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CISG CASE PRESENTATION

China 22 January 1998 CIETAC Arbitration Proceeding (Hot-rolled steel plate case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980122c1.html]

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

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Case identification

DATE OF DECISION: 19980122 (22 January 1998)

JURISDICTION: Arbitration ; P.R. China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1998/02

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: [-] (respondent)

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

GOODS INVOLVED: Hot-rolled steel plate


Case abstract

PRC: China International Economic & Trade Arbitration Commission,
Hot-rolled steel plate case of 22 January 1998

Case law on UNCITRAL texts (CLOUT) abstract no. 682

Reproduced with permission of UNCITRAL

Abstract prepared by Meihua Xu

The parties entered into a sales contract of hot-rolled steel plate. The quality clause of the contract not only required compliance with a certain standard (the so-called "GOST Standard"), but also provided for specific other indicators. The seller had drafted the contract and later alleged that it had inserted the specific other indicators accidentally. Upon arrival at the destination port, the buyer had the goods inspected and found that the quality of the goods fell below the specific other indicators. Consequently, the buyer could only resell the goods at a reduced price and suffered losses (of profit and of price difference). The parties agreed to arbitrate without stating the applicable law. The buyer sought damages for its losses.

The tribunal held that Chinese law should be applied based on the principle of closest connection. CISG and relevant international trade practice should additionally be considered unless they were in conflict with Chinese law, since both parties argued with the CISG. Further, the tribunal noted that in usual circumstances, where a contract adopted the GOST standard, specific indicators could be omitted, and that if there were such specific indicators in the contract added, they should be the ones required by the GOST standard [implied in Art. 8 CISG]. In this case, however, the specific indicators were inconsistent with the GOST standard and could, thus, not be used. It was the buyer's right to have the goods inspected, according to Art. 38 and 39 CISG. If there was any dispute, the parties should negotiate or apply for a new inspection to settle the dispute. The arbitral tribunal concluded that, according to the GOST standard, the factory certificates provided by the seller and the inspection results of the buyer, the quality of the steel plates was conforming with the GOST standard. However, as the seller caused the erroneous inclusion of the specific indicators, the tribunal deemed him liable in this respect. The arbitral tribunal dismissed the buyer's claim for loss of profit, which was not the seller's responsibility, [Art. 74 CISG], but found that the seller was 80 per cent liable for the loss of price difference, since its drafting error had adversely affected the resale of the goods.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 74 [Also cited: Articles 38 ; 39 ]

Classification of issues using UNCITRAL classification code numbers:

8A [Intent of party making statement or engaging in conduct];

74A [General rules for measuring damages: loss suffered as consequence of breach]

Descriptors: Intent ; Damages

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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): Zhongguo Guoji Jingji Maoyi Zhongcai Caijueshu Caijueshu Xuanbian [Selected Compilation of Awards of CIETAC]: 1995-2002, Law Press, pages 58-64

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Fan Yang, The Application of the CISG in the Current PRC Law and CIETAC Arbitration Practice (December 2006) n. 89

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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 steel plate case (22 January 1998)

Translation [*] by Alison Hoi-Yan, Ng [**]

Edited by Howard Yinghao Yang [***]

    Abstract of the case
  1. Facts of the case
    -   Buyer's position
    -   Seller's position
  2. Opinion of the Arbitration Tribunal
    1.  The arbitration agreement and the scope of the arbitration
    2.  The applicable law
    3.  The quality clause in the contract
    4.  The dispute over the quality
    5.  The delay in delivery and the ante-dated bill of lading
    6.  The arbitration claims and the loss allocation
  3. The Award

ABSTRACT

The Claimant [Buyer] and the Respondent [Seller] entered into a sales contract, pursuant to which, the [Seller] would provide the [Buyer] with 10,000 tons of hot-rolled steel plates. After three months' voyage by sea, the goods reached the [Buyer]'s place. The [Buyer] inspected the goods and found defects in the goods. However, the [Seller] insisted that the goods were conforming. Consequently, the [Buyer] filed the application for arbitration, claiming damages for loss of profit, price difference, the container yard handling fee, the inspection fee and the actual loss related to the ante-dated bill of lading.

The contract did not contain any arbitration clause. After occurrence of the dispute, the parties, by facsimile, reached an agreement to have the matter arbitrated in Shanghai and signed a written arbitration agreement. Thereafter, the [Buyer] amended its claims twice. The [Seller] insisted that the scope of the arbitration should be limited to the original claims filed by the [Buyer]. The Arbitration Tribunal held that the amended claims were valid because the arbitration agreement did not impose any limit on the disputed amount, and the amendments were made in accordance with the arbitration rules.

The parties had agreed in the contract that the quality of the goods shall be determined by reference to the GOST standard [*], but the contract also included specific indicators for strength of extension and strength of yield of the goods. The [Buyer] contended that these indicators were independent from the GOST standard [*], while the [Seller] alleged that they are just part of GOST standard and that they found their way into the contract by mistake. The Arbitration Tribunal held that the quality of the goods should be determined solely by reference to the GOST standard. But since the [Seller]'s drafting error had adversely affected the resale prospect, the [Seller] should bear 80% of the liabilities for the price difference, the interest loss and the storage fee.

The contract adopted the price term of C&F, which, according to INCOTERMS 1990, meant the [Seller] would not guarantee that the goods arrive within a certain time limit, nor would the [Seller] guarantee the authenticity of the issue date of the bill of lading. Therefore, the [Seller] should not be liable for the late arrival of the goods or the ante-dated bill of lading.

The China International Economic and Trade Arbitration Commission (hereinafter referred to as the "Arbitration Commission"), Shanghai Sub-Commission, accepted this arbitration arising out of the aforesaid contract, in accordance to the facsimile evidencing the agreement between the [Buyer] and the [Seller] on arbitration in Shanghai and the application for arbitration in writing submitted to the Shanghai Sub-Commission by the [Buyer].

The Arbitration Commission Shanghai Sub-Commission formed the Arbitration Tribunal to hear this case with XXX as the presiding arbitrator, XXX and XXX as the arbitrators in accordance with the provisions of the arbitration rules.

The Arbitration Tribunal had previously intended to hold the first oral hearing of the case on 8 June 1994 but decided to postpone it because the [Seller] raised an objection over the capacity of [Buyer]. On 2 July 1994, the [Buyer] and the [Seller] reached an agreement to resume the arbitration process, the document of which was received by the Arbitration Tribunal on 18 November of the same year. The Arbitration Tribunal decided to hold the first oral hearing on 9 January 1995. When the second oral hearing was held on 22 May 1996, the [Seller]'s counsel, due to a sudden illness and the surgical operation it called for, failed to attend. In order to give both parties a fair chance to state their opinions and to debate with one another, the Arbitration Tribunal decided to hold the third oral hearing on 16 September 1996. On 1 April 1997, the [Seller] raised a question about the impartiality of the arbitrator appointed by the [Buyer], who subsequently recused himself. Pursuant to the provisions of the "Arbitration Rules", a new Arbitration Tribunal was formed with an arbitrator newly appointed by the [Buyer] and, on 26 August 1997, the fourth oral hearing was held during which the parties presented the facts of their case, the reasons for their position, examined the evidence, answered the questions from the Arbitration Tribunal and debated over the legal points. The Arbitration Tribunal, after carefully reviewing the evidence and documents and hearing the statements from both parties, delivered the award for this case.

The facts of the case, the opinion of the Arbitration Tribunal and the award are as follows:

1. FACTS OF THE CASE

On 16 March 1993, the [Buyer] and the [Seller] entered into a sales contract pursuant to which the [Seller] would provide 10,000 metric tons of hot-rolled steel plates.

   -    Its quality standard was "3PS OR 3SP; GOST 14637-89 (UM-3 killed steel or semi-killed steel according to No. 14637 of Year 1989 GOST national standard of the former USSR)";
 
   -    Its mechanical property was "the strength of extension shall be 50 kg/square millimeters and the strength of yield shall be 25 kg/square millimeters."
 
   -    The terms of payment were "by sight letter of credit" and the time of shipment was "on or before 8 May 1993." The method of payment clause of the contract was later amended to the effect that 50 percent of the contract price was to be paid by T/T and the remaining 50 percent by irrevocable sight letter of credit. And the shipping time was changed to "on or before 10 June 1993."

The goods did not reach the port of destination until mid-September 1993. The China Import and Export Commodity Inspection Bureau Guangxi Branch, at the request of the [Buyer], re-inspected the goods and considered the mechanical property not conforming. As a result, the [Buyer] had to resell the goods at a reduced price. Consequently, the [Buyer] applied to the CIETAC Shanghai for arbitration. [Buyer]'s claims, after being amended twice, were as follows:

  1. The [Seller] shall compensate the [Buyer] for loss of the profit in the amount of renmimbi [RMB] 5,206,589.62, the loss for resale at the reduced price in the amount of RMB 538,875.76, loss of bank interest of RMB 5,027,144.37, a container yard handling fee of RMB 617,807.59, and an inspection fee of RMB 43,866.00, all of which amounted to RMB 18,434,292.34;

  2. The [Seller] shall compensate the [Buyer] the actual loss of RMB 4,622,570.12;

  3. The [Seller] shall bear the arbitration fees for the case, the [Buyer]'s attorneys' fees of RMB 110,000 and the travel expenses of RMB 100,000, all of which amounted to RMB 210,000.

[Buyer]'s position

The [Buyer] made the following arguments:

Chinese law shall apply to this case in accordance with the principle of closest connection. The Law of the People's Republic of China on Import and Export Commodity Inspection shall apply to the matters related to inspection of the goods; the Chinese laws and regulations on standardization shall apply to the issue of mechanical indicators; And the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest shall apply to determine the liabilities for breach of contract.

Evidence submitted by the [Seller] indicated that the goods had been shipped on 10 June in compliance with the contract. However, the investigation of LLOYD'S revealed that the Ship MOLLY did not pass through the Black Sea until 17 July 1993, from which it could be inferred that the goods were shipped no earlier than 15 June 1993 and that the [Seller] had ante-dated the bill of lading. Furthermore, the three-months' voyage time of the goods caused the [Buyer] to miss the best sales opportunity.

The factory certificates submitted by the [Seller] were merely the documents required by the contract, but cannot serve as the certificate of quality inspection. The inspection of the goods should be carried out in accordance with the Chinese laws as well as the customary international trade practice. As required by law, the hot-rolled steel plate in this case was subject to merchandise inspection in China, so that the [Buyer] requested the China Import and Export Commodity Inspection Bureau Guangxi Branch to inspect the goods. The quality clause of the contract not only said "GRADE 3PS OR 3SP; GOST14637-89", but also provided for the specific chemical component and the mechanical property of the goods. The [Buyer] therefore included all the aforesaid indicators as the basis for inspection. (The indicators for mechanical properties were average values allowing certain errors as customarily recognized or as provided in Chinese laws.) The inspection revealed that the quality of the goods fell below the contract standard. The domestic end-users accordingly refused to take delivery and brought claim against the [Buyer]. The [Buyer] had to sell the goods at a reduced price and suffered, among other things, the loss of profit, a price reduction and the container yard handling fee.

[Seller]'s position

The [Seller] rebutted that:

The quality clause in the Contract should be "GRADE 3PS OR 3SP, GOST 14637-89". The property indicators were included in the contract by mistake. This point can be collaborated by the fact that, in the letter of credit opened by the [Buyer], the mechanical property indicators were deleted. Therefore, the quality inspection standard shall be "GRADE 3PS OR 3SP, GOST 14637--89" only. By this standard, the report of Commodity Inspection Bureau showed the goods were conforming.

The trade term of this transaction was "C&F FO". According to the provisions of the International Rules for the Interpretation of Trade Terms 1990 (hereinafter referred to as "INCOTERMS 1990"), the responsibility of the [Seller] was to deliver the goods on board the ship at the port of loading on the date agreed in the contract. The [Seller] had in fact delivered the goods to the port of loading on 10 June 1993 as provided in the letter of credit and obtained the bill of lading evidencing that the delivery obligation of the [Seller] had been performed. There existed no issue of an ante-dated bill of lading.

The [Buyer] lost its right to claim as it unilaterally disposed of the steel plate which were still subject to quality dispute. Moreover, in terms of the procedure, the [Buyer]'s claims exceeded the scope allowed by the arbitration agreement.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. The arbitration agreement and the scope of the agreed arbitration

The Arbitration Tribunal noted that the contract contained no arbitration clause, but both parties. through facsimile, expressed their willingness to settle the dispute through arbitration and selected China International Economic and Trade Arbitration Commission Shanghai Sub-Commission as the institution for arbitration. These constituted the fact that the arbitration agreement was reached. Thereafter, the [Buyer] and the [Seller] signed a written arbitration agreement on 2 July 1994 which further specified the arbitration institution, the venue, the applicable rules, the validity and the scope of the arbitration. Pursuant to the agreement between both parties and Article 3 of the Arbitration Rules of CIETAC, the Arbitration Tribunal heard the case which had been accepted by Shanghai Sub-Commission.

The [Buyer] applied to amend the arbitration claims during the first oral hearing and amended its claims again before the second oral hearing, both of which were done in writing, and the [Buyer] made the payments for relevant arbitration fees. Because the arbitration agreement did not limit the scope of the disputed amount, the Arbitration Tribunal did not consider the time for application of amendment too late and confirmed the two amendment of the claims made by the [Buyer]. The scope of arbitration of this case shall include the part of the claims that was added through the amendments.

2. The applicable law

The contract did not contain an applicable law clause, so this issue is left to be decided by the Arbitration Tribunal. Given that both the conclusion and the performance of the contract had close connections with China and this arbitration was also held in China, according to the principle of closest connection, the Chinese law shall apply to the contract in this case. Meanwhile, since both parties have used the U.N. Convention of Contracts for the International Sale of Goods (hereinafter referred to as the "CISG") as the ground to make their arguments, the Arbitration Tribunal decided that reference can also be made to the CISG and the relevant international trade practice provided they are not in conflict with the Chinese law.

3. The quality clause in the contract

The [Buyer] asserted that the indicators for strength of extension in the contract was the minimum quality standard which the [Seller] shall abide by.

The [Seller] argued that the indicators were a slip of pen. The fact that the contract had adopted GOST standard eliminates the possibility that there existed a separate set of indicators. If meaningful interpretations had to been given to the indicators appearing in the contract, they could only be the maximum value, rather than minimum one, for the strength of extension.

The Arbitration Tribunal noted that, in usual circumstances, where a contract adopts GOST standard, specific indicators could be omitted. Even if specific indicators were added, they shall be the ones required by GOST standard, but here the indicators are not consistent with GOST standard and it would be wrong to use them as the ground to determine the quality of the goods. Based on the facts and contract provisions, the Arbitration Tribunal concluded that the indicators of GOST standard shall govern in this case. However, it is pointed out that since the contract was drafted by the [Seller] and its mistake caused the loss, the [Seller] shall be liable in this respect.

4. The dispute over the quality

The Arbitration Tribunal noted that neither the transaction nor the contract in the case appointed the final authority for quality determination. According to Article 38 and Article 39 of the CISG and the customary practice of international trade, the [Buyer] has the right to re-inspect the goods within a reasonable time after the goods arrived. However, the re-inspection certificates shall not be final. If there is any dispute regarding the re-inspection results, the parties shall negotiate with each other or apply for a new inspection to settle the dispute. In this case, the [Buyer] gave the [Seller] a seven-day-period in which to have the goods inspected for a third time and [Buyer] asserted that if the [Seller] failed to act within this seven-day period, the re-inspection results would be deemed as accepted. The Arbitration Tribunal does not agree with this position and concludes that, according to GOST standard and based on the factory certificates provided by the [Seller] and the inspection results of Guangxi Commodity Inspection Bureau, the quality of the steel plates under the contract of this case was conforming and their strength of extension was within the scope of GOST standard and the contract provisions.

5. The delay in delivery and the ante-dated bill of lading

The Arbitration Tribunal holds that as the price term agreed in the contract was C&F, according to INCOTERMS 1990 and customary practice, the obligation of the [Seller] was merely to deliver the goods to the ship scheduled to head to the port of destination and to submit the transport other necessary documents. The [Seller] did not guarantee the arrival or arrival time of the goods. Although the voyage of the ship, in the case, took as long as three months, which caused the [Buyer] to miss the best opportunity to resell the goods, it has nothing to do with the [Seller] and the [Seller] shall not be liable for such delay. In terms of the bill of lading, the issuer had direct legal relationship with the holder, but not the buyer or seller of the goods. Therefore, the authenticity of the date of the bill of lading could only be guaranteed by the carrier and the [Seller] is not liable for the ante-dating of the bill of lading.

6. The arbitration claims and the loss allocation

      (1) The loss of the anticipated profit

Since the [Seller] is not liable for delay in delivery, the [Buyer] shall bear its own loss of returning the principal and interest of deposit at double amount to its client, arising out of the failure to perform the resale contract.

      (2) The loss for price difference, etc.

The Arbitration Tribunal held that according to GOST standard, the steel plates in this case were conforming and that the [Buyer] was obligated to use its best efforts to resell the goods after the misunderstanding about the quality was clarified. However, in consideration of the facts that the drafting error of the [Seller] had adversely affected the resale prospect and the goods were held up during the dispute settlement period, the [Seller] shall be liable for 80% of the loss for price difference suffered from the market change between mid-October 1993 and early January 1994 and the interest and other expenses in connection therewith. The investigation of the Arbitration Tribunal has revealed that the market price of hot rolled steel slipped 2.75% from mid-October 1993 to early January 1994, so that the total loss of the price difference and other expenses therewith shall be calculated as follows:

Original price of the goods: US $330/ton (3740.3 ton + 6080.548 ton) 8.3 = RMB 26,899,302
Loss of the price difference: RMB 26,899,302 2.75% = RMB 739,730
Loss of interest: RMB 26,899,302 8% 2/12 = RMB 358,675.35
(annual interest rate 8%)

Loss of the container yard handling fee: RMB 76,950 (based on the actual expense)

The above three items add up to RMB 1,175,337. The [Seller] shall bear 80% of the liabilities, that is, RMB 940,269.60 (RMB 1,175,337 80% = RMB 940,269.60).

III. THE AWARD

The Arbitration Tribunal hereby decides:

  1. The [Seller] shall compensate the [Buyer] RMB 940,269.60.

  2. The claim raised by the [Buyer] for the loss of the anticipated profit and the commodity inspection fee, etc. was dismissed.

  3. The claim raised by the [Buyer] for the payment of the attorneys' fee and the travel expenses, etc. was dismissed.

This award is final.


FOOTNOTES

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

The acronym "GOST" stands for Gosudartsvenii Standard, the Russian equivalent of ANSI.

** Alison Hoi-Yan, Ng, Research Student of the University of New South Wales (Australia, Sydney), 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).

*** Howard Yinghao YANG is an Associate with the New York office of Debevoise & Plimpton LLP, New York.

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