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CISG CASE PRESENTATION

China 25 November 1996 CIETAC Arbitration proceeding (Chromium ore case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/961125c1.html]

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

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Case identification

DATE OF DECISION: 19961125 (25 November 1996)

JURISDICTION: Arbitration ; P.R. China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1996/02

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Switzerland (respondent)

BUYER'S COUNTRY: P.R. China (claimant)

GOODS INVOLVED: Chromium ore and ferro chromium


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 77 [Also cited: Article 61(2) ]

Classification of issues using UNCITRAL classification code numbers:

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

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

Descriptors: Damages ; Foreseeability of damages ; 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): Zhongguo Guoji Jingji Maoyi Zhongcai Caijueshu Xuanbian [Selected Compilation of Awards of CIETAC]: (1995-2002), Law Press, at page 386

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.63, 120, 158, 215, 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), Shanghai Commission Arbitration Award

Chromium ore case (25 November 1996)

Translation [*] by YUAN Xiaotong [**]

Edited by Howard Yinghao YANG [***]

In accordance with the arbitration clauses contained in the contracts (No. 952W4034 and No. 952W4035) which were signed by Zhejiang XX Industrial (Group) Co. of China (the Claimant) and XX Resource Ltd. Co. (the First Respondent) on 24 June 1995 and Claimant's Application for Arbitration, the China International Economic & Trade Arbitration Commission, Shanghai Commission ("CIETAC Shanghai Commission") accepted this arbitration case arising out of the contracts aforesaid.

Claimant appointed its arbitrator but First Respondent did not. The two parties did not jointly appoint the presiding arbitrator within the time limitation. In accordance with the Arbitration Rules of CIETAC, the Chairman of the Arbitration Commission appointed an arbitrator for First Respondent and a third arbitrator as the presiding arbitrator. The presiding arbitrator and the two appointed arbitrators formed an arbitration tribunal on 18 June 1996 to jointly hear the case.

After the Shanghai Commission accepted the case, Claimant submitted to the Commission its application for property preservation. In accordance with the Arbitration Rules of CIETAC and the Civil Procedure Law of the People's Republic of China, the Shanghai Commission forwarded this application to the court of the appropriate jurisdiction for their consideration.

The Arbitration Tribunal held the oral hearing for this case on 6 August 1996 in Shanghai. Claimant's representative attended the hearing whereas First Respondent did not appear. The default hearing was conducted in accordance with the Arbitration Rules. Claimant addressed the facts of the case and answered the questions raised by the Tribunal. After the hearing, upon the order of the Arbitration Tribunal, the Secretariat of the Commission informed First Respondent, by letter, of the circumstances presented in the hearing and set forth the time limit for First Respondent as a second chance to render its defense which First Respondent did not answer. Claimant supplemented the materials for the case after the hearing. The Arbitration Tribunal thereby rendered this award based on the facts.

The facts of the case, the opinion of the Arbitration Tribunal and the award are presented as follows.

I. FACTS OF THE CASE

The Claimant in this case is the Zhejiang XX Industrial (Group) Co., the First Respondent is the XX Resource Ltd. Co. of the United States, and the Second Respondent is the XX Mineral Co. of the U.S. The contracts at dispute were signed by the Claimant and the First Respondent, but Claimant believed the Second Respondent was the parent company of the First Respondent. As a strategy to reduce taxes, the parent and the affiliated companies regularly signed international sales contracts with Claimant in the name of the affiliated company. The contracts in dispute were also signed in the same manner aforesaid. Therefore, Claimant listed the XX Mineral Co. of U.S. as the Second Respondent.

Claimant and First Respondent concluded an import contract of chromium ore (No. 952W4034) (hereinafter "Contract 034") on 24 June 1995 in Hangzhou, China. First Respondent [seller in this contract] would provide Claimant [buyer in this contract] 10,000 tons of chromium ore mined from Turkey at the price of US $220 per ton CNF FOB Ningbo or Shanghai. The delivery date was August 1995. Claimant was obligated to pay with an irrevocable letter of credit in the sum of US $2,200,000.

On the same day of conclusion of Contract 034, Claimant and First Respondent entered into another export contract of ferro chromium (No. 95ZW4035) (hereinafter "Contract 035"). Contract 035 provided that Claimant (the seller under Contract 035) would sell ferro chromium to First Respondent (the buyer under Contract 035). The goods included two types of ferro chromium: 1,500 tons of high-carbon ferro chromium at the price of US $0.70 per pound of chromite FOB ST Shanghai or Ningbo, and 1,000 tons of low-carbon ferro chromium with the price of US $1.03 per pound of chromite FOB ST Shanghai or Ningbo. The sum of the Contract 035 amounted to US $2,750,592. Date of delivery was October to December 1995. Ninety-five percent of the price would be paid by an irrevocable letter of credit at sight. The quality & quantity certificate of goods issued by the China Commodity Inspection Bureau was the ultimate basis for the payment.

After the conclusion of the contracts, during the performance of Contract 034, First Respondent delayed its delivery of the goods and the goods did not conform to the requirements in Contract 034. Besides, during the performance of Contract 035, First Respondent delayed sending a ship to take the goods, declined to accept the goods and rejected to pay. Claimant sent several letters to request compensation from the First Respondent, none of which were successful .Claimant finally filed this arbitration in accordance with the arbitration clause in the contracts to ask the Tribunal to decide that:

  1. First Respondent had breached Contracts 034 and 035 and Claimant had the right to resell the goods under Contract 035;
  2. First Respondent should compensate Claimant the actual economic loss, arising out of its breach of the two contracts, with the sum of US $1,061,490.19;
  3. First Respondent should bear all the arbitration fees;
  4. In accordance with the Arbitration Rules, First Respondent should pay for the reasonable expenses incurred by Claimant including attorneys' fees and travel expenses.

II. ARGUMENTS OF THE PARTIES

     Claimant's arguments

During the performance of Contract 034, Claimant opened the [L/C] in compliance with the contract. But First Respondent shipped the goods on 24 September 1995 which was twenty-four days later than the date of delivery stipulated in the contract. In addition, it took more than sixty days for shipping and the goods finally reached Ningbo on 26 November 1995. The particle size of the goods delivered by First Respondent was examined by the Ningbo Inspection Bureau of Import and Export Commodity and was found to be inconsistent with the requirements of the contract and the [L/C]. Claimant claimed compensation against First Respondent within the time limit stipulated in the contract.

During the performance of Contract 035, First Respondent did not duly dispatch a ship to take the goods. The goods which were well prepared by Claimant consequently failed to be shipped in the end of 1995 and were not shipped by First Respondent until 6 February 1996. The goods were appraised by the China Commodity Inspection Bureau ("CCIB") to be compliant with the contract and the [L/C].

Claimant's claims for the economic loss included:

     1. The loss under Contract 034

On account of First Respondent's delay of delivery, Claimant was unable to export ferro chromium, which was processed from the imported ferro chromium ore, before 31 December 1995. Claimant thereby suffered the loss of US $146,572.20 for the custom duty refund. Because the particle size of the chromium ore did not conform to the requirements of the Contract 034, Claimant suffered direct economic loss of US $54,489.97.

     2. The loss under Contract 035

  1. Because First Respondent delayed taking the ferro chromium, the 1,942 tons of goods prepared by Claimant had to be stored at the loading port for 45 days. Claimant's loss for interest and storage expenses amounted to US $54,876.30.

  2. Because First Respondent refused to pay for the shipment fees and the purchase price for the ferro chromium under Contract 035, Claimant had to resell the ferro chromium, which had been shipped to the United State, to another company. The loss arising from the price difference equaled US $882,877.40.

First Respondent breached the contracts with Claimant and also violated the relevant provisions of the United Nations Convention on Contracts for the International Sale of Goods (CISG) and INCOTERMS 1990. First Respondent should bear the liability for its breach of contract.

     First Respondent's arguments

First Respondent did not answer.

III. OPINION OF THE ARBITRATION TRIBUNAL

     1. Applicable law

The contracts at dispute contain no provisions on the governing law. The place of conclusion of the contracts, the loading and destination ports, and the place of arbitration are all within P.R. China. According to the private international law principle of closest relationship, the Arbitration Tribunal decides that the laws of P.R. China shall be applied to this case. Considering that the places of business for Claimant and First Respondent are both within the Contracting States of the CISG (P.R.China and Switzerland, respectively), the CISG will prevail if there is any conflict between the Law of the People's Republic of China on Economic Contracts Involving Foreign Interests and the CISG. The CISG will apply in the areas where the Law of the People's Republic of China on Economic Contracts Involving Foreign Interests is silent.

     2. Whether the Second Respondent is a party to the present dispute

Both contracts were signed by Claimant and First Respondent. No signature of the Second Respondent appeared on the Contracts. Therefore, the Second Respondent is not a party to the present dispute.

     3. Compensation for the violation of Contract 034

The Arbitration Tribunal finds that First Respondent delayed its delivery for twenty-four days which is the violation of Contract 034First Respondent should be liable for. In addition, after the goods arrived in the destination port, the local inspection bureau determined that the particle size of the goods did not conform to the requirements under the Contract. The Arbitration Tribunal decides First Respondent should compensate Claimant for the quality of the goods.

The Arbitration Tribunal declines to support Claimant's claim for custom duty refund. Since Contract 034 is an import contract of chromium ore, it has no relevance with custom duty refund. Though Contracts 034 and 035 were signed on the same day, they are independent of each other. Claimant has no reasonable basis for its claim for the custom duty refund under Contract 034. Furthermore, the adjustment of custom duty refund is the act of government which is unforeseeable by the parties at the time of conclusion of the contract.

Claimant claimed the compensation for the loss arising from the inconsistency of the particle size of the chromium ore. According to the terms of compensation in the Contract and the evidence provided by Claimant's factory of processing, First Respondent should compensate for Claimant's loss which amounted to US $54,489.87.

     4. Compensation for the violation of Contract 035

Contract 035 provided that the shipping time of the ferro chromium was between October and December 1995. First Respondent was obligated to open a [L/C] for 95% of the total price thirty days prior to the shipping time. The [L/C] for the remaining 5% was to be issued fifteen days before the shipping time. First Respondent opened the [L/C] for the 1,500 tons of high-carbon ferro chromium with the total amount of US $1,388,910.60 on 8 November 1995. The expiration date of this [L/C] was 15 January 1996. On 13 December 1995, First Respondent issued the [L/C] for the low-carbon ferro chromium with the sum of US $1,362,455.00. And the expiration date was 29 February 1996. Claimant completed processing 11,342 tons of high-carbon ferro chromium and 600 tons of low-carbon ferro chromium in December 1995 and consequently informed First Respondent to schedule the shipment for the goods. First Respondent failed to charter a ship to take the goods before 31 December 1995 which was the latest date of shipment stipulated in the Contract. First Respondent thereby had breached the Contract. Since First Respondent did not pay for the freight, the shipment company exerted a lien on the goodst. The Arbitration Tribunal rules Clainant has the right, under Article 18 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interests and Article 77 of CISG, to resell the goods, which were shipped to the destination port but declined by First Respondent, to mitigate the loss. Under Article 61(2) of the CISG, Claimant may also claim damages.

Under Contract 035, the high-carbon ferro chromium had not been resold and the low-carbon ferro chromium had been resold. The Arbitration Tribunal rules, in accordance with the international practice for sale of goods damages that the loss is computed as the difference between the contract price and the international market price. The total amount of loss was US $527,589.22.

     5. The arbitration fees and the attorneys' fees

Based on the extent of support the Arbitration Tribunal gives to Claimant's claims and the liability which should be borne by First Respondent, the arbitration fees should be apportioned as follows: 80% by First Respondent and 20% by Claimant. First Respondent also should pay for the attorneys' fees of Claimant.

IV. AWARD

The Arbitration Tribunal hereby decides:

  1. First Respondent delayed delivery of the goods under Contract 95ZW4034 and the goods delivered by First Respondent did not conform to Contract 95ZW4034. First Respondent delayed sending a ship to take delivery of the goods, declined to pay for the freight and failed to pay the price. First Respondent's behavior aforesaid constituted breach of contract. Claimant has the right to resell the goods under Contract 95ZW4035.
  2. First Respondent should compensate Claimant US $54,487.87 for its violation of Contract [95ZW4034].
  3. First Respondent should compensate Claimant US $527,589.22 for its violation of Contract 95ZW4035.
  4. First Respondent should compensate Claimant RMB 90,000 for the attorneys' fees in this arbitration proceeding.
  5. The arbitration fees should be shared, 80% by First Respondent and 20% by Claimant.

This award is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. 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]. Weight unit appears as mt. (metric ton) or ton.

** YUAN Xiaotong, LL.M. candidate, Faculty of Law McGill University, Montreal Canada, 2001 to present; LL.B. Renmin University of China Law School, 2001.

*** Howard Yinghao YANG is an Associate with the New York office of Debevoise & Plimpton LLP.

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