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CISG CASE PRESENTATION

China 20 November 1997 CIETAC Arbitration proceeding (Rebar coil case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/971120c1.html]

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

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Case identification

DATE OF DECISION: 19971120 (20 November 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/32

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Hong Kong (respondent)

BUYER'S COUNTRY: Hong Kong (claimant)

GOODS INVOLVED: Rebar coils


Classification of issues present

APPLICATION OF CISG: Yes, agreement of the parties

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 35 ; 74 ; 78

Classification of issues using UNCITRAL classification code numbers:

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];

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

Descriptors: Conformity of goods ; Damages ; Interest

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Zhong Guo Guo Ji Jing Ji Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 1997 vol., pp. 2705-2709

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.23, Nordic Journal of Commercial Law (2/2005); Fan Yang, The Application of the CISG in the Current PRC Law and CIETAC Arbitration Practice (December 2006) n. 80

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Case text (English translation)

Queen Mary Case Translation Programme

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

Rebar coils case (20 November 1997)

Translation [*] by Meihua Xu [**]

Edited by LIN Zhongming [***]

The China International Trade and Economic Arbitration Commission Shenzhen Commission (hereafter, the "Shenzhen Commission") accepted the case on 4 February 1997 according to:

   -    The arbitration clause in Sales Contract No. SHK-1325-D signed by Claimant [Buyer], Hong Kong __ Trade Co., Ltd. and Respondent [Seller], Hong Kong __ Steel Co., Ltd. on 10 January 1996; and
 
   -    The written arbitration application submitted by [Buyer] on 4 February 1997.

The Secretariat of the Shenzhen Commission sent the arbitration application and the attachment, arbitration notice, arbitration rules, and the name list of arbitrators to the [Seller] according to the address provided by the [Buyer], however, the [Seller] failed to appoint an arbitrator within the stipulated time, nor did it submit a defense.

On 23 April 1997, Mr. A, the arbitrator appointed by the [Buyer], Mr. D, the arbitrator appointed by the Chairman of the Arbitration Commission on behalf of the [Seller] since the [Seller] failed to appoint one within the stipulated time, and Mr. P, the Presiding Arbitrator appointed by the Chairman of the Arbitration Commission because the two parties did not jointly appoint or entrust the Chairman of the Arbitration Commission to appoint one, formed the Arbitration Tribunal to hear this case.

The Arbitration Tribunal held a court session on 5 June 1997. The [Buyer] attended the court session, but the [Seller] was absent. The Arbitration Tribunal heard the [Buyer]'s statement and investigated the relevant issues.

On 20 November, the Arbitration Tribunal handed down the award. The following are the facts, the Tribunal's opinion and award.

I. FACTS

On 10 January 1996, the [Buyer] and the [Seller] signed Contract No. SHK-1325-D, by which the [Buyer] was to purchase 5,000 tons of coil steel and 5,000 tons of screw steel from the [Seller] on the following terms.

   -    Products: 5,000 tons of 380-88/BST 3SP/PS coil steel; 5,000 tons of 25G2S screw steel, which should be 2,000 tons with 12MM in diameter, 1,000 tons with 16MM in diameter, 1,000 tons with 20MM in diameter, and 1,000 tons with 12MM in diameter. 10% plus or minus loading is allowed for quantity of each specification and the total quantity;
 
   -    Price: Unit price is US $280/MT CNF FO Mawei, China
 
   -    Manufacturer: Russia Steel Factory;
 
   -    Delivery term: Departure port is Russia Far-East port; destination port is China Mawei port;
 
   -    Shipment period: Loading date is on or before 10 March 1996; installment shipment is allowed;
 
   -    Payment term: Letter of Credit [L/C];
 
   -    Inspection, compensation: The [Buyer] has the right to have the goods inspected by the China Commodity Inspection Bureau (hereafter, the "CCIB") on quantity and quality of the goods after their arrival at the destination port; the [Buyer] may claim compensation from the [Seller] by providing the inspection certificate issued by the CCIB if the quantity or quality of the good is found in non-conformity with that stipulated in the contract or the invoice; compensation claims on quality or quantity of the goods shall be raised within 45 or 30 days, respectively, after the goods arrive at the destination port.
 
   -    Arbitration: Any dispute arising from the contract or the performance of the contract should be settled by negotiation, and if the negotiation fails, the dispute should be settled by the Arbitration Commission, which should arbitrate the dispute according to the Arbitration Rules. The award of the Arbitration Commission shall be final and binding on the parties. The losing party shall bear the arbitration fee if the Arbitration Commission does not decide otherwise.

The parties had a dispute during the performance of the contract. The [Buyer] applied to the Shenzhen Commission for arbitration on 10 January 1997, claiming that:

1. [Seller] should compensate [Buyer] for the price of the goods deducted by [Buyer]'s client: US $380,655.44;

2. [Seller] should pay the interest on the aforesaid amount calculated to 31 December 1996, which is US $20,301.623;

3. [Seller] should pay the interest on the amount mentioned in the above item 1 from 1 January 1997 to the date of actual payment at a reasonable interest rate;

4. [Seller] should pay the [Buyer]'s reasonable cost for processing this case of US $40,000;

5. [Seller] should bear the entire arbitration fee.

[POSITION OF THE PARTIES]

[Buyer]'s position

The [Buyer] alleges that:

      On 25 January 1996, the [Buyer] issued an irrevocable L/C with the [Seller] as the beneficiary through Bank of China Hong Kong Branch. The L/C number was A-01-N-00510. Relevant terms in the L/C were in conformity with the terms in the contract, and the expiration date and place was 5 April 1996 in Hong Kong.

The [Seller] did not deliver the goods as required by the contract and the L/C, nor did it deliver any goods even after 10 March 1996. This severely violated the contract. Before the L/C expired, the [Seller] and the [Buyer] had reached an agreement to modify the contract and the L/C on the following terms:

   -    The [Seller] shall make certain compensation to the [Buyer];
   -    The unit price was changed to US $278/ton;
   -    The loading date was changed to 30 April 1996;
   -    The expiration date of the L/C was modified to 25 May 1996;
   -    The destination port was changed to Shekou port, Shenzhen, China.

On 3 April, the [Buyer] modified L/C No. A-01-N-00510 through the Bank of China Hong Kong Branch; meanwhile, it signed Sales Contract 6IS220E003CN with Shenzhen A Import & Export Company (hereafter, "A Company") on 2 April, by which the [Buyer] was to sell the 10,000 tons of steel to A Company.

In the middle of April 1996, the [Seller] made the first delivery to the [Buyer] by ship "Panjinhai". The quantity of coil steel in this delivery was 1,794.50 tons, which was 50.84 tons less than the quantity in the Bill of Lading (B/L) and the invoice. The screw steel was all 16MM in diameters, which caused it to weigh 1,700 tons more than the weight stipulated in the contract. Furthermore, the material standard was A400S, but not 25G2S, as required by the contract.

At the end of May 1996, the [Seller] made the second delivery to the [Buyer] by the ship "Huayang". The coil steel in this delivery was 2,776.579 tons, which was 106.844 tons less than the quantity stipulated in the B/L and the invoice. The screw steel was 2,121.69 tons, which was 80.238 tons less than the quantity stipulated in the B/L and the invoice. The screw steel was 12MM and 20MM in diameter, and the material standard was still A400S, but not 25G2S. The two deliveries made by the [Seller] violated the contract in four aspects:

   -    The material standard for screw steel was wrong. It was 25G2S as stipulated in the contract and the L/C, but the steel the [Seller] delivered was Standard A400S;
 
   -    The specifications for screw steel were incorrect. The contract and the L/C stipulated: 12MM in diameter which should be 2,000 tons, 16MM in diameter which should be 1,000 tons, 20MM in diameter which should be 1,000 tons and 15MM in diameter which should be 1,000 tons; however, the [Seller] delivered 2,814.81 tons of screw steel with 16MM in diameter, which was 1,700 tons more than the quantity stipulated in the contract and the L/C, and screw steel with 25MM in diameter was not delivered at all;
 
   -    There was a shortage in the weight of the goods. For the first delivery of coil steel, the weight stipulated in the B/L and the invoice was 1,845.34 tons, but the actual delivery was 1,794.50 tons with a shortage of 50.84 tons. For the second delivery of coil steel, the weight stipulated in the B/L and the invoice was 2,883.423 tons, but the actual delivery was 2,776.579 tons with a shortage of 106.844 tons. For screw steel, the weight stipulated in the B/L and the invoice was 2,201.928 tons, but the actual delivery was 2,121.69 tons with a shortage of 80.238 tons;
 
   -    Delay in delivery. The delivery date stipulated in the contract and the L/C was before the end of April 1996, but the [Seller] actually made the second delivery at the end of May 1996, which was one month late.

The [Seller]'s delivery of the goods violated the contract in four aspects The [Buyer]'s client, A Company, repeatedly raised written objections and claimed damages. The [Buyer] also claimed compensation from the [Seller] orally or by written documents. On the one hand, the [Seller] admitted that it had violated the contract, but, on the other hand, denied the other facts that it had seriously violated the contract. The [Buyer] and the [Seller] were negotiating this matter by letters; meanwhile, A Company repeatedly asked compensation from the [Buyer]. After negotiations, the [Buyer] and A Company signed a compensation agreement on 12 October 1996, by which the [Buyer] agreed to compensate US $380,655.44 to A Company.

The [Seller] did not submit any defense to [Buyer]'s arbitration claims.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The two parties agreed in the contract attachment that the contract should refer to the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"); therefore, the CISG should be applied to the dispute.

2. The performance of Contract SHK-1325-D

After signing the contract, the [Buyer] issued irrevocable L/C No. A-01-N-00510 L/C with the [Seller] as the beneficiary. The [Seller] failed to deliver the contract goods within the period stipulated in the contract. After negotiation, the two parties agreed to modify the contract and the L/C on the following terms:

   -    The [Seller] shall make certain compensation to the [Buyer];
   -    The unit price was changed to US $278/ton;
   -    The loading date was changed to 30 April 1996;
   -    The expiration date of the L/C was modified to 25 May 1996;
   -    The destination port was changed to Shekou port, Shenzhen, China.

On 3 April 1996, the [Buyer] modified the L/C based on the agreement between the two parties.

The [Seller] made two deliveries to the [Buyer]. In the middle of April 1996, the [Seller] made the first delivery, which arrived at Shekou port at the end of April 1996. The invoice issued by the [Seller] indicated that this delivery included 1,845.34 tons of coil steel and 2,815.16 tons of screw steel. For the second delivery, the shipment period stated on the B/L was 25 April 1996, and the goods arrived at Shekou port on 3 June 1996. The invoice issued by the [Seller] indicated that the second delivery included 2,883.423 tons of coil steel and 2,201.928 tons of screw steel.

From the evidence submitted by the [Buyer], it can be found that:

1. The screw steel delivered by the [Seller] did not conform to the contract stipulation

According to the contract, the material standard for the screw steel the [Seller] should have delivered to the [Buyer] was 25G2S, and the invoice provided by the [Seller] and the quality/quantity inspection certificate issued by its supplier, BCD, indicted that the material standard for screw steel in the first delivery should be 25G2S. However, when receiving the goods, after they were unloaded at Shekou port on 22 April 1996, the [Buyer]'s client, A Company, discovered that the material standard for the goods was A400S.

On 20 May 1996, the [Buyer] sent a letter to the [Seller], raising the issue of non-conformity. On 23 May 1996, China Shenzhen Commodity Inspection Bureau (hereafter, the "Shenzhen CIB") inspected the goods and issued an inspection certificate, which stated that except for some goods without stickers, those with stickers showed that the material standard was A400S, rather than 25G2S. For the second delivery made by the [Seller], the [Seller]'s invoice indicated that the material standard was 25G2S, however, after inspection by Shenzhen CIB on 23 June 1996, the material standard was actually A400S.

2. There was a shortage in the quantity delivered on [Seller]'s second delivery

It was indicated in the invoice issued by the [Seller] that the second delivery included 2,201.928 tons of screw steel and 2,883.423 tons of coil steel. On 6 June 1996, these goods were inspected by Shenzhen CIB after they were unloaded at Shekou port on 3 June 1996, with the result, that they were declared 106,844 tons short on coil steel and 80.238 short on screw steel in the actual delivery compared with the weights indicated in the invoice.

All of the above proved that the [Seller] failed to perform its obligation to deliver the goods as required by the contract.

3. [Seller]'s responsibility to make compensation

After signing Contract SHK-1325-D with the [Seller], the [Buyer] concluded Contract 6IS220E003CN with A Company to resell the goods to A Company under Contract SHK-1325-D.

Due to the problems that there were shortages in the quantities of coil steel and screw steel delivered by the [Seller], and that the material standard for screw steel did not conform to the contract, A Company raised objections and asked for compensation from the [Buyer] on 31 May 1996 and 3 June 1996. The [Buyer] and the [Seller] failed to reach an agreement after several negotiations, because the [Seller] only agreed to bear the loss for the shortage of weight in the second delivery. On 12 October 1996, the [Buyer] and A Company signed "Compensation Agreement on Screw Steel Contract 6IS220E003CN", by which the [Buyer] was to pay US $380,655.44 to A Company, which was to be deducted from the payment A Company should make to the [Buyer].

The Arbitration Tribunal considered that the [Seller] should pay US $380,655.44 to the [Buyer], which the [Buyer] paid to A Company because the [Seller] delivered non-conforming goods to the [Buyer]. In addition, the [Seller] should pay the interest on the aforesaid sum from 12 October 1996 to the date of actual payment.

The [Buyer] asked the [Seller] to pay its reasonable cost for processing this case of US $40,000 without providing corresponding evidence, therefore, the Arbitration Tribunal did not accept this claim.

The [Seller] shall bear the entire arbitration fee.

III. THE AWARD

The Arbitration Tribunal rules that:

      (1) The [Seller] shall pay to the [Buyer] US $380,655.44 and the interest on this sum calculated from 12 October 1996 to the date of actual payment at 6% annual interest within 30 days of this award;

      (2) [Buyer]'s claim No. 4 is dismissed;

      (3) The arbitration fee is renminbi [RMB] __, which should be borne by the [Seller] entirely. The [Buyer] has paid RMB __ in advance. Therefore, the [Seller] shall pay RMB __ to the [Buyer] within 30 days of this award, otherwise, 10% 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 Hong Kong is referred to as [Buyer] and Respondent of Hong Kong 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].

** 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.

*** LIN Zhongming, LL.M. China University of Political Science and law. Major: International Economic Law.

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