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CISG CASE PRESENTATION

China 1997 Shanghai High People's Court (Akefamu v. Sinochem Hainan) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970000c1.html]

Primary source(s) of information for case presentation: Wu Dong

Case Table of Contents


Case identification

DATE OF DECISION: 19970000 (1997)

JURISDICTION: China (PRC)

TRIBUNAL: Shanghai High People's Court

JUDGE(S): YANG Cheng (Chief Judge); TIAN Wencai, JI Jialin (Agent Judges)

CASE NUMBER/DOCKET NUMBER: (1997) Hu Gao Jing Zhong Di No. 93 t

CASE NAME: Akefamu Co. Ltd. v. Sinochem Hainan Co. Ltd.

CASE HISTORY: 1st instance Shanghai No. 2 Intermediate People's Court 1996 [reversed]

SELLER'S COUNTRY: Peoples' Republic of China (defendant)

BUYER'S COUNTRY: Netherlands (plaintiff)

GOODS INVOLVED: Ranitidine Hydrochloride


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 29 ; 38 [Also cited: Articles 24 ; 35 ; 78 ]

Classification of issues using UNCITRAL classification code numbers:

8A [Intent of party making statement or engaging in conduct];

29A [Parties by agreement may modify or terminate the contract];

38A ; 38C [Buyer's obligation to examine goods ; Deferral of examination in case of redirection or redispatch]

Descriptors: Intent ; Modification of contract ; Examination of goods

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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): Click here for Chinese text of case; see also <http://www.lawyee.net>; CISG-China Case [HPC/21]: <http://aff.whu.edu.cn/cisgchina/en/news_view.asp?newsid=80>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

Shanghai High People's Court [1997]

Translation [*] by Wu Dong [**]

Edited by Zheng Xie [***]

-   Proceedings
-   Position of the parties
-   Findings of the Court of First Insance
-   The appeal
-   Holding of the Appellate Court

[PROCEEDINGS]

FIRST INSTANCE. Shanghai No. 2 Intermediate People's Court 1996; (1996) Huerzhongjingchuzi No. 403; APPELLATE COURT. Geng Peiyu (Chief Judge); Li Shengxin, Jiang Nan (Assistant Judges). PARTIES. Plaintiff (Appellant): Akefamu Co. Ltd. [Buyer]; Defendant (Appellee): Sinochem Hainan Co. Ltd. [Seller]; Third Party (Appellee): Changzhou Dabang Medical Chemical Co., Ltd.

[POSITION OF THE PARTIES]

[Buyer]'s position. On 12 January 1994, [Buyer] and [Seller] concluded an international sales contract. After executing the contract, [Buyer] and [Seller] performed the obligations of payment and delivery, respectively, according to the contract. However, because there were 3,920 kilograms of Ranitidine Hydrochloride that did not conform to the contract, [Buyer] raised an objection to the quality on 26 October 1994, which was admitted by [Seller]. On 25 August 1995, the parties entered into another contract which stipulated that [Seller] should deliver 9,500 kilograms of Cimetidine to replace the aforesaid 3,920 kilograms of Ranitidine Hydrochloride. However, [Seller] did not deliver the substitute goods according to that contract. After many failures of negotiation, [Buyer] requested the Court to require [Seller] to deliver substitute goods or refund to [Buyer] US $191,688, and to bear the loss of interest, to compensate the loss of [Buyer]'s profit US $23,000, and to pay other expenses incurred by [Buyer], including a storage fee, the lawyers' fee and traffic expenses, totaling US $10,000.

[Seller]'s position. In response, [Seller] asserted that the quality inspection report, which was the basis of [Buyer]'s allegations, was issued by the inspection institution at a transferring port, not the one stipulated in the contract. [Seller] had not known that [Buyer] would transship the goods. Therefore, this report had no effect in this case. The fax provided by [Buyer] to prove [Seller]'s acknowledgement of [Buyer]'s objection to the quality of the goods had not been stamped by [Seller]'s official seal, so it was not a valid document. As to the replacement contract, [Seller] asserted that [Seller] had never entered into such a contract with [Buyer]; the person signing that contract was not authorized by [Seller]; therefore, that contract should be regarded as null and void.

The third party to this litigation, Changzhou Dabang Medical Chemical Co., Ltd. (hereinafter, "Dabang"), asserted that Dabang and Changzhou Kangfu Chemical Co., Ltd. were two separate legal persons, and that it had no legal relation with [Buyer] or [Seller].

FINDINGS OF THE COURT OF FIRST INSTANCE

After hearing this case, the Court of First Instance found that on 12 January 1994, [Seller] and [Buyer] concluded international sales contract No. NO94XNC2936NA 011. It stipulated that:

   -    [Seller] should deliver 5,000 kg of Ranitidine Hydrochloride BP88/USP22;
   -    The price was US $48.90 per unit CIF (Rotterdam); the total price was US $244,500.

The contract further provided that [Seller] should deliver 2,000 kg in January 1994, and 2,000 kg in February 1994, and 1,000 kg in March 1994. The destination port in the contract was Rotterdam. There was no stipulation on commodity inspection.

[Seller] delivered 2,000 kg of goods on 21 January, 27 February 1994 each, and 1,000 kg of goods on 12 May 1994. [Buyer] accepted the goods and paid the contract price. After receiving the goods, [Buyer] shipped the goods to its client in Bulgaria.

On 26 October 1994, [Buyer] submitted to [Seller] its objection on quality alleging that its customers rejected part of the goods.. [Buyer] also provided an analysis report issued on 1 November 1994 by the Bulgarian National Medicine Inspection Institution, which proved that part of the goods provided by [Seller] did not conform to the quality standard under the contract.

On 28 March 1995, [Seller] sent a letter to [Buyer] asserting that the third party in the present case was the direct responsible person, [Buyer] should negotiate with it directly on the substitute goods and [Seller] would still bear any legal liabilities as a party to the contract. On 12 January 1994, [Seller] and Changzhou Kangfu Chemical Co., Ltd. entered into a sales contract under which the latter would supply 5,000 kg of Ranitidine Hydrochloride to [Seller]. The third party, Dabang, and Changzhou Kangfu Chemical Co., Ltd. were two separate legal persons.

The Court of First Instance held:

1. The international sales contract between the [Buyer] and the [Seller] was validly concluded and should be complied with.

2. After [Buyer] received the goods, [Buyer] did not take reasonable measures to inspect them at the contract destination port (Rotterdam) but forwarded them directly to its client in Bulgaria. [Seller] did not know this when [Seller] concluded the contract. [Buyer]'s claim for compensation based on the report by the Bulgarian National Medicine Inspection Institution could therefore not be supported by the Court.

3. Although [Buyer] asserted that it had entered into a substitute contract with [Seller]. Mr. TANG Zhongjun, who was alleged to have signed this contract on behalf of [Seller], had not been authorized by [Seller] in advance, nor was his action ratified by [Seller] later. Therefore, the Court held that a replacement contract between [Seller] and [Buyer] did not exist. Thus, the Court did not support this claim of the[Buyer].

4. The Court held that the third party, Dabang, had no legal relation with the [Buyer] or [Seller], so should not bear any legal liability.

According to Article 38(1) and (3) of CISG, the Court of First Instance ruled that [Buyer]'s claims were dismissed and that the litigation fee of renminbi [RMB]19,261 should be borne by [Buyer].

THE APPEAL

In the appeal, [Buyer] asserted:

      (1) The following facts were not found by the Court of First Instance:

-    The quality defects of the goods were acknowledged by [Seller] itself;
 
- During the two years' trade relation between [Seller] and [Buyer], Mr. Tang Zhongjun had represented [Seller] all the time;
 
- The evidence proved that Dabang was relevant to the present case.

      (2) The Court of First Instance mistakenly applied Article 38(1) and (3) of the CISG.

During the appeal, [Seller] and Dabang did not raise any new arguments or reasons in response.

[HOLDING OF THE APPELLATE COURT]

The Appellate Court investigated according to the main disputed facts and found that:

      Tang Zhongjun was the manager of [Seller]'s export department and took charge of the present transaction on behalf of [Seller]. He signed Sales Contract No. A100/9085 between [Seller] and [Buyer] on behalf of [Seller].

      After [Seller] received [Buyer]'s fax about the quality objection, on 28 March 1995 [Seller] sent a letter to [Buyer] stating that the 5,000 kg of Ranitidine Hydrochloride supplied by [Seller] to [Buyer] had been purchased from Dabang and that Dabang acknowledged the quality defects and agreed to take the goods back in June 1995, according to [Buyer]'s request.

      From December 1994 on, [Seller], [Buyer] and Dabang negotiated many times on the solution on the compensation. [Seller] asked [Buyer] to return the 3,920 kg of Ranitidine Hydrochloride directly to Dabang advising that [Seller] was still a party to the contract and would bear its own liabilities. [Seller] stamped its official seal on this letter and Tang Zhongjun signed it. On 24 August 1995, [Seller] (Party A), Dabang (Party B) and [Buyer] (Party C) concluded an agreement for the replacement of the 3,920 kg of Ranitidine Hydrochloride. This agreement included the following main provisions:

(1) Due to the quality defects, Dabang agreed to replace 3,920 kg of Ranitidine Hydrochloride with 9,500 kg of Cimetidine A/USP22;

(2) The time for replacement of the goods should be 10 September 1995;

(3) [Seller] would bear the freight and insurance premium for the transportation of the 3,920 kg of Ranitidine Hydrochloride from Rotterdam to Shanghai;

(4) Tang Zhongjun should sign on behalf of [Seller], Wang Jianguo should sign on behalf of Dabang, and M.J.V.D. Heetkamp should sign on be behalf of [Buyer].

On 18 September 1995, ChenYonglin, the legal representative of Dabang, sent a fax to Tang Zhongjun stating that Dabang had resumed its production of Cimetidine, but there were some quality problems. To be prudent, he requested [Seller] to notify [Buyer] that they could not deliver the substitute goods in September and that the delivery time would be notified as soon as possible after they settled the quality problems. On the same day, Tang Zhongjun sent a fax to [Buyer] and forwarded the aforesaid fax sent by Chen Yonglin, and requested [Buyer] not to deliver the first installment of Ranitidine Hydrochloride until [Buyer] received the first installment of Cimetidine. In addition, the Appellate Court found that Chen Yonglin, the legal representative of Dabang, was also the legal representative of Changzhou Kangfu Chemical Co., Ltd. The other facts identified by the Court of First Instance were true.

The Appellate Court held:

-   Because Tang Zhongjun was the manager of [Seller]'s export department and the person responsible for the transaction in the present case, his conduct dealing with the dispute arising from the contract according to his authority should be deemed as his business conduct, and the result should be borne by [Seller].
 
- Though [Buyer] did not inform [Seller] that [Buyer] would forward the goods to a third party, when [Buyer] raised the quality objection to [Seller], [Seller] and Dabang acknowledged the quality defects, negotiated on the quality problem and concluded a replacement agreement. Therefore, [Buyer] did not lose its right to claim that the goods did not conform to the contract. Based on this, the dismissal of [Buyer]'s claim pursuant to Article 38 CISG by the Court of First Instance was not appropriate.
 
- Dabang concluded a replacement agreement with [Seller] voluntarily, so the agreement was an expression of its free will and intent. The legal representative of Dabang also confirmed the replacement in the fax to Tang Zhongjun dated 18 September 1995. Therefore, the replacement agreement should be regarded as valid.
 
- [Buyer] requested [Seller] and Dabang to perform the obligation of replacement or reimbursement, bear the loss of interest and compensate for the anticipated profits, which were conforming to the law and should be supported. As to the [Buyer]'s other claims, as [Buyer] had not submitted any relevant facts or evidence to the Court, the Court could not support them.

According to Articles 24, 35(1), 78 of the CISG; Articles 106 para.1, 112 para.1 of the General Principles of the Civil Law of the People's Republic of China; Articles 153 para.1 item 2 & 3, 158 of the Civil Procedure Law of the People's Republic of China, the Appellate Court hereby decides:

1. The civil judgment under (1996) Huerzhongjingchuzi No.403 issued by Shanghai No.2 Intermediate People's Court of the People's Republic of China is overruled;

2. [Seller] should deliver the 9,500 kg of Cimetidine A/USP22 to [Buyer] within two months after this judgment is served; [Buyer] should return the 3,920 kg of Ranitidine Hydrochloride to [Seller] within two months of the acceptance of the aforesaid goods; the freight and insurance fees incurred due to the replacement should be borne by [Seller];

3. Dabang should deliver the 9,500 kg of Cimetidine A/USP22 to [Seller] within ten days after this judgment was served; Dabang should pay [Seller] the freight and insurance fee for transporting the 9,500 kg of Cimetidine from Shanghai to Rotterdam; [Seller] should deliver the 3,920 kg of Ranitidine Hydrochloride to Dabang within ten days of the acceptance of the above goods;

4. If [Seller] does not fulfill its obligation under item 2) of this judgment, [Seller] shall refund [Buyer] US $191,688 within seventy days after this judgment was served; [Seller] should also compensate for [Buyer]'s loss of interest (from December 1994 to the performance date, at the rate of 0.5% per month); [Seller] should compensate for [Buyer]'s loss of anticipated profits of US $23,000.

5. If Dabang does not fulfill its obligation under item 3) of this judgment, Dabang should bear joint liability as to the payment under item 4).

The litigation fee of the first instance and appeal was 39,242 RMB in total. [Seller] should bear 19,621 RMB and Dabang should bear 19,621 RMB.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff-Appellant of Netherlands is referred to as [Buyer]; Defendant-Appellee Sinchem Hainon Co. Ltd of the PR 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].

** Wu Dong, LL.M. candidate, Peking University School of Law, Beijing, P.R. China, 2001 to present; LL.B. Peking University School of Law, 2001.

*** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.

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Pace Law School Institute of International Commercial Law - Last updated May 11, 2010
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