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CISG CASE PRESENTATION

China 13 October 1997 CIETAC Arbitration proceeding (Printing machine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/971013c1.html]

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

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Case identification

DATE OF DECISION: 19971013 (13 October 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/30

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (claimant)

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

GOODS INVOLVED: Printing machine


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articled 8 ; 38(1) ; 39(1) ; 53

Classification of issues using UNCITRAL classification code numbers:

8A [Interpretation of party's statements or other conduct: intent of party making statement or engaging in conduct];

38A [Buyer's obligation to examine goods: time for examining goods];

39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];

53A [Buyer's obligation to pay price of goods]

Descriptors: Intent ; Examination of goods ; Lack of conformity notice, timeliness ; Price

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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. 2607-2611

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.75, 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

Printing machine case (13 October 1997)

Translation [*] by Meihua Xu [**]

Edited by John Zhu [***]

The China International Economic and Trade Arbitration Commission Shenzhen Sub-commission (hereafter, the "Shenzhen Sub-commission") accepted the case on 27 January 1997 according to:

   -    The arbitration clause in Sales Contract No. 95SHSF11 signed by Claimant [Seller], America __ International Trade Company, and Respondent [Buyer], China Suzhou __ Color Printing & Packaging Company; and
 
   -    The written arbitration application submitted by [Seller].

According the Arbitration Rules of the Arbitration Commission (which became effective on 1 October 1995, hereafter the "Arbitration Rules"), the [Seller] appointed Mr. A as its arbitrator. Since the [Buyer] failed to appoint or ask the Chairman of the Arbitration Commission to appoint an arbitrator on behalf of the [Buyer], the Chairman of the Arbitration Commission appointed Mr. D as the [Buyer]'s arbitrator. The two parties did not jointly appoint the Presiding Arbitrator, and the Chairman of the Arbitration Commission appointed Mr. P as the Presiding Arbitrator. The three arbitrators formed the Arbitration Tribunal on 5 March 1997 to hear this case.

The Arbitration Tribunal examined the arbitration application, arbitration defense, and related evidence, and decided to hold a court session on 15 April 1997 at Shenzhen Sub-commission. The agent of the [Seller] and the legal representative and agent of the [Buyer] attended the court session. The Arbitration Tribunal heard the two parties' statements and arguments and made investigation on the facts of this case. After the court session, the two parties submitted supplementary opinions and evidence.

The Arbitration Tribunal decided this case on 13 October 1997.

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

I. FACTS

On 5 November 1995, the [Buyer] and the [Seller] signed Contract No. 95SHSF11 with the following terms related to the dispute in this case.

1. Products and pricing

One RVK3B Roland four-color lithographic offset printing machine (hereafter "printing machine") made in 1982 (without computer) at a unit price of renminbi [RMB] 1,660,000; One 102F Heidelberg five-color printing machine (with CPC101 computer and alcohol dampening) at a unit price of RMB 2,990,000, totaling RMB 4,650,000; the delivery deadline was 31 December 1995; the loading port was in America and the destination port was Shanghai, China.

2. Payment

[Buyer] shall pay 10% of the price as a deposit by T/T after the conclusion of the contract, and pay the remaining part by issuing an irrevocable L/C with the [Seller] as the beneficiary eighteen days prior to the loading date after receiving the [Seller]'s shipping notice. This L/C shall be valid within 30 days after loading.

3. Documents:

One set of clean B/L which should indicate "transportation fee has been paid" and mark number and should be sent to the [Buyer]'s L/C issuing bank; four invoices which should have contract number, mark number, and L/C number; and instalment number if the goods were delivered by installments; [Seller] shall issue three set of packing lists, indicating contract number, mark number, net weight and gross weight piece-by-piece; One copy of telegraphic confirmation letter notifying the [Buyer] that the goods have been loaded.

4. [Seller]'s informing obligation

After finishing loading of goods for each delivery, [Seller] shall inform the [Buyer] the contract number, L/C number, name of the goods, quantity, weight, total price, ship name, shipment date, and the destination port via telegram.

5. [Seller]'s guarantee

[Seller] guarantees that the goods it delivers completely conform to the quality, specification, and quantity stipulations in the contract and that the goods delivered are brand new.

6. Compensation claim

[Buyer] has the right to ask for compensation or replacement of the goods from the [Seller] by providing the inspection certificate issued by a local inspection agency provided the [Buyer] discovered non-conformity on quality, specification, or quantity within 60 days of the arrival of the goods for which the insurance company or the carrier is not liable. The [Seller] shall bear the costs incurred thereof (including inspection fee, transportation fee for return and replacement of the goods, insurance fee, storage fee, and loading and unloading fee).

7. Attachment goods

The [Seller] shall provide the entire set of special tools with the original machine and parts available at the manufacturer. The [Buyer] would deduct 10% of the price by L/C, and pay back this amount after adjustment of the machine and before the start of production (this 10% of the price shall be paid no later than 50 days after the arrival of the machine). Every machine should have one set of new sealing rubber (Roland and Heidelberg). The Roland and Heidelberg machines (each color set) should have one set of spare water reel, ink reel, and one Heidelberg punching machine. The [Seller] shall guarantee that there are no damages on the main parts of the five-color Heidelberg machine and four-color Roland machine (such as impression cylinder and gear). After proper installment by the [Buyer], the machine shall print correctly and run in proper speed.

8. Dispute resolution

Any dispute arising from or in connection with the performance of this contract which is not settled by negotiation should be submitted to the Arbitration Commission to be settled based on the Arbitration Rules, and the decision of the Arbitration Commission is final.

The two parties had a dispute over the performance of the contract, and the [Seller] filed the arbitration application with Shenzhen Sub-commission.

[POSITION OF THE PARTIES]

[Seller]'s position

The [Seller] alleges that:

(1) According to Contract 95SHSF11, the [Buyer] was to purchase from the [Seller] two printing machines, totaling RMB 4,650,000. Article 18a of the contract stipulates that 10% of the contract shall be deducted by L/C payment, which would be paid to the [Seller] after the adjustment of the machines and before the formal production (however, this 10% of payment shall be made no later than 50 days after the arrival of the goods). Based on this article, on 28 December 1995, Bank of China Suzhou Branch issued an irrevocable L/C, Article (C) of which stipulated that the [Buyer] should submit an adjustment report within 30 days after the installment and adjustment, and that the bank would pay the remaining 10% of the price of the goods after that. On 5 April 1996, the two machines arrived at Shanghai. The [Buyer] opened the packages, inspected the goods, and started production unilaterally. The [Seller] has never received any document regarding the performance of the machines; however, the [Buyer] has not made the 10% payment under the L/C.

(2) In January 1996, the [Buyer] and the [Seller] signed a supplementary contract, by which the [Buyer] was to purchase one folder made in America and one __ Cutter made in Germany, totaling RMB 34,830,000. The aforesaid goods arrived at Hong Kong on 5 April 1996. The [Buyer] opened the packages and used the goods; however, the price for the goods, i.e., RMB 34,830,000 has not been paid yet.

(3) On 5 April 1996, one Muller Martini-five book binder worth RMB 290,000 arrived together with the goods purchased by the [Buyer]. This had been ordered by another client of the [Seller]. However, the [Buyer] took possession of this machine without return or making payment for the goods.

(4) After the conclusion of Contract 95SHSF11, the [Buyer] asked to purchase one Heidelberg punching machine, which is worth RMB 8,350; the [Buyer] also asked to change the two non-alcohol and false alcohol printing machines into alcohol ones, which were worth RMB 250,000. The [Buyer] has already used the aforesaid machines without making payment.

The [Seller] therefore asks the Arbitration Tribunal to rule that:

(1) [Buyer] shall pay RMB 1,361,650 to the [Seller], which includes:

   -    The 10% payment under the L/C: RMB 465,000; and payments for
   -    One 1981 Martini cutter: RMB 210,000;
   -    One 1987 American folder: RMB 138,300;
   -    One Heidelberg punching machine: RMB 8,350;
   -    The price difference caused by replacing false alcohol dampening into alcohol dampening and adding one alcohol dampening, totaling RMB 250,000; and
   -    One secondhand book binder worth RMB 290,000.

(2) [Buyer] shall bear the arbitration fee.

[Buyer]'s defense

The [Buyer] counter argues that:

(1) Pursuant to Contract 95SHSF11, the [Seller] was to sell one Roland four-color RVK3B and one Heidelberg five-color 102 F printing machine to the [Buyer]; however, the [Seller] failed to perform in accordance with the contract. The goods delivered by the [Seller] were not the type of machines stipulated in the contract, which could not be used by the [Buyer]. The delivery time stipulated in the contract was 31 December 1995, however, it was not until 5 April 1996 that the [Seller] delivered the goods to Shanghai, which was a contract violation. Article 15 of the contract stipulates that "the quality and specification of the goods shall completely conform to the contract and the goods should be brand new". However, the goods delivered by the [Seller] were 60% secondhand goods, and the engines were damaged and not functioning. The [Buyer] has suffered severe losses due to this.

(2) According to the supplementary contract submitted by the [Seller] on 24 March 1996, the [Seller] should have delivered a Martini computerized cutter and folder made in America, however, the cutter delivered by the [Seller] on 5 April 1996 was a German __ Cutter without computer. Also, the cutter and folder delivered had severe defects and were unable to be used;

(3) The two parties agreed in the contract and the corresponding letters that the so-called Heidelberg printer (it should be a punching machine: notes by Arbitration Tribunal) and alcohol equipment were the attachment to the contract goods, and that the [Buyer] did not sign any additional contract to order them; therefore, it is wrong to allege that the [Buyer] refused to pay for them;

(4) [Seller]'s assertion that [Buyer] took the possession of one Martini-five bookbinder is purely fictitious and the [Seller] should provide evidence of this.

After the court session, the two parties emphasized their own opinions and submitted supplementary documents.

II. OPINION OF THE ARBITRATION TRIBUNAL

Based on the aforesaid facts, the Arbitration Tribunal makes the following analysis and judgment:

(1) The two parties failed to stipulate the applicable law in the contract. Pursuant to Article 5 of the Law of the PRC on Economic Contracts Involving Foreign Interest, China has the closest connection with the formation and the performance of the contract in this case, therefore, Chinese law is applicable to the dispute. Meanwhile, the United Nations Convention on Contract for the International Sales of Goods (hereafter, "the CISG") is also applicable;

(2) Article 15 of the contract stipulates that the goods must be brand new, however, in light of the formation and the performance of the contract, it could be concluded that the two parties were aware that they were doing a transaction on secondhand goods. In the modified contract sent by the [Buyer] to the [Seller] on 15 November 1995, the [Buyer] cut off the "and should be brand new" part; the two parties mentioned that the goods were secondhand in the corresponding letters. The [Seller] explains that due to the two parties' omission, they forgot to cut off the "the goods should be brand new" part when formally signing the contract. The Arbitration Tribunal regards the [Seller]'s explanation as reliable.

The delivery time stipulated in the contract was 31 December 1995 and actual delivery date was 5 April 1996. The [Seller] had asked postponement of delivery between the aforesaid two periods. Based on the material submitted by the [Buyer], on 29 February 1996, Mr. Wang of the [Seller] mentioned the reason for late loading in the letter sent to Mr. Ge of the [Buyer], asking the [Buyer] to modify the loading date and expiration date on the L/C. The [Buyer] modified the L/C without raising objection, which indicated that the [Buyer] agreed on the delay in delivery.

Ruling on the [Seller]'s claims

(1) 10% payment under the L/C.

After the [Seller] delivered the goods, the [Buyer] accepted and used the goods. Article 16 of the contract stipulates that:

"The [Buyer] has the right to ask for compensation or replacement of the goods from the [Seller] by providing the inspection certificate issued by a local inspection agency provided the [Buyer] discovered non-conformity on quality, specification, or quantity within 60 days of the arrival of the goods for which the insurance company or the carrier are not liable."

The [Buyer] alleges that the goods delivered by the [Seller] did not conform to the contract, however, it has not provided any inspection certificate as stipulated in the contract. This indicates that the [Buyer]'s non-payment of 10% of the payment under the L/C violated the contract. The [Seller]'s claim for payment of this 10% is accepted.

(2) Price for the Martini computerized cutter and American folder

The [Buyer] and the [Seller] signed supplementary contract (1) on 24 March 1996 regarding the Martini computerized cutter and American folder. It stipulated the prices for the goods, i.e., RMB 210,000 and RMB 138,300, delivery place, payment term, packaging, and inspection. Based on the [Buyer]'s defense and its supplementary material, the [Buyer] has received the aforesaid goods. However, it was not until the [Seller]'s filing of the arbitration application that the [Buyer] alleged that the goods had severe defects and that the cutter was a German cutter.

Even though the contract has no stipulation on compensation claim period, according to Article 38(1) of the CISG, the [Buyer] failed to "examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances" and failed to raise objection within a reasonable time. This indicated that the [Buyer] accepted the goods without objection and it should pay the price for the goods, therefore, the Arbitration Tribunal accepts the [Seller]'s claim for payment for the Martini computerized cutter and the American folder.

(3) Price for Heidelberg punching machine

Article 20 of the contract stipulates that one Heidelberg punching machine is provided for free, therefore, the [Seller]'s claim that the [Buyer] should pay RMB 8,350 for the price of this item has no contractual basis. This claim of the [Seller] is not acceptable.

(4) The alcohol dampening equipment

Article 1 of the contract, "name of the contract goods and specifications", stipulated that the Heidelberg printing machine has alcohol dampening equipment; however, there was no stipulation on whether the other Roland four-color printing machine had such equipment. The [Seller] was trying to confirm the prices for the two items of alcohol dampening equipment by signing supplementary contracts (2) and (3), but no agreement was reached. The [Seller] alleges that the [Buyer] modified the two items of non-alcohol dampening equipment into alcohol dampening equipment at a price of 250,000 and that the payment was to be made based on the payment method stipulated in supplementary contract (1). However, there is no evidence showing that the two parties had reached such an agreement, therefore, the Arbitration Tribunal does not accept the [Seller]'s claim for the price difference on the alcohol dampening equipment.

As to the alcohol dampening equipment attached to the Roland four-color RVK3B, since there is no stipulation in the contract regarding the purchase of this equipment, and the two parties failed to provide evidence proving the purchase of this equipment, therefore, this equipment belongs to the [Seller]. If the [Buyer] wants to purchase this equipment, the two parties shall decide the price later, and if no agreement can be reached, the goods should be returned to the [Seller] with the [Seller] bearing all costs incurred.

(5) Price for bookbinder

Based on the material provided by the two parties, the [Seller] actually has mentioned the bookbinder to the [Buyer]; however, there is no written document between the two parties. Therefore, the Arbitration Tribunal holds that since there is no evidence showing that the bookbinder is covered by the contract in this case. This dispute is thus beyond the scope of the jurisdiction of the Arbitration Tribunal.

The [Seller] shall bear 10% of the arbitration fee and the [Buyer] shall bear 90%.

III. THE AWARD

The Arbitration Tribunal rules that:

(1) The [Buyer] shall pay the price for the goods of RMB 81,330,000 to the [Seller] (including 10% payment under the L/C, and the price for the American folder and Martini cutter) within 30 days of this award, otherwise, 12% annual interest shall be added;

(2) [Buyer] and the [Seller] shall negotiate the purchase of the alcohol dampening equipment on the Roland four-color printing machine, and if no agreement can be reached, the [Buyer] shall return the goods to the [Seller] and the [Seller] shall bear the costs incurred therefrom;

(3) [Seller]'s other arbitration claims are dismissed;

(4) The arbitration fee of this case is RMB __. The [Seller] shall bear RMB __ and the [Buyer] shall bear RMB __. The [Seller] has paid RMB __ in advance, therefore, the [Buyer] shall pay back RMB __ within 30 days of this award, otherwise, 12% annual interest shall be added.

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

** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of a 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.

*** John Zhu, LL.M. China University of Political Science and Law (National Graduate Scholarship); Bachelor of Law, Southwest University of Political Science and Law; Double Degree, English Literature, Sichuan International Studies University, Chongqing, China. Focus: International Economic Law.

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