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CISG CASE PRESENTATION

China 7 July 1997 CIETAC Arbitration proceeding (Isobutanol case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970707c1.html]

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

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Case identification

DATE OF DECISION: 19970707 (7 July 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/20

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (respondent)

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

GOODS INVOLVED: Isobutanol


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 74

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach: substantial deprivation of expectations];

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

Descriptors: Fundamental breach ; Damages ; Foreseeability of damages

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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. 2138-2142

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.137, 204, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation)

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


 

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

Isobutanol case (7 July 1997)

Translation [*] by Jun Wang [**]

Edited by Meihua Xu [***]

China International Trade and Economic Arbitration Commission, Shanghai Commission (hereafter, "the Arbitration Commission") accepted the present case on 27 June 1996 according to:

   -    The arbitration clause in contract No. 96SX0402 (hereinafter referred to as "the Contract") signed by Claimant [Buyer], China Ningbo__ Import & Export Company and Respondent [Seller], US__ International Corporation, on 2 April 1996; and
 
   -    The written arbitration application submitted by [Buyer].

According to the Arbitration Rules of the Arbitration Commission, Mr. P, the presiding arbitrator appointed by the Chairman of the Arbitration Commission, arbitrator Mr. A, appointed by the [Buyer], and arbitrator Ms. D, appointed by the Chairman of the Arbitration Commission on behalf of the [Seller] since the [Seller] failed to appoint an arbitrator, formed an Arbitration Tribunal to hear this case on 5 December 1996.

The Arbitration Tribunal reviewed the arbitration application, the statement of defense and the evidence materials submitted by the [Buyer] and [Seller] respectively, and held a court session on 17 January 1997 in Shanghai. The representatives of the [Buyer] and [Seller] attended the court session. They presented their opinions and reasons, and answered the Arbitration Tribunal's questions. With the consent of both parties, the Arbitration Tribunal sought to mediate this case but failed. After the court session, the [Buyer] submitted supplementary materials within the specified period.

The Arbitral Tribunal has now, within the time period specified by the Arbitration Rules, concluded the case and rendered its award by consent.

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

I. FACTS

The [Buyer] and the [Seller] signed Contract No. 96X0402 on 2 April 1996. It was stipulated in the contract that the [Buyer] agreed to purchase 1,000 tons (-5%) of isobutanol from the [Seller] for a unit price of US $615/MT, CIF Ningbo China, totaling US $615,000.00; country of origin and manufacturer: Korea or Russia; period of shipment: 10 April 1996; port of loading: Korean port; terms of payment: L/C to be opened before/on 3 April 1996.

After the Contract was signed, the [Buyer] opened a L/C on 4 April 1996, which was one day later than the specified date. The [Seller] entrusted the ship SAMURAI-1 to transport the goods from XueShan Port, Korea, and faxed the B/L and other documents to the [Buyer] on 10 April. After arrived at Ningbo Port on April 10, the goods were sealed and detained by the Intermediate People's Court of Hangzhou, Zhejiang Province, due to a suspect involving litigation, and the [Buyer] was directed by the court to terminate payment of the L/C.

On 24 April 1996, the documents arrived at the issuing bank, but were found seriously inconsistent with the requirement of the L/C, which caused the [Buyer] to be unable to receive the documents by making payment. The issuing bank then returned all the documents and the [Buyer] could not take delivery of the goods, with the result, the Contract could not be performed.

[Buyer] sent a letter to the [Seller], asking for compensation, asserting that actual expenses and damages had occurred to the [Buyer]. However, the parties failed to solve the dispute by themselves; therefore, the [Buyer] applied for arbitration, requesting the Tribunal to direct the [Seller] to:

1. Compensate the [Buyer]'s economic loss of Renminbi [RMB] 779,020.54; and

2. Bear the entire arbitration fee.

POSITION OF THE PARTIES

[Buyer]'s position

The [Buyer] asserts that:

The [Buyer] and the [Seller] signed Contract No. 96X0402 on 2 April 1996, by which the [Buyer] was to purchase 1,000 tons of isobutanol from the [Seller]. After the conclusion of the Contract, the [Buyer] opened a L/C on time. On 10 April, the ship SAMURAI-1 arrived with the goods at Ningbo Port, while the documents under the L/C had not arrived at the issuing bank.

On 16 April, upon the request of Zhejiang Province Foreign Trade Development Corporation, the Intermediate People's Court of Hangzhou ordered the Contract goods detained and sent a notice to the [Buyer] to terminate the L/C payment because the [Seller] was suspected of a fraud with a third party by selling the same goods to two different parties. On 24 April, the documents were found seriously inconsistent with the requirement of the L/C after they arrived at the issuing bank. The [Buyer] was not able to receive the documents by making payment; therefore, the issuing bank returned all the documents.

The [Buyer] states that the [Seller] has fundamentally breached the Contract, causing the [Buyer] to be unable to obtain the goods, and the Contract could not be performed.

The losses alleged by the [Buyer] are:

1. The [Buyer] acted as an agent of importation in this case; the final customer is Yuyao A Trade Company. After the [Buyer] opened the L/C, A Company signed sales contracts with B Chemical Company and C Company in Ningbo. As the result of the detainment of the goods, A Company suffered a loss of interest on the price of RMB 103,500 (6,900,000 1.8% 25/30), RMB 4,140 per day, calculated to 20 May, when the issuing bank returned the documents, totaling RMB 144,900;

2. As the result of the detainment of the goods, Company A paid 5% of the total contract price to B Company and C Company. According to the relevant rules of foreign trade agency, A Company has authorized the [Buyer] to claim for compensation of RMB 345,000 (1,000 6900 5%);

3. Other costs: RMB 289,120.54:

    (1)  Inspection fee: RMB 21,208.54 (See the inspection certificate)

Quality: 950.712 615 C 8.35 0.5% - 5000 80% + 5000 = RMB 20,528.58

Quantity: 950.712 0.4 = RMB 380.28

Transportation fee: RMB 300

    (2)  L/C opening fee: RMB 7,684.43 (1000 8.33 615 0.15%);

Mailing fee: RMB 1,150

    (3)  Commission: RMB 102,459 (1000 615 8.33 2%)

    (4)  Interest on deposit for opening the L/C: RMB 12,659.99 (510,000 13.065% 57/30)

    (5)  Loading fee and loading agency fee: RMB 52,298.16 (55 950,712); RMB 50,000 (1000 50)

In sum, the total loss of the [Buyer] is RMB 779,020.54 up till now.

[Seller]'s position

The [Seller] defends that:

It was stipulated in the Contract that, "L/C TO BE OPENED BEFORE/ON APR 3/96", but the [Buyer] in fact opened the L/C on 4 April 1996; therefore, the [Seller] notified the [Buyer] that it could not perform the Contract. However, the [Buyer] asked to negotiate this issue and sent a guarantee, saying that it would pay in spite of any inconsistency except quantity/price/quality.

After the court detained the goods, the [Buyer] took advantage of the tiny inconsistency on the documents, asking the [Seller] to lower the price to US $190/MT, which the [Seller] rejected. Then the bank returned the documents. The [Buyer]'s reason for returning the documents is unacceptable. [Buyer] should have been able to make the payment to receive the documents. The [Buyer] wanted to make huge profits using this opportunity, which caused severe loss to the [Seller].

II. OPINION OF THE ARBITRATION TRIBUNAL

The Arbitration Tribunal heard the respective statements of the parties, reviewed the relevant written evidence, and concluded as follows:

1. Applicable law

The [Buyer] and the [Seller] signed Contract No. 96X0402 on 2 April 1996. The Contract was signed by authorized representative of both parties. It is effective. The Contract did not stipulate the applicable law. Based on the fact that the place of signing and executing of the Contract and the place of arbitration are all in China, according to the proximate connection principle, the Arbitration Tribunal deems that Chinese law should be applied. Relevant provisions are set forth in the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest. Moreover, considering that the dispute in this case involves an international sales contract, and the countries of both parties are Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (hereafter, the "CISG"), therefore, the CISG should also be applied.

2. Liability for contract violation

The Contract was signed on 2 April 1996. It requires the [Buyer] to issue the L/C on or before 3 April. However, the [Buyer] did not open it until April 4, which is one day later. The [Seller] sent a fax to [Buyer], stating that because the [Buyer] did not open the L/C on time, the [Seller] was not able to arrange contract performance. The [Buyer] responded on the same day by fax that since the [Seller] had not expressed any objection to the modified L/C opening date by written document, therefore, the [Seller] should arrange for the delivery of the goods. The [Seller] did not raise any objection to this assertion of the [Buyer], shipped the goods, and faxed the B/L and relevant documents to the [Buyer]. The above facts demonstrate that the [Seller] accepted the delay of the [Buyer]'s opening the L/C.

The goods were transported by the ship SAMURAI and arrived at Ningbo Port on 10 April. Due to the fact that [Seller] was suspected of selling the same goods to two different parties, the Intermediate People's Court of Hangzhou, Zhejiang Province handed down Civil Decision (1996) No. ___ (Plaintiff was Zhejiang Province Foreign Trade Development Corporation, and Defendant was Hong Kong ___ Company), by which the 950,712 tons of goods at Ningbo port shipped on the SAMURAI were sealed and detained. After investigation by the Intermediate People's Court of Hangzhou, it was found that the [Seller] had colluded with Hong Kong __ Company to alter the documents in order to sell the same goods to two different parties.

During the hearing, the [Seller] did not object to the above facts. Meanwhile, among the documents faxed from the [Seller] to the [Buyer] on 10 April 1996, the notifying party in the inspection report was Zhejiang Province Foreign Trade Development Corporation, who was the plaintiff in the fraud case, which resulted in the Contract goods being detained by the Intermediate People's Court of Hangzhou. The above facts demonstrate that the goods delivered by the [Seller] were subject to the right of a third party.

On 24 April 1996, after receipt by the issuing bank, the documents were found seriously inconsistent with the requirement of the L/C, such as: the quantity of the goods was 950,71 tons in the certificate of origin submitted by the [Seller], which missed one number from the actual quantity, 950,712 tons; the country of origin was Russia; while the certificate of the country of origin was issued by HUMBLE Chamber of Commerce, Texas, US. The issuing bank (Bank of China Ningbo branch) refused payment based on the inconsistency between the L/C and the documents.

After the documents were returned, the [Seller] still had the ownership of the detained goods, but it neither took action to ask the court to release the goods, nor did it negotiate with the [Buyer] to change the payment term or reopen a L/C, nor did it actively seek to remedy the Contract by delivering goods again.

According to Article 18 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, and Article 20 of CISG [Translator's note: The Tribunal presumably means Article 25 of the CISG], the [Seller] has fundamentally breached the Contract. According to Article 19 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest, the [Seller] should compensate the [Buyer] for the loss caused by such breach.

3. Compensation of the loss

According to Articles 18 and 19 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest:

"If one party does not perform the contract or the performance does not conform to the requirement of the contract, it constitutes a breach of the contract; the other party has the right to demand compensation or make reasonable remedy to mitigate the loss."

"The compensation by the breaching party is equal to the loss the other party suffers. Such compensation may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract."

The Arbitration Tribunal supports [Buyer]'s claim for actual losses, including the L/C opening fee of RMB 7684.43, mailing fee of RMB 1150, inspection fee of RMB 21,132, interest on deposit for opening the L/C of RMB 12,659.99, and loading fee and loading agent fee of RMB 102,298.16.

The [Buyer] also claims an agent fee of RMB 102,459, alleging that it was the agent for importation. However, such agency relationship was unknown and could not be foreseen by the [Seller] at the time of the conclusion of the Contract. Therefore, According to Article 74 of CISG, the Arbitration Tribunal does not support this claim.

Because the [Seller] did not deliver the goods, the customer of the [Buyer], A Trade Company, was not able to perform its sales contracts with B Chemical Company and C Company signed on 8 and 9 April, respectively, Based on the above, the [Buyer] requests the [Seller] to compensate the contract violation fee of the two contracts, amounting to RMB 345,000. The Arbitration Tribunal points out that this loss could not be foreseen by the [Seller] when signing the Contract. Moreover, the [Buyer] failed to provide evidence showing its customer has actually paid the aforesaid amount, but only submitted two sales contracts. Therefore, according to Article 19 of the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest and Article 74 of CISG, the Arbitration Tribunal holds that it does not support this claim of [Buyer].

Without receiving the goods, the [Buyer]'s customer was unable to receive payment, therefore, the [Buyer] claims interest on the payment of the goods from the payment due day to 20 May 1996, when the documents were returned, totaling RMB 144,900. The Arbitration Tribunal deems that the dispute in this case is between the [Buyer] and the [Seller], and that the interest on payment to be received by the [Buyer]'s customer is a different legal relationship, which the [Seller] could not foresee when signing the contract. Since the Contract was not performed, it is unknown whether the [Buyer]'s customer could even have received payment, without going into the issue of interest on the payment. Therefore, this claim is not acceptable.

To sum up, the actual loss the [Seller] shall pay to the [Buyer] is RMB 146,924.58.

4. Arbitration fee

Based on the fact that the [Seller] breached the Contract and the extent to which the Arbitration Tribunal supports the claims of the [Buyer], 30% of the arbitration fee should be paid by the [Buyer] and 70% should be paid by the [Seller].

III. AWARD

   1.     [Seller] shall pay the [Buyer]'s economic loss of RMB 146,924.58.
 
   2. The arbitration fee of this case is RMB ___. The [Buyer] shall pay 30%, which is RMB ___ while the [Seller] shall pay 70%, which is RMB ___. The [Buyer] has paid RMB ___ in advance; the [Seller] shall pay back RMB ___ to the [Buyer].

The 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]; Respondent of the United States is referred to as [Seller]. Amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

** Jun Wang, LL.M. in Corporate Law, Law School of New York University; LL.B. Law School of Peking University; BA in Economics, CCER (China Center for Economic Research) of Peking University.

*** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.

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Pace Law School Institute of International Commercial Law - Last updated May 3, 2006
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