China 15 April 1997 CIETAC Arbitration proceeding (Germanium case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970415c1.html]
DATE OF DECISION:
DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/06
CASE HISTORY: Unavailable
SELLER'S COUNTRY: People's Republic of China (respondent)
BUYER'S COUNTRY: United States (claimant)
GOODS INVOLVED: Germanium
APPLICATION OF CISG: Yes [Article 1(1)(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
4A ; 4B [Scope of Convention (issues covered / issues excluded): priority of Convention over usages]; 9A [International usages]; 29A [Modification of contract by agreement]
4A ; 4B [Scope of Convention (issues covered / issues excluded): priority of Convention over usages];
9A [International usages];
29A [Modification of contract by agreement]
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. 1694-1700
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
|Case text (English translation)|
Germanium case (15 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. 94NFBJ-1066 signed by Claimant [Buyer], US __ Metal Company and Respondent [Seller], China ___ Import and Export Beijing Company (the original name is China __ Import and Export Company Beijing Branch) on 15 July 1994; and
|-||The written arbitration application submitted by [Buyer] to the Arbitration Commission on 11 January 1996.|
Because [Buyer] and [Seller] did not appoint or authorize the Chairman of the Arbitration Commission to appoint the presiding arbitrator, the Chairman appointed Mr. P as the presiding arbitrator according to Article 24 of the Arbitration Rules, which took effect on 1 October 1995. Mr. P, Mr. A appointed by [Buyer] and Mr. D appointed by [Seller], formed the Arbitration Tribunal on 16 April 1996 to hear this case.
After reviewing the arbitration application and evidence materials submitted by [Buyer] and defense and evidence materials submitted by [Seller], the Arbitration Tribunal held a court session in Beijing on 30 July 1996. [Buyer] and [Seller] sent representatives to attend the session. They made the statements and arguments, and answered the Arbitration Tribunal's questions. After the court session, both parties submitted supplementary materials.
[Seller] also requested the Arbitration Tribunal to hold another court session. [Buyer] objected to this request. After reviewing [Seller]'s request, the Arbitration Tribunal decided to hold another court session. This court session was held on 24 January 1997 in Beijing. After the court session, the parties submitted supplementary materials.
According to Article 52 of the Arbitration Rules, this case should be completed within nine months after the Arbitration Tribunal was formed, i.e., before 16 January 1997. However, because there were two court sessions, and the case is complicated, the Arbitration Tribunal held that the case could not be completed within the stipulated period. In accordance with the Arbitration Tribunal's request, on 16 December 1996, the Secretary-General of the Arbitration Commission postponed the required date for the award for three months, setting 16 April 1997 as the revised date for the final award.
The case is now completed. The Arbitration Tribunal hands down its award according to the court sessions and written materials.
The following are the facts, the opinion of the Arbitration Tribunal and the award.
On 15 July 1994, [Buyer] and [Seller] signed Contract No. 94NFBJ-1066. The contract stipulates:
|-||Goods:||Contract for the sale of 1,000 kg Germanium;|
|-||Price:||US $263/Kg CIF;|
|-||Total price:||US $263,000;|
|-||Shipping dates:||From August 1994 to January 1995;|
|-||Payment:||[Buyer] shall apply to the bank for issuing L/C.|
On 21 July 1994, according to [Buyer]'s request, Bank of America issued L/C No. 26307 with [Seller] as the beneficiary. The L/C stipulates that the 1,000 kg shall be shipped in five installments
|-||200 kg shall be shipped before 31 August 1994;|
|-||200 kg shall be shipped before 30 September 1994;|
|-||200kg shall be shipped before 30 November 1994;|
|-||200kg shall be shipped before 31 December 1994;|
|-||200kg shall be shipped before 31 January 1995.|
The expiration date of the L/C is 21 February 1995, and the expiration place is China. After receiving the L/C - in accordance with the L/C, [Seller] shipped 213.0527kg Germanium with the price of US $56,032.90 on 6 August 1994, and shipped 207.7299kg with the price of US $54,632.96 on 6 September 1994.
After receiving the relevant documents, [Buyer] made the payments through the bank. [Seller] received the payments on 14 October 1994 and 14 November 1994, respectively. On 7 November 1994, [Seller] faxed to [Buyer] requesting him to revise the L/C. On 9 November 1994, [Buyer] replied to [Seller] agreeing to revise the L/C. The parties agreed that the term "payment is made at 30 days sight" was to be revised to "payment is made at 30 days after date of airway bill."
On the same day, [Buyer] applied to the bank to revise the L/C. On 22 February 1995, [Seller] received the revised L/C. In June 1995, [Seller] notified [Buyer] to cancel the contract. A dispute arose between the parties on the third installment of 200 kg Germanium. They were unable to solve the dispute through negotiation. [Buyer] filed an application for arbitration.
POSITION OF THE PARTIES
Because [Seller] did not deliver 600kg Germanium in accordance with the contract, [Buyer] had to buy 600kg Germanium at the international market price of US $1,700/kg in order to perform the contract with his client. [Buyer]'s loss is US $862,200. The loss is calculated as follows:
The market price of Germanium at the time of delivery from which is deducted the price in Contract No. 94NFBJ-1066, and then multiplied by 600kg, i.e., (US $1,700/kg-US $263/Kg) x 600kg = US $ 862,200.
[Buyer] makes the following claims:
As to [Buyer]'s request, [Seller] alleges that because [Buyer] delayed revising the L/C which caused the L/C to expire and [Seller] could not ship the goods. [Seller] has not faulted in performing the contract, therefore, [Buyer] should be liable for the breach.
ISSUES IN DISPUTE
The parties dispute on the following points:
1. The applicable law
(1) The United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG) shall be applied with priority to this case. Because the parties' business places are in China and the US, respectively, and China and the US are parties of the CISG; and the parties have not excluded the application of CISG, the CISG shall be applied.
(2) According to the rule of conflict of law, the law of the place with proximate connection with the contract shall be applied to disputes arising from the contract. The contract in this case is a shipping contract. Both the place of performance and the [Seller]'s business place are in China, so China is the place with proximate connection with the contract. If CISG cannot solve the dispute, China's law, i.e., Law of the People's Republic of China on Economic Contract Involving Foreign Interest, shall be applied.
(3) Article 9(1) of CISG stipulates, "Parties are bound by any usage to which they have agreed and by any practices which they have established between themselves." According to this provision, INCOTERM 1990 shall be applied, because the contract is CIF, and the parties do not exclude the application of INCOTERM; meanwhile, because [Buyer] issued the L/C No. 26307, which was accepted by [Seller], according to UCP 500, UCP applies to the L/C in this case.
(4) Although the US Uniform Commercial Code and Restatement of Contracts, Second are not the applicable law in this case, they are important references for deciding [Buyer]'s duties.
(1) The parties' dispute arose from the L/C; [Buyer] had no fault when revising the L/C; [Seller] accepted L/C No. 26307, which shows he agreed to be bound by UCP 500. In addition, there is no stipulation on L/Cs in China's law. Instead, it stipulates that international custom should be applied in this circumstance. Since UCP 500 is the custom on L/Cs and there are no other international customs on L/Cs in detail. UCP 500 should therefore be the only law applicable to the L/C.
(2) Article 4 of CISG states:
It is [Buyer]'s position that the CISG should not be applied with priority.
[Seller] objects to [Buyer]'s assertion, stating:
(1) The validity of an international convention is higher than that of both domestic law and international customs. If the international convention is applied to a case, this convention shall be applied with priority. Moreover, China's law stipulates international conventions, particularly CISG, shall be applied with priority.
(2) CISG shall be applied to the disputes arising from the contract and the relevant law; UCP 500 shall be applied to the L/C in this case.
2. Liability arising from the delayed L/C
[Seller] asserts that the delayed L/C was caused by [Buyer]'s fault. [Buyer]'s issuing bank revised the L/C for the third time on 16 November 1994, but the bank gave the wrong L/C Number; the right number is 26307, but instead the bank wrote 26037 on the notice revising the L/C. [Buyer]'s issuing bank and Bank of China did not correct the mistake until 21 February 1995. Meanwhile, during the parties' transaction, the transaction involving the L/C was between [Buyer]'s issuing bank and Bank of China Beijing Branch, but for the third revision of the L/C, [Buyer]'s issuing bank sent the notice of revising the L/C to Bank of China; then Bank of China sent it to Beijing Branch. This wasted considerable time so that [Seller] received the L/C and then it expired. Although, when the parties reached an agreement on the third time revision of the L/C, they did not stipulate that [Seller] must receive the notice of revising the L/C before some date, the notice should be received no later than loading time for the third installment stipulated in the L/C; otherwise, the L/C would be unenforceable. Accordingly, whether the delayed L/C was caused by [Buyer] or [Buyer]'s issuing bank, [Buyer] should be liable for the consequences.
In response to [Seller]'s assertion, [Buyer] alleges:
Delayed revision and delayed notice are different concepts. On 16 November 1994, the issuing bank revised L/C No. 26307, so it was not delayed. However, the notice was delayed, but [Buyer] did not write the wrong L/C Number or instruct the issuing bank to send L/C No. 26307 to Bank of China. Accordingly, [Buyer] fulfilled his duty, and had no fault for the third revision. Meanwhile, accordingly to UCP 500, banks are not liable for any delay or loss during the transit of correspondence or documents, or for any delay, damage or mistake during the transit of telecom. Banks are not liable for any explanation or translation of technical terms; banks reserve the right to send the original terms of the L/C without translation. The provision stipulates that banks are not liable for such consequences, but does not state that [Buyer] shall be liable. Accordingly, [Buyer] shall not be liable for the delayed notice of the L/C.
3. Dispute on delivery of goods
[Buyer] alleges that [Buyer] agreed to [Seller]'s request to revise L/C No. 26307, but it did not constitute the revision of L/C No. 26307, so L/C No. 26307 is still valid. According to Article 9.4(3) of UCP 500:
In this case, [Seller] received the notification of the amendment of L/C No. 26307 on 24 February 1995 so he could not notify Bank of China Beijing Branch about his acceptance of the amendment before 21 February 1995. According to UCP 500, L/C No. 26307 is still valid; on the other hand, according to Article 9.4(1) of UCP 500:
Before 21 February 1995, the issuing bank did not receive the notification of [Seller]'s agreement on the amendment of L/C No. 26307 from the remitting bank, so L/C No. 26307 is still binding. [Seller] should perform his duty in accordance with the L/C No. 26307, so he could fulfill his duty under the contract; however, [Seller] did not do this. Accordingly, [Seller] should be liable for the breach and compensate [Buyer] for the damages.
As to [Buyer]'s assertion, [Seller] alleges that according to international custom, to perform the contract of international trade with L/C as the means of payment, [Buyer] shall issue the L/C to [Seller]; [Seller] reviews the content of the L/C; [Seller] ships the goods only when the L/C complies with the contract, and [Seller] has sufficient time to load the goods; if the parties' amendment of the L/C is different from the contract, it should be regarded that the parties also revise the contract. In this case, [Seller] requested an amendment of the L/C, and [Buyer] agreed. Thus, it shall be regarded that the parties reached an agreement on the amendment of the L/C and the contract. At that time, if [Seller] shipped the goods according to the original contract and the original L/C, he may not negotiate the L/C with the bank; if [Seller] shipped the goods according to the revised contract and the revised L/C, he may not receive the payment because [Buyer] did not revise the L/C. Accordingly, [Seller] could not ship the goods until [Buyer] amended the L/C; otherwise, he could not be guaranteed to receive the payment. [Seller] shipped the goods on the condition of [Buyer]'s amendment of the L/C. In this case, the delay of the third installment was caused by [Buyer]'s delayed notification of amendment. Meanwhile, under the circumstance in this case, according to UCP 500, when receiving the revised L/C, the beneficiary refused to use the revised L/C if the amendment was not in accordance with the parties' agreement; it constitutes refusal of the revised terms of the L/C. In such circumstances, the original L/C is still binding to the beneficiary, which means the beneficiary's right of selection is protected, but does not require the beneficiary to perform the contract according to the original contract. Accordingly, [Buyer] shall be liable for the breach. Meanwhile, [Seller] alleges that Article 41 of UCP 500 states:
In this case, according to L/C No. 26307, the goods are to be shipped in five installments at different times; the negotiation can be made for each installment when this installment is finished loading, which shows that the L/C is the L/C by installments. Thus, the L/C expired when the third installment was not shipped before 30 November 1994; if [Seller] shipped the last three installments after that, he may not get the payment because the L/C was invalid, which was caused by [Buyer]'s delayed revision of the L/C.
As to [Seller]'s assertion, [Buyer] alleges that the amendment the parties agreed to is the time of payment of the L/C in the contract, and the other terms in the contract were not revised. When the original L/C and the contract are valid, [Seller] has the duty to perform his duty under the original contract and L/C. As to Article 41 of UCP 500, [Buyer] asserts that this L/C is the L/C with installments, so Article 40 of UCP 500 shall be applied; meanwhile, [Buyer] pointed out that even if Article 41 is applied, because [Seller]'s non-delivery caused L/C No. 26307 to become invalid, [Seller] shall be liable for [Buyer]'s loss; thus, there is no difference between the application of Article 41 and the application of Article 40 as to [Buyer]'s compensation.
4. Preparation of the goods
[Seller] notified [Buyer] that it could not perform the contract due to a problem with the manufacture of Germanium. [Seller] submitted certain financial documents as evidence to show he has already prepared the goods, but [Buyer] alleges that the goods described in the documents are not the goods specified in the contract; these documents cannot prove that the goods were prepared for the [Buyer].
[Seller] states that he fulfilled his duty to prepare the goods by purchasing Germanium from the factory in Yunnan in November and December 1994; this classification of general goods and specification of the goods is only for the purpose of transfer of ownership and risk, which is not disputed in this case.
[Buyer] alleges that he is a businessman, so when [Seller] cancelled the contract in June 1995, the damages shall be calculated on the basis of the difference between the market price in June 1995 and the contract price.
[Seller] asserts that when the sales contract was established, [Buyer] did not notify him the goods would be resold; thus, [Buyer] cannot claim for damages or for the damages beyond that [Seller] could reasonably foresee. At the same time, on 8 December 1994, [Buyer] made the claim to [Seller] for damages, which means that the damages were incurred before December 8, and that the [Buyer] had bought the goods from market before December 8. On 8 December 1994, the price of Germanium was between US $250-290/Kg; even in May 1995, the price of Germanium was between US $640-700; however, in [Buyer]'s claim the purchasing price is US $1700/Kg, which is fraud, and also shows that the damages were enlarged by [Buyer] after his breach.
OPINION OF THE ARBITRATION TRIBUNAL
1. Applicable law
The business place of [Buyer], US __Metal Company, is in the US, and the business place of [Seller], China___Import and Export Beijing Company, is in China. Both the US and China are parties of the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG), therefore the CISG is applied to the disputes arising from the contract. Because the disputes in this case arose from the L/C, UCP 500 is applied to the dispute on the L/C.
2. The delayed L/C
On 7 and 9 November 1994, [Buyer] and [Seller] reached an agreement to amend the L/C. Article 29 of CISG states, "A contract may be modified or terminated by the mere agreement of the parties." The amendment is to revise the payment term in the contract. The original term is "paid at 30 days sight"; the revised term is "paid at 30 days after date of airway bill". This amendment is valid, therefore the parties should be bound by it.
On 9 November 1994, [Buyer] applied to the issuing bank to amend the L/C. On 26 November 1994, the issuing bank revised L/C No. 26307. Thus, the issue in this case is who should bear the liability when [Seller] did not deliver the goods because he did not receive the revised L/C before the shipping date of the third installment and the expiration date of the L/C. Article 18 A of UCP 500 stipulates, "Banks utilizing the services of another bank or other banks for the purpose of giving effect to the instructions of the Applicant do so for the account and at the risk of such Applicant." The Arbitration Tribunal holds that the delay was caused by the bank not by [Buyer]. According to UCP 500, [Buyer] as the applicant of the L/C shall negotiate with the bank. Whether the bank shall bear the liability is not within the scope of this arbitration. The Arbitration Tribunal holds that the [Seller] shall be liable for the consequences of the delayed L/C.
3. The dispute on delivery of the goods
The Arbitration Tribunal notes that L/C No. 26307 in this case is an irrevocable L/C. Article 9(1) of UCP 500 states:
Article 9(3) also states:
Accordingly, the Arbitration Tribunal holds that before receiving the revised L/C, [Seller] could deliver the goods according to the original L/C, but it is not his duty to deliver according to the original L/C. [Seller] has the right to choose whether to deliver the goods according to the original L/C or the revised L/C. In this case, when the revised L/C arrived late, and [Seller] did not choose to perform his duty according to the original L/C, which was not a contract violation. The Arbitration Tribunal cannot support [Buyer]'s assertion that "The original L/C is still valid before [Seller] received the revised L/C, [Seller] shall deliver the goods and negotiate the L/C with the shipping documents." Meanwhile, [Seller] asserts that because the parties reached an agreement to amend the L/C, before receiving the notification of amendment, [Seller] may deliver the goods according to the original L/C, but he thought the payment could not be guaranteed, if the bank dishonors the L/C due to the amendment. The Arbitration Tribunal holds that according to Article 9(1) of UCP 500, before receiving the notification of amendment, [Seller] can deliver the goods and negotiate the L/C by presenting the shipping documents if the original L/C is still valid. The bank should not dishonor the L/C because the parties reached an agreement to amend the L/C; if the documents comply with the L/C, the bank should negotiate the L/C. Thus, the payment to [Seller] can be guaranteed on the basis of the original L/C when the conditions in the original L/C were fulfilled. Accordingly, [Seller]'s assertion is not supported. However, [Seller] asserts that he has right to choose, which should be supported.
The Arbitration Tribunal notes that Article 41 of UCP 500 states:
L/C No. 26307 stipulates that the shipping date of the third installment is before 30 November 1994, and the expiration date of the L/C is 21 February 1995. However, [Seller] did not receive the revised L/C until 22 February 1994. [Seller] did not deliver the goods before 30 November 1994. The Arbitration Tribunal holds that according to Article 41 of UCP 500, the original L/C is invalid to govern the 600kg of goods which were to be delivered on or after 30 November 1994.
4. Preparation of the goods
The Arbitration Tribunal notes that [Buyer] and [Seller] have different opinions on the preparation of the goods. [Buyer] asserts that [Seller] had no goods to deliver, but [Seller] asserts that it prepared the goods and has finished the preparation. According to this, the Arbitration Tribunal holds that both parties did not submit sufficient evidence to support their assertions, and that if the revised L/C was received by [Seller] within a reasonable period of time before 30 November 1994, [Seller] has the duty to deliver the goods. On the other hand, if [Seller] did not prepare the goods, or did not deliver the goods after preparation, it should be liable for contract violation.
5. [Seller]'s claims
This case is about the loss suffered by [Buyer] due to the late arrival of the amended L/C. The Arbitration Tribunal holds that [Buyer] cannot transfer his loss to [Seller]. Thus, the Arbitration Tribunal neither supports [Buyer]'s claim for the loss of US $862,200 and interest, nor supports [Buyer]'s claim for his attorneys' fee, US $35,000.
6. Arbitration fee
The Arbitration Tribunal does not support [Buyer]'s claim to have [Seller] pay the entire arbitration fee; instead, the [Buyer] shall pay the entire arbitration fee.
|1.||[Buyer]'s claim to request [Seller] pay for his loss, US $863,000 and interest is dismissed;|
|2.||[Buyer]'s claim to request [Seller] pay [Buyer]'s attorneys' fee, US $35,000 is dismissed;|
|3.||[Buyer] shall pay the entire arbitration fee.|
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 United States is referred to as [Buyer]; Respondent 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].
** 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