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

CISG CASE PRESENTATION

China 8 September 1997 CIETAC Arbitration proceeding (BOPP film case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/970908c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19970908 (8 September 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/27

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Republic of Korea (respondent)

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

GOODS INVOLVED: BOPP film


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 35 ; 74 ; 77 ; 88(2)

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach];

35A [Conformity of goods to contract: quality, quantity and description required by contract];

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

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

88B [Party obliged to preserve goods: duty to sell]

Descriptors: Fundamental breach ; Conformity of goods ; Burden of proof ; Damages ; Mitigation of loss ; Resale of goods

Go to Case Table of Contents

Editorial remarks

Go to Case Table of Contents

Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Zhong Guo Guo Ji Jing Ji Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 1997 vol., pp. 2439-2447

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.21, 218, Nordic Journal of Commercial Law (2/2005)

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

Queen Mary Case Translation Programme

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

BOPP film case (8 September 1997)

Translation [*] by Zheng Xie [**]

Translation edited by Meihua Xu [***]

China's International Trade and Economic Arbitration Commission [hereafter, the Arbitration Commission] accepted this case according to:

   -   The arbitration clauses in Contracts No. CHT/960205CJ-1 and CHT/960307CJ-1A signed by Claimant [Buyer], Jiangsu____ Company, and Respondent [Seller], Korean Sangyong Coporation, and
 
   -   The written arbitration application submitted by [Seller] to the Arbitration Commission on 19 November 1996.

The Chairman of the Arbitration Commission appointed Mr. P as the presiding arbitrator according to Article 24 of the Arbitration Rules. Mr. P, Mr. A appointed by [Buyer], and Mr. D appointed by [Seller] formed the Arbitration Tribunal on 14 February 1997 and heard the case.

The Arbitration Tribunal reviewed [Buyer]'s arbitration application and [Seller]'s defense. On 14 May 1997, the Arbitration Tribunal held a court session in Beijing. [Seller]'s and [Buyer]'s representatives attended the session. They presented oral statements and arguments, and answered the Arbitration Tribunal questions. After the session, the parties submitted supplementary materials.

The Arbitration has concluded. According to the written materials and the result of the court session, the Arbitration Tribunal handed down its award by consent.

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

FACTS

On 5 February 1996, [Buyer] and [Seller] signed Contract No. CHT/960205CJ-1 (hereafter, Contract No. 205) for the sale of 100 tons BOPP film produced by Korean XX Chemistry Company with the brand of Diaphane BP-115. The terms of Contract No. 205 are:

   -   Price: CNF Shantou US $1,740/T;
   -   Payment: L/C within 60 days from date of B/L;
   -   The parties specified the quality, specification and the brand symbol in the Contract Appendix.

On 7 March 1996, [Buyer] and [Seller] signed another contract, No. CHT/960307CJ-1A (hereafter, Contract No. 307) for the sale of 200 tons BOPP film produced by Korean XX Chemistry Company, also with the brand of Diaphane BP-115. The terms of Contract No. 307 are:

   -   Price: CNF Shantou US $1,770/T;
   -   Payment: L/C within 90 days from date of B/L;
   -   Other terms: Same as in Contract No. 205.

Thereafter, [Buyer] and [Seller] had disputes over the performance of these contracts.

POSITION OF THE PARTIES

[Buyer]'s position

[Buyer] filed the application for arbitration, and makes the following claims:

  1. [Seller] should return the entire price of the goods under Contract No. 307, US $354,000, and interest, and indemnify [Buyer] the loss under both Contract No. 307 and Contract No. 205.

  2. [Seller] should pay the entire arbitration fee and [Buyer]'s reasonable expenses to deal with the disputes.

[Buyer] alleges:

On 13 April 1996, the goods under Contract No. 205 arrived at Shantou Port and were transported by road to Xiamen and Jinjiang, etc. Severe defects were found in the goods when they arrived at the destination. [Buyer] notified [Seller] of the defects. At the same time, similar defects were found when the goods under Contract No. 307 arrived at Shantou Port on 29 April 1996. The nature of the defects was no nation of production listed, no identification of manufacturer, no brand symbol, yellow spots, roughness, and wrinkles on the surface, etc. [Buyer] sent the goods to China Import and Export Commodity Inspection Bureau for inspection and, on 20 May 1996, sent written notification to [Seller] refusing the 200 tons of goods under Contract No. 307, and claimed damages on the basis of the goods delivered under Contract No. 205.

On 21 May 1996, [Buyer] and [Seller] went together to Xiamen to inspect the goods under Contract No. 205, and made a record which confirmed the quality problem. [Seller] also took samples and photos of the defective goods. In the record, [Buyer] stated that 250 tons (mainly 200 tons under Contract No. 307) of BOPP film were stored in the warehouse of Nanjing XX Business Ltd, and that BOPP film could not be stored for a long time. To avoid enlarging the loss, [Buyer] suggested that [Seller] solve the problem.

At the end of May, inspection reports were issued under Contract No. 307. They show that most of the goods have the following defects: no nation of production listed, no identification of manufacturer, no brand symbol, yellow spots, roughness, and wrinkles on the surface. [Buyer] negotiated with [Seller], and [Seller] agreed to indemnify [Buyer] for the defects under Contracts No. 205 and 307, but [Seller] did not do this. [Buyer] made many subsequent requests in writing, but [Seller] neither replied, nor took care of the goods for [Buyer]. [Buyer] corresponded with [Seller] in an effort to have [Seller] take back the goods to avoid enlarging the damages. [Buyer] also actively looked for clients and tried its best to resell the goods to mitigate [Seller]'s loss. [Seller] neither took any measures to deal with [Buyer]'s requests to return the goods, nor did [Seller] indemnify [Buyer]. Instead, [Seller] let the goods pass the expiration date.

[Buyer] alleges that, according to the theory of proximate connection, the Law of the People's Republic of China should be applied to this case. According to the Law of the People's Republic of China, the two contracts are legal and valid, and the parties are required to perform their obligations in accordance with the contacts and their appendices. The goods under Contract No. 307 that were delivered by [Seller] have no nation of production listed, no identification of manufacturer, and no brand symbol. According to the Law of the People's Republic of China, resale of such goods is prohibited. Nanjing XX Business Company, which authorized [Buyer] to purchase the goods under the contracts in this case, could not resell the goods to make profits, and could not realize the purpose of the contract.

The goods under Contracts No. 205 and 307 have severe defects. They do not conform to the contract, which means that [Seller] fundmentally breached the contract. Accordingly, [Buyer]'s requests for returning the goods under Contract No. 307 and claiming damages under Contract No. 205 are in accordance with the Law of the People's Republic of China on Economic Contracts involving Foreign Interest and international trade custom. [Seller] should return the price [Buyer] has paid for the goods under Contract No. 307 and the interest on it, and indemnify [Buyer]'s loss including the expected profits, liquidated damages from the [Buyer]'s resale contract, transportation fee and storage charge. The goods under Contract No. 205 were inspected by [Buyer] and [Seller] jointly. The parties confirmed that the goods had defects; therefore, [Seller] should indemnify [Buyer] the loss of reselling the goods. In addition, [Seller] should pay the arbitration fee, and [Buyer]'s reasonable expenses handling this case, including attorneys' fee and traveling expenses, because [Seller] breached the contracts.

[Seller]'s position

On 21 May 1995, [Seller] sent persons to Xiamen to inspect part of the goods under Contract No. 205, and found the surface of part of the goods had wrinkles. [Seller]'s representative pointed out that the surface wrinkles were caused by reckless loading, and improper transporting and storing. In order to make sure whether or not the goods have quality defects, [Seller]'s representative took photos and brought samples to the manufacturer, who confirmed that the defects were caused by improper storage and transportation. On 24 May 1996, Guangdong Commodity Inspection Bureau issued the inspection report, which states, "The goods have defects, which affect their use." However, the certificate was based on the inspection only on the surface of the goods.

[Seller], on the one hand, objected to the inspection report; on the other hand, considering that the market price was reduced, which meant that [Buyer] would earn less profits, offered to indemnify [Buyer] for part of the damages. Moreover, [Buyer] and [Seller] reached an agreement on 8 July 1996, which stipulates that [Seller] shall indemnify [Buyer] US $60,000 with [Buyer] having the right to postpone the payment and agreeing not to claim any other damages.

On 15 July 1996, [Buyer] altered the agreement the parties made on 8 July, and proposed a new agreement, requiring the deduction of US $60,000 from the amount in the L/C under Contract No. 307 as the damages for the defective goods under Contracts No. 205 and 307, and postponing the payment for 120 days; [Buyer] agreed not to make any other claims.

However, when [Seller] would pay the US $60,000 according to the agreement made on 8 July, [Buyer] breached the agreement and on 1 November 1996, notified [Seller] by fax of its refusal of the goods under Contract No. 307.

On 8 November, [Seller] replied by fax to [Buyer] stating that it could not accept [Buyer]'s unreasonable requests, and requiring [Buyer] to honor the agreement of 8 July so that [Seller] could pay the damages to solve the disputes.

On 9 November, [Buyer] faxed to [Seller] again repeating the content of the fax sent on 1 November.

On 27 November, [Seller] replied by fax to [Buyer] repeating [Seller]'s position.

These are the circumstances under which [Buyer] filed its application for arbitration. [Seller] alleges that the fundamental reason for [Buyer]'s refusal of the goods was not the above, but that the market price of BOPP film was decreasing.

[Seller] also alleges that [Buyer] provided inaccurate evidence that could not show the quality of the goods, evidence that thus has no legal validity. [Seller] alleges that this inaccurate evidence consisted of:

1. The record made by related factories on the scene (hereafter the record); 2. The inspection certificate issued by Guangdong Commodity Inspection Bureau on 24 May 1996.

  1. The record : The record was not signed and admitted by the parties, so it could not reflect the truth on the scene, and it was invalid evidence. Moreover, even if the goods as described by the record have wrinkles on the surface, such defects were caused by [Buyer] and its user's reckless loading and improper storage. Thus, [Buyer] is liable for the damages.

    It was clearly mentioned in Contract No. 205 that PB-115 BOPP film cannot be used for producing sellotape, but only for printing and common packaging. PB-310 BOPP film is used to produce sellotape. [Buyer] knows the two products could not be interchanged, but it used the goods under Contract No. 205 to produce sellotape, so it should be liable for the loss. [Seller] pointed out the above mistake many times on the scene and requested [Buyer] to note it in the record, but [Buyer] refused. Thus, no representatives signed the record.

  2. The inspection certificate : There is no inspection clause in Contract No. 307. The parties never agreed to use the inspection certificate issued by Guangdong Commodity Inspection Bureau as the basis for damages, so the inspection certificate is not legally binding and cannot be used as the basis for [Buyer]'s claims. In addition, the inspection certificate does not describe either the inspection method and process, or the standard of inspection, the inspector only inspected the surface and simply expressed the conclusion: the goods are not conforming with the contract ... the goods have defects on the surface which affect their use. This is not complete and cannot be used as evidence.

The parties negotiated on the issue of whether the quality of the goods conformed to the contracts, and reached the following agreement on 8 July and 15 July 1996, respectively:

  1. [Seller] agreed to indemnify [Buyer] US $60,000 for defective goods under Contracts No. 205 and 307;

  2. [Buyer] agreed that [Seller] can postpone the payment for 120 days (the latest day was 19 November 1996).

However, [Buyer] breached these agreements, and filed the arbitration applications six days before the payment date stipulated in the agreements. The above facts show that [Buyer] accepted the goods and got the ownership of the goods under Contract No. 307. Contract No. 307 does not describe the standard of the surface of the goods; the manufacture of the goods has provided a certificate proving that the symbol of the goods is the brand symbol of A class products. Although there are defects on the surface of the goods, they cannot be the reason for the refusal of the goods. Moreover, the parties have reached a new agreement, and agreed to solve the disputes by reducing the price. [Buyer] did not actively resell the goods, so it should be liable for the damages.

Thus, [Seller] asserts: [Buyer] refused the goods which were not inspected under Contract No. 307 allegedly due to the problems under Contract No. 205, so it lacks supporting factual and legal basis. It lacks legal basis for [Buyer] to refuse the goods after [Buyer] had the ownership for half a year. If [Seller] had fundamentally breached the contract when [Buyer] took the delivery and refused the goods, [Buyer] should meanwhile have taken reasonable measures to store and resell the goods, but [Buyer] did not do this in a timely manner, and the loss was enlarged. Finally, the expiration date passed. [Buyer]'s action breached Article 22 of the Law of the Peoples Republic of China on Economic Contracts involving Foreign Interest. The law does not protect [Buyer]'s arbitrary use of its right.

[Buyer] response

[Buyer] in its supplementary materials alleges:

1. [Seller] delivered non-conforming goods. As a result, [Buyer] could not perform its contract with its client. [Buyer] lost expected profits, and has to pay the damages to its client. [Seller]'s action deprived [buyer] of that which it expected from Contracts No. 205 and 307. Therefore, [Seller] fundamentally breached the contracts. [Buyer] satisfied its obligation to notify [Seller]; [Seller] is therefore liable for the entire loss under Contracts No. 205 and 307.

2. After filing the application for arbitration, because the goods under Contract No. 307 passed the expiration date, [Buyer] in order to avoid enlarging the damages, resold the goods under Contract No. 307 after notifying [Seller]. Thus, the claims for returning the price of the goods under Contract No. 307 and other loss are in fact that [Buyer] gave the reselling price of the goods under Contract No. 307 to [Seller] (equivalent to returning the goods) and that [Seller] should return the entire price of the goods and indemnify storage charge, interest and damages paid by [Buyer] to its client. [Buyer] clarifies its claims as requesting [Seller] to indemnify the damages under Contracts No. 205 and 307, the attorneys' fee and the arbitration fee, US $336,649.

3. The losses suffered by [Buyer]

      (1) After signing Contract No. 205, on 28 February of the same year [Buyer] signed Contract No. 9622845 with a domestic client to resell 250 tons BOPP film for the price of renminbi 18,100/t, 50 tons of which were to be resold from Contract No. 205 (the other 45 tons under Contract No. 205 were bought by Xiamen You Lian Sellostape Co.) and the other 200 tons of which were made by order with [Seller]. On 5 March of the same year [Buyer] and [Seller] signed Contract No. 307. Because [Seller] delivered non-conforming goods, when parts of the 100 tons of the goods under Contract No. 205 were sold to Xiamen You Lian Sellostape Co., You Lian claimed damages and reduced the price to RMB 13,000/t. The other 50 tons were refused by the client of Contract No. 9622845, so [Buyer] had to resell them with the remaining 5 tons to individual customers at a reduced price. The weighted average reselling price was RMB 12,800/t and, for some of the goods, the price of the goods was not received at all. The 200 tons under Contract No. 307 were refused by the same client of Contract No. 9622845, and [Buyer] paid damages for 250 tons of goods. The expiration date of 200 tons goods was passed and 192 tons of the goods were resold at RMB 9,500/t. The remaining 8 tons were resold at the average price of RMB 10,000/t. Moreover, because the goods could not be resold according to the original contracts, additional interest, storage charge, the attorneys' fee and the arbitration fee were incurred.

[Buyer]'s detailed loss list:

      (2) The expected profits and the loss in reselling (contract price for Contract No. 205 minus resale price): Under Resale Contract No. 9622845, the resale price for 100 tons of goods from Contract No. 205 was remninbi [RMB] 521,000.

45 tons x (18,100 13,000) = 229,500 (Xiamen Youlian);
55 tons x (18,100 12,800) = 291,500 (Retail).

The resale price for 200 tons of goods under Contract No. 307 was RMB 1,716,000;
192 tons x (18,100 9500) = 1,651,200 (Zhenjiang Hua Dong);
8 tons x (18,100 10,000) = 64,800 (retail).

      (3) Because [Seller] did not deliver conforming goods, [Buyer] could not perform Contract No. 9622845. The damages are:

Under Contract No. 205: 18,100 x 50 x 2% = 18,100,
Under Contract No. 307: 18,100 x 200 x 2% = 72,400.

      (4) From July 1996 to April 1997, the loss of interest was:

55 tons under Contract No. 205 for four months:
18,000 x 55 tons x four months x 9/1000% = 35,838.

200 tons under Contract No. 307 for seven months:
18,100 x 200 tons x seven months x 9/1000% = 228,060.

      (5) The storage charge from July 1996 to December 1996 was:

55 tons under Contract No. 205 for four months:
RMB 0.4/t/day x 55 tons x 4 months x 30 days = 2,640.

200 tons under Contract No. 307 for five months:
RMB 0.4/t/day x 200 tons x 5 months x 30 days = 12,100.

      (6) The attorneys' fee: RMB 80,000 and the arbitration fee: RMB 108,146.

Totals :
The loss under Contract No. 205:    RMB      577,578;
The loss under Contract No. 307: RMB 2,028,460;
The attorneys' fee: RMB      80,000;
The arbitration fee: RMB    108,146.
______________
RMB 2,794,184, i.e.,  US  $336,649.

[Seller]'s response

To the above assertion in [Buyer]'s supplementary materials, [Seller] alleges:

  1. The goods under Contract No. 205 were not inspected by any commodity inspection bureau, so the issue on the quality of the goods is beyond the scope of the claims in the case.

  2. [Seller] did not fundamentally breach the contract. Therefore, [Buyer]'s reason for returning the goods is not supported.

  3. [Buyer]'s assertion that it had resold the goods to mitigate the damages and had fulfilled its obligation to notify the [Seller] do not conform to the facts.

According to the national standard of BOPP film of the People Republic of China, film shall be stored in a clean and dry warehouse, piled properly, and put at least two meters away from any warm source; sunlight cannot be directly on it; the storage period cannot be more than half a year from the production date. In this case, the goods under Contract No. 307 were shipped from Korea on 23 April 1996; assuming this date is the production date, the expiration date would be 23 October 1996.

According to Article 88(2) CISG:

"If the goods are subject to rapid deterioration or their preservation would involve unreasonable expense, a party who is bound to preserve the goods in accordance with article 85 or 86 must take reasonable measures to sell them. To the extent possible he must give notice to the other party of his intention to sell."

[Buyer] should have resold the goods before October 1996 to avoid enlarging the damages. However, [Buyer] did not resell the goods until December 1996, so it should be liable for the increased loss that was incurred due to the late resale.

According to [Buyer] supplementary materials, [Buyer] signed its contract with Zhenjiang Hua Dong packaging Materials Company to resell the goods under Contract No. 307 on 9 December 1996. However, according to [Buyer]'s correspondence on 9 January 1997 replying to [Seller]'s request to inspect the goods under Contract No. 307, [Buyer] stated,

"If you fax a document agreeing to have us return the goods to you, you can come to inspect the goods at present, we are also looking for customers to resell the film as soon as possible. The current market price is RMB 15,000/t. Please make a feasible plan to solve the issue."

The goods under Contract No. 307 thus existed on 9 January 1997. [Buyer] asserts that on 9 December 1996 it signed a contract to resell goods, which are not the goods under Contract No. 307 at all, so that sales contract has nothing to do with this case. If [Buyer] resold the goods under Contract No. 307 on 9 December 1996, it should provide the added value tax invoice to prove the goods were resold, but the invoice submitted by [Seller] is not related to the contract signed on 9 December 1996.

4. Appendix II, i.e., Ma Tai Company correspondence claiming for damages, provided by [Buyer], has nothing to do with this case.

5. The indemnity amount [Buyer] requested of [Seller] is not in conformity with the facts, and is falsely calculated.

According to the current evidence, the goods under Contract No. 307 were not resold at all, so [Buyer] did not suffer any loss of expected profits or any loss on resale; there is no basis for the price of RMB 9500/t. The damages [Buyer] claims were caused by the fact that it did not provide the inspection certificate to its client and did not deliver the goods on time, and were not caused by the quality of the goods, so such damages are not related to this case. Meanwhile, [Buyer] neither provided the certificate of damages, nor did it submit the certificate of its client receiving such payment. Thus, it is doubtful whether such damages exist or not. Because [Buyer]'s resale time, quantity and price cannot be found, interest and storage charge cannot be calculated. Thus, there is no basis for [Buyer]'s claim for such damages.

[Buyer]'s rebuttal

In response to this, [Buyer] asserts:

  1. The decision whether [Buyer] has the right to claim for damages of quality should be based on the facts, not the inspection.

  2. Most of the goods delivered by [Seller] have defects, which completely deprives [Buyer] of its right to earn profits under the two contracts to import Diaphane film from Korean __Company. This constitutes a fundamental breach of contract.

  3. In January 1997, [Buyer] faxed to [Seller] asserting, "We are also looking for clients to resell the goods as soon as possible," which implies that it began to resell the goods, but [Seller] did not notice this. Thus, there is no conflict between the fact that [Buyer] resold 192 tons of the goods in December 1996 and the fact that [Buyer] mentioned to return and inspect the goods in the fax in January 1997.

  4. The contract between [Buyer] and Ma Tai Company could not be performed, because the goods delivered by [Seller] did not conform to the contract. [Seller] should therefore be liable for such damages.

  5. The added value tax invoice is only proof of receiving payment. Because of the defects of the goods under Contract No. 307, [Buyer] did not receive the entire payment. Accordingly, [Buyer] could not issue the added value tax invoice, but the resale contracts are valid.

THE OPINION OF THE ARBITRAL TRIBUNAL

1. Applicable law

The parties did not stipulate the applicable law in the contract. [Buyer] cited the law of the People Republic of China and United Nations Convention on Contracts for the International Sale of Goods (1980)(CISG) to support its claims; [Seller] cited the law of the People Republic of China and CISG to defend. Accordingly, the Arbitration Tribunal holds the law of the People Republic of China and CISG are applicable to this case.

2. The quality of the goods

[Buyer] asserts that when the goods under Contract No. 205 arrived at Shantou Port, they were directly transported by road to Xiamen, Jinjiang, etc., and that after the goods arrived at the destination, severe defects were found. After the goods under Contract No. 307 arrived at Shantou Port, it was found that the goods did not list the nation of production or the manufacturer, had no brand symbol, and had yellow spots, roughness, and wrinkles on the surface. These are similar to defects under Contract 205; [Buyer] sent the goods to China Guangdong Import and Export Commodity Inspection Bureau for inspection. The inspection certificate issued on 24 May 1996, states:

  1. There is no listing of nation and manufacture of the production on the packaging box;
  2. The blue label in the box shows the name of product is BOPP film and class is BP-115
  3. The surface of the goods is rough, and most of the goods have wrinkles.

The inspection certificate describes the goods:

  1. According to Contract No. 307, the name of the product is BOPP film and the brand is Diaphane-PB115 but the goods that arrived have no Diaphane brand name indicated, which does not conform to the contract;
  2. The goods have defects on the outside appearance, which affect the use of the goods.

[Buyer] also alleges that on 21 May 1996, [Buyer] and [Seller] jointly went to Xiamen to inspect the goods under Contract No. 205, made the record, and confirmed that the goods had defects. However, [Seller] asserts, when finding the surface of the goods has wrinkles, it pointed out that the wrinkles were caused by reckless loading, improper transportation and storage; in order to identify whether the goods have defects, [Seller]'s representative took photos and brought back some samples. The manufacture then certified that the defects were caused by improper storage and transportation.

The Arbitration Tribunal holds that after the goods under Contract No. 205 arrived at the destination port, they were directly transported to Xiamen, Jinjiang, etc. by road. [Buyer] asserts that the goods have severe defects. However, [Buyer] neither provided the relative evidence to show the goods have defects and how severe the defects are, nor did [Buyer] provide evidence to show the condition of transportation and storage of the goods. Although Contract No. 307 has no inspection clause, according to the Law of the People Republic of China and CISG, [Buyer] has the right to inspect the goods, and the inspection certificate issued by Guangdong Import and Export Commodity Bureau can be used as a valid evidence to show the quality of the goods. Thus, according to the inspection certificate, the packing boxes have no identification of nation and manufacture of production; the surface is rough; most of the goods have wrinkles; the brand Diaphane is not mentioned. Accordingly, the goods have defects, which affect sale and use, but they do not make it impossible to sell and use the goods.

3. [Buyer]'s claims

(1) [Buyer] requests [Seller] to return the entire price of the goods of US $ 354,000 under Contract No. 307, to pay interest, and to indemnify [Buyer] the loss under Contracts No. 307 and No. 205. Then, because the goods under Contract No. 307 were resold, [Buyer] clarified its claim to request [Seller] to indemnify the loss under Contracts No. 205 and 307 and to pay [Buyer]'s attorneys' fee and the arbitration fee, US $ 336,649. [Buyer]'s claims include expected profits, loss of resale, the damages paid to its clients, interest, storage charge, the attorneys' fee, etc.

Article 18 of the Law of the People Republic of China on Economic Contracts Involving Foreign Interests states:

"If a party fails to perform the contract or its performance of the contractual obligations does not conform to the agreed terms, which constitutes a breach of contract, the other party is entitled to claim damages or demand other reasonable remedial measures. If the losses suffered by the other party cannot be completely made up after the adoption of such remedial measures, the other party shall still have the right to claim damages."

Article 19 states:

"The liability of a party to pay compensation for the breach of a contract shall be equal to the loss suffered by the other party as a consequence of the breach. However, such compensation may not exceed the loss which the party responsible for the breach ought to have foreseen at the time of the conclusion of the contract as a possible consequence of a breach of contract."

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. Such damages 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, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract."

Article 77 states:

"A party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach. If he fails to take such measures, the party in breach may claim a reduction in the damages in the amount by which the loss should have been mitigated."

According to the above, the Arbitration Tribunal decides that because the goods under Contracts No. 205 and 307 have defects on the outside appearance, and the packaging of the goods under Contract No. 307 has no identification of the nation and manufacturer of production, [Seller] breached the contracts and shall be liable for [Buyer]'s loss. However, after the goods arrived at the destination port, [Buyer] refused the goods only due to the above defects; in addition, the parties had negotiated about indemnification to solve the disputes, but did not reach an agreement; moreover, [Buyer] did not resell the goods until after the expiration date passed, which caused unnecessary loss of price difference and storage charge, etc. Accordingly, [Buyer] shall be liable for the enlarged damages.

The Arbitration Tribunal decides that according to the principle that the person who makes the claim, shall bear the burden of proof, [Buyer] neither submitted evidence to prove that the quality of the goods under Contract No. 205 was severely non-conforming to the contract, nor did it prove the reasonableness of reselling 50 tons of the goods at the reduced price. The other 50 tons of the goods under Contract No. 205 and the 200 tons of the goods under Contract No. 307 did not support [Buyer] reason for refusing the goods, but [Buyer] nevertheless refused those goods. Thus, [Buyer] shall be liable for unreasonable loss of reselling.

The Arbitration Tribunal notes that the parties had reached agreements on 8 and 15 July 1996 during the negotiation on the quality of the goods under Contracts No. 205 and 307. They agreed that [Buyer] could deduct US $60,000 from the L/C of Contract No. 307 as the indemnification for Contracts No. 205 and 307. Meanwhile, [Seller] agreed to extend the time of this payment for 120 days. The parties admitted the above facts, but after that the parties did not reach any agreement on the method and term of payment and on the precondition to stop the right of claiming damages. The Arbitration Tribunal holds according to the facts and measures taken by the parties to mitigate damages, it is justified that [Seller] indemnify [Buyer] US $65,000.

(2) The arbitration fee

[Buyer] shall pay 40% of the arbitration fee, and [Seller] shall pay 60%.

THE AWARD

  1. [Seller] shall indemnify [Buyer] US $65,000;

  2. [Buyer] shall pay 40% of the arbitration fee, and [Seller] shall pay 60%. [Buyer] has paid the arbitration fee of RMB ___, so [Seller] shall pay back RMB___ to [Buyer];

  3. [Buyer]'s other claims are dismissed.

[Seller] shall pay the above amount, US $65,000 and RMB 64,888 to [Buyer] within 45 days after this award takes effect. If [Seller] does not pay within the time limit, annual interest shall be added at the rate 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 Republic of China is referred to as [Buyer]; Respondent of the Republic of Korea 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 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.

Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated April 5, 2006
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography