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CISG CASE PRESENTATION

China 4 July 1997 CIETAC Arbitration proceeding (Gear processing machine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970704c1.html]

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

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Case identification

DATE OF DECISION: 19970704 (4 July 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/19

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (respondent)

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

GOODS INVOLVED: Gear processing machine


Case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission 4 July 1997 (Gear processing machine case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/85],
CLOUT abstract no. 863

Reproduced with permission of UNCITRAL

Abstract prepared by Meihua Xu

The buyer, a Chinese company, entered into a contract through a middleman (i.e. another company) with the seller, an American company, for the purchase of gear processing machines and shaft processing machines. The contract provided for payment by letter of credit (L/C). The buyer, the seller and the intermediary agreed that the buyer should remit the down payment and open the L/C to the intermediary which, upon receipt from the buyer, should transfer the down payment and the L/C to the seller. The bill of lading provided by the seller showed that the notify party was the buyer. After the machines arrived at the destination port, the inspection discovered various defects, i.e. the manufacturing series numbers were not in conformity with the L/C and the contract, some parts were missing, no technical data was found in the shipment, and some parts were damaged. The buyer asked to return some severely damaged machines; it also asked the seller to repair the nonconforming goods and to provide the missing parts. The seller alleged that it had the right to change the manufacturing series numbers as long as the models of the machines were the same, but provided no response to the buyer's complaints on the damaged or missing parts of the machines. Eventually the buyer initiated arbitration proceedings claiming that the seller should bear the cost for repairing the machines, compensate for the missing parts and pay the interest.

The seller responded that the goods under the contract were different from the machines mentioned in the buyer's notice of arbitration, therefore, the contract could not be the subject of this dispute. The seller further alleged that the goods were sold to the intermediary and not to the buyer. With regard to the seller's argument that the contract was not the subject of this dispute, the Arbitration Tribunal noted that the intermediary acted just as an intermediary. Therefore, the argument of the seller could not be supported.

The Arbitration Tribunal noted that the seller had failed to deliver conforming goods, which constituted a contract violation, with the result that the buyer suffered economic loss. According to articles 35 and 36 CISG, the buyer was entitled to receive compensation. In accordance with article 46(2), 46(3) CISG, the Arbitration Tribunal supported the buyer's claim for the cost of the defective and missing parts, to the extent it was substantiated by evidence, and for the costs of repairing the machines. The Arbitration Tribunal also granted the buyer the interest on the price of the machines for the period it could not install and use them. The Tribunal, however, denied the buyer's claim for loss of interests on the transportation fee, since this could not be foreseen by the seller at the conclusion of the contract (article 74 CISG).

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 46 ; 74 ; 78 [Also cited: Article 14 ]

Classification of issues using UNCITRAL classification code numbers:

46B ; 46C [Buyer's right to compel performance: requiring delivery of substitute goods; Right to require repair of non-conforming goods];

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

78A ; 78B [Interest on delay in receiving price or any other sum in arrears; Rate of Interest]

Descriptors: Cure ; Substitute goods ; Damages ; Foreseeability of damages ; 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. 2131-2138

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

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

Gear processing machine case (4 July 1997)

Translation [*] by Meihua Xu [**]

Edited by Yan Tianhuai [***]

China International Trade and Economic Arbitration Commission (hereafter, the "Arbitration Commission") accepts this case according to:

   -    The arbitration clause in Contracts GGLX93003 and GGLX93004 signed by and between Claimant [Buyer], China Guizhou ___ Recycling Machinery Company and Respondent [Seller], America ___ Company on 28 September 1993; and
 
   -    The written arbitration application submitted by the [Buyer] on 3 July 1996.

The amount in dispute in this case is less than renminbi [RMB] 500,000. According to Article 64 of the Arbitration Rules of the Arbitration Commission (effective since 1 October 1995, hereinafter, the "Arbitration Rules"), this case is qualified to be arbitrated pursuant to summary procedure.

After receiving arbitration notice, the [Seller] sent letters to the Arbitration Commission on 19 August and 19 September 1996 raising objection to the jurisdiction of the Arbitration Commission. After consideration, the Arbitration Commission issued a "Jurisdiction Decision" on 22 November 1996 holding that the Arbitration Commission had jurisdiction over this case and the [Seller]'s objection should be dismissed. The Arbitration Commission also decided that the arbitration process should be continued and that both parties should jointly appoint or entrust the Chairman of the Arbitration Commission to appoint the sole arbitrator within fifteen days after receipt of the Jurisdiction Decision, otherwise, the Chairman of the Arbitration Commission would appoint the sole arbitrator. The Arbitration Commission further requested the [Seller] to submit its answer or counterclaim within thirty days after receipt of the Jurisdiction Decision.

The parties failed to jointly appoint or entrust the Chairman of the Arbitration Commission to appoint the sole arbitrator within the time limit prescribed in the Jurisdiction Decision. On 20 December 1996, the [Seller] sent a letter to the Arbitration Commission asking to extend the time limit for appointing the sole arbitrator because of the coming holidays. Upon consideration of the [Seller]'s request, the Arbitration Commission informed both parties on 27 December 1996 that the time limit for appointing the sole arbitrator was extended to 15 January 1997. Once again, the parties failed to jointly appoint or entrust the Chairman of the Arbitration Commission to appoint the sole arbitrator within the time limit. The [Seller] did not submit its answer, nor did it file any counterclaim within the time limit set by the Arbitration Commission.

Due to both parties' failure to appoint the sole arbitrator within the above time limit, the Chairman of the Arbitration Commission, pursuant to Article 65 of the Arbitration Rules, appointed Mr. P as the sole arbitrator who formed the Arbitration Tribunal on 31 January 1997.

The Arbitration Tribunal examined the documents related to this case, and decided to hold a court session in Beijing on 4 April 1997. On 31 March 1997, the [Seller] sent a letter to the Arbitration Commission stating that according to the Temporary Restraining Order issued by the US District Court in Minnesota, the [Buyer] was barred from attending the arbitration court session to be held on 4 April 1997, therefore, the [Seller] also was not going to attend the court session. On 11 April 1997, the Arbitration Commission wrote to the [Seller] a letter pointing out that the Arbitration Commission's acceptance of this case and the Arbitration Tribunal's hearing of this case were based on the arbitration clause in the two contracts signed by both parties; the Arbitration procedure was strictly in compliance with the Arbitration Law of the People's Republic of China and the Arbitration Rules; the [Buyer] and the [Seller] agreed in the their contracts that "any dispute arising from or in connection with this contract should be settled by arbitration", which excluded the jurisdiction of any courts; the US District Court in Minnesota had no jurisdiction over this case and had no right to interfere in the ongoing arbitration process; and that the Temporary Restraining Order issued by US District Court in Minnesota should not be cited by the [Seller] as an excuse for not attending the court session.

The Arbitration Tribunal examined the [Buyer]'s arbitration application and its annexes carefully and held a court session in Beijing on 4 April 1997 as scheduled, to which the [Buyer] sent its representative while the [Seller] did not. In accordance with Article 42 of the Arbitration Rules, the Arbitration Tribunal heard the case in default. During the court session, the [Buyer]'s representative made oral statements and answered the Arbitration Tribunal's questions. After the court session, the [Buyer] submitted supplementary materials within the time limit prescribed by the Arbitration Tribunal. The Arbitration Tribunal forwarded the supplementary materials to the [Seller] and asked the [Seller] to submit its answer within a stipulated period. Once again, the Arbitration Tribunal did not receive any response from the [Seller].

Due to the complexity of this case, the Secretary of the Arbitration Commission, at the Arbitration Tribunal's request, decided in accordance with Article 52 of the Arbitration Rules to postpone the award date of this case for two months to 4 July 1997. The Arbitration Tribunal has concluded the case and rendered an arbitral award within the forgoing time limit based on the materials submitted by the [Buyer] and the facts found in court session.

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

I. FACTS

In September 1993, the [Buyer], accompanied by Pacific Company, went to Minneapolis, Minnesota, United States and paid a visit to the [Seller]. The [Buyer] observed the [Seller]'s machines and concluded two contracts numbered GGLX93003 and GGLX93004 (hereinafter collectively, the "Contracts" and separately, the "Contract") for purchase of certain machines from the [Seller] at the [Seller]'s place of business in the United States. According to the Contracts, the [Buyer] ordered ten Gelinsen gear processing machines and five shaft processing machines, which should be delivered within the shipment period together with a full set of technical data in English, at a total price of US $432,750 FOB Seattle, the payment of which should be made with an irrevocable Letter of Credit (L/C) payable within one year. The quality, inspection and claim provision of the Contracts provided that the [Seller] should guarantee that the machines would be fully in conformity with the quality, specifications and functions prescribed in the Contract, the machines would satisfy the technical parameters or processing accuracy proposed by the [Seller] and confirmed by the [Buyer], and the machines should operate well within six months after their arrival at the destination port on the condition that they were properly installed, used, and maintained. If there were any defects which caused the machines not to operate or operate well, the [Buyer] should be entitled to claim compensation by presenting the [Buyer] with an inspection certificate issued by the Commodity Inspection Bureau of the People's Republic of China, and upon agreement of both parties, the amount of compensation as well as interest accrued on it would be deducted from the L/C value.

After conclusion of the Contracts, Pacific Company informed the [Buyer] by phone that the [Seller] had made replacement of some of the machines ordered by the [Buyer] due to auction of such machines. On 11 October 1993, Pacific Company sent to the [Buyer] a fax stating that three No. 22 machines prescribed in Contract GGLX93004 had been replaced with three other machines of the same model. On 5 November 1993, the [Buyer] replied to Pacific Company that it agreed to such replacement as long as the quality of the machines would be in conformity with the Contracts. Later on, the [Buyer] asked for a change of some machines originally ordered in Contract GGLX93003, which was agreed by Pacific Company on behalf of the [Seller]. After such changes, the total number of the machines was still fifteen, the same as originally ordered, but the models of some machines became different. The total price of the machines after these changes was US $298,750.

In consideration of the role played by Pacific Company in bringing both parties together, the communication difficulties arising from different languages spoken by both parties, and further need of Pacific Company's help during performance of the Contracts, the [Buyer], the [Seller], and Pacific Company agreed that the [Buyer] should perform the Contracts through Pacific Company, which meant that the [Buyer] should remit the down payment and open the L/C to Pacific Company who, upon receipt from the [Buyer], should transfer the down payment and the L/C to the [Seller]. When this agreement was reached, the [Buyer] had no knowledge of any deal between the [Seller] and Pacific Company. On 29 September 1993, the [Buyer] remitted to Pacific Company the down payment of US $26,625 which was transferred by Pacific Company to the [Seller]. The [Seller] raised no objection to such payment. After the machines in the two Contracts were finalized, the [Buyer] opened an irrevocable L/C with Pacific Company as the beneficiary in May 1994. The L/C was payable within one year and transferable to the [Seller]. In June of the same year, the machines were shipped from the United States. The Bill of Lading presented by the [Seller] under the L/C clearly showed that the Notify Party was the [Buyer]. It also made reference to the Contract numbers and the L/C number and listed the machines under the Contracts. These facts indicated that the [Seller] performed the Contracts rather than, as alleged by the [Seller], sold the machines to Pacific Company instead of the [Buyer].

After the machines' arrival at the destination port, the [Buyer] and the Import & Export Commodity Inspection Bureau of Guizhou Province (hereinafter, the "Inspection Bureau") inspected the goods and found the following problems:

  1. The manufacturing series numbers of five of the machines were not in conformity with the L/C and the Contracts;
  2. No technical data were found in the shipment; and
  3. Some parts were missing.

In addition, some of the machines, especially those machines with manufacturing series numbers that were different from those listed in the L/C, were in poor conditions: the inside and outside of the machines were severely oxidized, the electric systems were completely broken, the shafts fell apart, and visible cracks were seen on the surfaces of the machines. They were not functional at all. After discovering the above mentioned problems with the goods, the [Buyer] notified Bank of China, the issuing bank of the L/C, with an intention to deduct the amount of the compensation from the payment of the L/C in accordance with the Contracts. However, the [Buyer] was told that the bill of exchange under the L/C had been discounted by Pacific Company at the New York Branch of Bank of China.

In order to resolve the problems with the goods as mentioned above, the [Buyer] repeatedly negotiated with the [Seller] through Pacific Company, and sent to the [Seller] the inspection certificate and pictures of the defective parts. The [Buyer] asked the [Seller] to take back the three seriously damaged machines or to send technicians to repair the machines and fix the missing parts. The [Buyer] also requested that the [Seller] should commission the machines until they were completely functional before they could be accepted by the [Buyer], that the warranty period should be calculated from the date the [Buyer] received the technical data, and that the [Seller] should pay US $1,500 for each of defective machines as repairing cost. With regard to the [Buyer]'s requests, the [Seller] responded through Pacific Company that it was entitled under the Contracts to change the manufacturing series number of the machines as long as the models of the machines were same, and the manufacturing series number did not affect the quality of the machines because the machines were under the [Seller]'s warranty. The [Seller] asked the [Buyer] to provide a list of the defective parts and their prices, but failed to give a positive reply on how to resolve the existing problems.

In February 1995, after receiving part of the technical data from the [Seller], the [Buyer] immediately asked its technicians to compare the data and the machines to find the defective and missing parts and prepare a list. In March 1995, the [Buyer] faxed the list through Pacific Company to the [Seller]. On 29 June 1995, the [Buyer] received a fax from Pacific Company, stating that the [Seller] agreed to provide the important missing part -- Measuring Boards. However, the fax failed to mention other defective or missing parts. In January 1996, the [Seller] clearly expressed its refusal to pay the cost for repairing the defective machines. In April 1996, two of five Measuring Boards the [Seller] agreed to provide arrived at the [Buyer]'s factory.

II. POSITION OF THE PARTIES

A. [Buyer]'s position

The [Buyer] alleged that:

1. The Contracts were legal and valid

The Contracts were signed by and are legally binding upon both parties. After conclusion of the Contracts, neither party ever raised objection to the validity of the Contracts nor did the parties reach any agreement to terminate the Contracts. In addition, the Contracts numbers were referred to in the L/C, the faxes between the [Buyer] and Pacific Company as well as the vouchers evidencing transfer of the money from Pacific Company to the [Seller]. Also, the Bill of Lading provided by the [Seller] clearly indicated the Contract numbers, the L/C number, and the name and address of the [Buyer]. All these facts showed that both parties acknowledged the existence and validity of the Contracts and in fact had performed the Contracts.

2. The [Buyer] and the [Seller] had performed the Contracts

The [Buyer] paid the down payment through telegraph transfer and opened the L/C for the balance of the price pursuant to the Contracts. After the machines arrived at the destination port, the [Buyer] inspected the machines together with the Inspection Bureau and found the defective and missing parts of the machines. The [Buyer] faxed and mailed the inspection certificate as well as its claim for compensation to the [Seller] but received no cooperation from the [Seller].

The [Seller] never raised objection to the [Buyer]'s remittance of the down payment and issuance of the L/C to Pacific Company. It agreed to the [Buyer]'s request for change of the Contracts through Pacific Company, accepted the down payment, shipped the goods, and presented the Bill of Lading pursuant to the L/C.

All of the above facts indicated that the [Buyer] and the [Seller] had performed the Contracts.

3. The [Seller]'s performance was not in conformity with the Contracts; the [Seller] should be held responsibility for breach of the Contracts

According to Article 17, the "Quality Warranty Clause", and Article 18, the "Inspection and Claim Clause", of the Contracts as well as the relevant provisions of the United Nations Convention on Contracts for the International Sales of Goods (hereinafter the "CISG"), the [Seller] had the obligation to provide goods conforming to the Contracts. In the event of any lack of conformity, the [Seller] should compensate the [Buyer] for the economic loss. The [Seller] also failed to deliver with the goods the technical data as required by Article 14, the "Technical Data Clause", of the Contracts. Without such technical data, the [Buyer] was unable to use some of the machines, and as a consequence, suffered substantial economic loss. Therefore, the [Seller] should pay the costs for repairing the machines, compensation for missing parts, and the interest on the price.

B. [Buyer]'s initial claims

The [Buyer] alleged that the [Seller]'s breach of the Contracts caused substantial economic loss to the [Buyer]. Based on the aforesaid facts, the [Buyer] asked the Arbitration Tribunal to rule that:

      (1) The [Seller] should provide the [Buyer] with the missing parts and replacements for the defective parts of the machines free of charge, and the warranty period should be calculated from the date the forgoing parts arrivE at the destination port;

      (2) The [Seller] should pay the [Buyer] the costs for repairing the machines in the amount of US $16,500;

      (3) The [Seller] should pay interest accrued on the price, totaling US $28,502;

      (4) The [Seller] should bear the arbitration fee and the [Buyer]'s attorneys' fee, traveling fee, and the communication fee of RMB10,000 spent by the [Buyer] in seeking resolution of this case with the [Seller]; and

      (5) The [Buyer] should have the right to add further arbitration claims.

On 24 December 1996, the [Buyer] submitted to the Arbitration Tribunal an explanation of the case, in which the [Buyer] fixed the total amount of its arbitration claims at RMB 498,000.

C. [Buyer]'s supplementary claims

After the court session, the [Buyer] submitted to the Arbitration Tribunal supplementary material, in which the [Buyer] supplemented its claims.

1. Interest on the price

According to the Contracts, the technical data should be delivered with the machines. However, it was not delivered until February 1995. As a consequence, eight of the machines could not be used for over six months. Accordingly, the [Seller] should compensate the [Buyer] for the interest on the price of the eight machines for six months. Of the eight machines, three were No. 16 Gear Processing Machines, the unit price of which was US $15,000; two were Gelisen No. 12 Gear Processing Machines, the unit price of which was US $15,750; One was a No. 532 Sharpening Machine, the unit price of which was US $15,750; and two were No. 22 Gear Processing Machines, the unit price of which was US $25,000. The machines were shipped in three containers. The transportation fee for each container was US $2,900 by sea and RMB 10,000 by land. The annual interest rate should be the interest rate of the L/C, which was 8%. The interest was therefore calculated as follows:

   -    8% x (US $15,000 x 3 + US $15,750 x 2 + US $15,750 + US $25,000 x 2 + US $2,900 x 3) x 1/2 = US $6,038; and

   -    Transportation fee by land RMB 10,000 x 3 x 8% x 1/2 = RMB 1,200, equivalent to US $145.

The other five No. 22 Gear Processing Machines were severely defective due to lack of some important parts. They were repaired in July 1996 by the Tianjin Machine Tool Factory, the only manufacturer of double curvilinear spiral gears in China. The [Seller] should compensate the [Buyer] for the interest on the price of the five machines for two years, as well the transportation fee. The unit price of the five machines was US $25,000. They were shipped in three containers, and the transportation fees were the same as aforesaid. The interest was therefore calculated as follows:

   -    (US $25,000 x 5 + US $2,900 x 3) x 8% x 2 = US $21,392;
   -    Transportation fee by land RMB 10,000 x 3 x 2 x 8% = RMB 4,800, equivalent to US $580.

The total interest was US $28,155.00.

2. The cost for repairing the machines

Five No. 22 Gear Processing Machines delivered by the [Seller] did not conform to the Contracts. They could not be used until were repaired by professional manufacturers. Therefore, the [Seller] should compensate the [Buyer] for the cost for repairing the five machines. According to the repair contract, the price for repairing the five machines was RMB 275,000, 50% of which was technical fee and 50% was labor fee. The [Buyer] agreed to bear the technical fee by itself but requested that the [Seller] should pay the labor fee, which was 275,000 x 50% = RMB 137,500 (equivalent to US $16,500).

3. Compensation for the missing parts

According to the repair contract, the price for repairing the five machines did not include the cost of the material and the cost for manufacturing the missing parts. The missing parts of the five machines included Measuring Boards and other parts. The [Buyer] had to ask professional manufacturer to make such parts. Some of the missing parts were never produced in China before, so it was impossible to estimate their prices. According to Tianjin Machine Tool Factory's quotation for manufacturing the missing parts, the cost for manufacturing a Measuring Board is RMB 35,000, three Measuring boards will cost RMB 105,000, which is equivalent to US $12,650, plus the cost for manufacturing other missing parts US $15,000. The total cost was US $59,655.

D. [Seller]'s Position

The [Seller] submitted no answer to the [Buyer]'s claims but filed an objection to the jurisdiction of the Arbitration Tribunal, stating that the goods under Contract GGLX93003 were not the machines the [Buyer] mentioned in its arbitration application, so this Contract was inapplicable to this dispute, and that Contract GGLX93004 was cancelled. The [Seller] admitted that it sold the machines listed in Contract GGLX93004 and other lmachines like them later on to Pacific Company, not to the [Buyer]. In its objection to the jurisdiction of the Arbitration Tribunal, the [Seller] also attached a written testimony by Cheng Zheng, the CEO of Pacific Company, who testified that Pacific Company bought the machines under the Contracts in July 1994 and resold them to the [Buyer], and no dispute ever occurred between the [Seller] and Pacific Company nor did the [Seller] and Pacific Company ever reach any agreement to settle their dispute through arbitration.

III. OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The Arbitration Tribunal noted that the two parties in this case did not make a choice of the applicable law in the Contracts. As the parties' places of businesses are located respectively in the People's Republic of China and the United States, and both China and the United States are Contracting States of the CISG, therefore, the CISG should be applied.

2. The contractual relationship

The parties to Contracts GGLX93003 and GGLX93004 are the [Buyer] and the [Seller]. The Claimant in this case is the [Buyer], and the Respondent is the [Seller]. After examination of the Contracts, the Arbitration Tribunal holds that pursuant to Part II, Articles 14 to 24, of the CISG, the Contracts are valid and binding upon both parties.

The evidence provided by the [Buyer] shows that the [Seller] accepted US $14,750 from the amount of US $26,625 that the [Buyer] paid to Pacific Company as down payment and that the payment voucher provided to the [Buyer] by Pacific Company made reference to the Contracts. In addition, the Bill of Lading provided by the [Seller] to the [Buyer] indicates that the shipper is the [Seller], the contract numbers are the ones of the Contract, and the L/C number is the L/C number opened by the [Buyer]. These facts show that the contracts the [Seller] performed were the same Contracts in the instant case. Therefore, the Arbitration Tribunal holds that that the [Buyer] and the [Seller] are the parties to and bound by the Contracts and should perform their obligations prescribed in the Contracts. The Arbitration Tribunal also noted that Pacific Company as a middleman participated in the performance of the Contracts, including acceptance of the down payment paid by the [Buyer] and collection of the price under the L/C as a beneficiary. However, no evidence shows that the [Seller] ever assigned the Contracts to Pacific Company or that the [Buyer] ever agreed with the assignment of the Contracts to Pacific Company. Therefore, Pacific Company is only a middleman between the [Buyer] and the [Seller].

The Arbitration Tribunal further noted that the two parties made some changes regarding the machines listed in the Contracts through Pacific Company. Therefore, the [Seller]'s assertion that "the goods delivered were different from the goods under the Contract GGLX93003, so the Contract GGLX93003 is inapplicable to this case" is unacceptable. The [Seller] also alleged in its objection to the jurisdiction of the Arbitration Tribunal that Contract GGLX93004 was cancelled but failed to provide any evidence to prove its point.

3. Liability for breach of the Contracts

The Arbitration Tribunal noted that after conclusion of the Contracts, the [Buyer] remitted the down payment to Pacific Company as required by the Contracts, and that Pacific Company transferred it to the [Seller]. After change of some machines listed in the Contracts, the [Buyer] opened the L/C with Pacific Company as beneficiary and transferable to the [Seller]. The [Seller] raised no objection to this payment arrangement by the [Buyer] and shipped the goods to the [Buyer] based on the L/C. The [Seller]'s reference to the Contract numbers and the L/C numbers in the Bill of Lading provided to the [Buyer] further evidenced its acceptance of the L/C. The above facts show that the [Buyer] fulfilled its obligation of payment under the Contracts.

After the goods arrived at the destination port, the [Buyer] entrusted the Import & Export Commodity Inspection Bureau of Guizhou Province to inspect the goods pursuant to the Contract. The Inspection Bureau found quality problems after inspection. According to Article 18, the "inspection and compensation" clause in the Contracts, the [Buyer] is entitled to claim for compensation from the [Seller] by presenting the Inspection Certificate issued by Chinese commodity inspection agency. Therefore, the [Buyer]'s claim for compensation with the Inspection Certificate issued by the Import & Export Commodity Inspection Bureau of Guizhou Province was an exercise of its right under the Contracts. The Inspection Certificate No. 520XX255 issued by the Import & Export Commodity Inspection Bureau of Guizhou Province indicated that the numbers of some of the machines were not in conformity with the Contracts, the technical data of some machines were not delivered, and some parts of the machines were missing. The Inspection Certificate concluded that the [Seller] should be responsible for these problems. The above facts show that the goods the [Seller] delivered did not conform to the Contracts and that the [Seller]'s performance of its obligation did not comply with the Contracts. The [Seller] was in breach of the Contracts and its beach of the Contracts caused damages to the [Buyer]. Therefore, the Arbitration Tribunal holds that, pursuant to the CISG, the [Buyer] should be liable for compensating the [Seller] for the damages suffered from the [Buyer]'s breach of the Contracts.

4. [Buyer]'s initial arbitration claims

The [Buyer] initially claimed that:

      (1) The [Seller] should provide the [Buyer] with the missing parts and replacements for the defective parts of the machines free of charge, and the warranty period should be calculated from the date the forgoing parts arrivE at the destination port;

      (2) The [Seller] should pay the [Buyer] the costs for repairing the machines in the amount of US $16,500;

      (3) The [Seller] should pay interest accrued on the price, totaling US $28,502; and

      (4) The [Seller] should bear the arbitration fee and the [Buyer]'s attorneys' fee, traveling fee, and the communication fee of RMB10,000 spent by the [Buyer] in seeking resolution of this case with the [Seller].

[5] [Buyer]'s supplementary arbitration claims

In Part 4 of the supplementary opinion submitted by the [Buyer] to the Arbitration Tribunal, entitled "The Economic Loss Caused by the [Seller]'s Breach of the Contracts", the [Buyer] changed its initial claim (1) to: "the [Seller] should pay the costs of defective and missing parts, totaling US $15,000", the amount of claim (3) to US $28,155, and the total amount of (1), (2), (3) to US $59,655.

      (1) Costs of defective and missing parts

According to the Inspection Certificate No. 520XX255 issued by the Import & Export Commodity Inspection Bureau of Guizhou Province, the defective and missing parts of the machines include five Measuring Boards and other parts. In April 1996, the [Buyer] received two Measuring Boards from the [Seller] through Pacific Company. therefore, the [Seller] should pay the costs for three Measuring Boards and other defective and missing parts. The relevant evidence provided by the [Buyer] shows that the cost of one Measuring Board is RMB 35,000, and three Measuring Boards will cost RMB 105,000, equivalent to US $12,650. Thus, the Arbitration Tribunal accepts the [Buyer]'s claim for the cost of three Measuring Boards US $12,650, but dismisses the [Buyer]'s claim for the cost of other defective and missing parts for the reason that the [Buyer] failed to provide evidence to prove such cost.

      (2) Costs for repairing machines

The evidence provided by the [Buyer] indicates that the [Buyer] engaged Tianjin Machine Tool Factory to repair five defective No. 22 Gear Processing Machines at RMB 55,000 each and RMB 275, 000 in total, of which, 50% was technical fee and 50% was labor fee. The [Buyer] agrees to bear the technical fee by itself but requests the [Seller] to pay the labor fee, which is 275,000 x 50% = RMB 137,500 (equivalent to US $16,500).The Arbitration Tribunal holds that this claim of the [Buyer] is reasonable and grants its acceptance of it.

      (3) Loss of interest on the price

The [Buyer] alleged that due to the [Seller]'s non-delivery of the technical data until February 1995, eight machines could not be installed and used for over six months. Therefore, the [Buyer] asked the [Seller] to compensate for loss of interest for six months on the price of the eight machines at an annual interest rate of 8 percent. The [Buyer] also asked the [Seller] to pay the interest on the transportation fee from the destination port to the factory.

In addition, The [Buyer] claims that the defects in five No. 22 Gear Machines were so severe that they could not be used until were repaired by a professional manufacturer engaged by the [Buyer], therefore, the [Seller] should compensate for loss of interest for two years on the price of the five machines as well as on the transportation fee.

After considering the above claims and the related evidence, the Arbitration Tribunal holds that the [Buyer]'s claim for loss of interest on the price of the relevant machines is reasonable and acceptable. This loss of interest is calculated as follows:

            (i) (15,000 x 3 + 15,750 x 2 + 15,750 + 25,000 x 2) x 8% x 1/2 = US $5,690;

            (ii) 25,000 x 5 x 8% x 2 = US $20,000.

The total amount is US $25,690.

With regard to the loss of interest on the transportation fee, the Arbitration Tribunal holds that such loss of interest is not damages for breach of the Contracts that the [Seller] knew or should have known or foresaw or should have foreseen at the time of the conclusion of the Contracts, therefore, according to Article 74 of the CISG, the [Buyer]'s claim for such loss of interest is dismissed.

      (4) Arbitration fee and other costs

The Arbitration Tribunal holds that 10% of the arbitration fee shall be borne by the [Buyer] and 90% shall be borne by the [Seller]. Since the [Buyer] failed to present any evidence to prove its attorneys' fee, traveling fee, and communication fee, the Arbitration Tribunal dismisses the [Buyer]'s claim for such fees.

IV. THE AWARD

The Arbitration Tribunal rules that:

1. The [Seller] shall pay the [Buyer] the cost of the defective and missing parts of US $12,650;
2. The [Seller] shall pay the [Buyer] the costs for repairing the machines of US $16,500;
3. The [Seller] shall pay the [Buyer] the loss of interest on the price of certain machines of US $25,690;
4. The [Buyer]'s other claims are dismissed;
5. The [Buyer] shall bear 10% of the arbitration fee and the [Seller] shall bear 90%. The [Buyer] has prepaid RMB XXX, therefore, the [Seller] shall reimburse the [Buyer] RMB XXX.

The aforesaid sums shall be paid within 45 days after the date of this award. For any late payment, 12 % annual interest will be added.

This award is final.


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 [Buyer] and Respondent of the United States of America 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; BEcon, Nanjing University Business School. Attorney at Law, admitted in P.R. China and California, USA, Partner, G & D Law Firm, Nanjing, China.

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Pace Law School Institute of International Commercial Law - Last updated July 22, 2009
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