Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography
Search the entire CISG Database (case data + other data)

CISG CASE PRESENTATION

China 24 April 1997 CIETAC Arbitration proceeding (Oxidized aluminum case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970424c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19970424 (24 April 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/09

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: People's Republic of China (respondent)

BUYER'S COUNTRY: Switzerland (claimant)

GOODS INVOLVED: Oxidized aluminum


Case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission 24 April 1997 (Oxidized aluminum case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/85],
CLOUT abstract no. 866

Reproduced with permission of UNCITRAL

Abstract prepared by Indira Satarkulova

The buyer, a Swiss company, and the seller, a Chinese company, signed a contract for the sale of oxidized aluminium. The seller did not deliver any original documents, nor did it give any reason for this behaviour. Furthermore, it did not reply to the buyer's faxes urging it to deliver the documents. The buyer claimed that it suffered severe loss when the market price increased and in the arbitration proceedings it claimed the difference between the contract price and the market price, plus the cost of preserving the assets.

The seller alleged that, since the buyer did not accept the terms of payment during the negotiations, the contract was not concluded. It further alleged that the buyer went bankrupt. However, it did not provide any evidence in support of this allegation and the Arbitration Tribunal dismissed it.

The Arbitration Tribunal found that the contract was concluded and was binding upon the parties. Consequently, they both had to perform their respective obligations, and neither of them was entitled to alter or cancel the contract unilaterally.

The Tribunal found that after signing the contract, the seller did not perform its obligation of delivering the documents according to the terms of the contract. This constituted a breach of contract. Therefore, as per the Law of the People's Republic of China and articles 74 to 76 of CISG, the Arbitration Tribunal ruled that the seller was liable for breach of contract.

Therefore, the buyer was entitled to receive compensation that is usually calculated as the difference between the contract price and the price of the substitute transaction. However, since the buyer neither made a substitute transaction, nor declared avoidance of the contract the Tribunal decided that the buyer should receive the difference between the contract price and the current price at the time and place when and where the delivery should have been made. According to the Arbitration Tribunal, the buyer's assertion that the damage should be calculated based on the current price when the seller refused to deliver the goods [i.e. a different point in time than the one mentioned above] was not grounded on sufficient facts and reasons.

Go to Case Table of Contents

Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 76 [Also cited: Article 75 ]

Classification of issues using UNCITRAL classification code numbers:

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

76B [Damages based on current price]

Descriptors: Damages

Go to Case Table of Contents

Editorial remarks

Go to Case Table of Contents

Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

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., p. 1756-1760

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.57, 95, 153, Nordic Journal of Commercial Law (2/2005)

Go to Case Table of Contents
Case text (English translation)

Queen Mary Case Translation Programme

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

Oxidized aluminum case (24 April 1997)

Translation [*] by Zheng Xie [**]

Translation edited by Meihua Xu [***]

China's International Trade and Economic Arbitration Commission [hereafter, the Arbitration Commission] accepted the present case according to:

   -    The arbitration clause in the contract signed on 9 May 1995 by Claimant [Buyer], Switzerland____Materials Company, and Respondent [Seller], Qingdao Bonded Zone International Trade Co. Ltd; and
 
   -    The written arbitration application submitted to the Arbitration Commission by [Buyer] on 31 May 1995.

The Chairman of the Arbitration Commission appointed Mr. P as the presiding arbitrator. Mr. P, Mr. A appointed by [Buyer], and Mr. D appointed by [Seller] formed the Arbitration Tribunal and heard the case.

On 15 July 1996, the Arbitration Tribunal held a court session in Beijing. [Buyer] and [Seller] sent representatives to attend the session. They made oral statements and arguments, and answered the Arbitration Tribunal's questions.

After the session, both parties submitted supplementary materials.

The Arbitration Commission extended the period of hearing twice as the Arbitration Tribunal requested. The notices of the decisions were sent to the parties. The Arbitration Tribunal was to hand down the award before 19 May 1997.

According to the written materials and the result of the court session, the Arbitration Tribunal has concluded the case and handed down the award.

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

FACTS

On 9 May 1995, [Buyer] and [Seller] signed a contract requiring [Seller] to provide to [Buyer] 10,000 MT oxidized aluminum produced in Australia:

   -    Price: US $265/MT;
   -    Delivery term: CIF Lian Yungang, China;
   -    Time of delivery: Loading at a main port in Australia before 5 May 1995;
   -    Terms of payment: [Buyer] shall pay the price of the goods to the account specified by [Seller] within forty-eight hours after receiving the full set of original documents.

[Buyer]'s position

[Buyer] asserts:

After signing the contract, [Seller] neither delivered any original documents to [Buyer], nor did it give any reason. On 19 and 29 May 1995, [Buyer] sent two faxes to [Seller] urging it to deliver the documents, but [Seller] did not reply. [Buyer] suffered severe loss when the market price increased, and [Buyer]'s expected profits were frustrated. [Buyer] therefore files the following claims:

1. [Seller] should indemnify [Buyer] the difference between the contract price and the market price, US $650,000.

In the supplementary materials, [Buyer] alleges that according to the current price list of oxidized aluminum in London Metal Reports and the contract price in the contract concluded between [Buyer] and Qingdao Aluminum Factory, the market price of oxidized aluminum is US $330/MT at the end of June 1995. Because [Seller] did not deliver the goods, [Buyer] claims for the difference between the contract price and the market price, i.e., 10,000 MT x (US $330/MT - US $265/MT) = US $650,000.

2. [Seller] shall pay the entire arbitration fee of this case and the fee for safeguarding of assets.

[Seller]'s defense

In defense, [Seller] alleges:

1. The contract was not established.

On 8 May 1995, [Seller] sent a formal offer to [Buyer]. [Buyer] agreed and drafted the contract on 9 May. On 11 May, [Seller]'s representative and [Buyer] initialed the contract in Beijing, but [Seller]'s representative did not review the contract carefully and did not find that the terms of payment had been altered fundamentally by [Buyer]. It is a material misunderstanding for [Seller] to sign the contract without carefully reviewing it. On 15 May, [Buyer] and [Seller] negotiated in Qingdao. [Buyer] insisted on making the payment by L/C, but [Seller] requested T/T. Because [Buyer] did not accept the term of payment in the offer of 8 May, the contract was not established. [Buyer]'s claim, which is based on the invalid draft of contract, should not be supported.

2. About the original documents:

     (1) The person sent by [Buyer] has received the documents stipulated in the offer;

     (2) During the negotiation on 15 May 1995, [Buyer] did not accept the terms of payment and requested to pay by L/C. Because the parties did not reach any agreement, the contract was not established. Thus, [Buyer] should not have expected any "original documents".

3. Because the contract was not established, and [Buyer] could not sign any contract without guaranteeing the source of the goods, [Buyer] did not suffer any loss.

[Seller] asserts that [Buyer]'s claims should be dismissed.

[Buyer]'s response

[Buyer] objected to [Seller]'s defense, alleging:

1. The contract was established according to the law.

     (1) According to Article 7 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interests, the parties executed a formal, legal and valid contract on 9 May 1995.

     (2) [Seller]'s assertion that the fact that the contract was initialed has a bearing on invalidity should not be supported, because the contract does not support that position.

And [Seller]'s assertion that it did not read the contract carefully should also not be supported.

2. [Seller] did not deliver the original documents, so [Seller] should be held liable for the breach. After signing the contract, [Buyer] urged [Seller] to deliver the documents, but [Seller] did not reply.

3. [Seller] has not provided any evidence to support its assertions.

[Seller]'s further response

[Seller] in its Main Points in Court Session Statement made further defense:

1. After investigation, [Seller] finds that [Buyer] was in bankruptcy at the end of 1995. Thus, [Buyer] shall bear the burden of proof that it has subject qualification and its agent has authorization.

2. [Buyer] and [Seller] did not reach any agreement on the term of payment, and [Buyer] knew that [Seller] agreed to cancel the contract. [Buyer] also knew that [Seller] disposed of the goods at a lower price, and did not make any objection.

3. [Buyer] sought to show that it suffered a loss of US $650,000 by providing a copy of a contract with another party. It is not known whether that contract exists, and if so, it is not clear whether or not the contract was performed. Such evidence cannot support [Buyer]'s claims, because it lacks weight of proof.

In its application, [Buyer] alleged that it resold the goods, but in the court session, [Buyer] admitted it did not sign any contract to sell the goods to others. Accordingly, [Buyer] did not suffer any loss. [Buyer]'s claims lack factual and legal basis, so they should not be supported.

OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

Clause 11 of the contract signed by the parties stipulates, "the law of the People's Republic of China is applied to this contract." The Arbitration Tribunal respects the parties' agreement and holds that the law of the People's Republic of China is applied to this case. Article 6 of Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, "Where an international treaty which is relevant to a contract, and to which the People's Republic of China is a contracting party or a signatory, provides differently from the law of the People's Republic of China, the provisions of the international treaty shall prevail, with the exception of those clauses on which the People's Republic of China has declared reservation." In addition, Article 5(3) of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest stipulates that "when there is no stipulation in Chinese law, international trade usages shall be applied."

Switzerland, where [Buyer] is, and China, where [Seller] is, adopted the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG). Because CISG is related to the contract in this case, the Arbitration Tribunal decides the CISG is also applied to this case.

The contract involves interpretation and application of international commerce terms which the law of People's Republic of China does not stipulate, so the Arbitration Tribunal decides International Chamber of Commerce Terms (1990) (INCOTERMS) as international trade customs is applied.

2. [Buyer]'s subject qualification

In its defense, [Seller] alleges that [Buyer] went bankrupt at the end of 1995. According to Article 43 of the Arbitration Law of the People's Republic of China, "Parties shall provide evidence in support of their own arguments", [Seller] should thus provide the evidence to show [Buyer] went bankrupt. [Seller] did not provide this evidence, so the Arbitration Tribunal decides [Buyer] has the requisite subject qualification.

3. Validity of the contract

[Buyer] and [Seller] hold different views on the validity of the contract. [Buyer] asserts the contract is valid. [Seller] alleges that, although the contract was initialed by the representative of each party, the contract was not established, because the parties did not reach an agreement on the terms of payment.

The Arbitration Tribunal finds that, although the signing date that appears in the contract is 9 May 1995, each party's representative actually signed the contract on 11 May 1995. As far as the terms of payment are concerned, Clause 8 of the contract signed by each party's representative stipulates, "Terms of payment: [Buyer] shall pay the price of the goods to the account specified by [Seller] within forty-eight hours after receiving the full set of original documents". On 15 May 1995, when the parties negotiated about the performance of the contract, they discussed on the payment by L/C, but did not reach an agreement.

The Arbitration Tribunal notices that in the contract signed by each party's representative on 9 May 1995 neither party noted that the contract was initialed; after that, the parties did not state the contract was an initialed one. In the arbitration, [Seller] asserts the contract did not take effect, because it was initialed. [Seller] did not submit any evidence to support its assertions. [Seller]'s assertion that its representative grossly misunderstood the contract, also lacks sufficient reasons and evidence.

Considering the above, the Arbitration Tribunal holds that the contract signed by each party's representative was validly established. The representatives did not reach any agreement on the term of payment after negotiation, which shows the contract was neither altered nor supplemented. Thus, each party's obligations and rights shall be in accordance with the original contract.

According to Article 16 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, the contract was established and is binding, so the parties shall perform the obligations stipulated in the contract, and neither party is entitled to alter or cancel the contract unilaterally.

4. Liability for breach of contract

After signing the contract, [Seller] did not perform its obligation of delivering the documents according to the contract, which means it did not deliver the goods to [Buyer]. On 19 May 1995, [Buyer] by correspondence urged [Seller] to perform its obligation. [Seller] did not perform its obligation of delivering the documents and the goods, which constitutes breach of contract. [Seller] is liable for [Buyer]'s damages due to its breach, according to:

   -    Article 18 and Article 19 of Law of the People's Republic of China on Economic Contracts Involving Foreign Interest;
   -    Article 6(1) of Supreme Court on Questions on Application of Law of the People's Republic of China on Economic Contracts Involving Foreign Interest; and
   -    Articles 74-76 of CISG.

5. [Buyer]'s claims

[Buyer]'s claims include: (1) a request for [Seller] to indemnify US $650,000: the difference between the contract price and the current price at the time when [Seller] refused to deliver the goods; and (2) for [Seller] to pay the arbitration fee and fee for safeguarding of assets.

     (1) Buyer's first claim

The Arbitration Tribunal finds:

   -    The law of the People's Republic of China does not describe how to calculate the amount of damages;
 
   -    Article 6(1) of Supreme Court on Questions on Application of Law of the People's Republic of China on Economic Contracts Involving Foreign Interest allows the aggrieved party to claim for the interests which it shall gain if the contract was fully performed (i.e., profits in the international contract on sales of goods).
 
   -    Articles 74-76 of CISG stipulate that the indemnification may be the difference between the contract price and the price of the substitute transaction; if there is no substitute transaction, it may be the different between the contract price and the current price at the place where the delivery shall be made, when the contract is declared avoided. Because [Buyer] neither made a substitute transaction, nor did it declare to [Seller] that the contract was avoided, the Arbitration Tribunal decides [Buyer] as the aggrieved party is entitled to indemnification, but the amount shall be the difference between the contract price and the current price at the time and place when and where the delivery should have been made. The calculation shall be Damages = (the current price - the contract price) x quantity of the goods which were not delivered.

The Arbitration Tribunal finds that the goods under the contract should have been shipped from Australia on 5 May 1995, and that the shipping would have taken 12-16 days. The estimated arrival date to Qingdao Port would have been between 17 and 21 May 1995, when [Seller] was to have delivered the goods. According to London Metal Reports submitted by [Buyer], the price at the international market was FOB US $240-260/MT, when [Seller] was supposed to have delivered the goods. When freight and insurance are added (the freight and insurance from Australia to Qingdao is US $20/MT), the price is CIF US $260-280/MT. Because such current price was floating, according to the principle of fairness, the Arbitration Tribunal decides that the current price when the delivery should have been made was US $270/MT.

According to the above analysis, the Arbitration Tribunal holds the amount of indemnification shall be (US $270/MT - US $265/MT) x 10,000 MT = US $50,000.

The Arbitration Tribunal does not support [Buyer]'s assertion that the damage should be calculated based on the current price when [Seller] refused to deliver the goods, i.e., US $330/MT, which lacks sufficient facts and reason to support.

2. [Buyer]'s second claim

[Buyer] did not provide the definite amount and evidence of fee for safeguarding of assets. Thus, the Arbitration Tribunal does not support this claim. Considering that [Buyer]'s claims are only partially satisfied, the Arbitration Tribunal holds [Buyer] and [Seller] shall share the arbitration fee, of which [Buyer] shall pay 40% and [Seller] shall pay 60%.

AWARD

The Arbitration Tribunal hands down the following award.

  1. [Seller] shall indemnify [Buyer] the difference in price due to its non-delivery, i.e., US $50,000.

  2. [Buyer] shall pay 40% of the arbitration fee, and [Seller] shall pay 60%. [Buyer] has already paid the arbitration fee US $___ in advance. Thus, [Seller] shall pay [Buyer] US $___.

  3. [Buyer]'s other claims are dismissed.

[Seller] shall pay [Buyer] the total amount of the above item 1 and 2, which is $62,857.40, within forty-five days of the date this award is handed down. If [Seller] does not pay it within this time limit, interest shall be added at annual rate of 9%.

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 Switzerland 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 $].

** 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
Pace Law School Institute of International Commercial Law - Last updated July 22, 2009
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography