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CISG CASE PRESENTATION

China 24 March 1998 CIETAC Arbitration proceeding: Shanghai Sub-Commission (Hempseed case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980324c1.html]

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

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Case identification

DATE OF DECISION: 19980324 (24 March 1998)

JURISDICTION: Arbitration ; China

TRIBUNAL: China International Economic and Trade Arbitration Commission [CIETAC] (PRC): Shanghai Sub-Commission

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: CISG/1998/03

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: United Kingdom (claimant)

GOODS INVOLVED: Hempseed


Classification of issues present

APPLICATION OF CISG: No. With seller from China and buyer from the United Kingdom, the Tribunal held that "[a]ccording to international law norms and domestic law of the United Kingdom, CISG would not be the applicable substantive law". The Tribunal stated:

     "Since the contract was entered into and performed in China, the arbitration was held in China, and both parties agreed to apply the Law of the People's Republic of China on Economic Contracts Involving Foreign Interest and other related Chinese laws as well, the Arbitration Tribunal thereby decided that the law applicable to this case is Chinese law."

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 1(1)(b) ; 6

Classification of issues using UNCITRAL classification code numbers:

1B [Relation to Contracting State: issue as to applicability of Article 1(1)(b)];

6A [Choice of law: issue as to whether there was an exclusion of Convention by choice of parties]

Descriptors: Applicability ; Choice of law

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Zhongguo Guoji Jingji Maoyi Zhongcai Caijueshu Xuanbian [Selected Compilation of Awards of CIETAC]: (1995-2002), Law Press, pages 88-92

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

China International Economic and Trade Arbitration Commission
(CIETAC) Shanghai Sub-Commission

Arbitration award for dispute concerning sale of hempseed

24 March 1998

Translation [*] by Gu Zhenhua [**]

Edited by Howard Yinghao YANG [***]

ABSTRACT

Respondent [seller] and Claimant [buyer] entered into a contract for the sale of hempseed. Under the contract, [seller] was obligated to supply ten containers of hempseed to [buyer]; however, [seller] only delivered three containers. Since [seller] failed to fully perform the contract, [buyer] had to buy hempseed from other suppliers. [Buyer] claimed from [seller] compensation for the price difference, interest, and loss of profit. [Seller] argued that the Chinese government had increased the price of hempseed by 100% after the conclusion of the contract, which was a "force majeure" event that excused [seller]'s failure to perform the contract. However, the Tribunal found that the price-adjustment by the Chinese government was a normal commercial risk and not beyond [seller]'s anticipation. Furthermore, [seller] failed to give immediate notice to [buyer] in the manner agreed upon in the contract. The Tribunal therefore dismissed [seller]'s claim. The Tribunal's support for the [buyer]'s right to recover damages for the price difference and interest meant that [buyer] would have received all the goods under the contract. This already included a reasonable profit. The [Buyer]'s claim for loss of profit was therefore dismissed.

CASE BACKGROUND

The case involves a supply of hempseed by the Respondent ["seller"], whose place of business was located in China, to the Claimant ["buyer"], who had its place of business in the United Kingdom. The dispute between the parties arose from a sales contract, which indicated that [seller] would sell hempseed, specifically, ten 20-foot containers of hempseed, sixteen tons of hempseed each, to [buyer]. According to the contract, the price for every ton of hempseed is "US $337.00 CIF C3 VALENCIA, US $335.00 CIF C3 BREMEN ". It was also indicated in the contract that the [seller] should deliver two containers to VALENCIA for each of following three periods: from November 1994 to 15 December 1994, in January 1995, and in March 1995; and that the [seller] should deliver two containers to BREMEN for each of following two periods: from November 1994 to 15 December 1994, and in January 1995. The payment was to be made by irrevocable letter of credit at sight. 

[Seller] did not deliver any container within the period fixed in the contract. [Buyer] postponed the delivery period in consideration of the business relationship with [seller]; the [seller] then, delivered only three containers of hempseed. On 28 February 1995, [buyer] informed the [seller] of breach of contract since these three containers were not duly delivered; [buyer] also required the [seller] to deliver the rest of the hempseed on time. After [seller] indicated its refusal to deliver the rest of the goods on 7 March 1995, [buyer] filed this arbitration with the China International Economic and Trade Arbitration Commission (CIETAC), Shanghai Sub-Commission, with claims that:

  1. [Seller] should pay US $27,579.04 for price difference;
  2. [Seller] should US $15,099.52 for interest of the above amount;
  3. [Seller] should compensate [buyer] US $3,652 for the loss of profits;
  4. [Seller] should bear [buyer]'s attorneys' fees of US $2,000 for this arbitration;
  5. [Seller] should bear all the arbitration fees.

[Buyer] contended that [seller] should be held liable to compensate [buyer] for damages for breach of contract; the amount would be the difference between the price fixed by contract and the market price at that period. As to the market price, [buyer] referred to the hempseed price of US $ 590.00 / MT CIF C3 fixed in another contract it entered into with Chinese Company A. Based on this, the price difference would be US $24,579.04, and the interest on the difference would be US $15,099.52. Furthermore, according to the Law of the People's Republic of China on Economic Contract Involving Foreign Interests and Article 7 of United Nations Convention on the International Sale of Goods (hereinafter, CISG), [seller] should also compensate the loss of profit suffered by the [buyer], which, using 10% of the total contract price as a reasonable profit percentage, would be US $3,652.

[Seller] argued that:

  1. The Chinese government raised the price of hempseed after the conclusion of the contract. Such a price adjustment was unforeseeable and inevitable, thus constituting force majeure. [Seller] faxed to [buyer] the related government document evidencing the price adjustment. Under the law and contract, [seller] is not liable for the failure to perform.

  2. The total sum of the two letters of credit established by [buyer] was US $42,040, which was far below the total contract price in the amount of $ 53,792. [Buyer] had not made the full payment under contract to the date of this arbitration, so the [buyer] should be liable for breach.

  3. Such a steep price increase was unforeseeable to [Seller] at the time of the conclusion of the contract, nor was the [seller] able to foresee that the failure to deliver would cause such a significant loss to [buyer]. According to the Law of the People's Republic of China on Economic Contract Involving Foreign Interests, [seller] should not be liable for this loss.

  4. [Buyer] could not claim both for price difference and loss of profit. The price difference, if paid by [seller], would put [Buyer] in the position as if the [seller] have delivered all the goods. Thus there would be any loss of profit

  5. [Buyer] has its place of business in United Kingdom, which is not a CISG Contracting State. As a result, the CISG is not applicable to the present controversy.

OPINION OF THE ARBITRATION TRIBUNAL

1. Applicable law

The parties did not choose the applicable substantive law governing disputes under the contract. [Buyer] has its place of business in the United Kingdom, which is not a CISG Contracting State. According to international law norms and domestic law of United Kingdom, CISG would not be the applicable substantive law in the present case. According to article 145 of Chinese Civil Rule and article 5 of Law of the People's Republic of China on Economic Contracts Involving Foreign Interests, parties can choose the applicable substantive law governing the dispute. Since the contract was entered into and performed in China, the arbitration was held in China, and both parties agreed to be governed by the Law of the People's Republic of China on Economic Contracts Involving Foreign Interests and other related Chinese law as well, the Arbitration Tribunal thereby decided that the law applicable to this case is Chinese law.

2. Force Majeure

To apply the force majeure rule, both the substantive and procedural requirements shall be satisfied. For substantive requirements, the event shall happen after the contract is concluded; the event shall be unforeseeable to the parties at the time of contract conclusion ; the event should be unavoidable and the event should not be caused by either party's negligence. The Tribunal finds that the government's price adjustment notice and supplemental documents, submitted by [seller] as evidence, were released on 13 May 1994 and 30 May respectively. The contract, however, was entered into on 28 October 1994. It was obvious that the price adjustment by the government was not unforeseeable to [seller]. Furthermore, the price-adjustment was not government's restriction on export. . Actually, [seller] delivered three containers of hempseed to [buyer] even after what [seller] called a "force majeure" event, which means that the [seller] had the ability to fully perform the contract after the price-adjustment.

The government's price-adjustment notice and its supplemental documents faxed to [buyer] were administrative documents, rather than professional evidence . [Seller] also failed to give [buyer] the proof, as called for by contract, about the price adjustment event by air mail within fifteen days after the events happened. Therefore, the procedural requirements for force majeure are not satisfied either. In our opinion, the price-adjustment in this case was just a normal commercial event, not a "force majeure".

3. Liability and damages for breach of contract

[Seller] shall compensate [buyer] for the price difference resulting from the breach of contract. The Tribunal found the price of hempseed doubled (US $670 and US $674) after conclusion of the contract, so it was reasonable to use US $590 as the market price, which was the price fixed in a contract entered into between [buyer] and Chinese Company A. [Seller] should compensate [buyer] US $27,579.04 for damages. [Seller] should also pay interest on the above price difference from 4 March 1995 to 3 March 1998 at the annual interest rate of 5%, which would be US $4,136.86 in total.

The Tribunal's support for [buyer]'s right to recover damages for the price difference and interest, would have the same effect as if [buyer] had received all the goods under the contract. This already includes the [buyer]'s reasonable profit. The [buyer]'s claim for US $ 3,652 loss of profit is therefore dismissed.

AWARD

The Arbitration Tribunal decides as follows:

  1. [Seller] shall compensate [buyer] US $27,579.04 for damages and US $4,136.86 for interest; this amounts to US $31,715.90 in total;
  2. [Seller]'s other claims are dismissed;
  3. The arbitration fees shall be borne 10% by [buyer] and 90% by [seller].

This award is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the United Kingdom is referred to as [buyer] and Respondent of the People's Republic of China is referred to as [seller].

** Gu Zhenhua LL.M. candidate, Louisiana State University, Paul M. Herbert Law Center, 2004; LL.B. Southwestern University of Finance and Economics, School of Law, 1999, P.R. China.

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

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Pace Law School Institute of International Commercial Law - Last updated June 13, 2005
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