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CISG CASE PRESENTATION

China 30 April 1997 CIETAC Arbitration proceeding (Molybdenum alloy case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970430c1.html]

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

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Case identification

DATE OF DECISION: 19970430 (30 April 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/10

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Switzerland (respondent)

GOODS INVOLVED: Molybdenum alloy


Case abstract

PRC: China International Economic & Trade Arbitration Commission (CIETAC), Shanghai Commission, 30 April 1997

Case law on UNCITRAL texts (CLOUT) abstract no. 714

Reproduced with permission of UNCITRAL

Abstract prepared by Wei Xia YANG

This case deals with the grounds for avoidance of contract and the entitlement to damages following a substitute transaction as a consequence of avoidance.

A Chinese seller and a Swiss buyer signed a sales confirmation for molybdenum alloy. Later on, the buyer alleged that the seller lacked the intent to perform the contract on time because of the tight timeframe for inspection, thus the buyer did not issue the L/C and refused to take remedial measures. The seller resold the goods and suffered a loss, it thus claimed for damages. The seller asserted that the buyer did not want to perform the contract because the international market price of the goods was declining and the buyer intentionally breached the contract.

The Arbitration Tribunal held the buyer in fundamental breach of contract for not accepting the delivery and stated it should bear the entire liability for breach, pursuant to Article 60 CISG. The Tribunal observed that the carrier provided evidence that the seller applied for loading the goods while the buyer had no evidence to show that the goods were not shipped on the due date. Therefore, the buyer had no ground to avoid the contract under Article 64 CISG. The Tribunal stated that the buyer acted without intent to make payment as agreed in the contract, and that it should compensate the seller's losses arising from its breach of contract in accordance with Article 74 CISG. The Tribunal dismissed the buyer's allegation that the seller did not take reasonable measures to mitigate the damages within a reasonable time according to Article 77 CISG and upheld the seller's claim for the price difference; it also awarded the seller the interest on the price difference under Articles 75 and 78 CISG.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 60 ; 64 ; 74 ; 75 ; 77 ; 78

Classification of issues using UNCITRAL classification code numbers:

60A [Buyer's obligation to take delivery];

64A1 [Seller's right to avoid contract (grounds for avoidance): fundamental breach of contract];

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];

78A [Interest on delay in receiving price or any other sum in arrears]

Descriptors: Avoidance ; Fundamental breach ; 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): 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. 1803-1808

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.97, 108, 147, 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) Arbitration Award

Molybdenum alloy case (30 April 1997)

Translation [*] by Zheng Xie [**]

Translation edited by Meihua Xu [***]

The China International Trade and Economic Arbitration Commission, Shanghai Commission [hereafter, Shanghai Commission] accepted this case on 23 January 1997 according to:

   -    The arbitration clause in Sales Confirmation No. ZJC96-WF1001 signed by Claimant [Seller], Zhenjiang ___ Trading Company, and Respondent [Buyer], Swiss ___ Corporation, on 4 October 1996; and
 
   -    The written arbitration application submitted by [Seller] to the Arbitration Commission. Because the subject matter is less than RMB 500,000, according to Article 64 of the Arbitration Rules of China International Economic and Trade Arbitration Commission (hereafter, the Arbitration Rules), summary procedure is applied to this case.

[Seller] and [Buyer] did not appoint or authorize the Chairman of the Arbitration Commission to appoint a sole arbitrator. The Chairman appointed Mr. P as the sole arbitrator to form the Arbitration Tribunal on 4 March 1997.

The Arbitration Tribunal reviewed [Seller]'s application and evidence materials, and [Buyer]'s defense and evidence materials, and held a court session in Shanghai on 1 April 1997. [Seller]'s agent and [Buyer]'s agent attended the court session, presented statements and answered the Arbitration Tribunal's questions. Because the parties' agents had only limited authority, the conciliation was no made during the court session. After the court session, both parties submitted supplementary materials.

The Arbitration Tribunal has concluded the case and based on the facts within the time stipulated in the Arbitration Rules handed down this award.

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

FACTS

On 4 October 1996, [Seller] and [Buyer] signed Sales Confirmation No. ZJC96-WF1001 (hereafter, the contract). The contract stipulates:

   -  Goods: [Buyer] purchased 20 tons of Molybdenum alloy with the content of Molybdenum not less than 60%;
   -  Unit price: US $13.0/Kg Mo, CNF Rotterdam;
   -  Total price US $156,000.00;
   -  Payment: [Buyer] shall pay before 15 October 1996 by confirmed, irrevocable and transferable sight L/C with [Seller] as beneficiary;
   -  Inspection: The quantity and quality of the goods shall be inspected by SGS; [Buyer] shall make payment when the SGS certificate of inspection is shown. [Buyer] shall apply for SGS inspection and pay the inspection fee.

On the same day the contract was signed, [Buyer] submitted to the bank an application for issuance of the L/C; [Seller] prepared the goods under the contract, booked a ship for the shipping date of 15 October 1996, and was ready for inspection and loading.

On 7 October, when [Buyer] inquired of SGS, [Buyer] was notified that SGS usually takes about ten days to issue the certificate of inspection. [Buyer] asserted that [Seller] could not finish loading before 15 October 1996 (the shipping period stipulated in the contract), and that when signing the contract, [Seller] lacked the intent to perform the contract on time. On 9 October 1996, [Buyer] faxed to the broker, MIR (China) Shanghai Office (hereafter, MIR) stating that [Buyer] was not satisfied with [Seller], and that [Buyer] would not apply for inspection and the L/C in order to reduce the loss.

Alleging that [Buyer] refused to perform the contract, on October 16th [Seller] notified [Buyer] that was cancelling the contract and reserving its right to claim damages. Taking the position that the contract cannot be performed for the above reasons. [Seller] then resold the prepared goods to another company. Because the market price was declining, [Seller] suffered a loss of the price difference. [Seller] asked [Buyer] to compensate [Seller] for its damages, and a dispute arose. The parties negotiated, but did not reach an agreement. [Seller] filed this arbitration application and requests [Buyer] to bear liabilities and compensate [Seller] for damages. The following are [Seller]'s claims:

1. [Buyer] should pay for the price difference, US $53,800.80; the storage charges, US $18; loss of bank interest, US $780; and the attorneys' fees, US $2,000. The total amount is US $55,806.80.

2. [Buyer] should pay for the loss of the bank interest for the price difference from 15 October 1996 to the date when this award takes effect, at an annual interest rate of 6%.

3. [Buyer] should bear the entire arbitration fee.

POSITION OF THE PARTIES

[Seller]'s position

[Seller] and [Buyer] signed Contract No. ZJC 96-WF1001 for the sale of 20 tons of Molybdenum alloy made in China. The contract stipulates that [Buyer] shall issue a confirmed, irrevocable and transferable sight L/C with [Seller] as beneficiary not later than 10 October 1996, and that the shipping period shall be not later than 15 October 1996. After signing the contract, [Seller] prepared the goods and rented a ship. However, [Buyer] did not want to perform the contract because the international market price was declining. [Seller] urged [Buyer] to issue the L/C many times, but [Buyer] did not reply. [Seller] had to cancel the contract on 16 October 1996, when [Buyer] refused to perform the contract; [Seller] resold the goods under the contract and suffered a loss US $53,008.80. According to international trade custom, the parties shall perform the contract after signing it. [Seller] alleges that [Buyer] intentionally breached the contract when [Buyer] did not issue the L/C on time and refused to take remedial measures.

[Buyer]'s position

It is not [Buyer], but [Seller] who breached the contract.

On 4 October 1996, [Buyer] signed the contract with [Seller] through the broker (MIR) to purchase 20 tons of Molybdenum. The contract stipulates that the shipping period shall be no later than 15 October 1996, that [Buyer] shall issue an irrevocable sight L/C before 10 October 1996, and that the negotiation of the L/C is on the condition that [Seller] must show the inspection certificate of quantity and quality of the goods issued by SGS. According to international trade custom, the inspection by SGS shall be made before loading the goods.

On the same day of signing the contract, [Buyer] submitted its application for the L/C to the bank and sent the application of the L/C to [Seller] through the broker (MIR) for confirmation. At the same time, [Buyer] worried about whether the goods could be shipped on time, and through MIR requested [Seller] to confirm. On 7 October 1996, MIR sent a fax requesting postponement of the shipping period to 20-25 October 1996 (which shall be decided by [Buyer]). [Buyer] identified the purchaser of the goods in this contract according to the shipping period; in addition, on 7 October 1996, by contacting with SGS, [Buyer] knew that it usually took about ten days for SGS to inspect and issue the inspection certificate for the goods in Zhenjiang; this means that [Seller] could not ship the goods before 15 October 1996, because [Seller] not only would have to get the inspection certificate but also finish the procedure of transportation, custom and port accommodation. Accordingly, [Seller] lacked the intent to perform the contract when signing the contract.

On 9 October 1996, [Buyer] faxed to MIR stating that [Buyer] was not satisfied with [Seller], and due to [Seller]'s anticipated breach, [Buyer] would not apply for inspection and the L/C in order to reduce the loss. [Buyer] stopped performing the contract, which is not a breach of contract, but to protect its interests.

OPINION OF THE ARBITRATION TRIBUNAL

After hearing the parties' statement and reviewing the written materials, the Arbitration Tribunal holds that:

1. Effectiveness of the contract and applicable law

Contract No. ZJC 96-WF1001 signed by the parties on 4 October 1996 is effective. The parties should perform their duties according to the contract.

The parties did not identify the applicable law in their contract. Because the contract was signed and performed in China, and the arbitration is also in China, according to theory of proximate connection, the Arbitration Tribunal holds that Law of the People's Republic of China on Economic Contract Involving Foreign Interest is applied. In addition, considering that the dispute in this case concerns an international sales contract, that the countries in which [Seller]'s and [Buyer]'s places of business are located are Contracting States to the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG), and that both parties cited the CISG in their materials, CISG is also applied.

2. Liability for breach

According to the contract, [Seller]'s duty is to prepare the goods and ship the goods during the shipping period. [Buyer]'s duty is to issue the L/C, apply for the inspection to SGS, and pay the inspection fee and take the delivery.

The Arbitration Tribunal finds that on 4 October 1996, [Seller]'s manufacturer, Zhenjiang __Metal Factory notified [Seller] that 20 tons of Molybdenum were ready for inspection; the certificate issued by China __ Foreign Transportation Agency Company on 9 March 1997, shows that [Seller] booked 30 berth, 1 X 20's on the ship 8805V on 7 October, and the shipping period is 15 October; [Seller] filled the form of export goods statement. The above evidence shows that [Seller] has prepared the goods and booked the ship for loading on 15 October in accordance with the contract.

[Buyer] doubted the evidence submitted by [Seller], and asserted that it did not see any confirmation and promise of the carrier to transport the goods, or the confirmation of Foreign Transportation Agency Company that the berth was provided and that the goods would be shipping on 15 October; and [Buyer] denies that [Seller] prepared the goods and performed the contract.

The Arbitration Tribunal holds that the carrier has provided evidence to show that [Seller] applied for loading the goods, but [Buyer] only raised its doubt and has no evidence to show that the goods could not be shipped on 15 October; thus, it cannot be denied that [Seller] booked the ship. Accordingly, [Buyer]'s doubt cannot be established.

[Buyer]'s other reason to doubt that [Seller] could ship the goods before 15 October is that on 7 October, the broker wrote to [Buyer] suggesting a change of the shipping period to 20 or 25 October. The Arbitration Tribunal finds that [Seller] did not suggest changing the shipping period. It was only because the [Buyer] worried that the goods could not be shipped on 15 October that the [Seller] suggested that there were ships available on 20 to 25 October through the broker. Thus, [Buyer]'s doubt cannot be established.

The above facts show that [Seller] has performed its duty under the contract.

[Buyer] alleged that it neither applied for the SGS inspection nor issued the L/C and announced that [Buyer] was not going to perform the contract because SGS could not finish the inspection before 15 October. [Buyer] stated that it inquired of SGS and was advised that it usually takes about ten working days to issue the inspection certificate; [Buyer] estimated that the goods could not be shipped on time (for example, if the goods are sent for inspection on 7 October 1996, the inspection certificate will be issued on October 18 even if vacation is not counted); thus, on 19 October, [Buyer] notified MIR stating that [Buyer] would not perform the contract, and that [Seller] had anticipatorily breached the contract. The Arbitration Tribunal holds that [Buyer] as an importer doing international business should have anticipated the procedure and time of the inspection, and guaranteed that there would be sufficient time for inspection before the shipping period. [Seller] as the exporter is not liable for the consequences that SGS could not finish the inspection before the shipping period. Even if it took ten days for SGS to issue the inspection certificate, there were more than 10 days from signing the contract to the shipping period; [Seller]'s manufacturer prepared the goods for inspection on October 4, and if [Buyer] had applied to SGS for inspection on time, the inspection could have been finished before the shipping period. According to [Buyer]'s evidence, under some special circumstances, SGS can finish the inspection process in five days instead of ten days. The contract in this case stipulates that [Buyer] shall apply for the SGS inspection and pay the inspection fee, which means that when [Seller] prepared the goods ready for inspection, [Buyer] shall be liable for the delayed inspection and delayed loading. Because [Buyer] neither applied for inspection nor applied for the L/C, and announced that [Buyer] would not perform the contract, according to Article 18 of Law of the People's Republic of China on Economic Contract Involving Foreign Interest, and Article 60 of CISG, [Buyer] fundamentally breached the contract and should bear the entire liability for breach.

3. [Seller]'s loss

When [Buyer] announced that it would not perform the contract, the market price of Molybdenum was declining. [Seller] submitted evidence to show that [Seller] resold the goods at the price of US $8.65/Kg on 8 November, and that the goods sold are those under this contract. According to international custom for sales of Molybdenum, [Buyer] confirmed the content of Molybdenum according to the inspection.

The Arbitration Tribunal holds that when the market price is declining and there can be a need for some time to resell the goods, [Buyer]'s assertion that [Seller] resold the goods on 10 November, and that [Seller] did not take reasonable measures to mitigate the damages within a reasonable time according to CISG, cannot be supported. [Buyer] alleges that it is an affiliated transaction, that on November 10, [Seller] resold the goods to Minmetals North-Europe AB which is the subsidiary of China Minmetals Corporation, and that this contract was controlled by [Seller]'s subsidiary, __ Import and Export Company. After reviewing the facts, the Arbitration Tribunal finds that the purchaser of the resold goods is Minmetals North-Europe AB, which is a subsidiary of China__ Import and Export Company. China __ Import and Export Company has no relationship with Zhenjiang __Trading Company ([Seller]). [Seller] is an independent legal person, and not a subsidiary of China __Import and Export Company. The Arbitration Tribunal holds that it is not an affiliated transaction between [Seller] and the importer. Accordingly, the Arbitration Tribunal upholds [Seller]'s claim for the loss of price difference, and rules that because of the [Buyer]'s breach [Seller] could not receive the payment on time. The Arbitration Tribunal therefore also upholds the [Seller]'s claim for the loss of interest on the contract price and price difference.

However, the Arbitration Tribunal does not uphold [Seller]'s claim for storage charges, because [Seller] has not provided sufficient evidence of this.

[Seller]'s loss is calculated as follows:

     1. The loss of the price difference

The content of Molybdenum is 61.84%, i.e., 618.40 Kg Molybdenum contained per ton, and the quantity of the Molybdenum contained in the contract goods is 12,368.00 Kg.

The price of this contract is CNF Rotterdam US $13/Kg, and the resale price is CNF Rotterdam US $8.65/Kg. The loss of price difference = (13-8.65) x 12,368.00 = US $53,800.80.

     2. The loss of interest on the contract price

The period of interest is from October 16 to November 10, and the total days are 25 days. The interest rate is 5/1000 /month (6% /year). The loss of interest = 156,000 x 5/1000 x 25/30 = US $650.

     3. The loss of interest on the price difference

The period of interest is from 10 November 1996 to 1 May 1997, and the total days are 170 days. The interest rate is 5/1000 /month (6% /year). The loss of interest on the price difference = 53,800 x 5/1000 x 170/30 = US $12,534.35.

The total above amount is US $55,975.15.

     4. The arbitration fee and attorneys' fees

Because [Buyer] fundamentally breached the contract, [Buyer] shall bear the entire arbitration fee. The Arbitration Tribunal cannot uphold [Seller]'s claim for attorneys' fees, US $ 2,000, because [Seller] did not provide sufficient evidence of this.

AWARD

The Arbitration Tribunal makes the following award:

1. [Buyer] shall pay [Seller] for the loss of price difference and interest, US $55,975.15, within 45 days of the effective date of this award.

2. [Seller]'s claims for storage charges and attorneys' fees are dismissed.

3. The arbitration fee of this case is RMB ___, which [Buyer] shall pay. [Seller] has paid the arbitration fee, RMB__ in advance, so [Buyer] shall pay [Seller] RMB___ within 45 days after this award takes effect.

This is the final award. It takes effect when the award is handed down.


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 [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].

** 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 November 7, 2007
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