China 1 April 1997 CIETAC Arbitration proceeding (Fishmeal case)
[Cite as: http://cisgw3.law.pace.edu/cases/970401c1.html]
DATE OF DECISION:
DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/02
CASE HISTORY: Unavailable
SELLER'S COUNTRY: People's Republic of China (claimant)
BUYER'S COUNTRY: People's Republic of China (respondent)
GOODS INVOLVED: Fishmeal
APPLICATION OF CISG: "The contract in this case was signed by two Chinese companies which have power to enter into foreign trade. According to the theory of proximate connection, the Arbitral Tribunal holds that the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest is applied. If this law does not stipulate, the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG) and international customs are applied."
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
68A1 [Goods sold in transit (general rule on passage of risk): risk passes on conclusion of contract]
68A1 [Goods sold in transit (general rule on passage of risk): risk passes on conclusion of contract]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
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) 1997 vol., pp. 1612-1619
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
English: Dong WU, CIETAC's Practice on the CISG, at nn.33, 109, 158, 230, 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) nn. 74, 85Go to Case Table of Contents
|Case text (English translation)|
Fishmeal case (1 April 1997)
Translation [*] by Zheng Xie [**]
Translation edited by Meihua Xu [***]
China's International Trade and Economic Arbitration Commission [hereafter, the Arbitration Commission] accepted this case according to:
|-||The arbitration clause in Contract No. 6001-S signed by Claimant [Seller], China ___
Import and Export Company, and Respondent [Buyer], Shandong. __ Import and Export
|-||The written arbitration application submitted by [Seller] to the Arbitration Commission on 12 June 1996.|
On 24 July 1996, [Buyer] received the notice of arbitration and wrote to the Arbitration Commission stating, "We object the Arbitration Commission's jurisdiction over this case. According to Article 20 of the Arbitration Law and Article 4 of the Arbitration Rules of the Arbitration Commission, we have filed a lawsuit with the Shandong High Court, and have asked the court to rule that the arbitration clause in Contract No. 6001-S is void."
On 5 August 1996, [Buyer] wrote to the Arbitration Commission stating that, considering the fact that the two parties have a close business relationship and have discussed this case and considering that the Arbitration Commission has a good reputation for dispute resolution, it has withdrawn its jurisdictional action before Shandong High Court. The [Buyer] therefore acknowledges the Arbitration Commission's jurisdiction in this case.
In accordance with the Arbitration rules, on 6 September 1996, the Chairman of the Arbitration Commission appointed Mr. P as the presiding arbitrator. Mr. P, Mr. A appointed by [Seller], and Ms. D appointed by [Buyer] formed the Arbitration Tribunal and heard this case.
On 6 September 1996, [Buyer] submitted application for a counterclaim. According the Arbitration Rules, the Arbitration Tribunal jointly heard the claim and the counterclaim.
On 8 November 1996 and 31 January 1997, the Arbitration Tribunal held two court sessions in Beijing. Beijing. Both parties attended the session. They made oral statements and arguments, and answered the Arbitration Tribunal's questions. After the session, the parties submitted supplementary materials.
Based on the written materials submitted by the parties and the facts disclosed at the court sessions, the Arbitration Tribunal has concluded the case and handed down its award by consent.
The following are the facts, the opinion of the Arbitration Tribunal and the award.
[Seller] and [Buyer] signed Contract No. 6001-S (hereafter, the Contract) in 1996, which stipulates
|-||Goods:||[Buyer] purchases 6,400 tons of Peruvian fishmeal;|
|-||Price:||CIF major ports in China US $690/ton;|
|-||Total price:||US $4,416,000;|
|-||Packing:||about 50 Kg/package;|
|-||Shipping date:||Before 31 January 1996.|
On 17 February 1996, [Buyer] issued the L/C with expiration date of 15 March 1996.
On 30 January 1996, the agent of the owner of the ship JIERJI signed the clean bill of lading. The ship left Peru. However, when it arrived in Los Angeles, it was taken into custody by the US coast guard for 24 days because it was considered unseaworthy. In addition, the shipping time in the journey was longer than that stipulated in the contract. The sailing date had been unreasonably prolonged. It took 140 days for the ship to arrive in Qingdao in June of 1996.
In March 1996, the L/C was dishonored when [Seller] received the L/C and documents because the L/C was not in compliance with the documents. Then, [Seller] and [Buyer] negotiated to make the payment by means other than L/C, but failed to reach an agreement. [Buyer] refused to accept the goods when they arrived at Qingdao Port, and announced the contract avoided.
POSITION OF THE PARTIES
[Seller] alleges that it sent the goods in compliance with the time and condition stipulated in the contract, and fulfilled its duty. However, [Buyer] refused to make the payment on the basis of the changed market price, the delayed arrival date. When the goods arrived at the port, because [Buyer] refused to take the goods, in order to mitigate damages, [Seller] made arrangements to unload the goods, apply to the customs, resell the goods and claim compensation from the carrier for the right of subrogation. [Buyer]'s breach caused [Seller]'s loss. [Seller] pleads that [Buyer] should execute the contract and pay the price of the goods and the expenses incurred due to [Buyer]'s breach. The expenses include:
The total expenses are RMB 4,278,871.
The price which [Seller] received for the resale of the goods includes:
The total resale price was RMB 27,230,000.
In addition, the insurance company has already paid the insurance compensation of risk of package breakage and risk of shortage, US $ 79,393.60, i.e., RMB 658,966.
[Seller] alleges that the resale price and insurance compensation can offset part of the price, with the result that [Buyer] still owes [Seller] the remainder of the price of the goods, RMB 8,763,834, and extra expenses due to [Buyer]'s breach, RMB 4,278,871; therefore, the [Buyer] needs to pay the [Seller] a total of RMB 13,042,705, i.e., the difference in price plus extra expenses.
[Buyer] alleges that
1. The contract in this case was established at the beginning of March 1996, not on January 16 as stated in the contract. Before signing Contract No. 6001-S, [Seller] had already bought 6,400 tons of Peruvian fishmeal at a price CFR from US __ Company in January 1996. The goods were loaded at the Peruvian port of Chicama on 30 January 1996. On 1 February, the master authorized the shipping agent to sign the B/L. On 5 February 1996, [Seller] sent the offer to [Buyer] to sell the fishmeal at the CIF price for the first time. Then the parties negotiated many times by fax. On 6 March 1996, the parties officially signed the contract. Accordingly, the contract was established on 6 March, not 16 January. The contract is a contract for goods afloat.
2. [Seller] did not provide a seaworthy ship to carry the goods. The price term in this contract is CFR, so [Seller] should guarantee that the ship is seaworthy in order to perform the duty of delivering the goods, but [Seller] did not fulfill its duty. According to the Civil Verdict No 165 (1996) of the Qingdao Maritime Court handed down on 30 November 1996, "the JIERJI was not seaworthy before and at the time of shipping." "Because it is not seaworthy, it took about 140 days shipping from Peru to Qingdao, China. " Although the delivery date was not specified, the sailing date was unreasonably postponed, which is due to the unreasonable postponement of the ship ..." Thus, the risk of breakage and other risk, which was caused by unseaworthiness existed when the goods were loaded. According to the term CIF, [Seller] shall bear the risk before loading the goods, so the risk should not be transferred to [Buyer].
3. [Seller] did not fulfill the duty of delivering documents.
First, [Seller] delivered an illegal anti-dated B/L. The B/L was signed by the JIERJI's first class shipping agent. During the period 23-31 January 1996, the shipping agent was only authorized to arrange loading the goods, not to sign the B/L. On 1 February 1996, the shipping agent was authorized by the master to sign the B/L. However, the shipping agent signed the B/L in which both the loading date and issuing date were 30 January 1996. This is an anti-dated B/L according to either international convention or China' Maritime Law and Civil law, so it is illegal. Accordingly, the B/L delivered by [Seller] is not satisfactory.
Second, [Seller] did not deliver a contract of affreightment which is related to the B/L. Because the B/L in this case is not liner B/L, but the B/L under charter-party, the shipping line, arrival date and other conditions shall be stipulated by the contract of affreightment; the B/L is subject to the contract of affreightment. Accordingly, when signing a contract for the international sales of goods, especially native produce like fishmeal, [Seller] is required to inform [Buyer] about the general terms of the charter-party, and deliver the charter-party when or before delivering the B/L to [Buyer]. If [Seller] does not provide the charter-party, [Buyer], according to common sense or reasonable reliance, believes [Seller] has stipulated the shipping route and arrival date in the charter-party; if [Seller] does not describe such terms, [Seller] has the duty to notify [Buyer] about the shipping route and arrival date before signing the contract for goods afloat. In this case, Article 8 of the contract stipulates that, after loading the goods, [Seller] should immediately notify [Buyer] of the ship's departure date and arrival date by fax. However, before 31 March 1996, [Seller] did not notify [Buyer] any information in the charter-party, especially the departure date. The charter party, which [Seller] submitted later, does not describe the shipping route and arrival date.
Finally, [Seller] did not provide a satisfactory insurance policy. According to the contract in this case, [Seller] should provide an original insurance policy covering all risks, war risk, Salmonella risk and Shigella risk. However, from 6 March 1996 when the parties signed the contract to 3 June 1996 when [Buyer] announced the contract was avoided, [Seller] did not buy the two accessory risk policies and did not pay the related insurance premium; [Seller] provided only an open cover of all risks and war risk, and the open cover is not an official insurance policy. Moreover, the open cover has apparent defects.
In sum, [Buyer] alleged that [Seller] did not provide a seaworthy ship to carry the goods, and did not deliver the goods and documents in compliance with the contract, so it is reasonable and lawful for [Buyer] to refuse to make the payment and announce the contract avoided. Meanwhile, when [Seller] breached the contract, [Buyer] suffered severe loss; accordingly, [Buyer] files its counterclaim, and requests [Seller] to compensate for his loss.
In its counterclaim, [Buyer] states:
On 17 February 1996, [Buyer] issued the L/C according to the contract, and on March 7 revised the L/C according to [Seller]'s request. For this, [Buyer] paid an issuing fee of RMB 73,663.19. Meanwhile, as a foreign trade company, [Buyer] signed sales contracts with three companies after the contract in this case took effective. The three contracts stipulate each party's right and duty. Because [Seller] breached the contract, [Buyer] could not perform the three sales contracts. Thus, [Buyer] has to pay contract violation fees to the three companies, RMB 1,929,600. Accordingly, [Buyer] files the following counterclaim:
As to [Buyer]'s defense and counterclaims [Seller] makes the following statements in objection:
1. The date stated in the official contract is 16 January 1996. [Seller] does not object that the date when the contract was signed is later than the date stated in the contract, but the parties had negotiated on the contract many times and reached an agreement at the end of January 1996. Then, the parties signed the official contract to ratify that the date of official reaching the agreement was January 16. The materials submitted by [Buyer] can sufficiently prove that the fax between the parties after January 16 was only to revise and supplement the contract. On the basis of the facts, the parties had already established and performed part of the contract before officially signing it. For example:
(1) On 29 January 1996, in order to perform the contract with __Company, [Seller] applied to China Bank Beijing branch for an L/C, and stated that the notifier of the B/L in this case was "Shandong __Company", i.e., [Buyer] in this case. In fact, when the fishmeal was loaded on board, the acceptor of the goods in the B/L is [Buyer].
(2) On 17 February 1996, the date which [Buyer] alleged was before signing the official contract, [Buyer] had performed the duty of issuing the L/C and issued the L/C with [Seller] as beneficiary.
Accordingly, the final written contract in this case is only a document to prove that the parties established the contract. The contract was established on January 16, not March 6. The above facts can show that this not a contract for goods afloat.
2. [Seller] delivered the goods in accordance with the quantity, quality, time and place stipulated in the contact. According to the contract, [Seller] fully performed its duty after the goods passed the ship's rail.
3. The delayed arrival of the ship has nothing to do with [Seller]. When the contract term is CIF, [Seller] shall obey the principle of care when perform its duty to rent a ship. The principle of care is that [Seller] or the person appointed by [Seller] shall charter a seaworthy ship. If [Buyer] or his agent checked the proof of seaworthiness when chartering the ship, the duty is fulfilled. [Seller] has no duty to nor is it possible to guarantee the ship's seaworthiness.
4. The B/L is in compliance with the contract requirements. First, the contract in this case does not stipulate what kind of B/L [Seller] should provide, so [Seller] could provide the B/L in accordance with the international customs and trade practice. Second, according to international customs and trade practice, voyage charter, not liner (no precedence) is used for the sea transport of bulk sales of fishmeal. Third, the charter-party contract is the basic document stipulating freighter's and carrier's duty and right; the B/L is the certificate of title to claim for the goods. The charter-party and the B/L represent different legal relationships. Thus, in the trade practice and legal practice, the charter-party and B/L can be separated. [Seller] filed the lawsuit with the Qingdao Maritime Court for the goods under the contract on the basis of holder of B/L, not according to the charter-party.
5. [Seller] performed its duty of insuring the goods on time and showed the valid insurance policy. According to the insurance law and insurance customs, from the time when the goods are loaded to the time the goods are unloaded; the insured can insure the goods for the whole transportation if the issued believes in good faith that the goods are in transportation. In this case, [Seller] established the insurance contract with China People Insurance Company Dalian branch when the goods were loaded. Furthermore, in the early part of May 1996, [Seller] insured the goods for Salmonella risk and Shigella risk; these two policies took effect when the goods were loaded at the loading port, and ended when the goods arrived at the destination port. The insurance company does not dispute these facts.
According to China's insurance customs, when the import and export company insured the goods, the insurance contract takes effect when the insured signed the notice of open cover provide by the insurance company. When the insured goods are damaged, the insured can claim for damages according to the notice of open cover. In this case, [Seller] has claimed damaged with China People Insurance Company Dailian branch according to the notice of open cover for the two risks. Dalian branch has performed its duty in time.
In conclusion, [Seller] alleges that the breaching party in this case is [Buyer], and [Buyer]'s defense and counterclaims cannot be supported.
THE OPINION OF ARBITRATION TRIBUNAL
1. Applicable law
The contract in this case was signed by two Chinese companies which have power to enter into foreign trade. According to the theory of proximate connection, the Arbitration Tribunal holds that the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest is applied. If this law does not stipulate, the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG) and international customs are applied.
2. The time of establishing the contract and the nature of the contract
The Arbitration Tribunal notes that during process of signing the contract, the following events occurred:
(1) On 5 February 1996, for the first time [Seller] sent its offer to [Buyer] for sales of fishmeal with the price term of CIF;
(2) On 6 February 1996, [Buyer] asked [Seller] to provide a draft of the contract in order to establish the contract;
(3) On 9 February 1996, [Seller] faxed the draft of the contract to [Buyer];
(4) On 12 February 1996, [Buyer] revised and signed the draft of the contract faxed by [Seller], and faxed it to [Seller]. In the same day, [Seller] faxed back to [Buyer] the last page of the contract with [Seller['s signature affixed thereto.
(5) On 15 February 1996, [Buyer] found that Article 11 in the two original contracts, which need signing, was the draft of February 9, not the [Buyer]'s revised version of February 12. [Buyer] then sent its objection to [Seller]. After negotiation, [Seller] agreed with [Buyer]'s revision. On March 6, the parties signed the official contract.
Article 7 of Law of the People's Republic of China on Economic Contract Involving Foreign Interest stipulates, "A contract shall be formed as soon as the parties to it have reached a written agreement on the terms and have signed the contract." [Seller]'s assertion that the contract was established on 16 January 1996 by oral agreement violates this article, so it cannot be supported. On 12 February 1996, [Buyer] signed the contract and faxed it to [Seller]; [Seller] sign it and faxed the last page back to [Buyer], and at that time the parties reached an agreement on the key terms. The 12th of February 1996 shall be the time of establishing the contract. [Buyer] alleged that the parties did not reach an agreement on Article 11 of the contract, and the time of establishing the contract should be March 6 when the parties reached an agreement on this article and signed the contract. The Arbitration Tribunal finds that the revision of this article is about inspection of the goods. Before revising, this article stipulated that the inspection certificate at the loading port should be the final evidence of the quality and quantity of the goods. After revising, the inspection certificate is one of documents which [Seller] should show to the bank for negotiation of the L/C, and [Buyer] has right to inspect the goods at the destination port. The Arbitration Tribunal holds that the revision of this article should be regarded as revising and supplementing the contract; the parties reached an agreement on the main terms on 12 February 1996. The basic terms of the contract were specified, so the Arbitration Tribunal holds that the contract was established on 12 February 1996. Because the goods were shipped on 31 January 1996 before the parties established the contract, the contract in this case is a contract for goods afloat.
3. Passage of risk
Article 68 of CISG stipulates "the risk in respect of goods sold in transit passes to the [Buyer] from the time of the conclusion of the contract." Thus, the risk passed to [Buyer] on 12 February 1996 when the contract was established. Risk refers to the damages by accident, such as loss or damages by natural or fortuitous accidents in transit. The Arbitration Tribunal cannot support [Buyer]'s assertion that the unseaworthiness and unreasonable delay are such risks, because this assertion lacks legal basis.
4. [Buyer]'s right to refuse the goods and cancel the contract
[Buyer] asserts that it has the right to refuse the goods and cancel the contract due to [Seller]'s breach. The Arbitration Tribunal disagrees
(1) As the parties recognized, the loading of the goods was finished on 30 January 1996, so the B/L dated 30 January 1996 that was provided by [Seller] is not an anti-dated B/L. Although the fact of anti-dating the B/L existed between the shipping agent and master, [Seller] committed no fraud. [Seller] fully performed its duty of loading the goods.
(2) [Buyer] asserts that [Seller] provided the B/L under the charter-party, not the charter-party. However, the contract in this case does neither stipulate what kind of B/L [Seller] should provide, nor stipulate that [Seller] should provide the charter-party. Accordingly, the Arbitration Tribunal cannot support this assertion; it has no contractual basis.
(3) [Buyer] asserts that [Seller] did not perform its duty to insure the goods. However, the evidence submitted by [Seller] shows [Seller] has already insured the goods, and claimed damages for the two risks with People's Insurance Company of China, Dalian branch, and the insurance company has satisfied the claim. [Buyer] does not provide contrary evidence.
(4) [Buyer] asserts that [Seller] should be liable for the unseaworthiness of the ship. The Arbitration Tribunal holds that according to international customs, under the term of CIF, [Seller] shall "... ship the goods to the destination port by ordinary type of sea ship which can transport the goods under the contract." [Seller] in this case signed the transportation contract according to CIF, and checked the certificate of seaworthiness. Meanwhile, [Buyer] does not provide sufficient evidence to show [Seller] was negligent when signing the charter-party. Thus, the Arbitration Tribunal cannot support this assertion.
In conclusion, the Arbitration Tribunal holds that [Seller] fully performed its duty, and [Buyer] should accept the goods and make the payment; [Buyer] has no right to refuse the goods and announce the contract is avoided.
5. [Buyer]'s duty to pay for the goods
Because the L/C and the contract are independent transactions, the bank has the right to dishonor the L/C due to incompliance of the L/C and the contract. However, [Buyer] cannot be exempted of duty of payment under the contract. In sum, because [Buyer] is not entitled to refuse the goods, [Buyer] should pay the contract price and compensate [Seller] for the damages.
6. [Seller]'s claim
(1) The Arbitration Tribunal supports [Seller]'s claim for the difference of price and extra expenses. However, because [Seller] has already filed the lawsuit with Qingdao Maritime Court, part of its claim in the lawsuit overlaps with the claim in this arbitration. Qingdao Maritime Court has handed down Civil Verdict No. ___(1996) ruling that the ship owner should pay [Seller] part of his loss. According to the principle of fairness, the Arbitration Tribunal holds that [Buyer] shall be relieved from pay the part that is overlapped between the amount [Buyer] should pay in this arbitration and the amount which has already been recovered in the lawsuit. [Seller] is entitled to the amount which is awarded in the lawsuit, the amount received from reselling the goods and the indemnification from the insurance company. The amount which the verdict does not award, but which [Buyer] shall pay includes customs duty and documents charge, RMB 1,068,665, and miscellaneous fee and storage fee, RMB 1,276,128. The total amount is RMB 2,334,793.
(2) [Seller] claims for his attorneys' fee, which is proved by his evidence, RMB 600,000. However, according to Article 59 of the Arbitration Rule, the Arbitration Tribunal can only support 10% of the attorneys' fee, i.e., RMB 234,479.
7. [Buyer]'s counterclaims
Because [Seller] did not breach the contract, and [Buyer]'s loss is not related to [Seller]'s action, [Buyer]'s counterclaims cannot be supported.
8. Arbitration fee
Because [Buyer] is exempted from part of the liabilities, the arbitration fee shall be shared by [Seller] and [Buyer]. [Seller] shall bear 40%, and [Buyer] shall bear 60%. The arbitration fee for the counterclaim shall be paid by [Buyer].
The Arbitration Tribunal makes the following award:
|1.||[Buyer] shall pay [Seller] for [Seller]'s economic loss, RMB 2,344,793;|
|2.||[Buyer] shall pay [Seller] for part of [Seller]'s attorneys' fee, RMB 234,479;|
|3.||[Seller]'s other claims are dismissed;|
|4.||[Buyer]'s counterclaim is dismissed;|
|5.||[Seller] shall pay 40% of the arbitration fee, and [Buyer] shall pay 60%. [Seller] has paid the arbitration fee in advance. [Buyer] shall pay [Seller] RMB___. [Buyer] shall pay the arbitration fee RMB___ for the counterclaims. [Buyer] has paid the arbitration fee for the counterclaim in advance.|
The above amount shall be paid by [Buyer] within 45 days of the date on which this award takes effect; otherwise, interest shall be added at the annual rate of 12%.
This is the final award.
* 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]; Respondent of the People's Republic of China 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].
** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.
*** 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.Go to Case Table of Contents