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CISG CASE PRESENTATION

China 7 May 1997 CIETAC Arbitration proceeding (Horsebean case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970507c1.html]

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

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Case identification

DATE OF DECISION: 19970507 (7 May 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/12

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: France (claimant)

GOODS INVOLVED: Horsebeans


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 75 ; 77 ; 78 [Also cited: Article 60 ]

Classification of issues using UNCITRAL classification code numbers:

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

75A2 [Damages established by substitute transaction after avoidance: repurchase by aggrieved buyer];

77A [Obligation to take reasonable measures to mitigate damages];

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

Descriptors: Damages ; Foreseeability of damages ; Cover transactions ; Mitigation of loss ; 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. 1824-1829

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.82, 121, 144, 146, 204, 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

Horsebeans case (7 May 1997)

Translation [*] by Meihua Xu [**]

Edited by Yan Tianhuai [***]

China International Economic and Trade Arbitration Commission (hereinafter, "Arbitration Commission") accepted this case according to:

   -    The arbitration clause in Sales Contract No. 95RCE00 - 502 between Claimant, France ___ Trading Company (hereinafter, "[Buyer]"), and Respondent, China ___ Resource Company (hereinafter, "[Seller]"), on 24 February 1995; and
 
   -    The written arbitration application submitted by the [Buyer] in November 1995.

Pursuant to the Arbitration Rules, the Chairman of the Arbitration Commission appointed Mr. P as the presiding arbitrator. Mr. P, Mr. A, the arbitrator appointed by the [Buyer], and Mr. D, the arbitrator appointed by the [Seller], formed the Arbitration Tribunal to hear this case.

After examined the arbitration application and the attached evidence submitted by the [Buyer] as well as the arbitration defense and the attached evidence submitted by the [Seller], the Arbitration Tribunal held a hearing of this case on 12 November 1996. Both the [Buyer] and the [Seller] sent representatives to the hearing. They presented statements of the case and answered the Arbitration Tribunal's questions.

After the hearing, both parties submitted supplementary material within the time limit prescribed by the Arbitration Tribunal. This case has been concluded. The Arbitration Tribunal hands down this award based on the written material submitted by both parties and the facts found in the hearing.

The facts, the Arbitration Tribunal's opinion and award are as follows:

I. FACTS

On 2 February 1995, the [Buyer] and the [Seller] signed Contract 95RCE00 - 052 (hereinafter, "Contract"), under which the [Buyer] was to purchase from the [Seller] 1,000 metric tons of Chinese horsebeans produced in1994. The Contract contains the following clauses:

   -    Price: The unit price is US $216 per metric ton and the total price is US $216,000;
   -    Delivery term: FOB ST port;
   -    Delivery date: The goods shall be delivered within 45 days after the L/C is issued;
   -    Payment term: The payment shall be made through a 100% irrevocable L/C opened by the [Buyer] through a bank with the [Seller] as beneficiary(hereinafter, "L/C"); and
   -    Inspection: The goods shall be inspected in Tianjin by Egyptian inspectors no later than 5 April 1994.

POSITION OF THE PARTIES

[Buyer]'s position

The [Buyer] alleges that:

Following the conclusion of the Contract, the [Seller] sent a fax to the [Buyer] on 27 February 1995, providing the bank information for opening the L/C. On 1 March 1995, the [Buyer] caused its bank to issue the L/C in the amount of US $216,000 5%, naming the [Seller] as the beneficiary. On 2 March 1995, the [Buyer] informed the [Seller] of the aforesaid L/C by fax.

After the issuance of the L/C, the [Buyer] sent faxes to the [Seller] respectively on 13 March, 22 March, 30 March, and 5 April 1995, inquiring about the preparation of the goods and demanding that the [Seller] have the goods ready on time for inspection by the Egyptian inspectors and for the [Buyer]'s arrangement of the shipment, but [Buyer] did not receive any reply from the [Seller]. On 20 April 1995, after the time limit for inspection of the goods had expired for 15 days, the [Buyer] sent a fax to the [Seller] asking to withdraw the L/C.

The [Buyer] fulfilled its obligation under the Contract by opening the L/C and sending its Egyptian inspectors to Tianjing according to the Contract. While the [Seller], because of failure to deliver the goods on time, fundamentally breached the Contract, causing substantial loss to the [Buyer]. In order to deliver the goods to the Egyptian Army on time, the [Buyer] had to purchase substitute goods at a higher price.

Therefore, the [Buyer] claims that:

1. The [Seller] should compensate the [Buyer] for the price difference between the Contract price and the price paid by the [Buyer] in purchase of the substitute goods, totaling US $58,000;

2. The [Seller] should compensate the [Buyer] for the costs of issuing and modifying the L/C, totaling US $243.13;

3. The [Seller] should compensate the [Buyer] for the cost of sending Egyptian inspectors to Tianjing, totaling US $40,200;

4. The [Seller] should compensate the [Buyer] for the penalty paid by the [Buyer] to the Egyptian Army for late delivery of the goods, amounting to US $29,337;

5. The [Seller] should compensate the [Buyer] for the loss of interest accrued on the aforesaid amount calculated at a 1% monthly rate, amounting to US $7,666.80, as well as the interest calculated until the award date; and

6. The [Seller] should bear all arbitration fees.

[Seller]'s position

The [Seller] argues that:

Following the conclusion of the Contract, the [Seller] signed a purchase contract with Hebei Langfang Local Products Company (hereinafter, "Langfang Company") on 29 March 1995 to purchase 1,000 metric tons of horsebeans, and paid its down payment to Langfang Company on 30 March 1995. In accordance with trade practices, Langfang Company provided the [Seller] with a copy of the storage certificate issued by Tianjin Toudaogou Warehouse, and asked the [Seller] and the [Buyer]'s inspectors to inspect and to take delivery of the goods at the warehouse. On 31 March 1995, the [Seller] sent a fax to the [Buyer], informing that 1,000 tons of horsebeans under the Contract were stored in Tianjin warehouse and asking the [Buyer] to tell the ship's name and inspection date. However, the [Buyer] did reply to this fax. On 4 April 1995, the [Seller] sent a fax to the [Buyer] again, urging the [Buyer] to inspect the goods immediately, and emphasizing that if the [Buyer] did not inspect the goods before 5 April 1995 -- the deadline for inspection set in the Contract -- the [Seller] would not deliver the goods. However, what surprised the [Seller] was that the [Buyer] neither informed the [Seller] of the ship's name, nor did the [Buyer] send inspectors, but asked to withdraw the L/C later on.

According to international trade customs and practices, the FOB term means that the [Buyer] shall contract for the carriage of the goods and inform the [Seller] of the ship's name and loading date. However, the [Buyer] did not send inspectors to inspect the goods, nor did it inform the [Seller] of the ship's name and loading date; as a result, the [Seller] could not deliver the goods. The [Buyer] has violated Article 60 of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), so, it should take full responsibility for the [Seller]'s failure to deliver the goods on time. In addition, the [Buyer] failed to provide sufficient evidence to prove its actual loss; therefore, its claim for loss should not be granted.

[Buyer]'s supplementary assertions

The [Buyer] further asserts in its supplementary material submitted to the Arbitration Tribunal after the hearing that:

1. The [Buyer] never received the two faxes presented by the [Seller] as attachment 3 and attachment 4 to its defense, nor did [Buyer] receive any other notice from the [Seller] that the 1,000 tons of goods were ready for inspection. In fact, from 13 March to 5 April 1995, the [Buyer] repeatedly asked the [Seller] whether the 1,000 tons of goods had arrived at the warehouse and when the Egyptian inspectors could inspect the goods, but received no reply from the [Seller]. If the [Seller] cannot provide evidence to prove that the [Buyer] actually received the aforesaid two faxes, [Seller] should be held liable for breach of the Contract.

2. The [Seller] signed the purchase contract with Langfang Company on 29 March, a day that was only seven days before the inspection date set in the Contract. According to the purchase contract with Langfang Company, the [Seller] was required to pay 5% of the price as a down payment immediately after signing the purchase contract and to pay the balance within 10 days simultaneously with receiving the goods. Assuming that the Egyptian inspector had inspected the goods before 5 April 1995, as long as the [Seller] failed to pay Langfang Company the entire price, the title to the goods did not belong to the [Seller]. How could the [Seller] guarantee the delivery of the goods to the [Buyer]? In addition, the down payment the [Seller] was required to pay Langfang Company under the aforesaid purchase contract is upfront money rather than a deposit as defined in the Economic Contract Law of People's Republic of China to secure performance of a contract. In fact, the purchase contract clearly states that the [Seller] shall prepay 5% percent of the price to Langfang Company. Assuming that the [Seller] had fulfilled the its obligation under the purchase contract with Langfang Company, it still could not guarantee that the purchase contract would be performed by Langfang Company.

3. The inspection certificate issued by the Egyptian inspectors was one of the required documents for the [Seller]'s drawing payment under the L/C, so, it was the [Seller]'s fundamental obligation to obtain this inspection certificate. Actually, the [Seller] knew the contact information of the Egyptian inspectors in Tianjin - another lot of the [Seller]'s goods was inspected by the Egyptian inspectors during that same period of time. So, the [Seller]'s failure to contact the Egyptian inspectors for inspection of the goods showed that it had no intention to draw the money under the L/C, nor was [Seller] going to deliver the goods on time. Thus, the [Seller] should be liable for its fundamental breach of the Contract in failing to obtain the inspection certificate.

4. The [Buyer] suffered loss of price difference due to the [Seller]'s breach of the Contract. The price difference exceeded US $58,000, but considering the differences of delivery term and transportation fee, the [Buyer] claims for only US $58,000. The [Seller] should also compensate the [Buyer] for the penalty paid to Egyptian Army for late delivery of the goods, the cost for keeping Egyptian inspectors stay in Tianjin for two months, the costs of issuing and modifying the L/C, arbitration fee, traveling fee, and loss of interest.

[Seller]'s supplementary defenses

The [Seller] further argues in its supplementary material submitted to the Arbitration Tribunal that:

1. The true reason why the [Buyer] failed to inspect the goods and to contract for the carriage of the goods was not because it failed to receive notice from the [Seller] but because it considered it unprofitable to charter a ship for only 3,000 tons of the goods, as the time did not permit it to book a shipping space for the goods. So, it is the [Buyer] who should be liable for non-performance of the Contract.

2. The purchase contract the [Seller] signed with Langfang Company was legal and valid. It provided that the [Seller] should pay the total price within ten days after it was signed. During the ten day period, Langfang Company had no right to dispose of the goods, and that ten days period were within the time limit for [Buyer]'s inspection of the goods under the Contract.

In addition, the down payment clause in the aforesaid purchase contract was intended by the parties to secure the performance of the contract. The down payment defined in that clause was a deposit in nature in accordance with the law, except that the word "deposit" was wrongfully written as "down payment".

3. Pursuant to the Contract, the [Seller] was not required to contact the Egyptian inspectors directly for inspection of the goods. So, the [Seller] did not breach the Contract with regard to inspection of the goods.

4. The [Buyer]'s arbitration claim lacks evidentiary support, and there are conflicts between [Buyer]'s claim and its calculation of the claim.

      (1) The [Buyer] failed to provide any evidence about the content of the contract it signed with Egyptian Army; so its claim for penalty paid to Egyptian Army for late delivery of the goods lacks evidentiary support.

      (2) The [Buyer] did not provide any evidence to prove the quantity of the goods it delivered to Egyptian Army.

      (3) From the evidence provided by the [Buyer] to prove its purchase of the substitute goods, it can be found that the [Buyer] opened a L/C on 7 April 1995 with the delivery deadline on 17 April 1995 and the expiration date on 25 May 1995, but the goods were actually loaded on board on 14 July 1995. So, it was the third party who should be responsible for the [Buyer]'s failure to deliver the goods to Egyptian Army before 30 April 1995.      

      (4) The [Buyer]'s purchase of the substitute goods at a higher price from a third party in China instead of taking delivery of 1,000 metric tons of same goods supplied by Jiangsu Province Grain & Oil Import & Export Company and inspected by it within the time limit of the Contract seems very unreasonable.      

      (5) The [Buyer]'s calculation of the price difference has no sound basis. The price shown in the L/C opened by the [Buyer] for the substitute goods on 7 April 1995 was US $290 per metric ton, CFR Port Said, Egypt, while the freight offered by Tianjin Tanggu Shipping Company for shipping the goods from Tianjin port to Port Said in Egypt was US $50 to US $70 per metric ton; therefore, the price paid by the [Buyer] for the substitute goods should be around US $220 to US $240 per metric ton.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. Applicable law

The parties failed to make choice of the applicable law in the Contract. Considering the fact that the [Buyer]'s place of business is in France and the [Seller]'s place of business is in China, and both France and China are Contracting States of the CISG, the Arbitration Tribunal holds that the CISG should be applied herein.

2. Performance of the Contract

The Arbitration Tribunal notes that the key issue of this case is whether the [Seller] has performed its obligation of delivery of the goods in accordance with the Contract. The [Seller] asserts that it prepared the goods and sent faxes asking the [Buyer] to inspect and to take delivery of the goods. While the [Buyer] argues that it never received the aforesaid faxes from the [Seller], on the contrary, the [Seller] ignored the [Buyer]'s faxes urging the [Seller] to deliver the goods. Each party questioned the authenticity of the faxes sent by the other party.

      (1) The [Buyer] provided the faxes together with return receipts it sent to the [Seller] urging the [Seller] to prepare the goods. While the [Seller] provided only the copies of the faxes it sent to the [Buyer] asking the [Buyer] to inspect the goods and to arrange shipment, without providing the evidence to prove it had actually sent such faxes or that the [Buyer] had actually received such faxes. The Arbitration Tribunal holds that the [Buyer] had repeatedly requested the [Seller] to get the goods ready for inspection and shipment, but no evidence proves that the [Seller] actually had gave replies to the [Buyer]'s requests. So, the [Seller]'s assertion that it had gave notice to the [Buyer] asking for inspection of the goods and arrangement of the shipment but the [Buyer] refused to take delivery of the goods is not accepted by the Arbitration Tribunal.  

      (2) The [Seller] asserted that it had prepared the goods, and provided the evidence to prove such assertion, including the purchase contract it signed with Langfang Company to purchase the goods and the storage certificate showing it had stored the goods in the warehouse. However, the Arbitration Tribunal holds that the evidence the [Seller] provided is insufficient to prove its assertion. So, the [Seller]'s assertion that it had prepared the goods is also not accepted by the Arbitration Tribunal.

      (3) After signing the Contract, the [Buyer] issued the L/C as required by the Contract, and had fulfilled its obligation under the Contract before the [Seller] got the goods ready. However, the [Seller] failed to prepare and deliver the goods in accordance with the Contract. The Arbitration Tribunal holds that the [Seller] was in breach of the Contract and shall be liable for breach of the Contract.

3. [Buyer]'s claims

      (1) Price difference between the Contract price and the price for substitute goods

The [Buyer] asks the [Seller] to compensate for the price difference in the amount of US $58,000 between the Contract price and the price it paid for purchasing the substitute goods and provided related evidence. The Arbitration Tribunal deems the evidence provided by the [Buyer], including the bill of lading, L/C, and packing list, is sufficient to prove that the [Buyer] purchased the substitute goods. According to Article 75 of the CISG, the [Buyer]'s purchase of the substitute goods after the [Seller] breached the Contract and [Buyer]'s claim for the price difference are well based on the facts and the law, and the price for substitute goods is reasonable. The price for the substitute goods can be found in the L/C the [Buyer] opened for purchasing the substitute goods. The [Buyer] correctly calculated the price difference of US $58,000 by deducting the freight from the difference between the contract price and the price for the substitute goods. The Arbitration Tribunal holds that the freight the [Buyer] deducted is reasonable, so is the price difference claimed by the [Buyer]. Therefore, the [Buyer]'s claim for the price difference of US $58,000 is affirmed by the Arbitration Tribunal. 

      (2) Costs of issuing and modifying the L/C

The [Buyer] asks the [Seller] to compensate US $243.13 for the costs of issuing and modifying the L/C. The Arbitration Tribunal deems that the costs of issuing and modifying the L/C were normal expenditure incurred in performing the Contract and should be borne by the [Buyer] itself. The [Buyer]'s claim for such costs is therefore rejected by the Arbitration Tribunal.       

      (3) Cost for having the Egyptian inspectors remain in Tianjin

The [Buyer] asks the [Seller] to compensate for the cost for having the Egyptian inspectors remain in Tianjin in the amount of US $40,200. The Arbitration Tribunal holds that based on the documents provided by the two parties, it is found that the Egyptian inspectors stayed in Tianjin not only for inspection of the goods under the Contract but also for inspection of other goods, so it is reasonable for the [Seller] to bear only a portion of the cost, say US $3,000, not all of this cost. Thus, the [Buyer]'s claim for the cost of US $40,200 for having the Egyptian inspectors remain in Tianjin is rejected by the Arbitration Tribunal, however, the [Seller] is ordered to pay US $3,000 to the [Buyer] in compensation for the [Buyer]'s cost.

      (4) [Buyer]'s loss from paying a penalty to Egyptian Army

The [Buyer] asks the [Seller] to compensate for the loss suffered from paying a penalty to Egyptian Army for late delivery of the goods in the amount of US $29,337. The Arbitration Tribunal holds that according to Article 74 of the CISG, the penalty the [Buyer] paid to Egyptian Army is a type of damages that the [Seller] could not foresee at the time of the conclusion of the Contract, so it should not be borne by the [Seller]. Thus, the [Buyer]'s claim for the loss suffered from paying the penalty to Egyptian Army is rejected by the Arbitration Tribunal.

      (5) [Buyer]'s other claims

            (i) The [Buyer] asks the [Seller] to compensate for the interest on the price difference, the costs of issuing and modifying the L/C, the cost for having the Egyptian inspectors remain in Tianjin, and the penalty paid to Egyptian Army at a monthly interest of 1%, calculated until the date of this award. The Arbitration Tribunal holds that: the [Buyer]'s claim for interest on the penalty it paid to Egyptian Army and on the costs of issuing and modifying the L/C shall be dismissed because the [Buyer]'s claim for such penalty and costs is rejected for the aforesaid reasons; the [Buyer]'s claim for interest on the cost for havinging the Egyptian inspectors remain in Tianjin shall also be dismissed because the Arbitration Tribunal has granted to the [Buyer] US$ 3,000 as a compensation for such cost, no interest shall be imposed on this compensation. The [Buyer]'s claim for interest on the price difference of US $58,000 shall be granted and the [Seller] shall compensate the [Buyer] for such interest. The calculation of the interest is as follows:

The delivery date stipulated in the Contract is within 45 days following the [Seller]'s receipt of the L/C which was in fact issued on 1 March 1995. After deducting a reasonable time, the interest shall be calculated from 25 April 1995 to the date of this award; the interest rate the [Buyer] asks for is too high, 7% annual interest is reasonable; so the interest is: US $58,000 (7% 2 years + 7% 365 days 12 days) = US $8,253.48.

            (ii) The [Buyer]'s claim for attorneys' fee and traveling fee is dismissed because the [Buyer] failed to put forward any specific amount and to provide any supporting evidence.

      (6) Arbitration fee

The [Buyer] shall bear 20% of the arbitration fee and the [Seller] shall bear 80%.

III. THE AWARD

The Arbitration Tribunal rules that:

1.  The [Seller] shall compensate the [Buyer] US $58,000 for loss of price difference;

2.  The [Seller] shall compensate the [Buyer] US $8,253.48 for the interest on the loss of price difference;

3.  The [Seller] shall compensate the [Buyer] US $3,000 for the cost for having the Egyptian inspectors remain in Tianjin ;

4.  The [Seller] shall bear 80% of the arbitration fee and the [Buyer] shall bear 20%. The [Buyer] has prepaid the entire arbitration fee, therefore, the [Buyer] shall reimburse US $___ to the [Buyer]; and

5.  The [Buyer]'s other claims are dismissed.

The [Seller] shall pay the aforesaid sums within 45 days of the date of this award, otherwise, 8% annual interest shall be imposed. .

This award is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of France is referred to as [Buyer] and 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].

** 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.

*** Tianhuai Yan, LL.M. Golden Gate University Law School. LL.M. Nanjing University Law School. Attorney at Law, admitted in P.R. China and California, U.S.A. Partner, G & D Law Firm, Nanjing, China.

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