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CISG CASE PRESENTATION

China 22 May 1997 CIETAC Arbitration proceeding (Soybean oil case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970522c1.html]

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

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Case identification

DATE OF DECISION: 19970522 (22 May 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/13

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Australia (claimant)

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

GOODS INVOLVED: Soybean oil


Classification of issues present

APPLICATION OF CISG: Yes and No. The tribunal stated that "the law of PRC" and the CISG are applied. However, the contract was ruled void based on lack of capacity of the buyer, with the determination as to capacity based on PRC law other than the CISG. The damages and interest awarded, while consistent with CISG articles 74, 75 and 78, were likely awarded based on PRC law other than the CISG.

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 4 [Possibly also relevant: Articles 74 ; 75 ; 78 ]

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): Capacity of parties]

Descriptors: Scope of Convention ; Capacity of parties

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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. 1918-1922

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.106, 146, 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

Soybean oil case (22 May 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. LE5191 signed on 8 November 1995, by Claimant [Seller], Australia ___ Company, and Respondent [Buyer], Yantai ___ Trading Corporation; and
 
   -    The written arbitration application submitted by [Seller] to the Arbitration Commission on 1 April 1996.

On 3 May 1996, the Secretariat of the Arbitration Commission sent by registered mail the notice of arbitration and appendix (including the Arbitration Rules effective 1 October 1995), the arbitration application and appendix, and the list of arbitrators) to [Buyer], and requested [Buyer] to submit his defense and appoint an arbitrator. The registry of the post office shows that Mr. Fang of [Buyer]'s company signed and received the mail.

On 2 July 1996, the Secretariat of the Arbitration Commission sent a notice No. XX (96) to [Buyer] by EMS reminding [Buyer] to submit his defense materials and appoint an arbitrator, but [Buyer] did not reply.

Because [Buyer] did not appoint an arbitrator in the stipulated period, the Chairman of the Arbitration Commission appointed Mr. C as the arbitrator for [Buyer] according to Article 24 of the Arbitration Rules. Meanwhile, according to Article 24 of the Arbitration Rules, the Chairman appointed Mr. P as the presiding arbitrator. On 18 September 1996, Mr. P, Mr. A appointed by [Seller], and Mr. C formed the Arbitration Tribunal to hear this case.

On 18 September 1996, The Secretariat of the Arbitration Commission sent the notice of the formation of the Arbitration Tribunal to the parties. The notice was sent to [Buyer] first by fax, and then the original notice was sent by mail; the record of fax shows that [Buyer] received it, but the mail was returned by the post office with the note that this corporation was cancelled.

The Secretariat of the Arbitration Tribunal informed [Seller] of this; [Seller] stated that [Buyer] did not record the cancellation in the Industry and Commerce Bureau, and that the Corporation still exists. [Seller] also asked the Arbitration Tribunal to continue the arbitration procedure.

During the Arbitration process, unfortunately, Mr. C, the arbitrator appointed by the Arbitration Commission on behalf of [Buyer] died, and on 7 November 1996, the Chairman of the Arbitration Commission appointed Mr. D as [Buyer]'s replacement arbitrator. Mr. P, Mr. A, and Mr. D continued to hear this case.

On 27 November 1996, the Secretariat of the Arbitration Tribunal informed [Seller] and [Buyer] of the above situation. However, the document sent to the [Buyer] was returned with the same reason that the company had been cancelled.

On 27 November 1996, [Seller] submitted evidence of [Buyer]'s registration record from the Bureau of Industry and Commerce and its annual inspection record to prove that the [Buyer] did not record the cancellation, and that [Buyer]'s company still exists. [Seller] requested the Arbitration Tribunal to hold the court session as soon as possible. The materials provided by [Seller] show that [Buyer] is a corporation under collective ownership.

The Arbitration Tribunal decided to hold a court session in Beijing on 16 January 1997. On 27 November 1996, the Secretariat of the Arbitration Tribunal sent the notice of the court session to the parties. The notice was sent to [Buyer] first by fax, and then the original notice was sent by mail; the record of fax shows that [Buyer] received it.

On 16 January 1997, the Arbitration Tribunal held the court session in Beijing. [Seller] sent his agent to attend the court session, but [Buyer] did not attend. According to Article 42 of the Arbitration Rules, the Arbitration Tribunal held the court session by default. [Seller] presented a statement and answered the Arbitration Tribunal's questions.

On 14 March 1997, the Secretariat of the Arbitration Tribunal authorized Global Law Office to mail a notice No. XX (97) to [Buyer] notifying him of the court session, and stating that if he has any suggestion or objection to the substantive or procedural aspects of this case, he should submit it before 3 March 1997. [Buyer] did not reply.

On 24 March 1997, [Seller] submitted his supplementary materials. The Secretariat of the Arbitration Tribunal authorized Global Law Office to mail this document No. XX (97) to [Buyer]. [Buyer] did not reply within the stipulated period.

Considering the written materials and the court session, the Arbitration Tribunal has concluded the case and handed down its award by consent within the time stipulated in Article 52 of the Arbitration Rules.

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

FACTS

On 8 November 1995, [Buyer] and [Seller] signed their contract, which stipulates:

   -    Goods: [Buyer] purchases 15,000 tons of soybean oil from [Seller];
   -    Price: US $650/T CNF FO Yantai;
   -    Total price: US $9,750,000;
   -    Shipping period: From 10 November 1995 to 10 December 1995;
   -    Payment terms: [Buyer] shall issue an irrevocable L/C through Bank of China Hong Kong Branch with [Seller] as beneficiary before 15 November 1995.

[Buyer] did not issue the L/C before 15 November, the last day to issue it. On 16 November, [Seller] faxed to [Buyer] asking him to provide the number of the L/C and the name of the notifying party.

Then, [Seller] faxed to [Buyer] again urging him to issue the L/C. On 20 November, [Seller] notified [Buyer] that the ship for transporting the goods would arrive at the loading port later that week, and requested [Buyer] to provide instructions related to the documents including the notifying party.

On 22 November, [Buyer] faxed to [Seller] stating that the L/C was in process and would be issued soon.

On 23, 28, 30 November and 4 December, [Seller] faxed to [Buyer] many times notifying him about the time when the ship would arrive at the loading port, and requesting him to provide the details of the L/C.

On 6 December 1995, [Seller] had still not received the L/C, so he faxed to [Buyer] again requesting him to provide the details of the L/C and informing him that the ship had left the loading port. [Seller] also sent the notice of loading to [Buyer]. In this fax, [Seller] requested [Buyer] to bear the liabilities for the consequences due to not issuing the L/C. In addition, [Seller] notified [Buyer] that because [Seller] must pay the firm from whom [Seller] purchased the goods, [Buyer] shall be liable for the extra expenses incurred. Then [Seller] sent many faxes to [Buyer]. [Buyer] did not reply.

On 27 December 1995, [Seller]'s Shanghai office without authorization signed an agreement with [Buyer] and Yantai Transaction Market; [Seller] thought this agreement was neither practicable nor in compliance with China's law. On December 28, [Seller] faxed to [Buyer] expressing his position and submitting suggestions. [Seller] submitted three alternatives:

1.    [Buyer] issue the L/C within two days;
 
2. [Seller] unload the 15,000 tons of goods at two other ports and resell the goods to others. The fee for changing per port is US $52,500; the price would be reduced by US $25/T, with the total reduced amount US $375,000. The total loss would be US $480,000, for which [Buyer] should make one payment within seven days;
 
3. [Seller] unload the 15,000 tons of goods at two ports. 5,000 tons of the goods would be sold to others, reducing the price by US $25/T; 10,000 tons, which would be shipped at the end of January and at the beginning of February, would be delivered to [Buyer] according the original contract. The fee for changing ports would be US $105,000; the loss for the 5,000 tons would be US $125,000. The total loss would be US $230,000. The condition would be that [Buyer] makes one payment for US $230,000 within seven days, and issues the L/C for 10,000 tons of goods in accordance with the original contract within five days.

[Buyer] did not reply within the stipulated period.

[Seller] resold the goods and suffered a loss. [Seller] requests [Buyer] to compensate for the following damages:

1.    5,000 tons of goods were sold to Shandong Rizhao ___ Company, for the price of US $623/T and payment term of D/P 10 days.
 
- Loss of price difference: the contract price US $650/T - resale price US $623/T = US $27/T;
 
- Total loss of price difference: US $27/T X 5,000 tons = US $135,000;
 
- Loss of interest due to changing payment term: US $650 X 5,000 tons X 12% (annual interest rate) 360 X 10 days = US $10,833.
 
2. 10,000 tons as exchanged goods were delivered to Rizhao Mechanical Metal Import and Export Company as a substitute for 10,500 tons of ENIAS which should have been delivered at the beginning of February 1996. On 27 December 1995, [Seller] sold the 10,500 tons of ENIAS to Hong Kong World Sky Ltd., for the price of US $ 625/T and payment term of D/P 90 days.
 
- Loss of price difference: the contract price US $650/T - reselling price US $625/T X 10,500 tons = US $262,500;
 
- Loss of interest: US $650/T X 10,500 tons X 12% (annual interest rate) 360 days X 90 days = US $21,937.50 (there is some mistake in [Seller]'s calculation.)
 
3. According to the contract, [Buyer] shall pay the insurance premium; because [Buyer] did not issue the L/C, [Seller] had to issue the goods with an insurance premium of US $32,104.96 after the goods were loaded.
 
4. Because [Buyer] neither issued the L/C nor took the goods, [Seller] had to resell the goods, and [Seller] incurred fees of US $ 40,000 for changing the ports.

[Seller] makes the following claims requesting the Arbitration Tribunal to rule that:

1. [Buyer] fundamentally breached the contract, and shall pay for the loss [Seller] suffered;
 
2. [Buyer] shall pay for the loss of price difference, US $397,500, and the loss of interest due to changing the means of payment, US $32,104.96. The total amount is US $430,270.
 
3. [Buyer] shall pay for the interest on the price difference due to [Buyer]'s breach, US $430,270.50. The total amount is US $33,635;
 
4. [Buyer] shall pay [Seller] the fee for changing the ports, US $40,000, and interest;
 
5. [Buyer] shall pay [Seller] the insurance premium, US $32,104.96;
 
6. [Buyer] shall pay [Seller]'s expenses for this case including but not limited to attorneys' fees and traveling fee, US $40,000;
 
7. [Buyer] shall pay the entire arbitration fee.

On 24 March 1997, [Seller] submitted supplementary materials to the Arbitration Tribunal. [Seller] alleges that he investigated whether [Buyer] has the power to enter into foreign trade. [Seller] finds that [Buyer] is a corporation under collective ownership, and has no power on its own to enter into foreign trade; [Buyer] is affiliated to a Shandong foreign trade company and has the power to enter into foreign trade as a department of this company to do foreign trade. In addition, [Buyer] signs contracts on his own behalf and under independent accountability, and then applies to customs and for inspection in name of that foreign trade company. [Buyer] imported some goods before this transaction. Because [Buyer]'s way to do foreign trade is not in compliance with China's law, [Seller] is not sure of [Buyer]'s specific status.

[Buyer] did not make any objection to the substantive or procedural parts of this case.

THE OPINION OF THE ARBITRATION TRIBUNAL

1. Applicable law

The parties did not stipulate the applicable law in the contract. The contract was signed in China, and the arbitration is in China, so according to the most proximate connection principle, the law of PRC shall be applied to this case. In addition, China and Australia are parties of the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG), so CISG shall also be applied.

2. [Buyer]'s liabilities for breach of the contract

The contract stipulates that [Buyer] shall issue the L/C no later than 15 November 1995, but [Buyer] did not issue it. [Seller] urged [Buyer] about fourteen times until 21 December. [Buyer] neither issued the L/C nor replied. According to the contract and CISG, it is [Buyer]'s duty to make the payment and take the goods. [Buyer] neither issued the L/C nor took the goods, which constitute breach of contract.

3. [Buyer]'s liabilities for signing the contract without competent authority

According to the Supreme Court's Interpretation of Some Questions on the Application of Law of the People's Republic of China on Economic Contract Involving Foreign Interest, if a party signs a contract without the competent authority's approval, the contract is void; if the contract is void or canceled, the party whose fault caused such consequences should be liable for the damages the other party suffers because the contract is void or cancelled.

[Buyer] in this case is a corporation under collective ownership and has no power to enter into foreign trade. [Buyer] is affiliated with a Shandong foreign trade company. [Buyer] signs contracts on his own behalf and under independent accountability, and then applies to customs and for the inspection in name of that foreign trade company. Accordingly to the law, [Buyer] has no power to sign such contract with [Seller], so the contract is void. Because it is [Buyer] who caused the contract to be void, [Buyer] shall be liable for the loss [Seller] suffered.

[Seller]'s claims

As to [Seller]'s claims, the Arbitration Tribunal holds:

     (1) The loss of price difference and interest

According to above opinion 3 of the Arbitration Tribunal, the loss of price difference was actually incurred, so [Seller]'s claim for this loss shall be upheld. [Buyer] shall compensate [Seller] for the price difference, US $397,500 and interest on it. The annual interest rate shall be 7%, calculated from 28 December 1995 to the date when [Buyer] actually makes the payment.

     (2) The loss due to changing the payment term

The payment term in the contract between [Seller] and Rizhao ___ Company signed on 28 December 1995 is D/P 10 days, but the payment term stipulated in this contract is L/C 90 days and no interest in the first 15 days.

Although [Buyer] did not issue the L/C and [Seller] resold the goods with the same set of documents, [Seller] did not suffer loss of interest due to changing the payment term.

As to reselling 10,500 tons of soybean oil, [Seller] does not provide the contract of resale of the goods and related evidence. Thus, [Seller]'s claim for loss of interest shall not be upheld.

     (3) Fee for changing ports

[Seller] mentioned the evidence of the fee for changing ports in Appendix 24 of his application, but did not submit the evidence. The Arbitration Tribunal cannot uphold [Seller]'s this claim due to lack of evidence.

     (4) Added insurance premium

In the resale contract with Rizhao __ Company, the insurance should be paid by that company, so the added insurance has been included in the resale price. As to the 10,500 tons of soybean oil, [Seller] did not submit the contract and evidence for added insurance fee, so the Arbitration Tribunal cannot uphold it.

     (5) The attorneys' fees and arbitration fee

The Arbitration Tribunal cannot uphold this claim, because [Seller] did not submit related evidence.

     (6) The arbitration fee

[Buyer] shall bear the entire arbitration fee of this case.

AWARD

1. [Buyer] did not issue the L/C according to the contract, which constitutes breach, so he should be liable for [Seller]'s loss of price difference, US $397,500, and interest with the annual rate of 7% from 28 December 1995 to the date when the payment is actually made.

2. [Buyer] shall bear the entire arbitration fee. [Seller] has paid the arbitration fee US $___ in advance, so [Buyer] shall pay [Seller] US $___.

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

[Buyer] shall pay the above amount within 45 days of receipt of this award; otherwise, interest shall be added at the 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 Australia is referred to as [Seller]; Respondent of the People's Republic of China is referred to as [Buyer]. 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.

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