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CISG CASE PRESENTATION

China 6 March 1997 CIETAC Arbitration proceeding (Men's shirts case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970306c1.html]

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

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Case identification

DATE OF DECISION: 19970306 (6 March 1997)

JURISDICTION: Arbitration ; P.R. China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/01

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Italy (respondent)

GOODS INVOLVED: Men's shirts


Case abstract

PRC: China International Economic & Trade Arbitration Commission (CIETAC), Shanghai Commission, 6 March 1997

Case law on UNCITRAL texts (CLOUT) abstract no. 712

Reproduced with permission of UNCITRAL

Abstract prepared by Wei Xia YANG

The case deals with the reasonable measures to mitigate damages, the calculation of damages following a substitute transaction after avoidance and the calculation of interest rate of loss.

An Italian buyer and a Chinese seller signed three sales confirmation letters for the purchase of men's shirts. After the goods were delivered, the buyer refused to accept the delivery and to pay the purchase price on the grounds of non-conformity of the goods and delayed delivery. After storing the goods at the port of destination for some time, the seller had to transport the goods back to China to reduce the loss and resell them at a discount price. The seller claimed for losses arising from the buyer's breach of contract with the assertions that the buyer carried out the inspection before the goods were loaded on ship and the original shipment date was postponed at the buyer's request because the buyer required modification of some provisions of the confirmation letters.

The Arbitration Tribunal held that the contract was governed by the CISG as both parties have their place of business in contracting states. As the buyer breached the contract due to non-payment, it was to be held responsible for the seller's losses under Article 74 CISG. These included the price difference, the storage expenditures and the freight. With reference to Article 75 and 77 CISG, the Arbitration Tribunal stated that the seller had the right to ship the goods back to China and resell the goods in order to mitigate damages. According to Article 78 CISG, the Arbitration Tribunal also upheld the seller's claims for interest.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 75 ; 77 ; 78

Classification of issues using UNCITRAL classification code numbers:

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

75A1 [Damages established by substitute transaction after avoidance: resale by aggrieved seller];

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

78B [Rate of interest]

Descriptors: Damages ; Cover transactions ; Mitigation of loss ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

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, pages 25-33

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.123, 136, 158, 185, 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

Men's shirts case (6 March 1997)

Translation [*] by YUAN Xiaotong [**]

Edited by Howard Yinghao YANG [***]

  1. Facts of the Case
  2. Opinion of the Arbitration Tribunal
  3. The Award

In accordance with the arbitration clauses contained in three sales confirmation letters (No. 95/SDE052, 95/SDE054 and 95/SDE055) between Claimant [Seller], Shanghai ××International Trade Ltd. Co., and Respondent [Buyer], Italy ×× Co. and Claimant's Application for Arbitration, the China International Economic & Trade Arbitration Commission, Shanghai Commission ("CIETAC Shanghai Commission") accepted this arbitration case on 18 April 1996.

The arbitration procedure observed the Arbitration Rules of China International Economic & Trade Arbitration Commission ("CIETAC Arbitration Rules") effective as of 10 May 1998.

Claimant [Seller] appointed its arbitrator, but Respondent [Buyer] did not. The Chairman of the Arbitration Commission appointed an arbitrator for [Buyer]. The two parties neither jointly appointed nor entrusted the Chairman to appoint the third arbitrator. In accordance with the Arbitration Rules, the third arbitrator was appointed by the Chairman as the presiding arbitrator. The presiding arbitrator and the two appointed arbitrators formed an arbitration tribunal on 7 June 1996 to jointly hear the case.

The Arbitration Tribunal reviewed the application and documentation submitted by [Seller]. [Buyer] sent a fax to CIETAC on 24 May 1996 to inform that it had received the arbitration notification and related documents. In its fax, [Buyer] contended that the story presented by [Seller] was not true and stated that it would provide authentic documentary evidence for the Arbitration Tribunal to ascertain the facts of the case. But [Buyer] neither submitted any written answer to the Tribunal after its fax nor raised any counterclaims. On 28 June 1996, the Secretariat of CIETAC Shanghai Commission reminded [Buyer] of the importance of submitting its written defense and explained the composition of the Arbitration Tribunal to [Buyer]. But [Buyer] still made no response.

The Arbitration Tribunal held the first oral hearing on 9 July 1996 in Shanghai. [Seller]'s representative attended the hearing, but [Buyer] did not appear. Due to the fact that the notification of composition of the Tribunal and the time of hearing had been served on [Buyer], the Arbitration Tribunal proceeded with a hearing by default in accordance with Article 42 of the CIETAC Arbitration Rules. [Seller] made its statement on the facts and answered the questions raised by the Tribunal. After the first hearing, [Seller] submitted supplemental documents within the period set forth by the Tribunal. These documents were also delivered to [Buyer] by the Secretariat in a timely fashion and [Buyer] did not put forward any objections. Because the goods under the contracts were returned to the [Seller] which hence changed the subject of claim, the [Seller] submitted an application to amend the pleadings, which was also served on [Buyer] by the Secretariat. The Arbitration Tribunal approved [Seller]'s application to amend its arbitration claims in accordance with Article 19 of the CIETAC Arbitration Rules and decided to hold the second oral hearing on 10 December 1996. On 14 November, the Secretariat sent the hearing notification to [Buyer] through courier service and requested [Buyer] again to attend the hearing or submit its written defense by fax on 6 December 1996. However, [Buyer] again failed to appear at the hearing and [Seller]'s representative attended the hearing. In accordance with Article 42 of the Arbitration Rules, the Tribunal proceeded with the hearing by default. [Seller]'s representative made detailed explanations on the application to amend its arbitration claims and answered the Tribunal's questions.

The arbitration of this case had been finalized. Based on the facts, the Arbitration Tribunal made its award. The details of the case, the opinions of the Arbitration Tribunal and the award are presented as follows.

I. Facts of the Case

On 11 April 1995, [Seller] and [Buyer] signed three sales confirmation letters (No. 95/SDE052, 95/SDE054 and 95/SDE055) through which [Seller] would sell a variety of men's shirts to [Buyer].

   -    It was stipulated in confirmation letter No. 95/SDE052 that [Seller] would provide three categories of men's shirts to [Buyer], including: (1) men's shirts in solid Oxford, style No. 1230, in the total amount of US $37,800; (2) men's shirts in Y/D Oxford, style No. 1231 and 1232, in the total amount of US $49,000; and (3) men's shirts in print light flannel, style No. 1241, 1242, 1243 and 1245, in the total amount of US $25,350.
 
   -    It was stipulated in confirmation letter No. 95/SDE054 that [Seller] would provide men's shirts in heavy flannel Y/D (style No. 1255, 1256, 1257, 1258, 1259, 1260, 1261 and 1262), in the total amount of US $136,053.
 
   -    And it was stipulated in confirmation letter No. 95/SDE055 that [Seller] would provide men's shirts in heavy flannel Y/D (style No. 1264, 1265, 1266, 1269, 1270, 1271 and 1273), in the total amount of US $123,709.50.

All three confirmation letters stipulated the delivery term of CIF "La Spezia by Sea"; the time of shipment was June and July of 1995. Shipment in batches and transshipment was permitted. The parties further agreed that any claims against the quality of the goods should be raised within 30 days after the goods arrived at the destination port. The dispute arose in the performance of the contracts when [Buyer] declined to make payments against the presentment of shipment documents after [Seller] delivered the last installment of the goods. No settlement was reached through negotiations, [Seller] therefore filed an arbitration application with the CIETAC Shanghai Commission.

[Seller] stated:

During the performance of the contracts, the parties modified the terms for quantity of the goods and time of shipment in the three sales confirmation letters, including:

  1. Cancelling the order for men's shirts in solid Oxford (style No. 1230) and the order for men's shirts in Y/D (style No. 1231, 1232) under confirmation letter No. 95/SDE052;

  2. Cancelling the order for style No. 1258, 1262, 1266 and 1270 under confirmation letters No. 95/SDE054 and 95/SDE055; and

  3. Postponing the time of shipment which was originally stipulated to be June and July 1995.

Since the goods needed to be transshipped in Hong Kong, [Buyer] requested that the goods should be shipped at the latest by the ship Senator which would leave Hong Kong on 1 September 1995 and arrive at La Spezia Port on 25 September 1995. The goods totaled US $173,321.14 upon the shipment of the last batch of the goods. The parties agreed that 50% of the price should be paid through T/T before the goods were shipped and the other 50% of the price should be paid through D/P.

[Buyer] did the inspection before the goods were loaded on the ship. By fax on 20 August 1995, [Buyer] confirmed to accept the goods and requested the shipment to Italy, but 50% of the price was not paid through T/T before the shipment as stipulated. In order not to miss the ship Senator, as designated by [Buyer] which was leaving from Hong Kong on 1 September 1995, [Seller] sent out all the goods on 19 August 1995 with total amount of US $173,321.14. However, when the goods arrived at the destination Port of La Spezia, [Buyer] declined to pay against the presentment of documents. In January 1996, Shanghai ×× Law Firm sent an attorney opinion letter on behalf of [Seller] to urge [Buyer] to perform its payment obligation. But [Buyer] still declined to take the delivery and pay for the goods under the excuses that the delivery was delayed and that the goods did not comply with the requirements in the contracts.

In addition, [Buyer] ordered a batch of trousers from Changzhou ×× Fabric Ltd. Co. ("Fabric Company") in January 1995, but the Fabric Company was unable to start production without enough funding to purchase the raw materials. After negotiations with [Seller], [Buyer] obtained a loan of Renminbi [RMB] 300,000 from [Seller] at 15% interest per annum for raw material purchase.Under the agreement, [Seller] would be the export agent for this batch of trousers and when its sales price was received, [Seller] could deduct from it the principal and interest of the loan. After the agreement was reached among [Seller], [Buyer] and the Fabric Company, [Seller] signed a loan agreement with the Fabric Company on 15 January 1995. On the next day, [Seller] paid RMB 120,000 and RMB 180,000 to Changzhou ×× Trade Company and Changzhou ×× Materials Company, respectively, upon the instructions of Changzhou ×× Fabric Ltd. But [Buyer] finally did not use [Seller] as the export agent, but instead hired a foreign trade company in Hebei Province. Therefore, [Seller] could not recoup the principal and interest from the sales price of the trousers as stipulated in the loan contract. Upon [Seller]'s request, [Buyer] promised to repay the loan and signed a guarantee letter on 17 July 1995 to warrant that it would pay US $39,000 to [Seller] before the end of July 1995. On 31 July 1995, [Buyer] sent a fax to inform [Seller] that US $39,000 had been electronically transferred to [Seller]. However, the money never arrived. On 11 September 1995, [Buyer] sent a fax (No. 1775) to [Seller] promising that the amount of US $39,000 would be paid together with the payment for the fifth batch of the goods. This payment arrangement was confirmed in [Buyer]'s fax of 28 September 1995 (No. 1884). On 29 September 1995, [Buyer] and [Seller] signed an agreement to further clarify that the amount of US $39,000 would be paid together with the payment for the fifth batch of men's shirts, totaling US $211,905.73 and that the payment deadline would be 31 October 1995.

Because [Buyer] declined to perform the payment for the fifth batch of goods and defaulted in the payment of US $39,000 to [Seller], [Buyer] hereby asked the Arbitration Tribunal to rule that:

  1. [Buyer] should pay the price for the goods, total: US $173,321.14;
  2. [Buyer] should pay the amount of US $39,000 to [Seller] as promised;
  3. [Buyer] should pay the interest arising from [Seller]'s above claimed payment till 30 April 1996, US $6,499.54 and 1,462.50, respectively, and the interest for the total amount from 1 May 1996 to the due date set forth in the arbitration award;
  4. [Buyer] should bear the arbitration fees; and
  5. [Buyer] should pay [Seller]'s attorneys' fee for this arbitration of RMB 42,000.

After the first oral hearing, since the delivered goods had stayed at La Spezia for too long a period, the Italian custom authority threatened to dispose of the goods according to its rules. In order to reduce the loss, [Seller] had to transport the goods back to China and resold them to Shanghai ×× Garment Co. Ltd. with discount, totaled RMB 556,510 which amounted to US $67,049.40 at the exchange rate of US $1.00 to RMB 8.3. Accordingly, [Seller] applied for the Arbitration Tribunal's approval of its modified claims as follows:

  1. [Buyer] should pay the price difference of US $106,271.74;
  2. [Buyer] should pay for the storage expense at La Spezia of US $45,967.50;
  3. [Buyer] should pay for the freight from La Spezia to Hong Kong and from Hong Kong to Shanghai, US $6,430 and US $5,655, respectively;
  4. [Buyer] should pay the amount of US $39,000 to [Seller] as agreed;
  5. [Buyer] should pay the interest arising from [Seller]'s above claimed payment till 31 October 1996, totaled US $4,459.98 and the interest for the total amount from 1 November 1996 to the due date set forth in the arbitration award;
  6. [Buyer] should pay the interest on the price subject to the original contracts till 30 September 1996, total: US $11,915.83;
  7. [Buyer] should bear the arbitration fees; and
  8. [Buyer] should pay [Seller]'s attorneys' fee for this arbitration of RMB 42,000.

[Buyer] made no response to [Seller]'s original claims nor raised any counterclaims. Nor did [Buyer] object to the amended claims brought by [Seller].

II. Opinion of the Arbitration Tribunal

The Arbitration Tribunal heard the contentions, checked the related documents and hereby rendered its decision as follows:

1. The dispute arose from international sales contracts. The places of business of [Seller] and [Buyer] are within States that are Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (CISG). Therefore, the CISG should be the law applicable to this case.

2. The Arbitration Tribunal finds that the three sales confirmation letters (No. 93 SDE052, No. 95 SDE054, No. 95 SDE055) concluded on 4 November 1995 were legally executed by the representatives of [Seller] and [Buyer] and were legally effective. Neither party raised any doubt about the validity of these three sales confirmation letters. Later, [Buyer] required that some provisions of the confirmation letters be modified and certain types of the goods be cancelled. In addition, [Buyer] postponed the original shipment dates in June and July of 1995 and requested that the goods be delivered no later than 1 September 1995 on the ship Senator which would depart Hong Kong on 1 September 1995 and arrive at La Spezia Port on 25 September 1995. [Seller] accepted all of these requests made by [Buyer]. [Seller] delivered the goods in accordance with the modified confirmation letters and [Buyer]'s shipment requirements. As proved, the final batch of the goods under the three confirmation letters is valued in the amount of US $173,321.14 and the delivery date of the final batch was 30 July 1995 (date of the bill of lading). [Seller] submitted to the Arbitration Tribunal the invoice, the bill of lading, the container load plan and the insurance policy of the last installment of goods and provided the commodity inspection certificate issued by the Jiangsu Inspection Bureau of Imported and Exported Goods which proved that the goods conformed to the contracts. [Buyer] also made the inspection by itself and sent a fax to [Seller] on 20 August of 1995 which confirmed its acceptance of the goods and required delivery to Italy. Since all three sales confirmation letters permitted delivery in installments and [Seller] had delivered the goods in accordance with the contract provisions and [Buyer]'s requirements, [Buyer] should pay [Seller] the price of the last batch of good in the amount of US $173,321.14. But till the date of this award, [Buyer] did not make its payment as agreed. After [Seller] urged its payment, [Buyer] still declined to pay with the excuses that [Seller] delayed the delivery and the goods were non-conforming. The Arbitration Tribunal decides that the excuses claimed by [Buyer] are groundless and that [Buyer] had committed a fundamental breach of the contracts. [Buyer] should make the outstanding payment to [Seller] and compensate [Seller]'s losses arising from its breach of contract.

3. Due to [Buyer]'s delay in payment and taking delivery, the goods were stored at the La Spezia Port for ten months. According to the Italian custom regulations, the goods were under the threat of being disposed of. In order to mitigate the loss, [Seller] shipped the goods back to China and resold the goods to Shanghai XX Garment Co., Ltd. at a discount, in the amount of RMB 556,510 equal to US $67,039.40 (translated into US dollars at the rate of 8.3 to 1). Article 77 of CISG shall apply, which provides "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." All of the measures taken by [Seller] are reasonable and in conformity with international trade practice. [Seller] claims:

  1. The price difference of US $106,271.74;
  2. The storage expense at La Spezia of US $45,967.50;
  3. The freight from La Spezia to Hong Kong and from Hong Kong to Shanghai, US $6,430 and US $5,655, respectively; and
  4. The interest arising from [Seller]'s above claimed payment till 31 October 1996 and the interest for the total amount from 1 November 1996 to the due date set forth in the arbitration award.

The Arbitration Tribunal finds that the price difference, the storage expense and the freight were direct damages caused by the breach of contract of [Buyer]. [Seller] has submitted the documentary evidence to the Arbitration Tribunal. The Tribunal hereby decides that [Buyer] should pay [Seller] the price difference, the storage expense and the freight. As for the interest, Article 78 of CISG provides that "[i]f a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it." [Seller]'s claims for interest consist of three parts and shall be calculated at the interest rate of 0.625% which is the standard rate for working capital loans of the Pudong Branch of the Bank of China. The Arbitration Tribunal decides that the interest to be paid to [Seller] includes:

  1. The interest for the price of the goods from 1 November 1995 to 30 September 1996 (the date on which the goods were returned to Shanghai): US $173,321.14×11×0.625% = US $11,915.83;
  2. The interest for the price difference from 1 October 1996 to 31 October 1996: US $106,271.41×1×0.625% = US $664.20; and
  3. The interest for storage expenses and freight from 19 August 1996 to 31 October 1996: US $58,052.50×2×0.625% + US $58,052.50×(1/30×12) ×0.625% = US $870.78.

4. As to the repayment of loan in the amount of US $39,000, the Arbitration Tribunal finds that this payment arose from a different legal relationship. The loan agreement was between [Seller] and the Fabric Company. The agreement provides that, for the purpose to purchase the necessary fabrics for [Buyer]'s order of trousers, [Seller] agreed to provide loans of RMB 300,000 to the Changzhou ×× Fabric Ltd. The Fabric Company is not a party to the dispute in this case, but [Buyer] had confirmed that it will repay the loans to [Seller] and agreed to pay US $39,000 together with the price of the last installment of the goods under the three confirmation letters. For this purpose, [Seller] and [Buyer] signed an agreement on 25 September 1995 to confirm that [Buyer] would pay US $39,000 together with the price of the last installment of goods no later than 31 October 1995. The agreement contains an independent arbitration clause which provides that:

"If any party violates the agreement, the other party has the right to submit to the China International Economic and Trade Arbitration Commission for arbitration which shall be conducted in accordance with the Arbitration Rules of CIETAC in Shanghai."

Based on the agreement signed by [Seller] and [Buyer], the CIETAC Shanghai Commission has jurisdiction over the dispute of the loan and the Arbitration Tribunal has the power to consolidate the two disputes. [Buyer] had guaranteed to repay the loans of US $39,000, but did not perform the payment. The Tribunal decides that [Buyer] should pay the loans to [Buyer] and compensate the interest for the loans from 1 November 1995 to 31 October 1995. The interest claimed by [Seller] is US $39,000 × 12 × 0.625% = US $2,925.

5. [Seller] claims that [Buyer] should bear its attorneys' fee of RMB 42,000. Article 59 of the Arbitration Rules of CIETAC provides that "the arbitration tribunal has the power to decide in the arbitral award that the losing party shall compensate a proportion of the expenses reasonably incurred by the winning party in dealing with the case. The amount of such compensation shall not in any case exceed 10% of the total amount awarded to the winning party." The amount claimed by [Seller] does not exceed 10% of the total amount awarded to [Seller] and [Seller] has submitted the invoices for the attorneys' fees. The Arbitration Tribunal decides that [Buyer] should pay [Seller] the attorneys' fee of RMB 42,000.

6. The disputes under this case arose out of [Buyer]'s breach of contract and [Buyer] is the losing party, the arbitration fees of RMB 81,300 will be borne by [Buyer].

II. The Award

The Arbitration Tribunal hereby decides:

  1. [Buyer] shall pay the price difference of US $106,271.74;
  2. [Buyer] shall pay for the storage expense at La Spezia of US $45,967.50;
  3. [Buyer] shall pay for the freight from La Spezia to Hong Kong and from Hong Kong to Shanghai, US $6,430 and US $5,655, respectively;
  4. [Buyer] shall pay the amount of US $39,000 to [Seller];
  5. [Buyer] shall pay the interest for the total amount awarded above till 31 October 1996, total: US $4,459.98 and the interest for the total amount from 1 November 1996 to the final payment date at the loan interest of banks in the same period;
  6. [Buyer] shall pay the interest of the price subject to the original contracts of US $173.321.14 till 30 September 1996, total: US $11,915.83;
  7. [Buyer] shall compensate [Seller] the arbitration fees of RMB 42,000; and
  8. [Buyer] shall bear all of the attorneys' fees of RMB 81,300.
  9. In 45 days as of the effective date of this award, [Buyer] shall pay to [Seller] the payment for above awards

This award is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of China is referred to as [Seller]; Respondent of Switzerland 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]. 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, New York.

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