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CISG CASE PRESENTATION

China 21 July 1997 CIETAC Arbitration proceeding (Yam-dyed fabric case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970721c1.html]

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

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Case identification

DATE OF DECISION: 19970721 (21 July 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/22

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: United States (respondent)

GOODS INVOLVED: Yam-dyed fabric


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 64(1) ; 74 ; 75 ; 78

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

64A1 [Seller's right to avoid contract (grounds for avoidance): fundamental breach of contract];

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

75A1 [Damages established by substitute transaction after avoidance: resale by aggrieved seller];

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

Descriptors: Fundamental breach ; Avoidance ; Damages ; Cover transactions ; Interest

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Zhong Guo Guo Ji Jing Ji Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 1997 vol., pp. 2215-2219

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.108, 113, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation)

Queen Mary Case Translation Programme

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

Yam-dyed fabric case (21 July 1997)

Translation [*] by Zheng Xie [**]

Translation edited by Meihua Xu [***]

China's International Trade and Economic Arbitration Commission Shanghai Commission [hereafter, Shanghai Commission] accepted the present case on 21 November 1994 according to:

   -    The arbitration clause in Contract No. 95 CZM71001 signed by Claimant [Seller], China ___ Import and Export Company, and Respondent [Buyer], US ___ Company, and
 
   -    The written arbitration application submitted by [Seller] to the Shanghai Commission.

According to Article 24 of the Arbitration Rules of China International Economic and Trade Arbitration Commission (hereafter, the Arbitration Rules), Mr. A appointed by [Seller], Ms. D appointed for [Buyer] by the Chairman of Shanghai Commission according to the Arbitration Rules as [Buyer] did not appoint its arbitrator within the stipulated time, and Mr. P., the presiding arbitrator appointed by the Chairman of the Shanghai Commission, formed the Arbitration Tribunal on 1 August 1996 to hear the case.

The Arbitration Tribunal reviewed the written materials and appendix submitted by [Seller]. [Buyer] did not submit any defense, nor did it file any counterclaim. The Arbitration Tribunal held a court session on 12 September 1996 in Shanghai. [Seller]'s agent attended the session, made a statement and answered the Arbitration Tribunal's questions. [Buyer] did not present at the session. The Arbitration Tribunal heard the case by default, according to Article 42 of the Arbitration Rules. After the session, [Seller] submitted supplementary evidence to the Tribunal. Because it took a long time to get the physical evidence in this case, after being requested by the Arbitraton Tribunal the Secretariat of the Shanghai Commission postponed the deadline for making the award to 21 July 1997.

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

FACTS

On 6 March 1995, [Seller] and [Buyer] signed Contract No. 95 CZM71001 for the sale of 502,000 meters 100% cotton Yam-dyed fabric. The contract stipulates:

   -    Price and Delivery: CFR US $1.44/m;
   -    Total Price: US $722,880.00;
   -    Payment: 100% irrevocable, transferable and dividable L/C, which allows transshipment and part shipment;
   -    Time of Shipment: 15-30 April 1995.

On 4 March 1995, [Seller] faxed to [Buyer] requesting that the L/C be issued on 7 March 1995, but [Buyer] did not reply. On 14 April 1995, [Buyer] faxed to [Seller] notifying that the L/C would be issued within ten days, and that the applier for the L/C was the end user of the goods, US ___ Textile Company, and requesting [Seller] to arrange the production and pay the deposit to the factory for [Buyer], for which [Buyer] would be liable. [Seller] then arranged the production of the goods. On 11 May 1995, [Buyer] faxed to [Seller] the draft of the L/C issued by US ___ Textile Company and requested [Seller] to confirm. On 12 May, [Seller] faxed to [Buyer] and US ___ Textile Company suggesting alterations to indicate:

  1. The destination port: Zhang Jia Gang or Shanghai Port;
  2. A full set of onboard clean B/L noted with "Collection of Freight";
  3. The latest delivery time: 24 May 1995;
  4. The duration of validity: 9 June 1995;
  5. That [Seller] requires [Buyer] to send the altered L/C to [Seller]'s bank no later than 14 May 1995, and that the other part of the L/C shall be sent to [Seller]'s bank no later than 15 May 1995.

Then, [Buyer] and [Seller] negotiated many times. On 27 May 1995, [Seller] received L/C No. LCNY-95-BO-672 which stipulates the time of shipment is before 31 May 1995. [Seller] faxed to [Buyer] on 28 May 1995 suggesting alterations to the L/C:

  1. The B/L shall be with space for filling in the name or with name of Bank of Communication New York Branch NY 1006-3008, U.S.A;
  2. The latest date of shipment shall be altered to 6 June 1995;
  3. The duration of validity of the L/C shall be altered to 11 June 1995.

On 5 June 1995, [Seller] received clean L/C No. 509918 issued by [Buyer] and got the US $54,187.00 price for the goods. On 12 June 1996, [Seller] received L/C No. LCNY-95-B678 issued by [Buyer], however, this L/C stipulated the time of shipment as 9 June 1995. On 12 June 1996, [Seller] faxed to [Buyer] and US ___ Textile Company notifying that the L/C was issued for a time of shipment that had passed. [Buyer] did not reply. On 19 and 20 June 1995, [Seller] by fax asserted that [Buyer] had breached the contract, so [Seller] had to cancel the contract. On 12 July, [Seller] faxed to [Buyer] requiring it to send persons to dispose of the goods before 17 July; otherwise, [Seller] would have to resell the goods at a reduced price. [Buyer] did not reply. [Seller] then resold the goods under contract with the Changzhou Economic Developing Zone Tian Di Economic Developing Company at a price of remninbi [RMB] 7 /m, and filed application for arbitration with the Shanghai Commission.

POSITION OF THE [SELLER]

The following were [Seller]'s initial claims.

  1. [Buyer] shall indemnify [Seller] the economic loss, US $358,127.57.
  2. [Buyer] shall pay the arbitration fee.

[Seller] then altered the claims to:

  1. [Buyer] shall indemnify [Seller] the economic loss, US $412,314.57.
  2. [Buyer] shall pay the arbitration fee.

[Seller] asserts that [Buyer] did not execute the L/C in accordance with the contract, which constitutes a breach of contract. According to [Buyer]'s fax of 14 April 1995 and [Seller]'s confirmation, [Buyer] was obligated to issue the L/C before 24 April 1995, but [Buyer] did not perform as promised. Then, on 27 May and 12 June 1995, [Buyer] issued two L/Cs. In one L/C, the time of shipment had passed and, in the other, the goods could not be shipped during the time of shipment. However, [Seller] still gave [Buyer] a reasonable time to issue conforming L/Cs, but [Buyer] did not issue conforming L/Cs. This is a breach of the contract; it is a fundamental breach of contract according to the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG).

[Seller] had arranged the production and prepared the 511,537.4 meters of yam-dyed fabric under the contract. [Seller] suffered severe loss due to [Buyer]'s breach. [Buyer] should be held liable for [Seller]'s loss.

[Seller]'s loss

1. The loss of price difference due to resale of the goods at a reduced price, US $305,198.56 calculated as: 511,537.4 (meters) x [1.44 (US $ the contract price) - 7 (RMB the resale price) 8.3 (exchange rate) = US $305,198.56.

2. The loss of interest due to loans from the securities company and bank for [Seller]'s performance of the contract, US $36,256.60.

      (1) On 17 April 1995, [Seller] borrowed RMB 5,000,000 from Changzhou Securities Company, with the monthly interest rate 15/1,000 and the period of 105 days (from 14 April 1995 to 31 July 1995). The formula: RMB 5,000,000 x 15/1,000 30 days x 105 days = RMB 262,500.00.

      (2) On 17 April 1995, [Seller] borrowed RMB 3,500,000 from China Agriculture Bank Changzhou Branch Hong Xing Office. RMB 1,000,000 of the loan was used to perform the contract, with the monthly interest rate 10.98/1,000 and the period of 105 days (from 14 April 1995 to 31 July 1995). The formula: RMB 1,000,000 x 10.98/1,000 30 days x 105 days = RMB 38,430.00.

The total of these two items is RMB 262,500 + RMB 38,430 = RMB 300,930.00, i.e., US $36,256.60.

3. In order to perform the contract, [Seller] signed a contract with Wujin County_ Yam-dyed fabric factory, Wujin County ___ fabric factory, and Wujin ___ Agate Cleaning Appliance Factory, from 15-20 April 1995. The yam-dyed fabric produced was 511,537.4 meters. Because of [Buyer]'s breach, [Seller] could not get the price of the goods, which caused [Seller] to take the goods sixty days later than the time stipulated in the contracts. The four factories requested [Seller] to pay damages. [Seller] paid them loss of late performance, RMB 179,549.62, i.e., US $21,632.49.

4. The loss of storage charge due to [Seller]'s late taking of the goods, RMB 13,930.03, i.e., US $1,678.30; international calling expenses and telegram fee during [Seller]'s performance of the contract, RMB 48,758.16, i.e., US $5,874.47.

5. [Seller]'s loss of interest due to [Buyer]'s breach, US $370,640.42. [Seller] requests [Buyer] to pay interest at the monthly interest rate of 7.65/1,000 for a total of 14 months and 21 days, totaling 441 days, from 20 June 1995 to 12 September 1996. The formula: US $370,640.42 x 441 days 30 days x 7.65/1,000 = US $41,680.37.

The total amount of the above five items is US $412,321.09.

OPINION OF THE ARBITRAL TRIBUNAL

Applicable law

[Seller] is a business entity registered in the People's Republic of China; [Buyer] is a company registered in the United States. China and U.S. are parties of the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG). The Arbitration Tribunal therefore holds that the CISG is applied to the contract.

Liability for breach of contract

Contract No. 95 CZM71001 was effective when each parity's representative signed. [Seller] and [Buyer] were obligated to perform in accordance with the contract. According to the contract; [Seller] was obligated to deliver 502,000 meters of yam-dyed fabric to [Buyer]; [Buyer] was obligated to issue an irrevocable L/C as payment. The contract did not specify when [Buyer] should make the payment by L/C. However, the Arbitration Tribunal holds that because the price term in the contract is CFR, according to B1 of CFR described in INCOTERMS (460), [Buyer] must pay the price of the goods. The contract stipulates that [Buyer] shall make the payment by L/C, so [Buyer] must perform its payment obligation by issuing the L/C. The main purpose of the L/C is to guarantee the security of the transaction. According to international trade custom, [Buyer] is obligated to execute the L/C before the goods are delivered so that [Seller] can deliver the goods according to the stipulation in the L/C and the terms of the contract, and receive payment.

The Arbitration Tribunal holds that, even though the contract does not stipulate the date to issue the L/C, the parties specified the time of shipment as from 15-30 April 1995; thus, [Buyer] should have issued the L/C before 15 April 1995. The correspondence between the parties after signing the contract shows that on 14 April 1995 [Buyer] promised to execute the L/C within about ten days, but did not issue the draft of the L/C until 11 May 1995. After the parties' negotiations, on 27 May 1995 [Buyer] issued L/C No. LCNY-95-B0672, but the time of shipment in the L/C was 31 May 1995. According to the price term CFR, [Seller] bears the duty to charter a ship, but there were only four days between the date when [Seller] received the L/C to the date of shipment specified in the L/C, and it is impossible for [Seller] to finish chartering a ship and loading the goods within four days. When [Seller] suggested altering the L/C, [Seller] received on 12 June 1995 L/C No. 95-B0678 issued by [Buyer], however, this time the L/C that was received on 12 June 1995 specified the time of shipment as 9 June, and [Seller] could not accept it. Thus, [Seller] suggested altering the L/C again, but [Buyer] did not issue any further L/C to the [Seller].

The Arbitration Tribunal rules that [Buyer]'s timely issuance of a valid L/C is the guarantee and precondition for [Seller] to deliver the goods. [Buyer] in this case did not execute the L/C before 15 April, the time of shipment specified in the contract; [Buyer] did not issue an effective L/C conforming to international trade custom, with the result that [Seller], who was prepared to perform the obligation of delivery, could not load the goods, so [Buyer] breached the contract.

According to Article 25 CISG:

"A breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially to deprive him of what he is entitled to expect under the contract."

[Buyer] did not issue the L/C, which is the fundamental reason that the contract could not be performed. The Arbitration Tribunal holds that [Buyer]'s failure to issue the L/C is a fundamental breach of contract. On 19 June 1995, [Seller] notified [Buyer] by fax that because [Buyer] fundamentally breached the contract, [Seller] decided to avoid it.

Article 64(1) of CISG states:

"The seller may declare the contract avoided: (a) if the failure by the buyer to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or (b) if the buyer does not, within the additional period of time fixed by the seller in accordance with paragraph (1) of article 63, perform his obligation to pay the price or take delivery of the goods, or if he declares that he will not do so within the period so fixed;"

Article 74 of CISG states:

"Damages for breach of contract by one party consist of a sum equal to the loss including loss of profit, suffered by the other party as a consequence of the breach ..."

Article 75 states:

"If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under article 75, recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74. If, however, the party claiming damages has avoided the contract after taking over the goods, the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance ..."

The Arbitration Tribunal holds that [Buyer]'s fundamental breach is the basic reason for [Seller] not shipping the goods and that, according to the above provisions of the CISG, [Buyer] shall be liable for the reduced price of resale, interest on the loans, storage charge, international telegram and calling expenses, etc.

According to the above analysis, the Arbitration Tribunal holds that [Buyer] shall pay the arbitration fee of this case.

AWARD

  1. [Buyer] shall indemnify [Seller] the price difference and interest, etc., US $412,321.09.

  2. [Buyer] shall pay the arbitration fee, RMB ___. [Seller] has paid the arbitration fee, so [Buyer] shall pay [Seller] this amount.

  3. [Buyer] shall pay the above amounts within 45 days after this award takes effect.

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]; Respondent of the United States 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].

** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.

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

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