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CISG CASE PRESENTATION

China 16 December 1997 CIETAC Arbitration proceeding (Hot-dipped galvanized steel coils case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/971216c1.html]

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

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Case identification

DATE OF DECISION: 19971216 (16 December 1997)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/35

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (claimant)

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

GOODS INVOLVED: Hot-dipped galvanized steel coils


Case abstract

PRC: China International Economic & Trade Arbitration Commission (CIETAC), 16 December 1997

Case law on UNCITRAL texts (CLOUT) abstract no. 716

Reproduced with permission of UNCITRAL

Abstract prepared by Meihua Xu

This case deals with the anticipatory breach of contract (Article 71 CISG) and the avoidance of contract prior to date for performance (Article 72 CISG).

A Chinese buyer entered into a contract with a German seller for the purchase of 2,000 tons of hot-dipped galvanized steel coils with payment by Letter of Credit [L/C]. After conclusion of the contract, the buyer issued a L/C which contained many terms not complying with the contract. Later on, the buyer asked the seller to divide the contract into two parts, 1,000 tons under each contract, or divide the B/L into four parts, 500 tons under each, in order to avoid trouble applying to customs. While the parties were still negotiating, the buyer modified the L/C by adding new terms without the consent of the seller. Meanwhile, the seller also requested to revise the reference in the L/C that read "each package to weight 5~9MT" to read instead "each package to weight no more than 6MT". The buyer did not accept this request asserting that changing the weight of each package would affect the purpose of the goods. After giving notice to the buyer that if it did not revise the L/C within three days, the seller would assume that the buyer cancelled the contract, the seller resold the goods and applied for arbitration. The seller asked the Arbitration Tribunal to require the buyer to pay the loss due to the resale of goods and the interest.

The seller alleged that the weight of each package, which was only the way of packing the goods, had nothing to do with the quality and specification of the goods and would not affect their usage. Furthermore, it argued that the buyer's unilateral revision of the L/C, first, and refusal to revise the L/C afterwards constituted an anticipatory and fundamental breach of contract.

The buyer counter argued on the basis of Article 35 (1) CISG, which states that the seller has the obligation to deliver conforming goods, and that any failure to do so should be considered a fundamental breach of contract under Article 25 CISG. In addition, according to Articles 71 and Article 72 (1) CISG, the buyer alleged that the seller had admitted that the goods to be delivered did not comply with the contract even before the buyer revised the contract, which fell within the above articles. According to Article 72 (2) and Article 72 (3) CISG, the buyer had the right to avoid the contract due to the seller's anticipatory breach of contract.

Since the parties' places of business, Germany and China, are Contracting States of the CISG, and the CISG was often referred to in the seller's application and the buyer's defence, the Arbitration Tribunal ruled that the CISG was the applicable law.

The Arbitration Tribunal noted that the buyer had failed to issue the L/C in accordance with the contract, therefore, as per the seller's request, the buyer had an obligation to make amendments. On the contrary, revising the L/C without the consent of the seller clearly violated the contract. Therefore, the Arbitration Tribunal dismissed the buyer's assertion that the seller had committed an anticipatory breach of contract.

With regard to the seller's request to revise each package weight, in accordance with Article 29 (2) CISG, the Arbitration Tribunal held that there was no written evidence proving that the parties had reached an agreement on this. Therefore, the original clause, package weight of "5~10MT", was binding on both parties. The buyer had the right to refuse to revise this clause and the seller breached the contract by seeking to require the buyer to revise this clause; therefore, it shall bear liability.

Holding both parties at fault, the Arbitration Tribunal compromised and only granted part of the loss of price difference claimed by the seller without interest.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 29 ; 35 ; 71 ; 72 ; 75 ; 80 [Also cited: Articles 53 ; 60 ]

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach: substantial deprivation of expectation];

29B [Written contract may require writing for modification or termination];

35A ; 35B [Conformity of the goods: quality, quantity and description required by contract; Requirements implied by law];

71A [Anticipatory breach (apparent that a party will not perform a substantial part of obligations: grounds for suspension by other party];

72A ; 72D [Avoidance prior to date for performance: when clear that party will commit fundamental breach; Party has declared it will not perform: no need for advance notice under art. 72(2)];

75A1 [Damages established by substitute transaction after avoidance: resale by aggrieved seller];

80A [Failure of performance caused by other party]

Descriptors: Fundamental breach ; Avoidance ; Modification of contract ; Conformity of goods ; Anticipatory breach ; Cover transactions ; 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. 2841-2850

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.54, 108, 115, 146, 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

Hot-dipped galvanized steel coils case (16 December 1997)

Translation [*] by Zheng Xie [**]

The China International Trade and Economic Arbitration Commission [hereafter, the Arbitration Commission] accepted this case according to the arbitration clause in Contract No. 5ES4815145DE signed on 28 July 1995, by Claimant [Seller], Germany ___ Company, and Respondent [Buyer], China ___ Import and Export Zhejiang Company.

[Seller] appointed Mr. A as arbitrator; [Buyer] appointed Mr. D as arbitrator. According to Article 24 of the Arbitration Rules, the Chairman appointed Ms. P as the presiding arbitrator. On 17 March 1997, Ms. P, Mr. A and Mr. D formed the Arbitration Tribunal to hear this case.

After reviewing the application that [Seller] submitted and the defense submitted by [Buyer], the Arbitration Tribunal held a court session on 28 May 1997 in Beijing. Both [Seller] and [Buyer] sent representatives to attend the session. The parties made statements and arguments, and answered the Arbitration Tribunal's questions. After the court session, the parties submitted supplementary materials.

Considering the parties' opinions, the written materials and the court session, the Arbitration Tribunal has concluded the case and handed down its award by consent according to Article 52 of the Arbitration Rules.

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

FACTS

[Seller] and [Buyer] signed Contract No. 5ES4815145DE on 28 July 1995. The contract stipulates:

   -  Goods: [Buyer] purchases 2,000 MT hot-dipped galvanized steel coils;
   -  More or less: 5%;
   -  Prime quality according to: "JIS G3302, SGCCZINE coating 218 total both sides";
   -  Quality: "JIS G3302 SGCC Z18" with both sides galvanized;
   -  Size: "0.35 x 1000MM x Coil;
   -  Package: "Steel packing lined with waterproof paper without skils and securredby steel hoops. [sic] Each package to weigh 5-10 MT coil eye I. D. 580 MM."
   -  Payment term: 60 days irrevocable issued L/C;
   -  Delivery term: C&F FO CQD Shanghai US $753/MT net weight including packing fee.

After signing the contract, on 1 August 1995 [Seller] wrote to [Buyer] stating that [Buyer] should issue the L/C before 9 August; otherwise the contract would be cancelled automatically.

[Buyer] thereupon issued L/C 33195560 through Industrial and Commercial Bank of China Zhejiang Branch. However, in that L/C the contract number, shipping period, period of validity, etc., were not in compliance with the contract. In addition some terms were added which were not stipulated in the contract.

On 8 August, [Buyer] faxed to [Seller] requesting [Seller] to divide the contract into two with 1,000 tons under each contract, because if the 2,000 tons of hot dipped galvanized steel coils were under one contract, there will be some trouble to apply to customs and to divide the goods.

On 9 August, [Buyer] faxed to [Seller] stating that if the contract could not be divided in two, the B/L must be divided into four with less than 500 tons under each B/L. Then the parties negotiated many times about the L/C.

During this process, [Buyer] revised the L/C many times, but the revised L/C was still not in compliance with the contract. Meanwhile, [Seller] made some new requests; especially on 18 September 1995, [Seller] asked [Buyer] to revise "each package to weight 5-9MT" (note: [Seller]'s original words) to read "each package to weight 6 MT".

On October 11, [Buyer] replied asserting that (1) the goods should be under three sets of B/L, packing list and international invoice, and [Seller] should submit a detailed document for guarantee before the L/C is revised; (2) Each package should be 5-6MT; (3) the contract number was wrongfully typed, and it could be revised.

On 17 October 1995, [Seller] agreed to divide the B/L into three with 1,000MT, 500MT and 500MT each, but still insisted that other terms (including "each package to weight 6MT) in the fax of September 18 should be revised. [Buyer] did not revise the L/C.

On 3 November 1995, [Seller] faxed to [Buyer] requesting [Buyer] to revise the L/C within three days, and stated that if [Seller] did not received the revised L/C within three days, [Seller] would assume that [Buyer] cancelled the contract, and apply for arbitration.

[Buyer] did not reply. Because [Buyer] did not revise the L/C, [Seller] resold the goods under the contract to Shanghai __ Import and Export Company. [Seller] then applied to the Arbitration Commission for arbitration.

[Seller]'s position

1. The specification of the goods

     (1) The weight of each package has nothing to do with the quality and specification of the goods. The weight of each package is only the way of packing the goods. It is stipulated in the contract. The specification stipulated in the contract is JIS G3302 SGCC Z28 with both sides galvanized; the size is 0.35 x 1,000MM x Coil. The package described in the contract is that steel packing lined with waterproof paper "without skils and securrendby steel hoops." [sic] Each package to weigh 5-10 MT coil eye I. D. 580 MM. Thus, each package weight only has to do with packaging, which has nothing to do with the quality and specification of the goods. The quality and specification of the goods delivered by [Seller] is in compliance with the contract.

     (2) The packaging does not affect the quality and usage of the goods. On 18 September, [Seller] faxed to [Buyer] requesting [Buyer] to revise "each package to weight 5-9MT" (note: [Seller]'s original words) to read "each package to weight 6 MT". [Seller] made this request, because when preparing the goods, [Seller] found that there were 42 packages, each of which was less than 4.5 tons. However, the weight of each package does not affect the quality and usage of the goods. The quality of the galvanized steel coils is decided by the specification; when used, the galvanized steel coils are cut. Each package weight of galvanized steel coils reflects the customs of the manufacturer. In the Far East area, it is the custom to manufacture light weight galvanized steel coils, for example, each package weight in China Baoshan Steel Manufacturer and Wuhan Steel Manufacturer is less than five tons. However, if the L/C was not revised, [Seller] would face the trouble that the L/C may not be negotiated, so [Seller] requested [Buyer] to revise the L/C.

     (3) [Seller] did not breach the package clause in the contract. The quantity stipulated in the contract is 2,000 MT, and the more or less is 5%. Thus, [Seller] can ship at least 1,900 MT, The goods [Seller] actually delivered were 2,096.625 MT; after deducting 189 MT which is the weight of the 42 packages less than 4.5 MT each, the quantity, 1,907.625 MT, is still in compliance with the contract and more than 1,900 MT, the least amount which [Seller] should deliver. In fact, each of the 42 packages less than 4.5MT is different, so the amount deducted is less than 189 MT. Accordingly, the goods [Seller] delivered are in compliance with the quantity and packaging stipulated in the contract.

2. Dispute on the L/C

     (1) There are mistakes in the L/C issued by [Buyer] which violated the stipulations of the contract. The mistakes include the shipping period, the validity period of the L/C and the contract number. The L/C stipulates that the shipping period is before 15 October 1995, and the expiration date is 30 October 1996, which unreasonably limited the time for [Seller] to perform its duty of shipping the goods, so [Buyer] breached the contract. In addition, the contract number in this case is 5ES4815145DE, but the contract number referred to in the L/C is 95WZT011BMX.

     (2) [Buyer] had no right to revise the L/C unilaterally. On 18 August 1995, [Buyer] without negotiating with [Seller] and without the above mistakes, unilaterally amended a set of original clean B/L in the L/C issued on 7 August to three sets of B/L with 1,000 MT, 500MT and 500 MT each. [Seller] asserts that [Buyer]'s action shows that [Buyer] did not want to perform the contract. Even if [Seller] agreed to divide the B/L, [Buyer] should revise the above mistakes when amending the sets of the B/L. Thus, [Buyer] unilaterally amended the L/C, which shows [Buyer]'s intent not to perform the contract.

     (3) [Buyer] stipulates two dates due, which violates the stipulation in the contract. [Buyer] stipulates that the shipping period in the L/C is 15 October, and the expiration date is 30 October. Following [Seller]'s many requests, [Buyer] amended the shipping period to 30 October. However, [Buyer] did not revise the expiration date, 30 October, despite [Seller]'s reasonable request. Thus, it caused there to be two dates due. [Seller] would have enough time to negotiate the L/C, if [Seller] shipped the goods before October 31. The expiration date of the L/C is 30 October, which means that [Seller] must finish negotiation of the L/C before 30 October. Because it takes some time for [Seller] to submit the documents and for the bank to review, [Seller] must finish loading some time earlier, otherwise, [Seller] could not negotiate the L/C. Accordingly, [Buyer]'s action is to deprive [Seller] of its rights under the contract, and [Buyer] has no intent to perform the contract.

3. [Buyer]'s breach and liabilities

     (1) [Buyer] fundamentally breached the contract because [Buyer] unilaterally revised the L/C when [Seller] refused [Buyer]'s request to divide the goods. Because [Buyer] unilaterally amended the contract, [Seller] could not perform the contract. At that time, less than one month when the contract was signed, the contract was not substantially performed. [Buyer]'s action implied that [Buyer] would not perform the contract. The consequences are that [Seller] cannot get the anticipated interest under the contract.

     (2) [Buyer] refused to revise the L/C, which constitutes an anticipatory fundamental breach.

     (3) In violation of Articles 53 and 60 of the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG), [Buyer] refused to take the goods and make the payment, which constitutes a fundamental breach.

Accordingly, [Seller] makes the following claims:

     (1) [Buyer] should pay the loss due to resale of the goods, US $176,000;

     (2) [Buyer] should pay the loss of interest due to resale of the goods at the annual interest rate of 9%;

     (3) [Buyer] should pay [Seller]'s attorneys' fees, traveling expense and the entire arbitration fee.

[Buyer]'s position

1. Revising each package to weight is to revise the specifications

     (1) The size of the goods is part of the specification, which is an important part of the contract. The specification of the contract, or the specification of the goods discussed in this case, is the specification of the subject matter of the contract, which is the character (including quality, size, etc.) of the goods the parties stipulate or the country uniformly stipulates in economic contracts involving foreign interest, and it is an important part of the contract. Article 35(1) states:

"The [Seller] must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract."

     (2) The weight of each package is part of the specifications. The change of the specification of the goods must affect the use of the goods. The contract stipulates "Each package to weight 5-10 MT", but the goods [Seller] delivered are each package to weight less than 6 MT, and some are less than 4.5MT. [Seller] admitted that when used, all of the galvanized steel coils shall be cut. If the steel coils are too short, it affects cutting and use.

[Seller] breached the specification clause in the contract. In this contract, the specification of the goods consists of technical factors of galvanized surface, size and weight. The technical factors of galvanized surface are G3302 SGCC ZINE COATINGZ16; the size is 0.35mm x 1000 x Coil. Coil here refers to the length of the galvanized steel coils. When the thickness and width are fixed in this case, the length of the galvanized steel coils decides the specification. In transactions involving steel, the length is usually measured by each package to weight, because when the quality, thickness and width are fixed, weight decides length. Accordingly, the weight of each package in this case decides the length of galvanized steel coils, and weight is the specification.

In addition, although the weight of each package is described in the package clause of this contract, it is actually the size of the goods, and is a specification; it is described in the package clause because the size and specification are related to packaging. Thus, the weight of each package does not lose the nature of specification, just because it is described in the package clause.

     (3) Revising the weight of each package is to revise the specification. [Seller] need not insist that [Buyer] should revise the L/C, and could deliver the goods, if the goods are as [Seller] asserts that "the weight of each package has nothing to do with the specification", " the quality and specification of the goods are in compliance with the contract, which is undisputable". [Seller] asserts that [Buyer] has no right to refuse the complying goods just because the weight of each package is regarded as specification; [Seller] insisted [Buyer] should revise the L/C.

However, [Seller] breached the contract, which is shown as follows:

     (1) The contract stipulates that each package to weight 5-10 MT, but some packages delivered by [Seller] are less than 4.5MT. Thus, [Seller] delivered goods not in compliance with the contact.

     (2) As to the total quantity of the goods, [Seller] asserts that it is in compliance with the contract even after deducting the 42 packages which are less than 4.5 MT each. [Buyer] has to point out that [Seller] lowers the standard of specification when making this calculation, so [Seller] arrived at the wrong conclusion.

[Seller] admitted that 42 packages are less than 4.5 MT each; but according to the more or less clause (5%), the total goods delivered are 2,096 tons, and after deducting the non-complying goods, 1,907 tons, which exceeds the least quantity, 1,900 tons, i.e., the 2,000 tons with 5% less were delivered. Thus, [Seller] asserts that although some of the goods delivered are not in compliance with the contract, the total quantity after deducting the non-compliance goods is still within the scope of the more or less clause.

However, [Buyer] alleges that [Seller] drew the wrong conclusion, because [Seller] changed 5 tons, the lowest standard stipulated in the contract, to 4.5 tons. All of the 397 packages delivered by [Seller] are less than 6 tons each; 42 packages are less than 4.5 tons each. [Seller] does not provide the figure of how many packages are more than 4.5 tons each and less than 5 tons each. The packages which are less than 5 tons each must be more than the packages which are less than 4.5 tons each. Accordingly, the non-complying goods delivered are more than the scope of the more or less clause, because after deducting 42 packages, the goods delivered only amount to 1,907 tons, which is only 7 tons more than 1,900 tons, the least quantity, and then the goods which are less than 5 tons but more than 4.5 tons, are added, and [Seller] breached the contract. It is illogical for [Seller] to allege that [Seller] did not breach the contract by lowering the standard of specification.

2. Dispute on the L/C

     First, [Buyer] revised the L/C once for [Seller], and promised to revise the L/C according to the contract. Because [Seller] fundamentally breached the contact, [Buyer] did not revise the L/C, and cancelled the contract.

          (1) The shipping period. [Buyer] asserts that the shipping period stipulated in the contract is October 1995; the L/C issued by [Buyer] on 7 August specified that the shipping period is 15 October 1995. However, on 30 August, [Seller] requested [Buyer] to revise the L/C, but did not mention to revise the shipping period, so [Buyer] supposed that [Seller] agreed on this shipping period, 15 October. It is unreasonable for [Seller] to assert that [Buyer] breached the contact.

Then, [Seller] did not request to revise the shipping period and expiration date of the L/C until 18 September, and at the same time [Seller] also requested to revise the specification of the goods. [Buyer] did not express that he did not agree to revise the shipping period and the expiration date, but expressly stated that he did not agree to amend the specification of the goods. [Seller] insisted that [Buyer] should revise the specification, shipping period and expiration date of the L/C, because the goods delivered were not in compliance with the contract; thus, [Seller] anticipatorily breached the contact, so [Buyer] did not revise the specification, shipping period and expiration date in the L/C. It is [Buyer]'s perogative to exercise the right under the contract not to revise the specification, shipping period and expiration date, not to breach the contact.

          (2) The contract number. On 18 September 1995, [Seller] requested [Buyer] to revise the contract number in the L/C from 5ES4815154DE to 5ES4815145DE; [Seller]'s assertion that [Buyer] revised the contract number from 5ES4815145DE to 95WZT011BMX, is not true. In addition, [Buyer] expressed that he would like to revise it. Then, because of the same reason as above (1), [Buyer] did not revise it.

     Second, [Seller] asserts that [Buyer] unilaterally revised the L/C. [Buyer] alleges that the parties reached an agreement to divide the goods and B/L, and [Buyer] agreed to [Seller]'s request, so it is not [Buyer] that unilaterally revised the L/C.

3. [Seller]'s breach

     First, [Seller] fundamentally breached the contract.

          (1) Each package to weight is the specification, not package.

          (2) [Seller] delivered some of the goods with each package weight less than 5 tons, which is not in compliance with the stipulation, each package to weight 5-10 tons.

          (3) Article 25 of CISG defines fundamental breach, but does not list the specific violating actions. However, Article 35 of CISG stipulates that the goods must comply with the contract; this stipulation has been cited above. Article 35 specifies that if the goods are not in compliance with the specification stipulated in the contract, it is a fundamental breach.

          (4) Anticipated interest. The goods with different specification have different value of use. When signing the contract, [Buyer] has sold the goods according to the contract. Changing the specification of the goods caused trouble for [Buyer] to resell the goods, and also caused trouble for the factory to use the goods.

     Second, [Seller] anticipatorily and fundamentally breached the contract.

          (1) Article 71 of CISG describes the concept of fundamental breach; Article 72 describes the concept of anticipatory and fundamental breach. Due to difference of expression in Chinese and English, the two articles should be considered together. Article 71 describes two situations of fundamental breach, which is a serious deficiency in a party's ability to perform or in his creditworthiness, or his conduct in preparing to perform or in performing the contract. Article 72(1) states, "Prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided."

          (2) Before [Buyer] revised the contract, [Seller] admitted that the goods [Seller] delivered did not comply with the contract, which falls within Article 72(1), "If prior to the date for performance of the contract it is clear that one of the parties will commit a fundamental breach of contract, the other party may declare the contract avoided."

          (3) In the last notice on 3 November, [Seller] not only admits that [Seller] could not deliver complying goods, but also requested [Buyer] to satisfy all of [Seller]'s requests including revising the L/C within three days; otherwise, [Seller] would suppose the contract is cancelled. [Buyer] had notified [Seller] many times that [Buyer] could not accept the request to revise the specification. Thus, [Buyer] did not revise the L/C within three days stipulated by [Seller], which means that [Buyer] exercised its right to cancel the contract.

     Third, [Buyer] has the right to refuse to revise the L/C. [Buyer] has the right to refuse to revise the specification clause, because it is stipulated in the contract. [Buyer] expressly agreed to revise the contract number, and did not disagree with revising the shipping period and the expiration date of the L/C. [Buyer] had revised the L/C. Because [Seller] fundamentally breached the contract, [Buyer] did not revise the L/C. [Buyer] exercised its right to cancel the contract, so [Buyer] did not need to spend money revising the L/C.

[Seller] alleges that because [Buyer] did not revise the L/C, [Seller] could not perform the contract, which is contrary to the fact. [Seller] should perform its duty to deliver the complying goods, but [Seller] did not prepared complying goods, so it is not [Buyer] who caused that the contract could not be performed.

     Fourth, [Buyer] had the right to cancel the contract. Article 72(2) states:

"If time allows, the party intending to declare the contract avoided must give reasonable notice to the other party in order to permit him to provide adequate assurance of his performance."

And Article 72(3) states:

"The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations."

As above mentioned, [Buyer] advised [Seller] that [Buyer] did not agree to revise the specification, but [Seller] still delivered non-complying goods, which constitutes a fundamental breach of contract. [Buyer] expressed many times that [Buyer] could not accept the revision of the specification, and reasonably notified [Seller]. However, [Seller] ignored [Buyer]'s expression, and still delivered the non-complying goods. Accordingly, Article 72(3), "The requirements of the preceding paragraph do not apply if the other party has declared that he will not perform his obligations", is applicable. Thus, it is not necessary for [Buyer] to notify [Seller] when declaring the contract avoided.

4. [Buyer] objects to [Seller]'s assertion of [Buyer]'s breach and liabilities

     First, as [Buyer] requested to divide the B/L and revise the L/C, the parties negotiated and reached an agreement to divide the B/L and revise the L/C. [Seller] asserts that it is [Buyer]'s fundamental and anticipated breach. It is not [Buyer]'s breach, but the agreement of the two parties. It is unreasonable for [Seller] to assert that [Seller] could not perform the contract, and could not get the anticipated interest.

     Second, [Buyer] refused to revise the L/C, because [Seller] did not deliver complying goods. It is [Seller] who first breached the contract. If [Seller] had delivered the complying goods, [Buyer] would have revised the L/C as [Seller] requested.

     Third, [Buyer] has right to refuse the non-complying goods. Because [Seller] delivered the non-complying goods first, [Buyer] cancelled the contract when [Seller] anticipatorily and fundamentally breached the contract. [Buyer] did not accept the goods, so [Buyer] should not make the payment.

     In sum, [Buyer] did not breach the contract. [Seller] anticipatorily and fundamentally breached the contract, so [Buyer] had to cancel the contract. Accordingly [Seller] shall be liable for [Seller]'s own loss due to [Seller]'s breach. In addition, the goods resold are not those under the contract in this case, so [Buyer] shall not be liable for the price difference. [Buyer] requests the Arbitration Tribunal to dismiss [Seller]'s claims.

OPINION OF THE ARBITRATION TRIBUNAL

1. Applicable law

Germany and China, the countries in which the parties' places of business are located, are parties of the United Nations Convention on Contracts for the International Sale of Goods (1980) (CISG), and the CISG is mentioned many times in [Seller]'s application and [Buyer]'s defense.

2. Dispute on issuing the L/C

The contract in this case is CFR, and the payment is made by L/C, so [Buyer] should issue the L/C according to the contract. To issue the L/C in accordance with the contract is the precondition to perform the contract. Thus, [Seller]'s delivery of the goods is on the condition of [Buyer]'s issuing the L/C.

Although [Buyer] issued the L/C on 7 August 1995 in accordance with the contract, the L/C contains many terms which did not comply with the contract. The non-complying terms are:

     (1) The contract stipulates that the [Seller] shall, upon completion of loading, advise the [Buyer] with 24 hours by telex of the contract no., name of commodity, number of packages gross and weights, invoice value, name of vessel and loading date. However, term A6 of the L/C states ... within 48 hours.

     (2) The contract number stated in the contract is 5ES4815145DE, but the contract number in the L/C is 95 WZT011BMX.

     (3) The shipping period stipulated in the contract is October 1995, but in the L/C it is 15 October 1995 in the L/C;

     (4) The mark stipulated in the contract is 5ES4815145DE/Shanghai, but it is 95 WZT011BMX/Shanghai.

Thus, the Arbitration Tribunal holds that [Buyer] did not issue the L/C in accordance with the contract, and it has many mistakes. When [Seller] requested [Buyer] to revise the L/C, [Buyer] had the duty to revise.

3. Revising the L/C

In international trade transactions, [Buyer] shall apply to the bank for the L/C, and provide the L/C in accordance with the contract; otherwise, [Seller] has right to claim for damages. However, [Seller] can choose to request [Buyer] to revise the L/C. [Seller] in this case chose the latter and requested [Buyer] to revise the L/C. [Buyer] revised the L/C. After reviewing the L/C revised on 18 August 1995, the Arbitration Tribunal finds that [Buyer] revised the original A6 of L/C No. LC33195560 to "Three sets of 3/3 original clean on board ocean bills of lading separately issued (one set for 1,000 MTs to the L/C stipulated consignment, one set for 500 MTs of the L/C stipulated consignment, one set for the remaining 500 MTs of the L/C stipulated consignment) and made out to order endorsed in blank notifying China ..."

The Arbitration Tribunal holds that [Buyer] breached the contract and violated international trade custom, because [Buyer] made the above amendment of the L/C on 18 August, when on 14 August 1995, the parties did not reach an agreement, and especially when [Seller] notified [Buyer] that "after negotiating with the factory, the factory did not accept the request that the B/L be divided into four sets. Only one set of B/C can be provided. [Seller] cannot solve it."

Then, the Arbitration Tribunal finds that [Seller] also requested to revise the L/C; especially on 18 September 1995, [Seller] faxed to [Buyer] requesting to revise each package to weight 5-9 MTs to 6 MTs.

According to the above facts, the Arbitration Tribunal holds that as to issuing the L/C, [Buyer] did not issue the L/C in accordance with the contract; as to revising the L/C, [Buyer] breached the contract again. Thus, the Arbitration Tribunal does not uphold [Buyer]'s assertion that [Seller] anticipatorily and fundamentally breached the contract.

4. [Seller]'s request to revise each package to weight

There is no dispute on the stipulation of each package to weight 5-10 MTs. During the process of issuing the L/C, on 18 September 1995, [Seller] according to the notice of loading No. 95WZT011BMX, faxed to [Buyer] requesting to revise each package weight to 6 MTs, which means that [Seller] requested to revise the clause of each package to weight in the contract. According to Article 29(1) (2) CISG, the modification must be made in writing. The Arbitration Tribunal finds that there is no agreement in writing to amend the clause of each package to weight. Thus, the clause of each package to weight 5-10 MTs stipulated in Contract No. 5ES4815145 is binding on both parties. [Buyer] had the right to refuse this clause. [Seller] breached the contract by requesting [Buyer] to revise this clause, so [Seller] shall bear liabilities.

5. [Seller]'s fax of 3 November 1995

[Seller]'s fax of 3 November 1995 states:

"Mr. __: We fax to you the notice of loading no. 95WZT011BMX. Please revise the L/C within three days. If we cannot receive the revised L/C within three days, we will assume you cancel the contract, and we will apply for arbitration."

Accordingly, [Buyer] thought that [Seller] would cancel the contract. The Arbitration Tribunal also finds that [Buyer] faxed to [Seller] on 26 September 1995, stating:

"Ms.__: due to the trouble of B/L and contract, and according to our client's opinion, we suggest to cancel the 2,000 tons of goods under Contract 95WZT011BMX."

According to the above two faxes, the Arbitration Tribunal finds it hard to conclude that [Buyer] assumed [Seller] cancelled the contract and accordingly had the right not to revise the L/C.

Because [Buyer] did not revise the L/C, [Seller] had to resell the goods to Shanghai ___ Import and Export Company, and suffered the loss of price difference. The Arbitration Tribunal cannot support all of this loss. The Arbitration Tribunal holds that it is reasonable for [Buyer] to pay US $96,800 (interest is not included) to [Seller].

6. [Seller] shall pay 45% of the arbitration fee, and [Buyer] shall pay 55%.

7. Each party shall pay for his own attorneys' fees and traveling expenses.

AWARD

The Arbitration Tribunal made the following award:

1. [Buyer] shall pay [Seller] for the loss of price difference, US $96,800;

2. [Seller]'s other claims are dismissed;

3. [Seller] shall pay 45% of the arbitration fee, and [Buyer] shall pay 55%. [Seller] has paid the arbitration fee in advance. [Buyer] shall pay [Seller] RMB___.

The above amount, US $101,443.10, shall be paid before 15 February 1998; otherwise, annual interest is added at the rate of 8%.

This is the final award.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Germany is referred to as [Seller]; Respondent of the People's Republic of China is referred to as [Buyer]. 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].

** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.

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Pace Law School Institute of International Commercial Law - Last updated November 7, 2007
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