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CISG CASE PRESENTATION

China 15 December 1997 CIETAC Arbitration proceeding (Hot-rolled coils case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/971215c1.html]

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

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Case identification

DATE OF DECISION: 19971215 (15 December 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/34

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Republic of Korea (respondent)

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

GOODS INVOLVED: Hot-rolled coils


Case abstract

PRC: China International Economic & Trade Arbitration Commission (CIETAC), 15 December 1997

Case law on UNCITRAL texts (CLOUT) abstract no. 715

Reproduced with permission of UNCITRAL

Abstract prepared by Meihua Xu

This case deals with the acceptance of offer (Article 18 CISG), the effect of a reservation on the formal requirement of contracts (Article 96 CISG), and a party's loss of rights to rely on a failure of the other party which was caused by its own act (Article 80 CISG).

A Chinese buyer entered into a contract with a Korean seller in November 1995 for the purchase of hot rolled coils. The contract provided for payment by Letter of Credit [L/C], and shipment by 10 December 1995. After the buyer issued the L/C, the seller asked for postponement of the shipment to 23 December. At the beginning of December, the buyer agreed to modify the L/C, but only to postpone the shipment date to 20 December. The seller alleged that it loaded the goods on 20 December onto the ship "JEON FIN" (which was in fact the ship "JEON JIN"), but the buyer did not receive the shipping notice sent by the seller on 25 December with the ship's name of "JEON FIN", which never arrived at the destination port. The buyer, concerned by a potential fraud, refused to modify the L/C.

On 13 January, the ship "JEON JIN" carried the goods to the destination port and the representatives of the two parties were there to negotiate the acceptance of the goods. The buyer asked to lower the price of the goods, the seller refused. The negotiation between the two parties failed and the seller advised the JEON JIN to leave the destination port.

Since the buyer had already signed a contract with its domestic clients for the resale of the contract goods, it claimed the loss of profit and the loss of a penalty paid to its client.

The buyer asserted that the seller's request to amend the L/C and to change the shipment date to 23 December was not in conformity with the contract and should be regarded as a new offer. Since it had only agreed to extend the shipment date to 20 December, this was to be considered a rejection of the offer, and be regarded as a counter-offer. Consequently, the seller should have loaded the goods on 10 December as stipulated in the original contract since no new agreement was reached; otherwise, the seller would breach the contract.

The seller counter argued that the buyer had agreed to modify the L/C and to postpone the shipment date to 20 December, and that the buyer had fundamentally breached the contract by failing to modify the L/C and to accept the goods, with the result that the seller suffered loss of profit and loss of compensation paid to the carrier. In addition, the seller had already notified the buyer that the correct name of the vessel was "JEON JIN"; therefore, the buyer should have accepted the goods unconditionally instead of focusing on the typo of the vessel's name.

The parties had agreed to apply INCOTERMS (1990) to the contract and UCP 500 to the L/C. At the hearing, both parties agreed to refer to other international customs in the arbitration; therefore, the Arbitration Tribunal deemed that the applicable laws in the dispute also included the CISG, "of which China and Korea are Contracting States", and other international customs agreed by the parties.

The Arbitration Tribunal noted that the buyer had agreed to modify the L/C, therefore, even though the parties had failed to reach an agreement on the shipment date, the buyer should have amended the L/C. Its failure to do so constituted a breach of contract.

With regard to the seller's allegation that its loading activity prior to 20 December meant acceptance of the buyer's request, the Arbitration Tribunal held that pursuant to Article 18 (3) CISG loading the goods could have in fact meant acceptance. However, such an acceptance must satisfy two requirements: (1) a notification of acceptance must be sent to the buyer in writing since, when signing the CISG, China had made a reservation preserving its "in writing requirement" (Article 96 CISG); and (2) such a notification of acceptance should be sent within a reasonable time. The Arbitration Tribunal concluded that neither the shipping activity, nor the shipping notice sent five days after shipment constituted a valid acceptance.

The Arbitration Tribunal also noted that the ship's name on the documents including the certificate of origin was "JEON FIN", and that in order to negotiate the payment from the bank, the seller did not revise the B/L and other negotiable documents while knowing that the vessel's name was wrong, which constituted a contract violation. Furthermore, sending the shipping notice five days later than the loading date not only was a contract violation, but induced the buyer to doubt about the late shipment and to be concerned over the false origin of the goods.

For the acceptance of the delivery, the Arbitration Tribunal deemed that after the ship arrived, the shipping agent informed the buyer to take delivery of the goods by providing the original JEON JIN B/L or with a shipping guarantee of a bank. In this situation, if the buyer had considered the resale agreement it had entered into with another customer, the buyer should have asked the seller to instruct the shipping agency to consent to the buyer to take delivery on the original JEON FIN B/L. However, the buyer failed to do so, but informed the L/C issuing bank that it could not amend the L/C and requested the seller to lower the price. The Arbitration Tribunal ruled that these activities of the buyer resulted in non-performance of the contract, and it should be responsible for this.

On the other hand, the Arbitration Tribunal held that since the seller confirmed that the arriving vessel JEON JIN was the one it leased for carrying the goods under the contract, it should have shown the relevant evidence, taken active measure, instructed the vessel to release the goods, and cast away the doubts of the buyer in order to perform the contract smoothly however, the seller failed to do so, and should be responsible accordingly.

On the basis of Article 80 CISG, the Arbitration Tribunal concluded that both parties breached the contract and both suffered losses. However, the losses could have been avoided if the parties had more closely cooperated. Therefore, the parties had to bear their own losses. The buyer's claim and the seller's counterclaim were dismissed.

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Classification of issues present

APPLICATION OF CISG: Yes, tribunal regards both P.R. China and Republic of Korea as Contracting States

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 7(2) ; 12 ; 18(3) ; 80

Classification of issues using UNCITRAL classification code numbers:

7C223 [General principles on which Convention is based: communication and cooperation];

12A [Formal requirements: effect of reservation under article 96 rejecting article 11];

18C [Acceptance of offer by performing an act: effect of declaration preserving formal requirements];

80A [Failure of performance caused by other party (party causing non-performance): loss of rights]

Descriptors: General principles ; Cooperation ; Formal requirements ; Declaration, Art. 96 ; Acceptance of offer ; Failure of performance, other party

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

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. 2822-2834

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.35, 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. 104

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Case text (English translation)

Queen Mary Case Translation Programme

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

Hot rolled coil case (15 December 1997)

Translation [*] by Zhan Changzheng [**]

Translation edited by Meihua Xu [***]

INTRODUCTION

China International Economic & Trade Arbitration Commission Shenzhen Commission (the Arbitration Commission) accepted the Hot rolled coils case on 27 August 1996 in accordance with the written application for arbitration submitted by Claimant [Buyer], Zhuhai ___ Import & Export Company, and the arbitration clause contained in Contract No. 95CNZH1102 (the Contract) entered into by and between the [Buyer] of the People's Republic of China and Respondent [Seller], Korea ___ K.K., on 13 November 1995.

"China International Economic and Trade Arbitration Commission Arbitration Rules" effective as of 1 October 1995 (the Arbitration Rules) shall apply to the arbitration proceedings.

On 15 October 1996, in accordance with the Arbitration Rules, the Arbitral Tribunal was established by Mr. A, an arbitrator designated by the [Buyer], Mr. B, an arbitrator designated by the [Seller], and Mr. P, the presiding arbitrator designated by the Chairman of the Arbitration Commission because of the parties' failure to jointly appoint the presiding arbitrator within the time prescribed by the Arbitration Rules

The Arbitral Tribunal held oral hearings on 25 November 1996, 17 March 1997, and 8 September 1997. Both parties were present. The Tribunal undertook investigations into basic facts and heard the statements and arguments of both parties. After the hearings, both parties submitted supplementary materials.

The arbitration clause provides that the final award shall be rendered in accordance with the International Chamber of Commerce (ICC) Arbitration Rules. After the first hearing, the parties confirmed in writing to proceed with the case in accordance with the Arbitration Rules of the Arbitration Commission effective at the time of the acceptance of the case.

On 3 June 1997 and 5 November 1997, the Arbitration Commission made respective decisions to delay the award date to 15 November 1997 and 15 December 1997.

The Arbitration Tribunal rendered the award in writing on 15 December 1997.

The facts, opinions, and the award are as follows:

I. THE FACTS

On 13 November 1995, the [Buyer] and the [Seller] entered into Contract No. 95CNZH1102 (the Contract) to purchase 6,000 MT hot rolled coils from the [Seller]. The main contents of the Contract related to the dispute include:

  1. Specification: Hot rolled coils, as per Standard GOST380_88 and Grade ST35P/PS.

  2. Quantity: 6,000 MT hot rolled coils.

  3. Unit price & Total amount: US $324/MT CNF FO CQD Zhapu Port, China; Total amount: US $1,932,000;

  4. Place of origin: Russia.

  5. Shipment: No later than 10 December 1995, no transfer and installments are allowed.

  6. Port of shipment: NAKHODKA port, Far East.

  7. Port of Discharge: Zhapu Port, China

  8. Payment: By Letter of Credit (L/C) 100% payable at 60 days sight.

  9. Negotiable documents: 100% price of shipped goods payable upon the following documents according to the 13th article.

    -    3/3 full set of clean on-board Bill of Lading (B/L), Consignee: to order, blank endorsement, indicating "freight prepaid", Notify party: to order of buyer;
    -    3/3 original Commercial Invoice with signature;
    -    3/3 original Packing List;
    -    1 Certificate of origin issued by the Russian Chamber of Industry and Commerce;
    -    1 copy of Notification of Shipment sent to the buyer by the seller;
    -    1 copy of Certificate of Quality and Quantity issued by manufacture;

    Note:

    -    Negotiable documents shall be presented for payment within thirty days after signing the B/L, however, within the validity period of the L/C;
    -    Charter party B/L, Third Party B/L, Outdated B/L, and Negotiable B/L are acceptable;
    -    The L/C negotiating bank should not be limited;
    -    An indication in the B/L regarding air rusting surface and similar intrinsic status is acceptable;
    -    It is acceptable that the B/L date is earlier than the L/C date;
    -    The buyer should accept any discrepancy existing in the Certificate of Quality and quantity issued by the manufacture.

  10. Notification of Shipment: The [Seller] shall notify the [Buyer] by fax within seventy-two hours upon loading, including: contract number, name of goods, quality and value, number of bundles and weight, vessel name and vessel nationality, port of shipment, estimated shipment date and estimated arrival date, number of B/L, and issuing date of B/L:

  11. Liability of the [Buyer] / the [Seller]: In case the [Seller] / the [Buyer] delays delivery of the goods / make the payment for the goods, the [Seller] / the [Buyer] shall pay a penalty at the annual rate of 10% for the delayed days. In case the [Seller] / the [Buyer] cancels the Contract prior to the shipment or prior to the payment negotiation, the defaulting party shall pay to the other party a penalty of 2% of the total amount of the Contract.

    If the shipment is later than 10 December 1995, the [Buyer] shall be entitled to rescind the Contract. In case of rescission of the Contract, the [Seller] / the [Buyer] shall pay 2% of the total amount of the Contract to the [Buyer] / the [Seller] as a penalty for the failure of delivery / rescission.

    After conclusion of the Contract, if the [Buyer] delays opening the L/C, the [Seller] shall be entitled to delay the shipment accordingly. However, if the [Buyer] fails to open the L/C within fifteen days after conclusion of the Contract, the [Seller] shall be entitled to rescind the Contract and the [Buyer] shall pay a penalty of 2% of the total amount of the Contract to the other party.

    The [Buyer] shall be responsible for handling import license, paying tariffs, and shall not amend the Contract without the requisite import license in any circumstances. The [Buyer] shall not claim against the [Seller] at first for liability that shall be borne by the insurance company pursuant to (A) clauses of ICC.

    The [Buyer] shall open the L/C with China Bank, China Industry & Commerce Bank, or China Construction Bank.

  12. Discharge of the goods: The [Buyer] shall be responsible for reserving one or two safe berth with minimum depth of 12 M. In case of failure of such reservation, the [Buyer] shall be responsible for the costs of moving the goods past the ship's rail and the time of passing over the rail shall be calculated into the time of discharge.

    The custom of port shall be applicable in absence of relevant provision in the Contract;

    The Contract shall take priority over the custom of port in case of any conflict.

  13. Arbitration: Any controversy, in case of failure to reach an agreement between the parties within sixty days upon occurrence thereof, shall be submitted to China International Economic and Trade Arbitration Commission for arbitration in accordance with the ICC Arbitration Rules. The arbitral award is final and binding upon both parties, and the arbitration fee shall be borne by the losing party

    International Commercial Terms (1990) [INCOTERMS (1990)] shall be applicable to the Contract. The related party shall apply for arbitration within six months upon discharge of the goods, or otherwise, it shall be regarded as a waiver of the right to apply for arbitration.

    Any controversy shall be resolved by arbitration (other methods are not acceptable).

On 15 November 1995, the parties agreed to sign a supplement as part of the main contract (Note by the Arbitral Tribunal: The Chinese version of this supplement was provided by the [Buyer] and has no signature of the parties).The supplement is as follows:

The total amount of the Contract: US $1,968,000; Unit price: US $328 /MT CNF FO CQD Zhapu Port, China; Terms of payment: by L/C 100% at 120 days sight; Two points added to the clause regarding negotiable documents: one original copy of Certificate of Quality and Quantity issued by manufacture, and which shall be conveyed to the [Buyer] within ten working days after the date of shipment.

The [Seller] provided an English version of the supplement with the parties' signature, in which the items are almost same as that in Chinese version, except for the unit price and the total amount. The [Buyer] opened a L/C according to the amount listed in the Chinese supplement, though the [Seller] did not raise any objection to the amount.

A dispute arose between the parties regarding performance of the Contract after conclusion thereof. The [Buyer] applied to the Arbitration Commission for arbitration, requesting the [Seller] to pay the following damages:

  1. L/C issuance fee: RMB 56,800;
  2. Loss of foreseeable profit: RMB 2,353,860;
  3. Loss of down payment of RMB 5,120,000 incurred by the [Buyer] due to the [Seller]'s failure to deliver the goods;
  4. Loss of interest of RMB 300,000 on the above amount;
  5. Arbitration fee to be borne by the [Seller]

II. POSITIONS OF THE PARTIES

[Buyer]'s claims

As stipulated by the Contract, the [Buyer] opened the L/C with China Bank Zhuhai Branch on 29 November 1995. The [Buyer] faxed a copy of the L/C twice for the [Seller]'s review and no mistake had been found. On 29 November 1995, China Bank Zhuhai Branch opened an irrevocable L/C No. LC45P007169 in favor of the [Seller], and notified China Bank Seoul Branch by telex. The L/C provides that the date of shipment shall not be later than 10 December 1995, which is in conformity with the Contract, and that the expiry date of the L/C is 10 January 1996.

Since the Contract had been concluded, on 18 November 1995 the [Buyer] entered into a Sales Agreement with Jiangsu A Group Jiangyin Import & Export Company (A Group) to sell to A Group 6,000 MT hot rolled coils of the Contract goods [Buyer] purchased from the [Seller]. [Buyer]'s Sales Agreement with its customer provides that in order to ensure that the Sales Agreement can be performed, A Group shall pay to the [Buyer] not less than 20% of the total amount as a deposit; and in case of the [Buyer]'s default, the [Buyer] shall refund to the A Group double the amount of the deposit; in case of the A Group's default, the ownership of the deposit shall be transferred to the [Buyer]. A Group paid to the [Buyer] RMB 5,120,000 on 20 November 1995 in accordance with the Sales Agreement, of that amount RMB 4,120,000 was deducted from the [Buyer]'s credit.

In December 1995, after the [Buyer] had opened the L/C, the [Seller] notified the [Buyer] that [Seller[ had some problems with the source of the goods, and could not load the goods before 10 December. The [Seller] requested delay of the loading and asked the [Buyer] to change the shipment date to 23 December 1995 and the expiry date of the L/C to 23 January 1996. Given that the [Buyer] had concluded an agreement with a domestic customer and that the [Buyer] would continue to cooperate with the [Seller], the [Buyer] agreed, but only to extend the shipment date to 20 December 1995. On 25 December 1995, the [Buyer] received a Notification of Shipment faxed by the [Seller] which indicated: 1. Vessel name: M/V JEON FIN; 2. Number of B/L: One; 3. Date of shipment: 20 December 1995; 4. Contract number: 95CNZH1102; 5. L/C Number: LC45P007169; 6. Goods: Hot rolled coils; 7. Quantity: 390 rolls, Gross weight: 5,465.85 MT, Net weight: 5,460 MT; 8. Port of shipment: NAKHODKA Port, Far East; 9. Estimated date of departure: 22 December 1995.

On 27 December 1995, the [Seller] faxed to [Buyer] one each: On Board B/L, Commercial Invoice, Certificate of origin, and Packing List. In the B/L, there is no title and mark as well as the B/L serial number. The B/L indicates: Carrier: METAL FER CORP; Consignee: To order; Notify Party: ___ International Trading Company; Vessel Name: M/V JEON FIN; Port of shipment: NAKHODKA, Far East; Port of Discharge: Zhapu Port, China; Freight paid; Clean On Board B/L.

According to the Notification of Shipment by the [Seller], the [Buyer] reckoned that, if the shipment had been loaded on 20 December 1995 and had departed on 22 December 1995, it would have arrived at Zhapu Port on 27 December after four days voyage. However, the [Buyer] did not receive any notice regarding the arrival of M/V JEON FIN at Zhapu Port, and there was also no information regarding the arrival of the vessel "M/V JEON FIN" at Zhapu Port in the forecast of China Ocean Shipping Agency Jiaxing Company (Jiaxing Shipping Agency). The Notify Party went to Zhapu Port, but failed to find any related information thereto. Pursuant to the Contract, the [Seller] shall notify the [Buyer] within seventy two hours after loading of the shipment. Although the [Seller] declared that shipment had been loaded on 20 December 1995, the [Seller] did not notify the [Buyer] of the loading until 25 December 2005. Therefore, the [Buyer] deemed that there could be some untrue statement. In order to avoid any deception considering the large amount of money being paid for the goods, the [Buyer] decided not to amend the L/C. Thereafter, the [Buyer] received neither any notice regarding the berth of the vessel "M/V JEON FIN" at Zhapu Port nor the goods shipped by the vessel "M/V JEON FIN". Prior to February 1996, the Jiaxing Shipping Agency, the only international shipping agency approved by the Ministry of Communications in Zhapu Port, had never acted for the vessel "M/V JEON FIN", and the vessel "M/V JEON FIN" had never arrived in Zhapu Port.

Due to the [Seller]'s failure to deliver the goods, the agreement between the [Buyer] and its domestic customer could not be performed, therefore, the profit of RMB 2,353,860 expected by the [Buyer] would not be received; furthermore, the [Buyer] had to compensate RMB 5,120,000 to its domestic customer. A huge loss was incurred by the [Buyer] as a result of the [Seller]'s default. In order to protect its legal right, the [Buyer] has requested the [Seller] to indemnify for the loss by phone for many times, but the [Seller] rejected such requests.

[Seller]'s counterclaims

On 4 November 1996, the [Seller] submitted to the Arbitration Commission counterclaims, asking the Tribunal to rule that:

  1. The [Buyer] should pay US $ 39,120.00 as default payment according the Contract;
  2. The [Buyer] should indemnify the [Seller] US $108,000.00 for the loss of foreseeable profit;
  3. The [Buyer] should indemnify the [Seller] US $136,042.96 (amounting to HK $1,052,612.08) for the loss of freight caused by the [Buyer]'s fundamental breach of the Contract;
  4. The [Buyer] should indemnify the [Seller] US $41,835.50 for the loss of compensation made by the [Seller] to the vessel owner as a result of the [Buyer]'s untrue warranty as to the capability of Zhapu port.
  5. The [Buyer] should pay the attorneys' fee of US $ 20,000 paid by the [Seller] for the arbitration;
  6. The [Buyer] should bear the Arbitration fee for the counterclaims.

[Seller]'s arguments

  1. The [Buyer] failed to open the L/C in full compliance with the Contract, due to which the documents submitted by the [Seller] could not be negotiated. The [Buyer] should assume the liability for this default. The [Buyer] promised to amend the L/C as requested by the [Seller], which constituted the [Buyer]'s contractual obligation. The [Buyer]'s failure to perform this obligation deprived the [Seller] of the right to accept the amount of the Contract, which constituted a fundamental breach. The [Buyer] should assume the liability for the fundamental breach.
  2. The [Buyer] failed to accept the goods, which deprived the [Seller] of the right to gain the foreseeable interest. The [Buyer] should also assume the liability for this fundamental breach.
  3. Due to the [Buyer]'s fundamental breach, the [Seller] should be entitled to rescind [avoid] the Contract and dispose of the goods, and the [Buyer] should pay to the [Seller] the defaulting penalty, i.e., 2% of the total amount of the Contract (US $326/ MT X 6,000 MT) amounting to US $39,120. The [Seller] paid US $136,042 to the vessel owner as instructed by the supplier because of the [Buyer]'s default, the [Buyer] therefore should indemnify the [Seller] US $136,042.96 (amounting to HK $1,051,612.08) for the loss of freight.
  4. Because the [Buyer] refused to amend the L/C or to take other remedies to take delivery of the goods, the [Seller] had no way to go, but asked for its supplier's help and returned the goods to its supplier. Therefore, the [Seller] failed to gain the expected profit based on the Contract, namely, the price difference between the Contract price and the supplier's price. The total amount of the expected profit: (US $326/ MT - US $308/ MT) X 6,000 MT = US $108,000.
  5. As a result of the [Buyer]'s untrue warranty as to the capability of Zhapu port, the [Buyer] should indemnify the [Seller] US $41,835.50 for the loss of compensation made by the [Seller] to the vessel owner.

Major issues in dispute

1. The amendment of the L/C

The parties agreed in the Contract dated 13 November 1995 that the date of shipment would be no later than 10 December 1995, the term of shipment would be by L/C 100% payable at 60 days sight. On 15 November 1995, the parties signed the supplement to change the term of payment to L/C 100% payable at 120 days sight. After conclusion of the supplement, the [Buyer] established irrevocable L/C No. LC45P007169 in favor of the [Seller] with China Bank Zhuhai Branch on 29 November 1995 and notified the [Seller] of this. Because the [Seller] failed to load the goods within the prescribed time, the [Seller] sent two faxes on 4 December 1995 and on 6 December 1995, requesting the [Buyer] to change the latest date of shipment from 10 December 1995 to 23 December 1995. On 8 December 1995, the [Buyer] sent a letter to the [Seller], stating, "Considering the long term cooperation between us, our company agrees to amend the L/C and to extend the shipment date to 20 December, please load the goods on time." On 20 December 1995, the [Seller] loaded the shipment, but the [Buyer] failed to amend the L/C.

The [Buyer] deems that the [Seller]'s request to amend the L/C and to change the latest shipment date from 10 December 1995 to 23 December 1995 in the faxes of 4 December 1995 and 6 December 1995 is not in conformity with the Contract and should be regarded as a new offer, however, the [Buyer]'s fax dated 8 December does not constitute an acceptance of such an offer. Although the [Seller] requested extension of the latest shipment date to 23 December 1995, the [Buyer] only agreed to extend to 20 December 1995. Because the amendment of the latest shipment date is considered as a fundamental change under international practices, the [Buyer]'s fax dated 8 December 1995, which rejected the offer, should be regarded as a counter-offer. The parties failed to reach an agreement over the shipment date, consequently, the [Seller] should load the goods prior to 10 December 1995, the latest shipment date stipulated by the Contract; otherwise, the [Seller] would breach the Contract

The [Seller] alleges that the L/C established by the [Buyer] on 2 December 1995 contains many unconformities with the Contract and the L/C draft provided by the [Seller], thus the [Seller] requested the [Buyer] many times to amend the L/C according to the Contract and the L/C draft. On 2 December 1995, the [Seller] requested the [Buyer] in writing to extend the shipment date to 23 December 1995 and to amend the L/C accordingly. On 6 December 1995, the [Seller] requested the [Buyer] to amend the L/C again. On 8 December 1995, the [Buyer] sent a letter to the [Seller] in which the [Buyer] promised to amend the L/C and agreed to extend the shipment date to 20 December 1995. The [Seller] continued to perform the Contract based on the [Buyer]'s commitment of amending the L/C. However, the [Buyer] failed to abide by the commitment. The [Buyer] did not amend the L/C.

2. The authenticity of the documents submitted by the [Seller]

On 25 December 1995, the [Seller] sent a Notification of Shipment to the [Buyer] by fax, which indicates: 1. Vessel Name: M/V JEON FIN; 2. Number of B/L: One; 3. Date of shipment: 20 December 1995; 4. Contract serial number: 95CNZH1102; 5. L/C Number: LC45P007169; 6. Goods: Hot rolled coils; 7. Quantity: 390 rolls, Gross weight: 54665.85 MT, Net weight: 5460 MT; 8. Port of shipment: NAKHODKA Port, Far East; 9. Estimated date of departure: 22 December 1995.

On 27 December 1995, the [Seller] faxed the [Buyer] one each for On Board B/L, Commercial Invoice, Certificate of Origin, and Packing List. In fact, however, the vessel arriving at Zhapu Port on 13 January 1996 is named "JEON JIN", not "JEON FIN" [translator's emphasis added].

The original "JEON FIN" B/L is different from the duplicate "JEON JIN" B/L received by the [Buyer] from the Jiaxing Shipping Agency. The major differences are: 1. Different form; 2. Different agency; 3. Different quantity, Different net weight, and Different gross weight of the goods; 4. Different vessel.

The [Buyer] deems that the Notification of Shipment and the full set of negotiable documents sent by the [Seller] on 25 December 1995 and 27 December 1995 indicates to the [Buyer] clearly that the vessel carrying the goods of the Contract is "M/V JEON JIN", but the carrying vessel actually is "JEON FIN"; and that the [Seller] failed to disclose the information to the [Buyer], which obviously constitutes a "fraud".

The [Seller] alleges that the [Buyer] should know the reason for the difference between "JEON FIN" and "JEON JIN". On the afternoon of 15 December 1995, the [Seller] sent a notice to the [Buyer] regarding the correct name of the vessel and explained many times to the [Buyer] in this regard. The [Buyer] feigned ex post facto the [Seller]'s serious fraud that the [Seller] knew that the carrying vessel was "JEON JIN" but informed the [Buyer] repeatedly that the carrying vessel was "JEON FIN", and that the [Seller] forged the full set of negotiable documents with "JEON FIN". The goods arrived at the destination port. The [Buyer] should accept the goods unconditionally instead of focusing on the typo in the vessel's name.

3. The agreement dated 4 January 1996

On 4 January 1996, the [Buyer]'s representative Mr. Si___ and the [Seller]'s Representatives Mr. K.H. KIM and Mr. Zhu___were prepared to accept the goods in Jiaxing. They reached an agreement through negotiation, to the effect that:

  1. Regarding the Contract of 6,000 MT hot rolled coils between the [Buyer] and the [Seller] and the L/C of November 1995, the [Buyer] promised to amend the L/C prior to 10 January 1996 (including 10 January 1996) according to the requirements of such amendment submitted in December 1995;
  2. If the [Seller] delivers the quality goods required by the Contract of November, the [Buyer] promised to make the payment to the [Seller];
  3. The [Seller] consents to issue a formal document to transfer the ownership of the goods to the [Buyer].

The [Buyer]'s representative Mr. Si___ signed two copies after drawing up the agreement. The [Seller]'s Representative Mr. Zhu___ brought the two copies back to their company, and, after signing, faxed them to the [Buyer], but the [Buyer] contended that they had not received the fax.

The [Buyer] alleges that:

The agreement of January 1996 exhibited at the hearing by the [Seller] was kept only by the [Seller]. After the [Buyer]'s representative Mr. Si___ signed the agreement, the [Seller] took away the copies and indicated that they would decide to sign it upon discussion, but thereafter, the [Buyer] did not get any news in this regard. The [Seller] did not fax back the agreement signed by the [Seller]. The [Buyer] therefore determined that the [Seller] did not agree with the agreement. Furthermore, from the content of the agreement (recollection based on the agreement exhibited at the hearing) the [Buyer]'s consent to the [Seller]'s request of the L/C amendment was conditional: 1. That [Seller] should deliver the quality goods according to the Contract; 2. That [Seller] should transfer the ownership of the goods to the [Buyer]. The [Seller] has done neither.

   -    First, the Contract provides that the origin of the goods should be Russia and that the [Seller] shall provide an original copy of Certificate of origin issued by the Russian Chamber of Industry and Commerce, but the [Seller] provided a false Certificate of origin. In accordance with the supplement to the Contract, the [Seller] shall provide a Certificate of Quality issued by manufacture, but the [Seller] neither provided such a Certificate of Quality to the bank with other negotiable documents, nor sent one to the [Buyer] via DHL.
   -    Second, the [Seller] failed to transfer the ownership of the goods to the [Buyer].

Therefore, the [Buyer] should be entitled not to amend the L/C.

Besides, most importantly, at the time of concluding the agreement, the [Buyer] consented to amend the L/C because [the [Buyer] had not seen the copy of the "JEON JIN" B/L and had not found that the "JEON FIN" B/L sent to the [Buyer] by the [Seller] was different from the "JEON JIN" B/L held by the shipping agency, and also, the [Buyer] had not realized that the amendment requested by the [Seller] would result in serious consequences. Consequently, the [Buyer] had been trapped in a false cognition and had falsely manifested its intention where the [Seller] were to submit to the bank the false Certificate of origin and the false "JEON FIN" B/L, and concealed intentionally the significant fact from the [Buyer] and induced the [Buyer] to agree to amend the L/C as requested by the [Seller]. After the deceived party saw through the deception, it is wise and legitimate for that party to take prompt measures and to refuse to amend the L/C in order to avoid any loss.

The [Seller] alleges that:

The agreement dated 4 January 1996 was signed by both parties' authorized representatives and came into force. It cannot be seen from the content of the agreement that the [Buyer]'s consent to the L/C amendment is conditional.

   -    First, the three points of the agreement are parallel and the [Buyer]'s consent to the amendment of the L/C is positioned as the first one. There are no words to indicate that the last two points are the precondition of the first point.
   -    Second, the [Buyer]'s submission is in conflict with the principles of sales of international goods. In international sales of goods, if a L/C is applicable, the payment should be made prior to the inspection of the quality of goods, and the ownership of the goods should be transferred when the documents are negotiated and the payment is made.

Accordingly, it is impossible to amend the L/C, as the [Buyer] held, on condition that the [Buyer] is satisfied with the quality of the goods and the ownership has been transferred. On the contrary, the [Buyer] should amend the L/C in advance and then [Buyer] can have the quality goods and the ownership thereof. In the present case, the [Buyer] breached the Contract by failing to perform its obligation to amend the L/C. The [Buyer] thereby forfeited the right to receive the goods and the ownership thereof.

The [Buyer] contested that at the time of conclusion the agreement of 4 January 1996, the intent of consenting to the L/C amendment was wrongly manifested because the difference has not been found between the JEON FIN B/L and the JEON JIN B/L. It is one of the [Buyer]'s major obligations to open a proper L/C under the Contract, which is a precondition to the [Seller]'s delivery as well, and which has nothing to do with the finding of the difference between the JEON FIN B/L and the JEON JIN B/L. In fact, the [Buyer] did not find the difference between the JEON FIN B/L and the document held by the shipping agency until March 2006. The [Buyer]'s failure to amend the L/C was not caused by the finding of the difference but by the fault of the [Buyer]'s responsible person. Accordingly, the [Buyer]'s breach of contract is in bad faith on the part of the [Buyer]; its excuse was forged in the process of the present arbitration.

4. Certificate of origin

The Contract of 13 November 1995 between the parties provides that the goods originated in Russia. The [Buyer] suspects the authenticity of the Certificate of origin signed by the "Russian Chamber of Commerce" included among the full set of negotiable documents sent to the [Buyer] by the [Seller] on 25 December 1995. After the first hearing held by the Tribunal, the [Buyer] authorized China Council for the Promotion of International Trade (CCPIT) Zhuhai Office to request the Economic and Commercial Counselor's Office of Embassy of the People's Republic of China in the Russian Federation to probe the authenticity of the Certificate of origin of the Russian Chamber of Industry and Commerce. The Certificate of origin was proved a forged one.

The [Seller] alleges that the [Buyer] has not had a suspicion regarding the authenticity of the Certificate of origin from November 1995 to November 1996 and that the [Buyer]'s present assertion regarding the false Certificate of origin is futile. Moreover, the [Buyer]'s investigation and collection of evidence has not been notarized; the above evidence submitted by the [Buyer] therefore does not have the power of evidence.

5. Whether the [Buyer] should accept the goods at the destination port

The vessel JEON JIN carrying the goods under the Contract arrived at Zhapu Port on 13 January 1996 and was berthed on 14 January 1996. At the time, the representatives of the parties negotiated with respect to the delivery of the goods at Zhapu port. On 15 January 1996, the [Buyer] presented the final opinions regarding the goods as follows:

(1)    The price should be decreased by US $20/ MT.
(2) The ownership of the goods should be transferred prior to discharge.
(3) If the ownership of the goods is transferred after discharge, all the terminal handling charges should be borne by the [Seller].
(4) The [Buyer] should provide a guarantee of ___ China Bank. Once the [Buyer] accepts the goods, the bank will make the payment unconditionally.
(5) The date of payment should start from the date of receipt by ___ China Bank.
(6) If the [Seller] does not accept the above suggestion, the [Buyer] will make the payment according to UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS, ICC Publication No. 500.
(7) On condition that the price is decreased by US $20 /MT and the ownership is transferred before discharge, the [Buyer] will provide a guarantee to the bank and complete the procedure of confirmation.

Because the [Seller] had not accepted the above suggestion of the [Buyer], the negotiation between the parties failed, and the [Seller] advised the JEON JIN to depart from Zhapu port on 16 January 1996.

The [Buyer] alleges that:

When the vessel JEON JIN arrived at Zhapu port, the agent of the vessel JEON JIN, the Jiaxing Shipping Agency, requested the [Buyer] to submit the original copy of the JEON JIN B/L and indicated that it was impossible for the [Buyer] to take delivery of the goods with the JEON FIN B/L. Anyone familiar with ocean shipping procedure knows that it is ridiculous to take delivery of the goods carried by the vessel JEON JIN with the JEON FIN B/L. In addition, in ocean shipping practice, the consignee is allowed to take delivery of the goods without an original copy of B/L, but with a duplicate copy of B/L. A shipping guarantee is an indemnity provided by the guarantor to the carrier that the original B/L shall be returned on time, in case of failure of such return, all the loss arising there from shall be borne by the guarantor. In the present case, the JEON FIN B/L is very different from the JEON JIN B/L. The [Buyer] could have obtained only the original copy of JEON FIN B/L if the [Buyer] had amended the L/C and cannot have the original JEON JIN B/L in any case. Consequently, the [Buyer] cannot take delivery of the goods carried by the JEON JIN under ocean shipping rules. Furthermore, where the [Buyer] found the difference between the JEON FIN B/L and the JEON JIN B/L, if the [Buyer] took delivery of the goods with a shipping guarantee as requested by the [Seller], it is possible that a third party will challenge the ownership of the goods carried by the JEON JIN. Besides, the following results are inevitable. Even if the L/C had been amended, the [Buyer] still cannot have the original JEON JIN B/L finally and the guarantor cannot return the original JEON JIN B/L to the carrier of the vessel JEON JIN. Then, the carrier of the vessel JEON JIN would bring a claim against the guarantor based on the guarantee contract and the guarantor would bring a claim against the [Buyer], the [Buyer] thus would be involved in a bigger trouble. In addition, the full set of documents of "JEON FIN" submitted to the negotiating bank by the [Seller] are not in conformity with the vessel JEON JIN which arrived at the port and with the duplicate copy of the JEON JIN B/L, but the [Seller] failed to produce any evidence in this respect. Hence, in any event, the [Buyer] cannot accept that the goods carried by the vessel JEON JIN are those provided for in the Contract and in the negotiable documents.

The [Buyer] deems that the Contract was concluded in November 1995 and the parties negotiated about the goods carried by the vessel JEON JIN in the middle of January 1996, the [Buyer] therefore should be entitled to put forward its suggestions regarding the price, term of payment, and delivery of the goods carried by the JEON JIN.

The [Seller]'s opinion is that:

The final suggestions submitted by the [Buyer] are in conflict with international trade law and the Contract. The [Buyer] should notify immediately its acceptance of the shipping documents through the bank and then ask the [Seller] to transfer the ownership of the goods. The term of payment requested by the [Buyer] in the final suggestions is "by Document against payment" instead of "by L/C", but L/C payment was agreed by the parties in the Contract; the [Buyer] therefore breached the Contract.

The [Seller] cannot accept the [Buyer]'s request regarding the decrease of price and the term of payment.

III. OPINION OF THE TRIBUNAL

1. Applicable law

Article 20(3) of the Contract provides that INCOTERMS (1990) shall apply to the contract. The L/C stipulates that Uniform Customs and Practices for Documentary Credits 1993 (UCP 500) shall apply to the L/C. Furthermore, at the hearing, both parties agree to refer to other international customs in the arbitration. Therefore, the applicable laws in the dispute include INCOTERMS (1990), UCP 500, the CISG, of which China and the Republic of Korea are Contracting States, and other international customs agreed by the parties.

2. Did the [Buyer] open the L/C behind time? Did the [Seller] deliver the goods behind time?

The fourth clause of Article 16 of the Contract provides that the [Buyer] shall open a L/C within fifteen work days after conclusion of the Contract. The [Seller] received the L/C on 2 December 1996 and did not raise any objection to the late opening of the L/C by the [Buyer]. The [Seller] requested an amendment of the L/C on 4 and 6 December 1995, but the [Seller] asked for an extension of the date of shipment only and did not raise the issue that the [Buyer] opened the L/C behind the time stipulated by the Contract.

The [Buyer] did not assert claims against the [Seller] because of the [Seller]'s failure to load the shipment on time caused by the mechanical malfunction of the [Seller]'s supplier. Moreover, the [Buyer] stated in its fax of 8 December 1996 that, "considering the long term cooperation, we agree to amend the L/C and to extend the delivery date to 20 December of the month." The [Buyer] submitted to the [Seller] the penalty issue for the late delivery around 5 December of that year but, as judged from the fax of 8 December sent by the [Buyer] to the [Seller], the [Buyer] waived the right in this regard.

To sum up, the Arbitral Tribunal holds that the parties has reached a mutual understanding not to pursue each party's responsibility as to timeliness of the L/C and delivery: Did the [Buyer] open the L/C on time? Did the [Seller] deliver the goods on time? It makes no sense to raise these issues that were settled, now that a dispute has arisen between the parties.

3. Does the [Buyer]'s failure to amend the L/C constitute a default?

As to the [Seller]'s requests to amend the L/C on 4 and 6 December 1995, the [Buyer] agreed to amend the L/C in its fax of 8 December, but only agreed to extend the delivery date to 20 December 1995, not 23 December as requested by the [Seller]. Through investigation, the [Seller] demanded not only amendment of the delivery date and extension of the validity period of the L/C, but also: (1). Specification: from GRADE ST 3 SP/PSACC to GOST 380 - 88; (2). Manufacture: from MMK to MAGNITOGORDKIRON and STEEL WORKS; (3). Change the "Unit" of the packing list from "piece" to "size"; (4). Delete the sentence "Original Certificate of Quality provided by the manufacture". The [Buyer] did not establish the clause of the L/C dealing with the specification of the goods according to the Contract. The Contract does not provide for the above points (2) and (3). The [Buyer] itself established the corresponding clauses in the L/C. Although the [Buyer] contended to have submitted the L/C twice for the [Seller]'s review, the [Buyer] failed to produce any evidence in this regard.

The Arbitral Tribunal holds that the L/C should be established pursuant to the Contract and UCP 500 allows that the beneficiary can reasonably request amendment of certain clauses of the L/C according to the supplier's documents. In fact, the [Buyer] should have amended the L/C in the fax sent to the [Seller] on 8 December 1995. Though the parties had not agreed upon the shipment date, the [Buyer] agreed to amend the L/C in time as promised. If the [Seller] failed to load the shipment within the originally prescribed shipment date after the L/C opening, the [Buyer] should have been entitled to rescind the Contract and to claim the defaulting penalty against the [Seller] by referring to the third clause of Article 11 of the Contract. However, although the [Buyer] should have amended the L/C, the [Buyer] failed to amend the L/C, which likewise constitutes a breach of contract .

The Arbitral Tribunal noted that the [Seller] sent the Notification of Shipment and the duplicate copy of the B/L to the [Buyer] on 25 December and 27 December 1995. The [Seller] therefore alleged that the loading activity had confirmed the acceptance of the [Buyer]'s request to load the shipment prior to 20 December, and that the [Buyer] should have amended the L/C accordingly. The Arbitral Tribunal holds that, according to Article 18(3) of the CISG, the [Seller] is entitled to accept the above request by its shipping activity, provided that such acceptance shall satisfy two requirements: (1). a notification of acceptance shall be sent to the [Buyer] in writing; and (2). such a notification of acceptance shall be sent within a reasonable time. China had made a reservation on the "in writing" requirements when it signed the CISG, which means that any acceptance of an offer must be sent to the offeror in writing. The [Seller]'s shipping activity therefore does not constitute a notification of acceptance. The [Seller] sent to the [Buyer] the Notification of Shipment on 25 December and a duplicate copy of B/L on 27 December, informing the [Buyer] that the goods had been shipped out on 20 December 1995. The [Buyer] submitted a new offer regarding the shipment date on 8 December, in response to which, even though it does not provide for the period of acceptance, the [Seller] should send a notification of acceptance within a reasonable time. The [Seller] notified the [Buyer] of such acceptance on 25 December after five days of the departure. Such a notification cannot be regarded as a valid acceptance, so the [Seller]'s allegation shall be regarded as ungrounded.

4. The authenticity of the documents submitted by the [Seller]

The [Seller] stated that entering the vessel name JEON FIN on the B/L was a typo. At the hearing, the [Seller] explained that the typo had appeared because the [Seller] had entered into a C&F term with its supplier under which the supplier should be obligated to lease a vessel and the [Seller] should prepare other negotiable documents upon receipt of a duplicate copy of B/L. The Arbitral Tribunal holds that the disputed Contract was concluded by and between the [Seller] and the [Buyer], under which, the price term is C&F Zhapu port, China, and the [Seller] should be obligated to submit an authentic and valid B/L so that the [Buyer] or any other holder of the B/L can take delivery of the goods safely. Although the B/L was provided by a third party, the [Seller] cannot be excluded from this obligation. The evidence indicates that the shipping agent of the vessel JEON JIN, Korea Asset Management Co., sent a duplicate copy of the JEON JIN B/L to the Chinese shipping agent of the vessel JEON JIN, Jiaxing Shipping Agency, which contains a different vessel name and a different quantity of goods from that shown in the B/L faxed by the [Seller]. Pursuant to international shipping practices, the holder of the B/L shall change through its shipping agent for a delivery order with an original B/L that shall be in conformity with the duplicate copy of the B/L held by the shipping agent, and then can take delivery of the goods. The vessel name contained in the B/L submitted by the [Buyer] is JEON FIN. The captain or the shipping agent will not release the goods, unless the [Seller] alters the vessel name contained in the B/L within the validity period of the L/C, or the owner or the captain of the vessel notifies in writing the shipping agent, Jiaxing Shipping Agency, that the consignee could take delivery of the goods with the original B/L of different name, or if the consignee provides a shipping guarantee to the carrier. Therefore, even had the [Buyer] amended the L/C and paid the bank for the documents, the [Buyer] could not have taken delivery of the goods against the B/L submitted by the [Seller].

According to INCOTERMS (1990), under C&F, the [Seller] is obligated to lease a vessel, to ship the goods to the designated destination port, to fully notify the [Buyer] of the shipment, and to notify the [Buyer] of any other necessary step for taking delivery of the goods. The [Seller] alleged that it had notified the [Buyer] of the typo of the vessel name on the afternoon of 15 December 1995 when [Seller] knew that the vessel was named JEON JIN. Since the [Seller] knew that the vessel was named JEON JIN, but not JEON FIN, why did not the [Seller] amend the B/L and other negotiable documents within the validity period of the L/C? The [Seller] argued that it did not revised the vessel name to "JEON JIN" in the shipping documents because the vessel name was described as "JEON FIN" in the Certificate of origin provided with by the [Seller]'s supplier, and if the [Seller] had revised the vessel name, an inconformity of the documents would have arisen and the [Seller] could not negotiate the payment from the bank. The Arbitral Tribunal holds that it is dishonest not to revise the B/L and other negotiable documents within the validity period of the L/C for the purpose of negotiation of payment from the bank while knowing clearly that the carrying vessel name is JEON JIN. The [Seller] did not perform its obligation, which constitutes a breach of contract likewise.

Simultaneously, the Contract provides that the [Seller] shall send a Notification of Shipment indicating the B/L number and the estimated arrival date within seventy-two hours after loading. Pursuant to the duplicate copy of the B/L submitted by the [Seller], the goods were loaded on 20 December 1995. According to the Contract, the [Seller] should have sent the Notification of Shipment on 23 December 1995 at the latest, but the [Seller] sent the notification to the [Buyer] as late as 25 December and did not indicate the B/L number and the estimated arrival date thereon. Also, the [Seller] did not convey to the [Buyer] the original Certificate of Quality and Quantity issued by manufacture as promised. Such activities of the [Seller] constitute a breach of contract and induced the [Buyer] to doubt the late shipment and to be concerned over false origin of the goods.

5. The agreement dated 4 January 1996

At the hearing, both parties accepted that the representatives of the parties had negotiated about the agreement at Zhapu port on 4 January 1996. The [Seller] proposed the first item of the agreement and the [Buyer] proposed the second and the third item. The [Seller]'s representative Mr. Zhu__ made the agreement in writing. after the [Buyer]'s representative Mr. Si__ signed the agreement, Mr. Zhu stated that the Shanghai Representative Office of the [Seller] did not have the power to sign the agreement, the signature would be available after confirmation of the [Seller]'s headquarters. Though the [Seller] alleged that they had authorized an empowered attorney to sign the agreement and had faxed to the [Buyer], the [Buyer] denied acceptance of the agreement faxed by the [Seller] and no evidence proves that the [Seller] had sent the agreement back to the [Buyer]. The agreement therefore is not deemed to have been concluded.

6. Certificate of origin

The [Buyer] alleges that the [Seller] submitted a false Certificate of origin, which constitutes a fraud. The Arbitral Tribunal holds that if the [Buyer] can establish any evidence of the [Seller]'s fraud, the [Buyer] should convey the evidence to the negotiable bank through the L/C opening bank when the [Seller] submitted the negotiable documents to the negotiable bank, and refuse to make the payment by reason of the [Seller]'s fraud. However, the [Buyer] did not take the false Certificate of origin as the ground of a fraud in order to refuse to make the payment before the [Seller] submitted the negotiable documents to the bank on 11 January 1996. The Buyer raised the allegation only when applying for the arbitration.

Moreover, The Contract in this case was not executed. Had the Contract been executed and the [Buyer] taken the delivery and conducted an inspection of the goods, and found that the origin of the goods was not Russia, the [Buyer] would have been entitled to claim for damages against the [Seller]. However, the [Buyer] failed to raise the issue and failed to take the delivery when the [Seller] requested a payment negotiation with the bank. It is therefore futile to contest the authenticity of the documents and the fraud.

7. Whether the [Buyer] should have accepted the goods at the destination port?

The Arbitral Tribunal finds that:

(1)       The vessel JEON JIN arrived at Zhapu port on 13 January 1996, and was berthed on 14 January.
(2) On 13 January, the agent of the vessel requested in writing that the Notify party, ____ International Trading Company, handle the procedure of delivery. Mr. Zhou__ and Mr. Wang__, employees of the Jiaxing Shipping Agency, testified that Mr. Si__ of the [Buyer] went to take delivery of the goods with the Customs officials, but because he did not have the original B/L, they could not release the goods. On 14 January, the shipping agent notified the vessel to hold up the discharge guarantee.
(3) On 11 January, the [Seller] submitted the negotiable documents; on 12 January, the L/C opening bank inquired of the [Buyer] in writing whether to accept the documents with defects; on 13 January, the [Buyer] informed the L/C opening bank by letter that, "according to the documents including the Notification of Shipment, B/L, Invoice, and Packing List sent by the [Seller] on 27 December 1995, the vessel name is 'M/V JEON FIN', but the forecast of the Harbor Bureau and the shipping agency did not show that a vessel named 'M/V JEON FIN' would arrive. Although the [Seller] confirmed that another berthed vessel was leased by them, because the [Seller] does not have the original B/L and other persuasive documents, our company cannot amend the L/C or commit to make the payment." On 16 January, the L/C opening bank advised the negotiating bank to protest the payment.
(4) On 14 January, the [Seller]'s representatives, Mr. K.H. KIM and Mr. Zhu__, arrived at Jiaxing; on 15 January, the [Buyer]'s representative Mr. Si___ proposed in writing that the price should be decreased by US $20/ MT, the ownership of the goods should be transferred before discharge, and the [Buyer] would provide a shipping guarantee of ___ China Bank. On the same day, the [Seller] responded to the [Buyer] by fax, stating that the decrease of the price is not acceptable; and, suggesting to close the deal if the [Buyer] does not make the position clear. The [Buyer] did not give any response. On 16 January, the [Seller] submitted four final decisions. The [Seller] stated that the [Buyer]'s proposal went beyond the international trading rules and was in conflict with the Contract; the proposal was based on Documents against Payment instead of L/C, but the term Documents against Payment is out of the negotiation from the very beginning; this is the last notice; the [Buyer] should send an acceptance advice of the documents without any additional condition before two o'clock 16 January; the [Seller] would maintain the right to claim for all loss caused by resale of the goods to another customer.
(5) On 16 January, noting that the bank protested to pay for the documents, the [Seller] instructed the vessel JEON JIN to depart from the port.

Based on the above, the Arbitral Tribunal holds that, after the vessel JEON JIN had arrived at the port, the parties' representative negotiated on the amendment of the L/C and the delivery of the goods in Jiaxing. The shipping agency informed the [Buyer] to take the delivery and the [Buyer]'s representative did try to take the delivery, and then they learned that the arriving vessel was JEON JIN not JEON FIN. The shipping agent informed that the delivery could be taken only with the original JEON JIN B/L or with a shipping guarantee of a bank. The letter sent to the L/C opening bank by the [Buyer] on 13 January also indicates that the [Seller] confirmed with them that the berthed vessel was leased by them.

In this situation, if the [Buyer] had considered the resale agreement it had concluded with its client, it should have notified the [Seller]'s representatives in Jiaxing of the known circumstances, and should have requested the [Seller] to notify the vessel to instruct the Jiaxing Shipping Agency to consent to the [Buyer] taking the delivery on the original JEON FIN B/L. However, the [Buyer] failed to do so; instead, on the third day after the [Seller] had submitted the negotiable documents to the negotiating bank, the [Buyer] informed the L/C issuing bank that it could not amend the L/C, and requested the [Seller] to reduce the price. The [Buyer] asserted that the vessel arriving at the port was another one and they were discussing another deal with the [Seller]. The [Buyer]'s above activities resulted in non-performance of the Contract; the [Buyer] therefore shall be responsible for the breaching activity.

Simultaneously, the Arbitral Tribunal holds that, since the [Seller] confirmed that the arriving vessel JEON JIN was the one they leased for carrying the goods under the Contract, the [Seller] should have shown the relevant proof, taken active measures, instructed the vessel to release the goods, and removed the doubt of the [Buyer] in order to perform the Contract smoothly. However, the [Seller] failed to do so; the [Seller] shall also be responsible accordingly.

Based on the above, both parties breached the Contract and both parties incurred some loss, however, the loss could have been be avoided if the parties had cooperated closely during the performance of the Contract. Therefore, the Arbitral Tribunal holds that the parties shall assume the loss respectively and the [Buyer]'s claims and the [Seller]'s counterclaims shall be rejected.

III. THE AWARD

1. All of the [Buyer]'s claims shall be rejected.
2. All of the [Seller]'s counterclaims shall be rejected.
3. The arbitration fee for the claims and the counterclaims shall be borne by the [Buyer] and the [Seller], respectively.

The award shall be final and binding


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 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's Republic of China (renminbi) are indicated as [RMB]; amounts in the currency of Hong Kong (dollars) are indicated as [HK $].

** Zhan Changzheng is an Associate with Shanghai Haoliwen PRC Attorneys. He received his LL.M from Xiamen University. He focuses on company law, international commercial arbitration law, and international trade law.

*** 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 November 7, 2007
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