [Buyer] stated in its contract confirmation that the law of Hong Kong should be applied, which means the two parties did not reach an agreement on the applicable law.

However, during the arbitration, the [Seller] applied the CISG to support its assertion, and later the [Buyer] agreed to apply the CISG. The Arbitration Tribunal deems that the two parties applied the CISG during the arbitration process, which should be deemed that both parties have reached an agreement on applying the CISG, therefore, the CISG is the applicable law in this case.

2. The Arbitration Tribunal notes that the [Seller] accepted the [Buyer]'s claim to terminate the contract and to bear the arbitration fee, therefore, the Arbitration Tribunal accepts this claim.

3. The parties agree that the [Seller]'s non-delivery of the goods has violated the contract, and the [Seller] shall compensate the [Buyer], however, there is dispute on the price difference. The [Seller] argues that in the fax it sent to the [Buyer] on 13 March 1996, it offered a price of US $13.60/kg to the [Buyer], and the [Seller] was able to deliver the goods at that price. The [Buyer] has the obligation to mitigate the loss, therefore, the price difference should be calculated at US $13.60/kg.

The Arbitration Tribunal also finds that in the fax sent by the [Seller], it was stated "the current price is US $13.60/kg FOB Shanghai, please understand the situation in domestic market", which was only an explanation for its non-delivery of the goods.

In addition, since the [Seller] asserted that it could deliver the goods, it should have delivered them then, and if it had done so, there would have been no price difference.

On 29 March 1996, the [Buyer] sent a fax to the [Seller], asking it to deliver the goods, or using IFCL as a replacement. Receiving no response from the [Seller], the [Buyer] again sent a letter to the [Seller], urging it to deliver the goods within an additional time fixed by the [Buyer]. After the additional time expired, the [Buyer] purchased replacement goods.

The [Buyer]'s aforesaid performance is reasonable and follows Article 47 and Article 75 of the CISG, therefore, the [Buyer] is entitled to the price difference between the contract price and the price in replacement.

The Arbitration Tribunal also notes that the original contract was under CFR term, but the replacement contract was under FOB term. Considering the shipping fee and using the calculation by the [Seller], the shipping fee is US $0.20/kg and the price difference the [Buyer] is entitled to receive is: [(17.00 + 0.20) - 12.75] 1,000 kg = US $4,450

4. [Buyer] claims its attorneys' fee of US $250. However, because the [Buyer] did not provide the evidence for this claim, the Arbitration Tribunal does not accept it.

5. [Seller] shall bear the arbitration fee.

III. THE AWARD

The Arbitration Tribunal rules that

(1)     Sales Contract No. 96WK - 1009 sales contract between the parties shall be terminated;
(2) [Seller] shall pay the price difference of US $4,450;
(3) The Arbitration fee in this case is RMB __, which should be borne by the [Seller]; [Buyer] has paid RMB __ in advance, therefore, [Seller] shall pay back RMB __ to the [Buyer];

[Seller] shall pay the aforesaid sum within thirty days after this award takes effect, otherwise, 8% annual interest shall be added on US $ and 12% annual interest shall be added on the RMB payment.

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 is Hong Kong is referred to as [Buyer]; Respondents 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 the People's Republic of China (Renminbi) are indicated as [RMB].

** 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 January 23, 2007
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