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CISG CASE PRESENTATION

China 23 April 1997 CIETAC Arbitration proceeding (Automobiles case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970423c2.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19970423 (23 April 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/08

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (respondent)

BUYER'S COUNTRY: People's Republic of China (claimant)

GOODS INVOLVED: Automobiles


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 14(1) ; 35 ; 65 ; 81 ; 84

Classification of issues using UNCITRAL classification code numbers:

14A [Criteria for an offer: definiteness of key conditions, intention to be bound in case of acceptance];

35B [Conformity of goods to contract: requirements implied by law];

65A [Notice supplying missing specifications];

81C [Effect of avoidance on obligations: restitution by each party of benefits received];

84A [Seller bound to refund price must pay interest]

Descriptors: Formation of contract ; Conformity of goods ; Specification of goods ; Restitution ; Interest

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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): 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. 1740-1743

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC (PRC) Arbitration Award

Automobiles case (23 April 1997)

Translation [*] by Zheng Xie [**]

Translation edited by Meihua Xu [***]

China's International Trade and Economic Arbitration Commission (thereafter, the Arbitration Commission) accepted the case according to the arbitration clause in Contract No 9572CA-200 signed on 29 September 1995 between Claimant Tian Bao Tianjin ___ Trade Company [Buyer], and Respondent ___ Company of Germany [Seller], and accepted [Buyer]'s written application for arbitration, which was submitted on 22 May 1996.

On 15 July 1996. the Secretariat of the Arbitration Commission by express mail sent [Seller] the arbitration notice, the application for arbitration with appendix, the arbitration rules and the name list of arbitrators. [Seller] received these documents, but neither appointed the arbitrator within the stipulated time nor provided any defense materials. The Chairman of the Arbitration Commission appointed Mr. D as the Arbitrator for [Seller] according to Article 26 of the arbitration rules, and appointed Mr. P as the Presiding Arbitrator according to Article 24 of the arbitration rules. Mr. P, Mr. D and Arbitrator A appointed by [Buyer] formed the Arbitration Tribunal.

The Arbitration Tribunal examined the materials submitted by [Buyer], and held a court session on 22 November 1996. [Buyer]'s representative made a statement during the session and answered the Arbitration Tribunal's questions. On 10 September 1996, the Secretariat of the Arbitration Commission had sent notice of the formation of the Arbitration Tribunal by express mail and, on 9 October 1996, faxed to [Seller] the notice of the court session. [Seller] received the notice of the court session, but neither presented nor stated its reason. After the court session, [Buyer] submitted supplementary materials. The Secretariat informed [Seller] of the court session, sent it [Buyer]'s supplementary materials, and invited its opinion and objection within the stipulated period. However, [Seller] neither submitted any written materials nor replied.

The Arbitration Tribunal has concluded the case on the basis of the written materials and the court session and handed down the award by default in accordance with Article 44 of the arbitration rules.

The following are the facts, the Arbitration Tribunal's opinion and the award.

FACTS

On 29 September 1995, [Buyer] and [Seller] signed a contract for the sale of automobiles, Passat. The contract stipulates that [Buyer] will purchase 200 of these cars from [Seller] and includes the following terms:

   -    Specification: GL2.0, 1996;
   -    Delivery Port: Hamburg, Germany;
   -    Price: 22,730 German Marks per car, C&F Xin Gang; Total Contract Price: 4,546,000 German Marks;
   -    Shipping Period: Before 31 October 1995.
   -    Clause 1 of the contract stipulates, "Detailed Color & Equipment Attached".

When the contract was executed, [Buyer] paid US $318,222.74, i.e., 10% of the contract price as down payment in accordance with the contract. [Buyer] and [Seller] then negotiated many times about recorders and automatic windows of the cars, but did not reach an agreement. [Seller] neither delivered the goods nor returned the down payment to [Buyer]

Thus, [Buyer] filed the arbitration application. Its claims are:

  1. [Seller] should return US $318,222.74, the down payment to [Buyer], and pay interest at 10% annual rate from 12 October 1995. to the date when the payment is made.

  2. [Seller] should pay the arbitration fee of this case.

  3. [Seller] should pay renminbi [RMB] 70,000, [Buyer]'s attorneys' fee.

[Buyer]'s assertion in the arbitration application and supplementary materials is:

      1. The "contract" in this case is only a preliminary agreement, which is not effective and not binding. Clause 1 of the contract stipulates, "Detailed Color & Equipment Attached", which shows that the parties would reach another agreement on color and equipment. Such agreement will be part of the contract, and then the contract will become effective. In fact, although [Buyer] and [Seller] negotiated many times, they did not reach any agreement. Those terms, on which the parties did not reach any agreement, are necessary parts of the contract, so the contract did not take effective due to lack of those terms.

      2. [Buyer] requires that [Seller] return the down payment with interest. The contract was not established, so [Seller] shall return [Buyer]'s down payment, which is not unfair to the [Seller] at all.

      3. If a contract was formed, it is [Seller] who breached the contract. The contract price is 1,003.60 German Marks per car higher than the price quoted by [Seller] to other buyers. Even if the cars are equipped with automatic windows and recorders, the profits, which [Seller] would make, are higher than general profits, so on the basis of fair dealing, the contract price should include the value of the automatic windows and recorder. [Seller] breached the contract because it refused to deliver the cars with this equipment.

      4. [Seller] breached the duty of implied warranty. The business place of Buyer is in China and the destination port is Xin Gang, Tianjin, China. The specification of the cars is specially made for sale in China. Thus, [Buyer] impliedly informed [Seller] that the cars it purchased under this contract would be for use in China, and [Seller] sold the cars with an implied warranty that the goods would be suitable for China's market. Cars of the same level in China's market are equipped with automatic windows and recorders. It is hard to sell the cars without such equipment in China's market. If the cars provided by [Seller] are not so equipped, they are not suitable for China's market, and [Seller] did not perform its duty of implied warranty and breached the contract.

If the Tribunal concludes that [Seller] had neither a duty to make an investigation in China's market, nor a duty to provide automatic windows and recorder, the facts remain that [Buyer] thought that [Seller] shall deliver the cars with such equipment. The parties therefore had a material misunderstanding, so the contract of this case was not established.

      5. [Buyer]'s payment of this case is not a deposit but a down payment. It was clearly written in the contract "down payment", not "deposit" or "earnest money." In addition, the contract in this case was not established, so [Buyer]'s payment is not a deposit. Furthermore, [Buyer] remitted [Seller] US $318,222.74, which does not mean [Buyer]'s intention is that the contract has been established. [Buyer] made the remittance, because it believed that the parties could reach an agreement on the equipment of the cars, and that the establishment of the contract was only a question of time.

THE TRIBUNAL'S OPINION

      1. Applicable law

The Arbitration Tribunal notes that the parties have not stipulated the applicable law in the contract. Because the countries of the parties, China and Germany, are parties of United Nations Convention on Contracts for the International Sale of Goods (hereafter, CISG), the CISG is applied to this case.

      2. Formation of the contract

The Arbitration Tribunal thoroughly examined the contract of this case and holds that it complies with the stipulation of Part II of CISG, i.e., formation of the contract. Name of Commodity and Specification in Clause One of the contract describe that the name of commodity is "Passat passenger car" and the specification is "GL 2.0, 1996". Although Clause One notes that "Detailed Color & Equipment Attached", the Arbitration Tribunal decides that such stipulation does not affect the validity of the contract. Because Detailed Color & Equipment need to be clarified during the performance of the contract, so they do not affect the establishment of the contract.

[Buyer] cites Article 14(1), Article 35 and Article 65 of CISG to support its assertion that the contract was not established. The Arbitration Tribunal notes that Article 14(1) of CISG stipulates that:

"... A proposal is sufficiently definite if it indicates the goods and expressly or implicitly fixes or makes provision for determining the quantity and the price."

The contract describes the name of the goods, the quantity and the price clearly, so it does not violate the above stipulation of CISG., Article 65 of CISG describes the manner in which parties can set forth the specifications of the goods. However, this article is under Section III. of Part III of CISG [Remedies for breach of contract by the buyer], and it does not stipulate that if the parties do not describe the details of the goods, the contract is not established. Article 35 describes seller's delivery of the goods which has nothing to do with the effectiveness of the contract in this case.

The Arbitration Tribunal concludes that Contract No. 9572CA-200 is valid.

      3. Equipment to be supplied with the goods

The parties stipulates "Detailed Color and Equipment Attached" in Specification of Clause 1 of the contract. [Buyer] did not add such annex when it made the contract on 10 September 1995, nether did [Seller], when it confirmed and signed the contract on 29 September 1995. The parties negotiated about the color and equipment of the goods eleven times from 3 to 30 October. The Arbitration Tribunal finds that the disputes are focused on recorders and automatic windows. [Buyer] asserts that the basic equipment shall include air conditioners, automatic windows with central locks and recorders. The fax sent by [Seller] on 26 October 1995 states that twenty-seven cars are only equipped with automatic windows; twenty-two cars are equipped with both automatic windows and recorders; fifty-two cars are only equipped with recorders. On the basis of the above facts, because the parties cannot reach an agreement, and [Seller] does not provide any evidence to prove that it delivered the goods on time, the Arbitration Tribunal holds that the dispute in this case is caused by the indefinite description of the goods, so both parties are liable for it.

      4. Return of prepaid payment and interest

After executing the contract, [Buyer] paid in advance US $318,222.74, i.e., 10% of the contract price by T/T on 4 October 1995. [Buyer] seeks to have [Seller] return this payment with 10% annual interest from 12 October 1995 to the date when payment is made.

The Arbitration Tribunal decides that both parties are liable for the indefinite description of the goods, and the contract cannot be performed because of the indefinite description. Thus, the Arbitration Tribunal rules that the contract shall be terminated.

According to Article 81(2) of CISG:

"A party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract. ..."

The Arbitration Tribunal rules for [Buyer]'s claim that [Seller] shall return US $318,222.74. Because both parties shall be liable for the indefiniteness of the contract, [Buyer] shall pay half of the interest on the advance payment. The 10% interest rate is high; the Arbitration Tribunal decides that an 8% interest rate is reasonable. Thus, [Seller] shall indemnify [Buyer] interest at a 4% annual rate from 11 October 1995 to the date when the payment is made.

      5. Attorneys' fee

The Arbitration Tribunal cannot support [Buyer]'s claim for attorneys' fee, RMB 70,000, because both parties are liable in this case.

      6. Arbitration fee

[Buyer] shall pay 30% of the arbitration fee of this case, and [Seller] shall pay 70%.

AWARD

  1. [Seller] shall return to [Buyer] the advance payment, US $318,222.74, and interest at the annual rate of 4% from 12 October 1995 to the date when the payment is made.
  2. [Buyer]'s claim for attorneys fee, RMB 70,000, is dismissed.
  3. [Buyer] shall pay 30% of the arbitration fee of this case, and [Seller] shall pay 70%. [Buyer] has paid the arbitration fee in advance, RMB ___ [Seller] shall indemnify [Buyer] RMB ___.

    [Seller] shall pay [Buyer] the money stipulated in 1 and 3 above within 45 days of when the awards take effect. If this time limit is exceeded, [Seller] shall pay interest at an 8% annual rate in US dollars and RMB.

This is the final award.


FOOTNOTES

* 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 [Buyer]; Respondent of Germany 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.

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Pace Law School Institute of International Commercial Law - Last updated February 21, 2006
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