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CISG CASE PRESENTATION

China 5 August 1997 CIETAC Arbitration proceeding (Cold-rolled coils case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970805c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19970805 (5 August 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/25

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (respondent)

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

GOODS INVOLVED: Cold rolled coils


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 9 ; 25 ; 49 ; 74 ; 76 ; 77

Classification of issues using UNCITRAL classification code numbers:

6A [Modification of Convention by contract];

9A [International usages];

25B [Definition of fundamental breach: substantial deprivation of expectation, etc. vs. contract clause giving right to cancel];

49A [Buyer's right to avoid contract: grounds for avoidance];

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

76B [Avoidance: damages based on current price];

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

Descriptors: Autonomy of parties ; Usages and practices ; Fundamental breach ; Avoidance ; Damages ; Foreseeability of damages ; Mitigation of loss

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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. 2336-2344

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.90, 158, 199, 210, 216, 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

Cold-rolled steel case (5 August 1997)

Translation [*] by Bin Hu [**]

Translation edited by Meihua Xu [***]

According to the arbitration clause in Sales Contract 6WFWF7209012IT for Cold-Rolled Steel signed on 12 April 1996 by and between the Claimant [Buyer], XX Trading Company of the People's Republic of China, and Respondent [Seller], XX Company of Germany, and the written petition made by [Buyer] on 20 August 1996 to the Arbitration Commission, China International Economic & Trade Arbitration Commission (CIETAC) has agreed on 2 September 1996 to hear this case.

[Buyer] has named Mr. A to be an arbitrator for this case, and [Seller] has named Ms. D; as the parties failed to co-name a chief arbitrator or entrust the Chairman of the Arbitration Commission to select such a chief arbitrator, the Chairman of the Commission has named Mr. P as chief arbitrator for this case per the provisions of Rule 24 of the Arbitration Rules. The three named arbitrators therefore formed a tribunal on 6 November 1996 for the case.

Upon consulting the Secretariat of the Arbitration Commission, the Tribunal decided to conduct hearings on 13 December 1996 in Beijing; however, the agent for [Seller] requested postponement because its principals would be participating in a meeting in Germany at that time. In consideration, the Tribunal moved the hearings from 13 December 1996 to 7 January 1997. On 7 January 1997, the Tribunal conducted the trial in Beijing in which both parties were represented by agents and attorneys, and statements were made as to facts and legal issues, responses were made to the Tribunal's inquiries, and arguments were presented.

On 11 March 1997, the Tribunal consulted the CIETAC Secretariat for a second hearing for this case to be held on 26 March 1997 in Beijing. Agents for both [Buyer] and [Seller] requested postponement. In consideration , the Secretariat agreed to move the second hearing to 16 April 1997. On 16 April 1997, the second hearing was conducted as scheduled; both parties were represented by agents and attorneys, and statements were made as to facts and legal issues, responses were made to the Tribunal's inquiries, and arguments were presented.

After the two hearings, the parties submitted additional written materials within the time set by the Tribunal, and the Secretariat exchanged the materials between them.

Examination of the case has been completed, and the Tribunal has decided based on the written materials from the parties as well as the presentations at the hearings. The facts of the case, the opinions of the Tribunal, and the decisions are as follows:

I. FACTS OF THE CASE

On 12 April 1996, [Buyer] entered into Sales Contract No. 6WFWF7209012IT for cold-rolled steel with [Seller]. The contract provided that [Seller] shall ship 3,000 tons of cold-rolled steel, 0.5 mm by 1250 mm by coil at a unit price of US $460 CFR Shanghai/ton by the end of June 1996. The total value of the goods is US $1,380,000. Method of payment is by Letter of Credit. As [Seller] defaulted on the contract by failure to deliver the goods as stipulated, [Buyer] cancelled [avoided] the contract. Thereafter, [Buyer] tried other sources, but was unable to find any supply within a reasonable time. Because of the dispute arising from the contract, [Buyer] therefore requested arbitration.

[POSITION OF THE PARTIES]

[Buyer]'s position

[Buyer] stated:

     (1) Facts

In March 1996, China Commodity XX Development Corporation [Commodity] signed an agreement with XX Company of Hebei Province [Hebei], to sell 3,000 tons of Italian cold-rolled steel to Hebei. Afterwards, Hebei made payment for the goods to Commodity.

On 27 March 1996, Commodity entered into an agency agreement with [Buyer], by which [Buyer] would enter into import contracts on behalf of Commodity. On 28 March 1996, [Buyer], Commodity and an Italian provider met in Beijing for negotiation which resulted in a Memorandum of Understanding for delivery, and the Italian provider took the contract document back home for seal. Since then, the Italian provider was never heard of, and Commodity could do nothing except consult Hebei to ask [Buyer] to find another suitable provider.

On 10 April 1996, through [Buyer]'s arrangement, [Buyer], [Seller] and Commodity held negotiations on the substitute supplies from [Seller]. Based on [Seller]'s promise that there was absolutely no problem for delivery, Commodity contacted Hebei, telling it that a new supplier had been located. Upon receiving consent from Hebei to accept Commodity's delivery of the substitute for the Italian product, Commodity signed a fresh foreign trade agency agreement with [Buyer]. On 12 April, [Buyer], being the foreign trade agent, signed a contract with [Seller], which is the subject of this case.

Upon signing the contract, [Buyer] accordingly opened a Letter of Credit in the amount of US $1,380,000 payable to [Seller], L/C No. 002ILC012-96028, specifying the loading date as before 30 June 1996. During this period, [Seller] gave several notices to [Buyer] that the goods would be delivered on time, and particularly, in its letter of 4 June 1996 to [Buyer], said that it had reserved a specific slot on a ship, even stating in its fax to [Buyer] on 26 June 1996, four days from the shipping deadline, that delivery would be made on time.

Upon receiving the several notices from [Seller], Commodity made everything ready for receiving the shipment, but nothing specific on loading or postponement as such was heard from [Seller] until 30 June 1996. On 3 July 1996, [Seller] sent an unexpected letter, saying that the ship schedule was, for some reason, postponed until about 15 July, and because of the changed delivery date, asking [Buyer] to change the L/C, to extend the loading date on it to 15 July, with an effective date to 31 July, and further requesting a reply from [Buyer] before 4 July by return fax.

Because of the tight arrangement on delivery date between [Buyer], being the agent for Commodity, and the domestic end-user Hebei, [Buyer] could not accept [Seller]'s request. To minimize the loss, however, [Buyer], after receiving the fax, immediately entered into discussions with its principal. The fact that cold-rolled steel is the raw material used in making refrigerators, air-conditioners and other products for the summer, makes it a popular product only between March and August of the year. [Seller]'s breach of the contract had caused severe damages to domestic end-users. After reaching consensus between [Buyer] and its principal, [Buyer] made a reply on 4 July to [Seller], saying that the condition for extending the L/C is a 10% reduction of the sales price, to compensate for the end-users' loss; otherwise, [Buyer] would cancel the contract according to Article 15. In its second fax of 4 July to [Buyer], [Seller] demanded that [Buyer] give an official response on whether to cancel the contract prior to 10 a.m. of 5 July, German time. In the absence of any specific reply from [Seller], [Buyer] sent a formal letter on 5 July to [Seller] that due to [Seller]'s unwarranted breach of the contract, [Buyer] had decided to cancel the contract according to Article 15 of the contract and would seek damages.

Because of [Seller]'s breach of the contract, which caused consequential damages to [Buyer], Commodity and Hebei, and to reduce further damages, particularly the amount from different levels of end-users, [Buyer] had sent a written request to [Seller] asking it to come to Beijing for discussion with various parties. [Seller] made no reply, except a fax of 25 July that was unresponsive, totally disregarded the fact that it had failed to provide a timely reply, and placed all blame for the ill-fated contract on [Buyer]. Therefore, [Buyer] filed a request for arbitration of this dispute.

     (2) Accounting of damages

Because of [Seller]'s failure to deliver on time, [Buyer]'s principal has incurred damages, including:

          1. Loss of expected profit

Cost of the products at import (including customs, gains tax, shipping cost, etc.) is RMB 4,994.49/ton. Sales price by Commodity is RMB 5,900/ton. Commodity's total loss of profit is therefore RMB (5,900 - 4,994.49)/ton x 3000 tons = 2,716,530 yuan.

          2. Liquidated damages

Under the sales contract with Hebei, Commodity had assigned the contract goods to Hebei for which it has received a principal payment. Under Chinese law and the contract, Hebei has claimed 5% of the contract price and compensation of damages against Commodity. Currently, [Buyer] and Commodity are in negotiation with Hebei for possible arrangements to minimize this portion of the damages.

          3. Arbitration fee and attorneys' fees

[Buyer] has paid 150,000 yuan of attorneys' fees and an arbitration fee for this case. Such fees should reasonably be borne by [Seller].

[Buyer] requests that:

  1. [Seller] compensate [Buyer]'s principal, Commodity, for loss of expected profit in the amount of RMB 2,716,530 for failure to carry out the contract.

  2. [Seller] compensate [Buyer]'s principal for its payment of liquidated damages to domestic end-users (amount to be calculated).

  3. [Seller] compensate [Buyer] for its prepaid attorneys' fees of RMB 150,000 and the arbitration fee.

[Seller]'s position

[Seller] argues that:

1. [Seller]'s failure to deliver the product under the subject contract does not constitute a fundamental breach of contract, and therefore [Buyer] is unjustified in avoiding the contract.

Under Contract 6WFWF72090121IT of 12 April 1996 between [Buyer] and [Seller], the contracted date of shipment was before the end of June 1996.

In May of 1996, [Seller] made a reservation with scheduled cargo liner - Rickmers-Line for a cargo space on a ship to China before the end of June 1996, and delivered the goods to the shipper before the scheduled loading date - on 29 June 1996. The cargo ship was delayed for 15 days for an overhaul.

If the above-mentioned facts would constitute any breach of the contract on [Seller]'s party, such "breach" was not due to [Seller]'s fault, but due to elements beyond [Seller]'s control.

[Seller] believes that [Buyer] is not justified in avoiding the contract because:

     a. In the international sales of goods, there exist many elements that buyers and sellers may not be able to foresee at the time of signing the contract, or cannot control during the performance of the contract. In order to facilitate the liquidity of goods, laws of various countries have provided flexible terms for delivery, i.e., short or reasonable delays are acceptable. This principle has been adopted in the United Nations Convention on Contracts for the International Sale of Goods [CISG], to which the home countries of both [Buyer] and [Seller] are parties.

     b. Based on the foregoing principle, the [Buyer] should have specifically mentioned in the contract that the delivery date is of particular importance if it was concerned about timely delivery, and considered the delivery date to be of the essence of the contract. Only under such circumstances would the delivery date constitute a fundamental element of the contract. Buyer can avoid a contract only when seller has fundamentally breached the contract. In the present case, buyer did not emphasize the delivery date in the contract, and therefore the precise delivery date is not a fundamental element of the contract.

     c. [Buyer] has emphasized in the petition that the contract goods are seasonal, in an effort to exaggerate the importance of the delivery date. [Seller] believes that such statements are contrary to the facts. First, if, as [Buyer] has claimed, its principal was to deliver to downstream buyers at the end of August, [Buyer] had every reason to know that the ship would arrive at the destination port by the end of August even if the ship schedule was delayed, and therefore there would be no such result as to cause its principal's delay under the contract. The ship in fact arrived at the destination port of Shanghai by the end of August. Further, the cold-rolled steel for making refrigerators in this case cannot be a seasonal product because the goods that arrived in August cannot be used for processing refrigerators for that market year. For these reasons, [Buyer]'s two arguments are not credible. These arguments also demonstrate that the delivery date did not constitute a fundamental element of the contract.

2. The real/proximate reason for [Buyer]'s cancellation is the fall of the market price. [Buyer] ignored the important factor of market price in its arbitration petition. However, there are ample reasons to show that the fall of the market price is the real/proximate reason for [Buyer] to cancel the contract. Starting from mid-year 1996, the price had kept falling in China's steel market. On 25 June 1996, China XX signed an agreement with Japan for the second half of 1996 for prices of steel. According to this agreement, the average price of steel exported to China was reduced by 10% in the second half of 1996. Being a fully-owned subsidiary of China XX, [Buyer] obviously was aware of this situation. [Buyer]'s demand for a 10% per ton price reduction in July 1996 accurately reflected the then-market trend and scope. From this, it can be derived that the real/proximate reason for [Buyer]'s cancellation was due to the change in market price which is disadvantageous to the [Buyer], rather than the excuse that the product is seasonal as claimed by [Buyer] in its petition.

3. Based on the above facts and reasons, [Seller] believes that all the requests made by [Buyer] in its arbitration petition are unsupported by facts and unfounded in law:

     a. If, as claimed by [Buyer] the contract goods are for its production, why, in the absence of delivery by [Seller] by the end of June 1996 did [Buyer] not purchase substitute products for its "urgent production need"? In normal situations, a buyer should purchase substitute products to minimize the loss resulting from a seller's breach, and a buyer may request compensation for the difference of price of the substitute over the contract price. If a buyer does not take reasonable steps for remedy, it should bear the responsibility for the resulting damages.

     b. As previously stated, starting from June 1996, prices for both import and domestic steel products fell considerably. Under the circumstances, [Seller]'s "breach" would not have caused [Buyer] any damages; instead it would only be beneficial, because [Buyer] might purchase the same kind of products at a price at least 10% lower. This also demonstrates that [Buyer] cannot suffer loss of "expected profit" from this deal.

     c. The liquidated damages claimed by [Buyer] refers to the liquidated damages stipulated in the order contract between Commodity and Hebei, which cannot constitute a claim under the present contract in this case; besides, seeking double damages of liquidated damages and loss of expected profit is inconsistent with the basic principles of international law concerning the sale of goods.

     d. [Seller] believes that [Buyer]'s avoidance of the contract is inappropriate, as [Seller]'s "breach" did not, and cannot, cause any "damages" to [Buyer]. Therefore, [Seller] believes [Buyer]'s petition in the present case is unsupported by facts and unfounded in law. Therefore, [Buyer] is not justified in its claim for [Seller]'s compensation of its attorneys' fees.

[Buyer]'s response

[Buyer] modified its arbitration petition and made rebuttals to [Seller]'s argument:

1. Because [Buyer]'s principal, Commodity, failed to deliver the goods to Hebei under the contract, Hebei instigated legal proceedings in the Intermediate People's Court of Shijiazhuang. The case was tried on 3 February 1997, and under the mediation directed by the court, Commodity and Hebei have settled with a court-issued statement of settlement. Accordingly, Commodity was ordered to pay Hebei liquidated damages and litigation costs in the amount of 911,835 yuan.

The relevant facts have more than proved that [Seller]'s breach of contract is the cause of the above damages. Therefore, [Seller] should be responsible for the damages.

2. The cargo ship in the present case issued its schedule on 19 June 1996, indicating that it could not set sail in June. Out of recklessness or deliberation, [Seller] in its 28 June letter still stated that the ship would set sail before the end of June. Because of the said misleading information, [Buyer] suffered irreparable damages. Under the relevant provisions of the CISG, [Seller] should also be responsible to [Buyer] for the difference in prices of similar goods in the international market. According to the China Steel Product Negotiation Agreement, if [Buyer] placed an order with a Japanese manufacturer after it cancelled the contract in July 1996 with [Seller], the price of similar goods was US $498.75 per ton. Therefore the difference in price would be:

US $498.75 - US $460 = US $38.75

US $38.75 x 3,000 = US $116,250

The above price difference should, according to relevant international conventions and trade customs, be paid as damages to [Buyer] by [Seller].

3. Article 15 of the present contract provides that [Buyer] has the right to cancel the contract if [Seller] fails to ship the goods on time. [Seller] signed the contract, and also took notice of the provisions of Article 15. Therefore, there is no absence of the meeting of the minds.

In sum, [Buyer] modified its arbitration petitions to request that:

  1. [Seller] be responsible for [Buyer]'s payment of liquidated damages in the amount of RMB 911,835.

  2. [Seller] be responsible for the price difference of US $116,250.

  3. [Seller] be responsible for the arbitration cost and attorneys' fees in the amount of RMB 150,000.

[Seller]'s surrebuttal

[Seller] made the following further arguments:

1. In the present case, [Buyer] failed to comply with its obligation of good faith by express indication or explanation of a fundamental or important item on the pre-printed contract form at the time of signing the contract. Hence, utilizing an article in a pre-printed form that is beneficial to itself (Article 15) for claiming damages from [Seller] is in violation of the good faith principle, and [Buyer] should not be allowed to rely on it.

2. In the performance of the contract, [Buyer]'s conduct has indicated that the shipping/delivery date was not a fundamental element of the contract. In fact, [Buyer] was made aware by the end of June 1996 that the shipping date could be delayed a few days due to shipper's reasons and expressed understanding. The fax of 4 July 1996 from [Buyer] to [Seller] indicates that [Buyer] might accept a delay of 15 days.

3. The decisions made by the Arbitration Commission that have gone into effect have persuasive power. According to the principles followed in Arbitration Decision R94190, [Seller] believes that the shipping clause under the present contract should not, and cannot, constitute a "fundamental condition of the contract." Based on this, [Buyer] has no right to unilaterally avoid the contract.

4. Under Article 49 of CISG, delay in delivery does not constitute a fundamental breach of contract. A buyer may avoid a contract only when seller fails to deliver over an extended period. In the present case, [Buyer] declared avoidance of contract on 5 July, 1996, i.e., just a few days after learning that delivery date was postponed by 15 days. Such an act is doubtless beyond its justified "right."

5. [Buyer]'s avoidance of the contract on 5 July 1996 violated the provisions under the CISG, and violated [Seller]'s rights under the CISG. Based on the facts established in the trial, [Seller] made several proposals to deliver, and agreed to pay 2.5% for damages. [Seller]'s continued willingness to deliver is in fact an effort to provide a remedy, and a reasonable step to reduce damages. However, the ultimatum of a 10% reduction made it impossible for [Seller] to realize the remedy.

6. [Seller] believes that the dramatic fall of price is the only reason for [Buyer]'s avoidance of the contract.

When declaring avoidance, [Buyer] was aware that the contract goods had been placed at the shipping port, but [Buyer] neither purchased substitutes, nor accepted delivery by [Seller]. The claim made during trial of inability to purchase any goods deliverable in August is unfounded, as [Buyer] never made any inquiry to other steel exporters. Meanwhile, [Buyer]'s statement made during trial that the spot price in the Material Supply Express published by the Domestic Trade Ministry is seller's true offering price is unjustified. Furthermore, the statement from China Chamber of Commerce of Metals, Mineral, Chemicals Importers & Exporters produced by [Buyer] cannot certify the accuracy of the US $479/ton price proffered by [Buyer].

According to the China-Japan Steel Price Agreement, the goods in the present case were priced in the second half of 1996 at:

"Base price US $415MT FOB Japan port
Freight to Shanghai US $22MT
Price markup for the 0.5 mm US $24MT
Total Unit Price US $461MT"

The above US $461/MT is the delivery price Shanghai port in August 1996 for Japanese steel products. The price of Japanese exports to the Chinese market is higher by about US $30 than that of Europe, including [Seller]'s home country. Based on prices of similar European products, [Buyer] may save a further US $25-30 per ton on import cost. Even if calculated on the basis of the Japanese price, [Buyer] would not have suffered any real loss. Therefore, [Seller] believes that the base price of US $498.75 proffered by [Buyer] is totally unrealistic, a "formula" that has no theoretical support. This formula should not be utilized.

Whether or not there exists any plausible reason for [Buyer]'s failure to purchase substitute goods, the "loss" claimed by [Buyer] did not occur. The fundamental basis of any claim of damages ought to have been the difference between the contract price and the current price. Damages may occur only when the current price is higher than the contract price. On the contrary, [Seller]'s "breach" did not cause [Buyer] any damages, but made [Buyer] better off. The facts show that the current price on the international market on 5 July 1996, that is, at the time when [Buyer] cancelled the contract, was lower than the contract price, thereby bringing no possible "loss." On the other hand, China's domestic information also amply indicated that the market price of early July 1996 was far below the price of April 1996 (contract price), which further proves that [Buyer]'s loss did not exist.

7. The damages requested by [Buyer] were unforeseeable by [Seller] at the time of signing the contract, and were not reasonable. Article 74 of the CISG sets two limits for claiming damages: (1) the damages must be to the parties under the contract, excluding "indirect or joint" liability; (2) the damages when one party breaches the contract must be such that they were foreseeable or should have been foreseeable at the signing of the contract. However, [Buyer]'s claim of damages is "based" on its relations with downstream and down-downstream buyers, which is outside of the boundary of the CISG limits.

Further, even though [Seller] was aware of the existence of [Buyer]'s downstream buyers, it was not aware of the further downstream buyers, less so of any legal relations between [Buyer]'s downstream buyer and further downstream buyers or their liabilities. For this reason, [Seller] did not, and could not, foresee, at the time of signing the contract, any of the damages currently claimed by [Buyer].

Still further, the applicable law in the present case is the CISG, but [Buyer]'s principal's relations with its downstream buyers, and the calculated damages are based on the domestic laws of China, which is outside of the applicable law governing this contract. In the presence of conflict between the law applicable to the contract and China's domestic laws, the law applicable to the contract takes priority.

Lastly, the settlement on which [Buyer] based its claim was made between [Buyer]'s principal and its downstream buyers. Although a civil settlement has the same effect as a court ruling under Chinese law, it is common sense for any legal practitioner to know that settlement damages are totally different from court determined damages. [Seller] also took notice that the defendant in the Shijiazhuang court (i.e., [Buyer]'s downstream buyer) made no argument.

To summarize, [Seller] requests that all claims made by [Buyer] be denied, so as to prevent injuries to [Seller]'s lawful rights.

II. THE TRIBUNAL'S OPINION

     (1) Applicable law

Although the parties did not specify any applicable law in the contract, in view of the fact that the home countries of both parties ([Buyer]'s place of business being China, [Seller]'s, Germany) are signatories of the United Nations Convention on Contracts for the International Sale of Goods [CISG], and in view that both parties cited and applied this Convention in their written documents, this Convention should apply in this case.

     (2) The contract shipping date

The Tribunal is of the opinion that the present dispute arose from [Seller]'s failure to ship the goods by the date stipulated in the contract. Article 5 of the contract provides a shipping date by the end of June 1996. Upon examination, [Buyer] opened a letter of credit according to the contract and has therefore executed its duties under the contract. On the other hand, [Seller] did not ship the goods by the contract shipping date, and sent a notice, after the said shipping date, on 3 July 1996 to [Buyer] informing that it could not ship the goods as scheduled, asking [Buyer] to extend the letter of credit to 15 July, effective to 31 July. [Buyer] made a reply in writing stating that it would modify the letter of credit only if [Seller] lowered the price by 10%, or [Buyer] would cancel the contract in accordance with Article 15 of the contract. [Seller] made no direct response. Instead, it asked [Buyer] on 5 July for a reply on its request to extend the letter of credit, or, as it stated, would sell the goods to other buyers.

The Tribunal is of the opinion that when [Seller] failed to deliver the contract goods, the parties negotiated through written communication, which did not result in any agreement on modifying either the delivery date or the letter of credit. Under such circumstances, [Seller] has breached the contract by postponing delivery of the goods. The Tribunal is of the opinion that [Buyer] agreed to accept the late delivery when [Seller] postponed delivery, on the condition of reduction of the price of the goods by 10%, so as to make up the loss on the part of the end-users; otherwise it would cancel the contract pursuant to Article 15 of the contract. [Buyer] demanded a reply from [Seller], to which [Seller] made no response except a request for [Buyer]'s consent to extending the letter of credit, and further stated that in the absence of [Buyer]'s response, it would sell the goods to other buyers.

The Tribunal is of the opinion that, in accordance with the provisions of Article 49 of the United Nations Convention on Contracts for the International Sales of Goods, under the circumstances that a seller fails to deliver the goods on time, a buyer, the [Buyer] in the present case, has the right to avoid the contract. In addition, the Tribunal notes that the contract has provided in Article 15: when Seller fails to deliver on time unless under force majeure stipulated in Article 14 of this contract, Buyer has the right to cancel the pertinent portion of the contract, or to accept a late delivery on the condition that Buyer agrees to take Seller's payment of penalty. Buyer may agree to give to Seller a grace period of 15 days. The Tribunal is of the opinion that this article is a binding term to which both parties consented, and [Buyer]'s action based on this provision to avoid the contract is, therefore, effective.

     (3) [Buyer]'s claims

          1. Liquidated damages to downstream customers and fees for legal proceedings

In the present case, [Buyer] has an agency relationship with Commodity, [Buyer] being an import agent for Commodity. Thus the real buyer, or the principal in the contract of this case, is Commodity. [Seller] acknowledges that it was aware of the aforementioned legal relationship when entering into the contract. With this in mind, the Tribunal is of the opinion that where the agent was making a purchase on behalf of the downstream buyer [Commodity], or the principal, to make a further sale, the normal loss in the process of making the further sale that was sustained by the real buyer due to [Seller]'s fault is a loss foreseeable to the [Seller]. [Seller] should have foreseen, and is capable of foreseeing, the loss to the downstream buyer because of its failure to deliver. The Tribunal further notes that [Buyer] has submitted sufficient evidence for the actual loss resulting from [Seller]'s breach of contract by postponement of delivery, that is, Commodity's payment of liquidated damages and the relevant fees for legal proceedings. Therefore, the Tribunal is of the opinion that under the provisions of Article 74 of the United Nations Convention on Contracts for the International Sales of Goods, [Seller] should compensate the loss of the real buyer, i.e., Commodity, due to [Seller]'s breach of contract; [Seller] should pay [Buyer] for the liquidated damages and relevant legal fees its principal has paid to the downstream customers thereof. The Tribunal also notes, however, as the market price then was in downward trend, and the principal of [Buyer] had already sold the goods to downstream customers, [Buyer] should have taken steps for substitute goods within a reasonable time, in order to avoid further damages. Although [Buyer] claims that the contract goods of cold-rolled steel of 0.5 mm x 1250 mm x COIL are a special product, the Tribunal has determined that this is not the case. Therefore, [Buyer] should bear some responsibility for the losses because it did not take reasonable measures to find substitute goods. Therefore, the Tribunal is of the opinion that [Seller] should be responsible for 70%, or RMB 911,835 x 70% = RMB 638,285, of the sum [Buyer] has paid to its downstream customer as liquidated damages and relevant legal fees; the rest, or the 30%, RMB 911,835 x 30% = 273,550, should be borne by [Buyer] itself.

          2. The loss resulting from difference in prices

[Buyer] demands that [Seller] compensate its loss due to price difference in accordance with the price of similar products on the international market. [Buyer] claims that such price is US $498.75 per ton. [Buyer]'s formula for calculating the price difference is:

US $498.75/ton (price for similar goods) - US $ 460/ton (contract price) = US $38.75/ton (price difference)

Total: US $38.75 x 3,000 tons (gross weight) = US $116,250

The Tribunal is of the opinion that [Buyer] has not provided sufficient evidence as to the elements of the US $498.75/ton price, nor did it come up with evidence to prove actual loss due to the price difference. The Tribunal does not grant [Buyer]'s request that [Seller] provide compensation for any loss due to price difference.

          3. Attorneys' fees and arbitration cost

In accordance with the provisions of Article 59 of the Arbitration Rules, an arbitration tribunal has the discretion to direct in its decision part of the reasonable cost to the winning party against the losing party for prosecuting the case, but such cost shall not exceed 10% of the award. Based on this rule, the Tribunal is of the opinion that since part of the arbitration request has been sustained, [Seller] should reasonably compensate [Buyer] for part of its attorneys' fees for prosecuting this case, the sum of which is 10% of [Buyer]'s award, i.e., RMB 638,285 x 10% = RMB 63,828.5. As to the arbitration fee, [Buyer] bears 30%, and [Seller], 70%.

III. AWARD

     (1)   [Seller] shall compensate [Buyer] for payment of liquidated damages to third parties and the fees for legal proceedings, in the sum of RMB 638,285;
 
     (2)   [Buyer]'s arbitration request for compensation of the price difference of US $116,250 is rejected;
 
     (3)   [Seller] shall compensate [Buyer] for part of the attorneys' fees in the sum of RMB 63,828.5.

[Buyer] bears 30% of the arbitration fee of this case, and [Seller] bears 70%, the sum being prepaid by [Buyer]. Therefore, [Seller] should compensate [Buyer] for RMB * * *.

The total amount of the above payment [Seller] owes to [Buyer] is RMB 776,310.7, payable within 45 days from the date of this decision, with a late payment at the annual interest of 8%.

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 [Buyer] and Respondent of Germany 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].

** Bin Hu, LL.B. Beijing Foreign Studies University, China; LL.M. candidate, New York 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 March 7, 2006
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