China 31 December 1997 CIETAC Arbitration proceeding (Lindane case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/971231c1.html]
DATE OF DECISION:
JURISDICTION:
TRIBUNAL:
JUDGE(S):
DATABASE ASSIGNED DOCKET NUMBER: CISG/1997/37
CASE NAME:
CASE HISTORY: Unavailable
SELLER'S COUNTRY: People's Republic of China (respondent)
BUYER'S COUNTRY: France (claimant)
GOODS INVOLVED: Lindane
APPLICATION OF CISG: Yes [Article 1(1)(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
12A [Effect of reservation under article 96 rejecting article 11]; 49A [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract]; 74A ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Outer limits of damages: foreseeability of loss]
Descriptors:
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
Unavailable
CITATIONS TO TEXT OF DECISION
Original language (Chinese): Zhong Guo Guo Ji Jing Ji Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 1997 vol., pp. 2885-2889
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
English: Dong WU, CIETAC's Practice on the CISG, at nn.49, 140, 142, 145, 158, 200, Nordic Journal of Commercial Law (2/2005)
Go to Case Table of Contents| Case text (English translation) | |
Lindane case (31 December 1997)
Translation [*] by Alison Hoi-Yan Ng [**]
Translation edited by Meihua Xu [***]
China's International Trade and Economic Arbitration Commission (hereafter, "the Arbitration Commission") accepts the present case according to:
| - | The arbitration clause in Contract No. 95BBHTDEE3027 signed by Claimant French __ (International) Trade Company [Buyer] and Respondent Tianjin __ United Chemical Import/ Export Company [Seller] on 3 November 1995; and |
| - | The written arbitration application submitted by [Buyer] on 10 December 1996. |
The [Seller] filed with the Arbitration Commission an objection to the jurisdiction of the Commission after receiving the Notice of Arbitration of the present case. On 17 June 1997, the Arbitration Commission determined its right of jurisdiction. On the same date, the Secretariat of the Arbitration Commission sent this 97 Mao Zhong Zi No. __ jurisdiction determination to both [Buyer] and [Seller].
The [Buyer] assigned Mr. A to be the arbitrator of the present case, and the [Seller] assigned Mr. D as arbitrator. Since the parties did not appoint or entrust the Chairman of the Arbitration Commission to appoint a presiding arbitrator, the Chairman of the Commission appointed Mr. P, as the presiding arbitrator, according to Article 24 of the Arbitration Rules (as per 1 October 1995). On 28 July 1997, Mr. P, Mr. A and Mr. D formed the Arbitral Tribunal to try the present case.
The Tribunal scrutinized both parties' documents and held a court session in Beijing on 30 September 1997. Both parties sent their representatives to present in the session. The [Buyer] made oral statements on the facts and the legal issues of the case, and answered the Arbitration Tribunal's questions. However, the [Seller] refused to respond on issues regarding the disputes of the Contract of the present case. After the session, the [Buyer] submitted supplementary materials to the Tribunal.
The case has been concluded. The Tribunal has handed down this award in accordance with the documents submitted by both parties and through investigation of the facts.
The facts of the case, the Tribunal's opinion and award are as follows:
FACTS
On 3 November 1995, the [Buyer] and the [Seller] entered into Sales Contract No. 95BBHTDEE3027. According to the terms of the Contract, the [Buyer] agreed to purchase 72 tons of lindane, at a price of US $6,000/ ton CNF Rotterdam, that is, a total of US $432,000. The products were to be loaded on the ship by the end of November 1995; payment was to be by letter of credit issued 20 days before loading.
| - | On November 8, 1995, the [Buyer] issued Letter of Credit No. B-OIM-04366, with the
[Seller] as the beneficiary. On 14, 15 and 20 November 1995, the [Seller] wrote to the
[Buyer] advising that he was unable to load the goods onto the ship on time and therefore
requesting an amendment to the letter of credit. On 21 November 1995, the
[Buyer] amended the letter of credit for the first time. |
| - | Then on 12 and 15 December 1995, the [Seller] wrote to the [Buyer] again stating that the goods will not be available on time, as the factory could not provide the goods due to problems with the equipment. On 16 December 1995, the [Buyer] responded to the [Seller] agreeing to amend the letter of
credit, that the delivery date was postponed to January 1996, and that delivery could be
in separate batches. On 22 December 1995 and 10 January 1996, the [Buyer] amended
the letter of credit for the second and the third times. |
| - | In January 1996, the [Seller] delivered 18 tons of goods to the [Buyer]. On 26 January
1996, the [Buyer] wrote to the [Seller] requesting the delivery of the other 54 tons. On 9
February 1996, the [Seller] wrote to the [Buyer] suggesting that the 54 tons of lindane can
be loaded on board by 15 April 1996. However, the [Seller] wished to adjust the price
to US $6,200/ MT, CIF Le Havre. On 13 February 1996, the [Seller] wrote to the
[Buyer] again stating that it wished to further increase the price to US $6,400/MT, CFR E. M.
P. On the same date, the [Buyer] responded to the [Seller] that "[Buyer] agreed to have
the price of the other 54 tons of lindane increased to US $6,400/ MT, CFR EMP." |
| - | On 1 March 1996, the [Seller] wrote to the [Buyer] requesting an extension of the letter
of credit for that 54 tons of lindane. [Seller] wrote "please extend the L/C to the following
date: deadline of loading -- 10 April 1996, valid till -- 25 April 1996." The [Buyer] agreed
to the request on the same date. On 4 March 1996, the [Buyer] amended the letter of
credit for the fourth time. |
| - | On 9 April 1996, the [Buyer] wrote to the [Seller] to inquire about the 54 tons of lindane, and to remind that the goods are due on 10 April. However, the [Seller] has yet to provide that 54 tons of goods. There were numerous negotiations between the parties but they did not come to a conclusion. The [Buyer] then filed for arbitration on 10 December 1996. |
POSITION OF THE PARTIES
[Buyer]'s position
The [Buyer] declared that:
1. Both China and France are Contracting States of the United Nations Convention on Contracts for the International Sales of Goods (1980). The sales and purchase contract agreed by the [Seller] and [Buyer] does not exclude the application of the Convention; therefore, the Convention should be applied in this case.
2. The [Seller] has committed a fundamental breach of contract by failing to perform his obligations. According to the Convention and clause 15 of the Contract, since the [Seller] failed to perform his obligation to deliver the residual 54 tons of lindane by the agreed due time, subsequently causing the [Buyer] to fail to perform its obligations to its final customers as per contracts with them and suffered severe damages. Therefore, it is lawful and reasonable for the [Buyer] to declare the contract avoided and to request compensation of damages in April 1996, after the deadline for loading. The [Buyer] alleged total damages of US $82,574.42, which includes:
(1) Damages of US $35,640 that the [Buyer]'s client claimed for the non-delivery of that 54 tons of goods;
(2) The L/C issuing fee of US $13,500 and the amendment fee of HKD 10,001.45 spent with __ Development Limited Company, representing the [Buyer] on issuance and amendment;
(3) The customs charge and transport fee of US $5,350 and the interest of US $423.60 that French EGETRA Inland Transport Company incurred;
(4) The L/C issuing fee of 22,475.94 French francs and the amendment fee of US $3,514.12 that the [Buyer]'s client incurred;
(5) The transportation fees of US $5,546.10 and 1,646.84 French francs, respectively, that the [Buyer] incurred in connection with the dispute in the present case;
(6) The communication charge of 8,317.30 French francs that the [Buyer] incurred for the dispute in the present case;
(7) The attorneys' fee of US $8,000 that the [Buyer] paid for administrating the present case; and
(8) The arbitration fee of the present case of RMB 32,330.
Total: US $82,574.42.
In order to express his sincerity to resolve the dispute, the [Buyer] only requested the [Seller] to bear US $71,155.18 of the total sum of damages.
[Seller]'s position
The [Seller] responded as follows:
The [Buyer] relied on Contract 95BBHTDEE3027 in this arbitration. However, while performing this contract, due to a production error, the [Seller]'s supplier company ceased the production of the goods. Since that was beyond the control of the [Seller], it was unable to supply the goods accordingly. In January 1996, the [Seller] attempted very hard to obtain part of the goods. After delivering that batch of goods, the contract could not be performed. While the [Buyer] did not hold any disagreement to the terms, it is said that the silence of the [Buyer] implied an agreement to terminate that Contract.
Since it was understood that the [Buyer] implied that Contract 95BBHTDEE3027 was terminated, the [Seller] demanded a re-discussion of conditions when the [Buyer] requested another 54 tons of lindane, and therefore there was a reset price of US $6,400/MT as well as a newly agreed port for delivery at Le Havre, France. Upon there being a new agreement, the [Seller] sent to the [Buyer] an export-trading contract which was normally used in common trade practice on the mainland, requesting the [Buyer] to mail the contract back after signing it, so the [Seller] may provide the goods. Nonetheless, the [Buyer] has yet to mail back the new contract to the [Seller].
This new agreement has no legal relation with Contract 95BBHTDEE3027, that is, both of them exist independently. Therefore, the dispute cannot relate to Contract 95BBHTDEE3027. The inability to perform the new contract was a result of the [Buyer] failing to create the contract. Thus, the [Buyer] should bear the loss.
OPINION OF THE ARBITRATION TRIBUNAL
(1) Applicable law
Since the places of business of both the [Buyer] and the [Seller] -- France and the People's Republic of China, respectively -- are Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (1980), in addition to the fact that both parties did not exclude the applicability of the Convention, the Convention should be applied in this case, except with respect to those articles of the Convention to which China has filed a reservation.
(2) The facts of the case and the obligations of the [Seller]
1. The Tribunal notes that the [Buyer]'s claim for the breach of contract by the [Seller] was for the 54 tons of goods under Contract 95BBHTDEE302. After receiving the arbitration notice, the [Seller] challenged the jurisdiction of the case. The [Seller] argued that Contract 95BBHTDEE3027 has been terminated, while the [Buyer]'s claimed right is based on a new agreement, notwithstanding that the new contract has yet to be signed, therefore there is no arbitration agreement. After the Arbitration Commission made its jurisdiction determination, the [Seller] further submitted his defense, mentioning that the [Buyer] has implicitly agreed that Contract 95BBHTDEE3027 has been terminated. [Seller] alleges that the new agreement has no legal relation with that contract. The two contracts are independent of one another. Because of the [Buyer]'s failure to sign it, the new agreement has yet to become a legally binding contract. Thus, it is the [Buyer]'s fault that the new agreement cannot be performed. On 30 September 1997, at the Tribunal's hearing, the [Seller] refused to properly defend his position in this case as the Contract on which the [Buyer] relied, does not relate to the matter of this dispute.
2. The Tribunal concluded that: The parties signed a sale and purchase contract of 72 tons of lindane, which is the Contract of the case, on 3 November 1995, and that is Contract 95BBHTDEE3027. On 8 November 1995, the [Buyer] issued a letter of credit to the [Seller] in accordance with the Contract. In January 1996, the [Seller] delivered 18 tons of goods to the [Buyer]. On 9 February 1996, the [Seller] wrote to the [Buyer] said, "the residual 54 tons of lindane… wish to adjust the price to US $6,200/ MT, CIF Le Havre." On 13 February 1996, the [Seller] wrote to the [Buyer] again wishing to further increase the price to US $6,400/MT, CFR E. M. P. On the same date, the [Buyer] agreed to the request. On 3 March 1996, the [Seller] wrote to the [Buyer] requesting the L/C for "the remaining 54 tons of lindane" to be extended to 25 April 1996, with the loading deadline as 10 April 1996. On 4 March 1996, the [Buyer] amended the letter of credit acceding to the [Seller]'s request. The whole process reflected that the [Buyer] and the [Seller] were dealing with the remaining 54 tons of goods of the said contract. Both parties have come up with a newly agreed condition both on the price of goods and delivery terms. The amendments were made on Contract 95BBHTDEE3027, in other words, the amendments did not to create a new contract.
The [Seller] claimed that the said contract of 3 November 1995 has been terminated and that the parties concluded a new agreement. However, the [Seller] did not submit to the Tribunal evidence, which shows that the [Seller] sent the new contract form containing newly agreed terms to the [Buyer]. Furthermore, when ratifying the Convention, China denounced Articles 11 and 29 of the Convention on formation, modification and termination of the contract, that need not to be concluded by means of writing. Therefore, the formation of the contract must be concluded by means of writing. The Tribunal concluded that the [Seller]'s claim that both parties have concluded a new agreement cannot be sustained. Thus, there still are responsibilities on the [Seller] to provide the remaining 54 tons of the lindane so as to perform its obligations.
3. Since the [Seller] has yet to provide the remaining 54 tons of the lindane as per the contract of 3 November 1995, according to Article 49 of the Convention, the failure by the [Seller] to perform his obligations amounts to a fundamental breach of the Contract. The Tribunal affirmed to the [Buyer]'s claim for damages compensation, in reference to Article 45 of the Convention. The [Seller] should be responsible for the [Buyer]'s damages.
(3) The [Buyer]'s arbitration claims
1. The [Buyer] requested the Tribunal to hold the [Seller] liable for the damages the [Buyer]'s client claimed for the 54 tons of goods that were not delivered, amounting to US $35,640. The Tribunal notes that the damage claim made by the [Buyer]'s client was as a result of the failure to deliver that 54 tons of goods by the [Seller], which amount to 10% of the cost of those 54 tons of goods, US $35,640, and that these damages were directly caused by the failure of the [Seller] to perform its obligations to provide the goods. The Tribunal notes that the [Buyer] is a trading company and it should be self-explanatory to the [Seller] that the [Buyer] did not aim to purchase the contractual goods for domestic uses, but for trade purposes. Therefore, it is reasonable for the [Seller] to foresee that the failure of his performance to the Contract may lead to certain damages to the [Buyer]. In accordance with Articles 45 and 74 of the Convention, the Tribunal holds that [Seller] should be liable for the above-mentioned loss.
2. The [Buyer] asked for damages of US $13,500 and HKD 10,001.45 for the L/C issuing fee and amendment fee respectively, incurred with __ Development Limited Company representing the [Buyer] on issuance and amendment of the L/C. The Tribunal notes that the [Buyer], through __ Development Limited Company, issued a L/C in the amount of US $432,000 after signing the Contract. Due to several requests by the [Seller] to amend the L/C, in addition to the delay of delivery of goods and some undelivered goods, the L/C has been on hold for an extended period. __ Development Limited Company subsequently levied against the [Buyer] expenditure for the extension of withholding the L/C amounting to US $13,500, as well as the amendment fee of HKD 10,001.45. The Tribunal holds that this loss was directly caused by the [Seller]'s failure to deliver the goods in accordance to the Contract, and that it was reasonably foreseeable by [Seller]. In accordance with Articles 45 and 74, the Tribunal sustains the [Buyer]'s claim for this loss.
3. The [Buyer] claimed that the [Seller] should also be liable for the customs charge and transport fee in the sum of US $5,350 and the interest of US $423.60 that French EGETRA Inland Transport Company incurred. The Tribunal notes that the claim was made by the [Buyer]'s clients for the charges incurred while appointing French EGETRA Inland Transport Company in transporting a batch of lindane. Although the breach of the Contract by the [Seller] has subsequently caused the [Buyer] to be unable to perform his contract with his clients and therefore to be held liable to his clients' damages, the Tribunal suggested that the customs charge and transport fee were usual expenditures in the trading business and thus it cannot be concluded that this loss was related to the damages for breach of contract by the [Seller]. Moreover, the [Buyer] has yet to submit sufficient evidence to show that that batch of goods was those in the Contract. Therefore, the Tribunal does not sustain the [Buyer]'s claim for the customs charge and transport fee.
4. The [Buyer] sought to have the [Seller] held liable for his clients' L/C issuing fee and amendment fee, amount to 22,475.94 French francs and US $3,514.12 respectively. The Tribunal agreed that the [Seller] should be liable for damages due to the breach of the [Buyer]'s contract with his clients as a result of the [Seller]'s breach of the present Contract. However, the Tribunal has already held, in paragraph 1, above of the Arbitration Claim, that the [Seller] is liable for the damage of the [Buyer]'s clients. The [Buyer]'s clients' L/C issuing fee and amendment fee were included in paragraph 1 of the claim. Therefore, the Tribunal disapproves the [Buyer]'s claim for damage of his clients' L/C issuing fee and amendment fee.
5. The [Buyer] asked for compensation by the [Seller] for the transportation fees, US $5,546.10 and 1,646.84 French francs, respectively, that the [Buyer] incurred. Since the [Buyer] failed to provide adequate proof that the said expenditures were incurred solely due to the dispute in the present case, the Tribunal does not sustain this claim.
6. The [Buyer] also claimed for a communication charge of 8,317.30 French francs that the [Buyer] incurred in connection with the dispute in the present case. The Tribunal considered that communication charges are usual expenses for both parties in the trading business and therefore should be paid individually. Thus, the Tribunal disapproved this claim.
7. The [Buyer] claimed that the [Seller] should be liable for the attorneys' fee of US $8,000 that the [Buyer] paid for administrating the present case. The Tribunal noted that the [Buyer] did employ an attorney to handle this arbitration matter and that the [Buyer] also submitted evidence showing this expenditure has already been incurred. In accordance with Article 59 of the Convention, the Tribunal suggested that it is reasonable for the [Seller] to be liable for the attorneys' fee in the amount of US $5,000.
(4) The arbitration fee
The [Seller] is liable for the breach of the Contract, yet the [Buyer]'s arbitration claims were not totally satisfied. Therefore, the Tribunal held that the arbitration fee should be split 80% by [Seller], 20% by [Buyer].
AWARD
2. The [Seller] should bear the L/C issuing fee of US $13,500 and amendment fee of HKD 10,001.45 that the [Buyer] incurred.
3. The [Seller] should be liable for US $5,000 of the [Buyer]'s attorney's fee.
4. The [Seller] should bear 80% of the arbitration fee and the [Buyer] should bear 20%. Since the [Buyer] has already paid RMB ___ to the Arbitration Commission for the arbitration and that can write out his payable to his share of the arbitration fee. Thus, the [Seller] should pay back the [Buyer] RMB ___ which represents 80% of the arbitration fee.
5. The other arbitration claims of the [Buyer] are not sustained.
For items 1 to 4, the [Seller] should pay to the [Buyer] the amounts indicated within 45 days starting from the date of award. If payment has not been made or not been completely made upon the due date, interest of 9% p.a. for late due payment should apply on the amount exceeding the time limit.
This is the final award.
FOOTNOTES
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of France is referred to as [Buyer] and the Respondent of the People's Republic of China is referred to as [Seller]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of Hong Kong [Hong Kong dollars] are indicated as [HKD]; amounts in the currency of the People's Republic of China (Renmimbi) are indicated as [RMB].
** Alison Hoi-Yan, Ng. Research Student of the University of New South Wales (Australia, Sidney), Chief Editor and Researcher on legal texts -- Principles of Business Law (General Press Pty Limited t/a Law Press Asia) and Tourism Law (CCH Australia Ltd).
*** 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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