Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography

CISG CASE PRESENTATION

China 26 June 1997 CIETAC Arbitration proceeding (Monohydrate zinc sulphate case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970626c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19970626 (26 June 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/17

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Republic of Korea (respondent)

GOODS INVOLVED: Monohydrate zinc sulphate


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 26 ; 29 ; 49 ; 73 ; 74 ; 77 ; 78 [Also cited: Articles 13 ; 33(b) ; 36 ; 62 ; 63 ]

Classification of issues using UNCITRAL classification code numbers:

25A [Effect of a fundamental breach: avoidance of contract];

26A [Notification of avoidance: effective declaration of avoidance];

29A [Parties by agreement may modify or terminate the contract];

49B [Buyer's right to avoid the contract: buyer's loss of right to declare avoidance after delivery];

73C1 [Avoidance in installment contracts: avoidance for both past and future installments];

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

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

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

Descriptors: Fundamental breach ; Avoidance ; Installment contracts ; Damages ; Mitigation of loss ; Interest

Go to Case Table of Contents

Editorial remarks

Go to Case Table of Contents

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. 2110-2118

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.21, 54, 75, 108, Nordic Journal of Commercial Law (2/2005)

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

Joint translation project:
New York University School of Law
and Pace University School of Law


 

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

Monohydrate zinc sulfate case (26 June 1997)

Translation [*] by Taotao Ling [**]

Translation edited by Meihua Xu [***]

China International Economic and Trade Arbitration Commission [originally named the Foreign Trade Arbitration Commission of the China Council for the Promotion of International Trade, currently named China International Economic and Trade Commission, and hereinafter referred to as CIETAC] accepted this case according to:

   (1)    The arbitration clause in Contract No. 95NFHN-041 signed by Claimant [Seller] China ___ Import and Export Hunan Company and Respondent [Buyer] Korea ___ Company; and
 
   (2) The written arbitration application submitted by the [Seller] to CIETAC on 25 December 1996.

The amount in dispute does not exceed renminbi [RMB] 500,000. This case shall therefore be administered in accordance with the simple arbitration procedure set forth in the CIETAC Arbitration Rules (effective as of 1 October 1995, hereinafter referred to as the Arbitration Rules).

Since the parties did not jointly appoint or jointly entrust the Chairman of CIETAC to appoint the sole arbitrator, the Chairman of CIETAC appointed Mr. P as the sole arbitrator in accordance with Article 65 of the Arbitration Rules. The Arbitration Tribunal was formed on 3 March 1997 to hear this case.

Upon receipt of the arbitration notice and its attachment delivered by the Secretariat of CIETAC, the [Buyer] submitted its response and a counterclaim within the required period, and went through the relevant formalities accordingly. CIETAC accepted the counterclaim.

The Arbitration Tribunal carefully reviewed the arbitration application, responses, counterclaim, counter responses and other supplementary materials submitted by the parties, and scheduled a court session on 27 May 1997 in Beijing. Both parties sent representatives to attend the court session, presented statements of facts to the Arbitration Tribunal and answered questions raised by the Tribunal. After the court session, [Seller] submitted supplementary materials.

This case has now been resolved. According to the available written materials and facts found in the court proceedings, the Arbitration Tribunal hands down this arbitration award. The following are the facts, the opinion of the Arbitration Tribunal and the award.

I. FACTS

On 3 November 1995, the [Seller] and the [Buyer] signed a contract for the purchase and sale of 204 tons of monohydrate zinc sulfate (ZnSO4.H2O). Based on repeated discussion, the unit price was US $520 per ton, and the total price of the contract was US $106,080. The contract required that the goods be delivered in three installments, and that the [Buyer] should issue a sight letter of credit for each installment, respectively. After signing of the contract, the parties had disputes during the performance and could not reach a solution, therefore, the [Seller] submitted its arbitration application to CIETAC.

II. POSITION OF THE PARTIES

-  [Seller]'s claims

The [Seller] claimed in the arbitration application that:

According to the contract, the [Buyer] issued a letter of credit for the first installment of goods in the amount of US $26,520 on 12 January 1996, and the [Seller] delivered the first installment of goods in the quantity of 51 tons to the [Buyer] on 24 January 1996. However, when the [Seller] was about to deliver the second installment of goods to the [Buyer], the [Buyer] never issued the second letter of credit. The [Seller] inquired of the [Buyer] as to the problem several times and actively prepared the third installment of goods in the quantity of 102 tons, while the [Buyer] declined to perform the contract. In the correspondence:

   -    The [Buyer] first alleged that it had to delay the issuance of the letter of credit due to a problem with [Buyer]'s client, and that [Buyer] was actively persuading the client or looking for a new client in order to issue the letter of credit as soon as possible;
 
   -    Later the [Buyer] alleged that the price of the goods was too high; and
 
   -    Finally, the [Buyer] claimed quality problems with the first installment of goods.

The [Seller] thought all these reasons given by the [Buyer] are just excuses for its not performing the contract.

Due to the market change plus the fact that the storage time was too long, most of the goods were found agglomerated. If the [Seller] resold the goods, the price would only be US $274 per ton; if the 153 tons of the remaining goods were resold, legal profits to be obtained by the [Seller] should be US $37,667 (106,080-26,520-274*153); the shipping fee incurred was US $1,783; the storage fee incurred was US $3,672; accrued interest was US $ 6,900 [(204*3600/8.4+37,667-26,520)*7*10]; the above total loss of the [Seller] is US $50,022.

Therefore, according to the arbitration clause in the contract and Articles 25, 73, 74 and 75 of the United Nations Convention on Contracts for the International Sale of Goods, the [Seller] raised the following arbitration requests:

1.  To require the [Buyer] to pay the following amounts caused by the [Buyer]'s fundamental breach of the contract: the lost profit US $37,667; the shipping fee US $1,783; the storage fee US $3,672; the interest US $6,900; and thus US $50,022 in total.

2.  To require the [Buyer] to compensate the [Seller] for the reasonable costs of the arbitration of this case in the amount of 10% of the awarded amount.

3.  To require the [Buyer] to pay the entire arbitration costs of this case.

-  [Buyer]'s defense

The [Buyer] responded to [Seller]'s claim, alleging that:

On 3 November 1995, the [Seller] and the [Buyer] signed a contract for the purchase and sale of 204 tons of monohydrate zinc sulfate (ZnSO4.H2O). The scheduled shipping dates were, respectively: 51 tons to be shipped in December 1995, 51 tons to be shipped in January 1996, and 102 tons to be shipped in February 1996. The contract also provided that a letter of credit for the first installment should be issued no later than 30 November 1995. In fact, the date of issuance of this letter of credit, 12 January 1996, was much later than the time required by contract; and the shipping date of the first installment of 51 tons of goods, 24 January 1996, was also much later than the time required by in contract. Upon receipt of the first installment of 51 tons of goods, the goods were inspected and [Buyer]'s client found that the quality of the goods did not conform to the contract, particularly the non-conformity of the content of lead (Pb), and there were also some agglomerations in the goods. According to the analysis result, the Pb content was 23 ppm, whereas the contract stipulated that it should be less than 10 ppm. The [Buyer]'s client refused to accept the remaining goods due to the quality problem. The [Buyer] informed [Seller] of this situation and told the [Seller] that the [Buyer] could not accept the remaining goods from then on. Further, the [Buyer] sent to the [Seller] the notice of analysis result issued by the Korean Livestock Sanitation Research Institute. In the meantime, this installment of goods hurt the [Buyer]'s reputation. The [Buyer] could not sell monohydrate zinc sulfate to its client anymore. The client has the biggest demand for monohydrate zinc sulfate in Korea. The [Buyer] suffered a significant loss because it lost the commercial opportunities with the client accordingly. Besides, the [Buyer]'s client claimed damage from the [Buyer] because the 51 tons of goods under this contract could not be sold due to the quality problem. In sum, the [Buyer] claimed that:

      (1) Since the quality of the goods did not conform to the contract, the [Buyer] claimed the contract avoidance of the contract from the beginning.

      (2) Since neither the issuing date of letter of credit nor the shipping date of the goods conformed to the contract, the [Buyer] claimed avoidance of the contract from the beginning.

      (3) For the above reasons, the [Buyer] claimed avoidance of the contract from the beginning.

      (4) The [Buyer] also alleged that [Seller]'s application contained unreasonable allegations in and rebutted as follows:

            (a) [Seller]'s claim for lost profit of US $37,667: The [Buyer] alleged it could not accept this claim for. The [Buyer] notified the [Seller] by fax dated 13 April 1996 that the [Buyer] would not accept the remaining goods due to the quality problem; the [Seller] would not have suffered such lost profit if it had immediately resold the remaining goods after receiving this fax.

            (b) [Seller]'s claim for interest US $6,900: Similarly, for the above reason, the [Buyer] could not accept this claim either.

-  [Buyer]'s counterclaims

In the meantime, the [Buyer] raised the following counterclaims:

      (1) [Seller] should be required to pay US $50,215 to compensate claims from [Buyer]'s client;

      (2) [Seller] should be required to pay for the lost profit suffered by the [Buyer] because it could not sell the goods due to the loss of commercial opportunities with [Buyer]'s client; the amount of the lost profit is US $20/ton * 1,200 tons = US $24,000;

      (3) [Seller] should be required to pay for the entire arbitration costs of this case.

The [Buyer] submitted relevant evidentiary materials accordingly.

-  [Seller]'s response

In response to [Buyer]'s defense and counterclaims, [Seller] stated:

1.  The [Buyer] alleged in its defense that having neither the issuing date of the letter of credit nor the shipping date of the goods conform to the date provided in the contract is a basis for avoiding the contract. The fact is: after the parties signed the contract on 3 November 1995, the [Seller] got the goods ready for delivery immediately, and arranged the shipping date and notified the [Buyer] on 4 December 1995 to issue a letter of credit. The [Seller] was then told by the [Buyer] that the [Buyer]'s client had not obtained the requisite importing permit for monohydrate zinc sulfate and, therefore, could not issue the letter of credit on time. It was not until 13 January 1996 that the [Seller] was notified by the [Buyer] of the issuance of the letter of credit and was requested to ship the goods. The [Seller] had to postpone the shipping date until prior to 31 January 1996, and delivered the goods on 24 January, which was within a reasonable period of time. In this regard, the [Buyer] accepted the goods, made payment for the goods, and did not file any notice of lack of conformity within the contract effective period. Therefore, the [Buyer] has lost its right to declare the contract avoided in accordance with Article 33(b) and Article 49(2) of the United Nations Convention on Contracts for the International Sale of Goods (hereinafter referred to as the "CISG"). Therefore the contract signed by the parties on 3 November 1995 was still effective and binding on the parties.

2.  The [Buyer] alleged in its defense that since the first installment of goods had quality problems, it could not perform the contract. The fact is: after the first installment of goods was delivered, the [Seller] urged the [Buyer] to issue the letter of credit for the remaining goods, but the [Buyer] could not issue the letter of credit on time due to its client's reasons, and the [Buyer] did not claim any quality problems with the first installment of goods until 22 March 1996. According to Article 15 of the contract, a claim of non-conformity of goods cannot be supported if it is raised by the [Buyer] after the claim period set forth in the contract. Therefore, the [Seller] requested the [Buyer] to continue performing the contract, otherwise the [Seller] will claim damages for breach of contract. However, the [Buyer] still refused to perform its responsibilities under the contract.

3.  The [Buyer] stated that it refused to accept the remaining goods and did not perform the contract anymore because of its client's claim of quality problems with the goods. The [Seller] contends that the [Buyer] had abundant opportunities to inspect the goods within 30 days upon receipt of the goods; however, the [Buyer] instead transmitted the goods to its client and the client raised the quality problems after 30 days from its receiving the goods. In accordance with the United Kingdom Law of Sale and Purchase of Goods, once the [Buyer] transmits the goods to its client, it means the [Buyer] has accepted the goods, and thus it actually loses the right to reject the goods. Therefore, the reason for the [Buyer]'s refusal to perform the contract is not acceptable.

4.  The [Buyer] stated that it should not pay [Seller]'s lost profit and interest loss due to [Buyer]'s non-performing the contract because [Buyer] notified the [Seller] on 14 April 1996 to resell the remaining goods. The fact is: the [Seller] insisted that the goods did not have quality problems, and any problem should be proved by an inspection certificate issued by a mutually agreed inspection institution. However, the [Buyer] only provided an inspection certificate issued by an inspection institution of its home country. In accordance with Articles 62 and 63 of CISG, the seller may require the buyer to take delivery, pay the price and be entitled to any right he may have to claim damages from the buyer unless the seller has resorted to a remedy which is inconsistent with this requirement, such as reselling the goods. Therefore, the [Seller] is fully entitled to request the [Buyer] to pay for the lost profit, loss of interest and storage fee incurred due to [Buyer]'s breach of contract.

5.  [Seller]'s response to [Buyer]'s counterclaims is that the above statements provide strong arguments against these counterclaims. The only point the [Seller] needs to emphasize is, the contract signed by the parties on 3 November 1995 was legal and effective. The [Buyer] should be liable for any and all results caused by its breach of contract; while the [Seller] should not be liable no matter whether or not the [Buyer] had any loss.

-  [Buyer]'s rebuttal

The [Buyer] presented the following arguments against the [Seller]'s statements:

1.  [Buyer] and [Seller] signed a contract for the purchase and sale of 204 tons of monohydrate zinc sulfate, and the first installment of 51 tons of goods was shipped on 24 January 1996. After the first installment arrived, the [Buyer] inspected the goods and found the quality of the goods did not conform to the contract. According to the notice of analysis result, the content of lead was 23 ppm, while the contract required it to be 10 ppm, and there were some agglomerations in the goods as well. Since the content of lead is a very important factor, the [Buyer] decided that this installment of goods could not be used for its original purpose. These facts show that the [Seller] breached the contract and that it was a fundamental breach. According to Articles 25, 26 and 73 of CISG, the [Buyer] notified the [Seller] of the quality non-conformity of the goods and refused to accept any remaining goods. Since the [Buyer] gave notices to the [Seller] again and again emphasizing that the quality of the goods did not conform to the contract and that [Buyer] would not accept the remaining goods, therefore the contract should be invalid. Further, according to Article 36 of CISG, the [Seller] should be liable for the quality non-conformity of the goods. Since the quality of the goods did not conform to the contract, the contract should be regarded as invalid

2.  The [Buyer] and [Seller] signed the first contract on 3 November 1995. Thereafter, the parties made many changes. For example, the quantity of the goods was changed from 200 tons to 204 tons, the unit price was changed from US $515 per ton CIF INCHON to US $ 520 per ton CIF INCHON, and the total price was changed from US $103,000 TO US $106,800. Originally, it was agreed that 60 tons were to be shipped in December 1995, 60 tons in January 1996 and 80 tons in February 1996; the dates were changed as 51 tons were to be shipped in December 1995, 51 tons in January 1996 and 102 tons in December 1996. The parties signed a new contract on 14 December 1995. There were eighteen clauses in the original contract, but only twelve clauses in the new contract. The [Seller] combined the first page of the new contract with the second page of the first contract, and forged a contract to make it looked like a complete new contract. Since the [Seller] forged the contract, so the contract should be invalid.

3.  The shipping date is a very important factor which affects the basic interests of the parties, so a contract should be amended in accordance with the actual shipping dates. The issuance date of a letter of credit is also a very important item and should be changed accordingly. However, this contract was not amended in accordance with the actual shipping dates. Similarly, the issuance date of letter of credit was also changed. Since the actual shipping date was not the same as stipulated in the contract, the [Buyer] claimed the contract invalid.

4.  Regarding the counterclaim of the [Buyer]. The [Buyer] notified the [Seller] within a reasonable time that the [Buyer] would not accept the remaining goods due to the quality problems. Immediately after the first installment of goods arrived at the [Buyer]'s warehouse in the end of February 1996, the [Buyer] inspected the quality of the goods and did not waste any time. Accordingly, the [Buyer] notified the [Seller] of the quality problems of the goods on 22 March 1996. Therefore, the [Buyer] sent the notice within a reasonable time. The counterclaim of the [Buyer] was explicit and effective. The [Buyer] repeated its counterclaim.

-  [Seller]'s surrebuttal

The [Seller] made the following arguments against the [Buyer]'s second response:

1.  The [Buyer] denied the fact that other clauses of the contract were effective, and the [Buyer]'s allegation that the [Seller] forged the contract was completely wrong and without any basis.

First, the amendment of the contract dated 3 November 1995 was made based on friendly consultation and mutual agreement between the parties. Since the [Buyer] required to include the commission in the price, the unit price was changed from US $515M/T CIF INCHON to US $520M/T CIF INCHON. It was because the [Buyer]'s client had to obtain a special permit certificate that the issuance date of the letter of credit was delayed and therefore the shipping date had to be changed. Subject to the requirement of the shipping company that in order to properly allocate the quantity of goods in installments, the quantities of the three installments were adjusted to 51 tons, 51 tons and 102 tons, and the quantity in total was thus changed from 200 tons to 204 tons. According to Article 13 of CISG, the above evidence becomes part of the contract, since they were amendments to part of the clauses of the contract and did not affect the validity of the contract. In the meantime, according to Article 29 of CISG, a declaration of avoidance of the contract must be in writing and by the agreement of the parties. Therefore, the unilateral declaration of avoidance of the contract by the [Buyer] was not effective.

Second, besides the clauses having to do with type of goods, price, quantity, shipping, insurance and payment, as a complete international sale of goods contract, there must be other necessary clauses, particularly the inspection clause; otherwise, a party may lose its right to file a damage claim. Therefore, the contract signed by the [Seller] and [Buyer] had eighteen clauses, not twelve clauses. In fact, the second page of the contract was not changed at all, and the parties signed and stamped on the second page, so the [Seller] only faxed the first page to the [Buyer] for signature but did not fax the second page. Therefore, on the contract submitted by the [Buyer] as evidence, there was only the [Buyer]'s signature but there was no signature of the [Seller]. The signing date shown on this contract was still 3 November 1995, which further proved that it was only part of the contract. Only when the second page was included, did this contract became a complete and effective sales contract.

In sum, the amendments made by the parties to some clauses of the contract did not affect the validity of the original contract.

2.  The [Buyer] raised the quality problem again in its second response. According to the [Seller], this is just an excuse used by the [Buyer] to escape from its own liability.

First, the [Seller] and [Buyer] had traded the same type of commodity many times before, and such problems never happened;

Second, during the performance, the market price of the goods went down, so the [Buyer] sought to terminate the contract in order to obtain bigger profits;

Third, in accordance with international trade custom and the contract, the [Buyer] must inspect goods within the period required in the contract and obtain an appropriate inspection certificate in order to use the inspection result as effective evidence for a damage claim.

Therefore, the [Seller] insists that the [Buyer] is not entitled to claim damages for quality problems with the goods.

-  [Seller]'s summary statement

The [Seller] submitted a comprehensive summary statement of the case in supplementary materials provided after the court proceeding:

      1. The contract documents

On 5 October 1995, the [Buyer] sent a request to the [Seller] for the purchase of monohydrate zinc sulfate. After negotiations, the parties reached an agreement on 3 November 1995. According to the contract, the [Seller] was to provide to the [Buyer] 200 tons of monohydrate zinc sulfate, the unit price was US $515 CIF INCHON, the goods were to be shipped in quantities of 60 tons, 60 tons and 80 tons, respectively, during the period from December 1995 to February 1996, and the payment was to be made by sight letter of credit. The parties then signed an effective two-page sales contract with eighteen clauses; the contract number was 95NFHN-041.

On 14 November 1995, when the [Buyer] faxed the countersigned contract, it asked to have the US $5 commission fee per ton included in the unit price, so that the unit price would be changed to US $520 per ton. On 20 and 28 November, the [Seller] requested the [Buyer] to issue a letter of credit. On 4 December, the [Buyer] asked to also change the shipping clause, to ship the goods in installments of 51 tons, 51 tons and 102 tons, respectively; thus the quantity was changed from 200 tons to 204 tons. On 16 November, the [Seller] faxed to the [Buyer] for countersignature, the first page of the contract with the unit price clause changed without sending the second page. The [Buyer] faxed back the countersigned contract with both the unit price clause and the shipping clause changed on 14 December. At that time, the amendment of the contract was finished. These facts showed that the parties amended the contract after negotiation and upon mutual agreement. The amended price clause, shipping clause and timing clause constituted a complete contract with other non-amended clauses, and the contract was binding on both parties.

The [Buyer] alleged that the countersigned contract dated 14 December 1995 (the so-called new contract) was the only effective contract. This opinion neglected facts and lacked legal basis.

First, according to Article 13 of CISG, the above evidence became part of the contract and did not affect the integrity and validity of the contract.

Second, evidence provided by the [Buyer] showed that the signing date and the contract number of the amended contract were the same as those of the original contract, which proved that the parties did not reach any new contract for the same goods.

Third, there was only the [Buyer]'s signature but no signature of the [Seller] on the evidence provided by the [Buyer], so it was just a void contract, not a new contract.

Fourth, if there had been a first and second contract between the parties, then the reasons to terminate the first contract or to declare the avoidance of the first contract were not effective.

According to Articles 26 and 29 of CISG, the termination or the declaration of avoidance of the contract must be by agreement in writing between the parties or made by notice to the other party, but there has not yet been any written notice by the [Buyer]. Further, according to Article 33(b) of CISG and Article 49 of the United Kingdom Law of Sale and Purchase of Goods, the [Seller] delivered the goods in accordance with the contract, the [Buyer] paid for the goods and transferred the goods to the client, therefore, the [Buyer] actually lost the right to reject the goods and declare the avoidance of the contract. So the [Seller] thought the so-called second contract submitted by the [Buyer] to the Arbitration Tribunal as evidence was not a valid contract.

      2. The quality issue

The [Buyer] and [Seller] traded monohydrate zinc sulfate for many times and never had any dispute over the quality of the goods. However, after the parties signed their contract in November 1995, the market price changed. On 22 March, the [Buyer] raised the quality problem solely aiming to reduce its loss caused by the market change.

Under the circumstance that the [Buyer] refused to continue performing the contract due to the quality dispute, the [Seller] requested the [Buyer] to provide an inspection certificate issued by a mutually agreed inspection institution within an effective period. However, the [Buyer] provided a notice of analysis result issued by the Rural Development Bureau Livestock Sanitation Research Institute and that analysis result was not issued until 6 August 1996. According to the [Seller], the [Seller] provided the inspection certificate made by the factory to the [Buyer] as agreed by the parties, which showed there was no quality problem with the goods. The [Buyer] did not raise the quality problem within an effective period, neither did it provide an inspection certificate issued by a mutually agreed inspection institution to prove the quality problem of the goods.

Besides, the [Buyer] requested the [Seller] to resell the remaining goods, and therefore refused to pay for the storage cost and lost profit suffered by the [Seller] due to [Buyer]'s non-performance of the contract. According to Articles 62 and 63 of CISG, since the [Seller] did not resell the remaining goods, i.e., it did not take any activities inconsistent with the requirements on sellers, therefore it did not lose its right to claim damages from the [Buyer].

Based on the above reasons, the [Buyer]'s counterclaim has no basis. Moreover, in the evidence provided to support the [Buyer]'s counterclaim, all the expense losses were not attached with effective documents; the commission fee of the [Buyer] as the intermediary was US $5 per ton, which was in total US $225, but the lost profit was calculated at 47% by the [Buyer]. There was no evidence to support the lost trade opportunity, and the amount of loss could not be determined either. According to the [Seller], the evidence provided by the [Buyer] was not true, therefore the Arbitration Tribunal should rule against the [Buyer]'s counterclaims.

The [Buyer] did not submit any written response to the Arbitration Tribunal within required period of time after the court proceeding.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. Applicable law

Since the parties did not set forth the applicable law in their contract, this case shall apply laws of the People's Republic of China subject to the most frequent contact principle, considering that the business premise of the [Seller] was in China, and the parties chose China to be the place to carry out the arbitration. Since both the parties quoted relevant provisions of the CISG in their written documents, the parties can be deemed to have agreed to apply the CISG in this case.

2. The contract documents

After the careful review of the written documents submitted by the parties, the Arbitration Tribunal notes that, the [Buyer] alleged that there were two contracts for the sale of monohydrate zinc sulfate, one was new and the other was old. The [Buyer] further alleged that the [Seller] combined the two contracts to forge a new contract, so that it raised the dispute to arbitration. The [Buyer] held that the forged contract was invalid. The [Seller] argued that there was only one contract in this case, the contract number of which was 95NFHN-041 and that, after signing the contract, some clauses of the contract were changed based on the request of the [Buyer]. It was not a forged contract as alleged by the [Buyer]. According to the Arbitration Tribunal, Contract 95NFHN-041 was an agreement between the parties after negotiation signed by fax.

The new contract as alleged by the [Buyer] had the same signing date of 3 November 1995 and the same contract number of 95NFHN-041 as the original contract, except that the unit price and the quantity of installments to be shipped were amended. The document submitted by the [Buyer] was merely the amended page of the 95NFHN-041 contract signed by the parties on 3 November 1995. According to Article 29 of CISG, a contract can be modified by the mere agreement of the parties. During the process of arbitration, the [Buyer] admitted that items such as the quantity and unit price were modified, and the modified items were consistent with those described by the [Seller], which proved that the parties agreed on the modified contract before. Therefore, the amended page agreed on by the parties was part of the contract, and constituted a complete contract with the non-amended second page. The parties have partially performed this contract. The contract was legally effective and binding upon the parties.

3. Liability for breach of contract

The [Seller] alleged that the [Buyer] refused to issue a letter of credit and did not perform the contract, thus causing great loss to the [Seller]; that this constituted a breach of contract, and that the [Buyer] should be liable for the breach. While the [Buyer] contended that the goods provided by the [Seller] had serious quality problems and were delivered later than the time required in the contract; that this constituted a fundamental breach, and that the [Seller] should be liable for the breach.

The [Buyer] filed a counterclaim based on its loss. The Arbitration Tribunal held that the 95NFHN-041 contract in this case was reached on the basis of voluntary and equal negotiation. After the contract was signed, the parties modified the contract following further discussion; the modified contract was a showing of agreement between the parties; it was a legally effective contract. Both parties shall have the rights and perform their responsibilities subject to the contract.

The contract provided that the goods would be shipped in three installments and that the [Buyer] would issue a sight letter of credit for each installment. The [Seller] prepared the first installment of goods ready as required in the contract, but since the [Buyer] was not able to issue the letter of credit on time, the parties deferred the issuance date of the letter of credit and the shipping date of the first installment of the goods after further consultation. This in fact constituted a change to the contract; the parties had no dispute over this. Within the shipping period after the change, the [Seller] shipped the goods on 24 January 1996.

Afterward, the [Seller] prepared the second and the third installments of goods, but it did not ship these two installments because the [Buyer] did not issue the letters of credit. The [Buyer] rejected acceptance of the remaining goods. The [Seller] has performed its obligations in the contract, but the [Buyer] rejected acceptance of the remaining goods because it claimed quality problems with the first installment of goods. According to Article 15 of the contract, a quality claim over the goods must be raised within 30 days after the goods arrive at the destination port. As proved by the shipping company, the goods in this case arrived at the destination port on 2 February 1996, while the [Buyer] raised the quality problems on 22 March 1996; so it exceeded the quality claim period set forth in the contract. Article 15 of the contract provided that the [Buyer] could claim against the [Seller] by providing an inspection certificate issued by a mutually agreed inspection institution; however, the [Buyer] merely provided a quality proof issued in August 1996 by the Korean Rural Development Bureau Livestock Sanitation Research Institute, but this was not a proof issued by a mutually agreed inspection institution as required by the contract; moreover, the quality claim was raised after the claim period had passed by half a year, so the Arbitration Tribunal could not confirm its effect as evidence. The [Buyer]'s claim of quality problems with the goods was not supportable. The [Buyer] breached the contract and should be liable for the breach when it refused to perform the contract and rejected acceptance of the remaining goods due to its claim of quality problems.

4. [Seller]'s arbitration claims

After a careful review of the [Seller]'s arbitration application and the evidence attached, the Arbitration Tribunal held that, according to Article 18 of the Foreign Economics Contract Law, when one party does not perform the contract, the other party is entitled to claim damages; further, the [Seller]'s resale of the remaining goods at a discounted price to prevent a bigger loss is consistent with relevant provisions in the Foreign Economics Contract Law. Therefore, the Arbitration Tribunal supports the [Seller]'s request that the [Buyer] pay for the lost profit US $37,667, shipping fee US $1,783 and storage fee US $3,672, all of which were caused by the [Buyer]'s fundamental breach of contract. The Arbitration Tribunal does not support the [Seller]'s request for interest loss of US $6,900 because the [Seller] could not provide the basis for calculating of the interest loss.

Regarding the [Seller]'s request that the [Buyer] compensate 10% of the awarded amount for the [Seller]'s reasonable expenses incurred in this case, the Arbitration Tribunal holds that the [Seller] paid reasonable expenses for this case, but since it could not provide written evidence, the [Buyer] should compensate RMB 10,000 Yuan to the [Seller].

5. [Buyer]'s counterclaim

The [Buyer]'s failure to provide goods to its client was caused by the [Buyer]'s act, the [Buyer]'s improper refusal to accept the goods; moreover, the evidence provided by [Buyer] could not that prove [Buyer] suffered the loss claimed. Therefore, the allegation in [Buyer]'s counterclaim was not right that it was [Seller]'s breach of contract that led to the [Buyer]'s indemnification to its client in the amount of US $50,215 plus the lost profit of US $24,000. The Arbitration Tribunal does not support the [Buyer]'s counterclaim. The arbitration fee of the counterclaim should be paid by the [Buyer].

III. THE AWARD

The Arbitration Tribunal renders the following award:

   1.     The [Buyer] shall pay for the [Seller]'s lost profit of US $37,667;
   2. The [Buyer] shall pay for the [Seller]'s shipping fee of US $1,783;
   3. The [Buyer] shall pay for the [Seller]'s storage fee of US $3,672;
   4. The [Buyer] shall pay for the [Seller]'s reasonable expenses in this case of RMB 10,000 Yuan;
   5. The entire arbitration fee of this case shall be paid by the [Buyer]. The [Seller] has prepaid RMB ___ Yuan to the CIETAC, which is to be set-off with the arbitration fee. The [Buyer] shall pay to the [Seller] RMB __ Yuan for its prepaid arbitration fee.
   6. The other arbitration requests raised by the [Seller] are dismissed;
   7. All of the counterclaims raised by the [Buyer] are dismissed;
   8. The arbitration fee for the counterclaims should be paid by the [Buyer]. This item of fee has been set-off with the arbitration fee for counterclaims prepaid by the [Buyer] to CIETAC.

The total amount of fees that should be paid by the [Buyer] to the [Seller] of the above 1-5 items is US $43,122 and RMB 40,000 Yuan. [Buyer] shall pay these funds to the [Seller] within 45 days of the date of this award. If the payment is not made when due, the [Buyer] shall pay interest until the date of actual payment to the [Seller] at the annual rates of 7% for US dollars and 8% for 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 [Seller] and Respondent of the Republic of Korea 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].

** Taotao Ling, LL.M. New York University School of Law on the Arthur T. Vanderbilt Scholarship. She received her Bachelor of Law degree and Bachelor of Economics degree from Peking University, Beijing, China. Her focus is on corporate and commercial Law.

*** 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 June 5, 2006
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography