China 30 July 1998 CIETAC Arbitration Proceeding (Cold rolled steel plates case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980730c1.html]
DATE OF DECISION:
DATABASE ASSIGNED DOCKET NUMBER: CISG/1998/04
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Hong Kong (respondent)
BUYER'S COUNTRY: People's Republic of China (claimant)
GOODS INVOLVED: Cold rolled steel plates
APPLICATION OF CISG: The award does not specifically identify the governing law, however, it cites and applies CISG Article 50.
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
50A [Buyer's right to reduce price for non-conforming goods]; 74A [General rules for measuring damages: loss suffered in consequence of breach]; 77A [Obligation to take reasonable measures to mitigate damages]
50A [Buyer's right to reduce price for non-conforming goods];
74A [General rules for measuring damages: loss suffered in consequence of breach];
77A [Obligation to take reasonable measures to mitigate damages]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
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 126-136
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. 92Go to Case Table of Contents
|Case text (English translation)|
Cold rolled steel plates case (30 July 1998)
Translation [*] by Zheng Xie [**]
Edited by Meihua Xu [***]
Claimant [Buyer] and Respondent [Seller] contracted for. [Buyer] to purchase from [Seller] cold rolled steel plates made in Russia. After [Seller]'s delivery, [Buyer], through CCIB and SGS inspections, discovered that the goods were not conforming, and claimed for loss of sales, fine for late customs clearance, cargo damage inspection fee, and dock storage charges. [Seller] argued that the defects were caused by the damage of packing, etc., for which the carrier and the [Buyer] should be liable, and had nothing to do with [Seller]; [Seller] alleged that it had timely delivered the goods, and that it did not breach the contract. After investigation, the Arbitration Tribunal discovered that the goods have actually been damaged. According to the investigation reports of CCIB and SGS, the Arbitral Tribunal concluded that [Seller] should bear most of the liability and should indemnify [Buyer] for loss of sales, cargo damage inspection fees and dock storage charges.
China's International Trade and Economic Arbitration Commission, Shanghai Commission (thereafter, "Shanghai Commission ") accepted the case according to the arbitration clause in Contract No YMGC 97004 signed by and between Claimant ___ Company of China [Buyer], and Respondent ___ Company of Hong Kong [Seller] on 28 May 1997, and accepted [Buyer]'s written application for arbitration, which was submitted on 15 December 1997.
According to the Arbitration Rules, the Arbitration Commission formed the Arbitration Tribunal, in which ___ is the presiding arbitrator, and ___ and ___ are arbitrators. The Arbitration Tribunal heard the case.
The Arbitration Tribunal opened a court session on 8 April 1998 in Shanghai. [Buyer] and [Seller] presented, made the oral statements and arguments, and answered the Tribunal's questions. The Arbitration Tribunal thoroughly examined [Buyer]'s application, [Seller]'s written reply, and the evidence provided by both parties, and heard the statements in the court session. According to facts and law, the Arbitration Tribunal handed down its award.
The following are the facts, the Tribunal's opinion and award.
On 28 May 1997, [Buyer] and [Seller] by fax confirmed Contract No. YMGC97004 for the sale of cold rolled steel plates made in Russia. [Seller] formally signed and sealed this contract on 17 July 1997 (but in the contract the date printed is still 28 May 1997). The contract stipulates that [Buyer] will purchase 4,300 tons of cold rolled steel plates from [Seller] and includes the following terms:
|-||Price: US $387.50 MT, Price Term: CNF FO CQD Shanghai, Total Contract Price: US $1,821,250.00;|
|-||Loading Port: Nakhodka, Russia, Destination Port: Shanghai, China, Period of Shipment: before 25 July 1997;|
|-||Terms of Payment: [Buyer] will open a 180 days forward irrevocable Letter of Credit [L/C] with [Seller] as beneficiary;|
|-||Standard of Quality: 08YU ACCORDING TO: 19045-80, Standard of Tolerance: according to GOST19904-90, Packing: factory packing standard for export (waterproof and metal box packing), bounded with metal belts vertically and horizontally and fixed on the wood plates, with eight tons per bundle.|
The contract describes inspection and remedies as follows:
|-||When the goods are unloaded at the destination port, Buyer has the right to apply to the Chinese Commodity Inspection Bureau (CCIB) to inspect the goods.|
|-||If the quality and/or quantity/weight are not in conformity with the contract or invoice, Buyer has the right to claim for damages on the basis of the inspection certificate within fifty-five days after unloading the goods at the destination port, except that the insurance company and/or shipping company bear the responsibility.|
On 8 July 1997, [Buyer] opened the L/C in accordance with the contract. On 19 July, the carrier issued a clean bill of lading, which reported the total weight of the goods as 4,959.67 MT [metric tons]. On 24 July, the ship, "Ji Xing", which carried the goods, arrived at the destination port, Dong Chang Port Company, Shanghai.
Upon inspection, China Ocean Shipping Tally Company discovered that the goods were damaged and made notation. In accordance with the contract, [Buyer] applied to CCIB for inspection. The result of CCIB's inspection shows that the goods were damaged and rusted. On 22 August, SGS inspected the goods; its inspection report is almost the same as CCIB's. [Buyer] wished to settle the matter through consultation, but this failed. [Buyer] submitted the arbitration application to the Arbitration Commission.
POSITION OF THE PARTIES
CCIB's inspection report shows that the goods have defects:
SGS also inspected the goods and issued an inspection report, which demonstrates basically the same defects.
[Buyer] has investigated and obtained reliable evidence to show the above-mentioned defects, which [Seller] should have known before loading the goods on board. On 17 July, i.e., before loading the goods, SGS had already made its inspection, and the result shows the goods were damaged. Meanwhile, the carrier described the damage when the goods were loaded. [Buyer] did not know of those two reports before. These facts prove that [Seller] knew that the goods did not conform to the requirements of the contract, and [Seller] concealed the truth and delivered non-conforming goods to [Buyer].
Due to the defects in the goods, [Buyer] could not carry out Contract No. 970801 that it had signed with XX Company on 8 July 1997. XX Company canceled its contract with [Buyer]. [Buyer] has requested [Seller] to indemnify it many times. During this period, on 20 August [Seller] mailed to [Buyer] a letter asking [Buyer] to sell the goods at reduced price for mitigation. After receiving this request, [Buyer] sold the goods for mitigation. [Buyer] has asked [Seller] to pay for the damages many times and showed to [Seller] the concrete basis of damages when the dispute occurred. [Seller] only agreed to pay little for damages, and does not agree with [Buyer]'s other claims.
In the arbitration application [Buyer] claims for the loss of sales, fine for late customs clearance, cargo damage inspection fees and dock storage charges, the total of which amounts to US $600,753.12, and also for the arbitration fee, attorneys' fee and other reasonable expenditures.
1. According to the SGS inspection report, each unit of the goods is bound with seven belts) and, out of the total units bound (717 units), only 3% have one or two iron belts broken. The goods with edges of the packages subsided about 60-120mm, are 40% of the total goods (717 units) bound. However, when the goods arrived at the destination, according to the notation, 546 units were damaged. This proves that most of the damage occurred during the period when the carrier was in charge of the goods; therefore, it is the carrier's liability, and [Buyer] may ask the carrier directly or its insurance company to pay for the damages. [Seller] does not bear any liability; this is borne by the insurance company and/or the shipping company.
When the goods arrived at Shanghai Port, the tally company and the mate of the ship carrying the goods do not agree on whether this is a case of labor damage or original damage. The mate's notation in the damaged cargo report issued by China Ocean Shipping Tally Company is as: the carrier's overseer, the mate, the driver on duty and the tally clerks discovered that the workers delayed going through customs when unloading the goods, which caused labor damage. For example, on 24 July 1997, the mate and the tally clerks jointly saw that in only five minutes, five units were damaged due to delaying, so the report of that day from 8 p.m. and 12 p.m. was subjectively falsely made. The carrier does not admit the figures falsely made by the tally company. A large part of the packing damage was caused by improper operation of the loading and unloading company. The carrier and/or the insurance company should bear the liability.
CCIB did not open every unit for inspection, but only opened twelve units and did not inspect the bottom. Based on this insufficient information, CCIB reported that two steel plates at the face and the bottom of every unit are rusted. This report cannot truthfully and rightly reflect the rusty condition of the goods. In fact, the steel plates at the face and the bottom of each unit are used to protect the inside steel plates, so it is normal that they are lightly rusty.
The SGS report made on 2 September 1997, which is different from CCIB's, shows:
This proves that neither the facts nor the evidence support [Buyer]'s claims.
[Seller] delivered conforming goods, therefore it did not breach the contract. The standard of quality is 08YU ACCORDING TO 19045-80, and the standard of tolerance is according to GOST19904-90. The goods delivered by [Seller] are in conformity with these two standards. The packing requirements stipulated in the contract are manufacture's packing standard for export, waterproof, wrapped by metal box and putting wood at the bottom. The manufacturer sent the goods directly to the port for shipment. [Buyer] delayed opening the L/C, which caused the delay in signing the contract and loading the goods. The exterior packages of the goods were rusted at the loading port due to [Buyer]'s negligence; this therefore cannot be attributed to [Seller]'s breach.
2. The amount of [Buyer]'s claim cannot be supported
According to CCIB's inspection report, the inspection fee is renmimbi [RMB] 79,758.00. The invoice submitted by [Buyer] shows the same amount. The amount claimed by [Buyer] is RMB 144,277.00. Obviously, this amount includes not only the damage inspection fee, but also the quality and weight inspection fee, which is to be paid by Buyer according to the contract. In addition, CCIB's inspection is a required process for steel to go through customs in accordance with the national regulation, so [Buyer] should pay this fee.
[Buyer] should ask the carrier and/or the insurance company to pay for the damage inspection fee, because it was caused by the carrier's negligence. [Seller] should not bear this liability.
The fine for late customs clearance was caused by [Buyer]'s late declaration, which is attributed to the lack of importing approval documentation when [Buyer] processed the importing formalities, and has nothing to do with disputes over the quality of goods. [Buyer] should have satisfied the customs formalities on 24 July when the goods arrived at Shanghai Port, but [Buyer did so until 4 September. Even if there are disputes on the quality of the goods, Claimant as Buyer and recipient should first, at once, satisfy the customs formalities and then claim for damages against the persons who are liable. Facts and law to support [Buyer]'s claim for the fine of late customs clearance on the basis of the damage of the goods are lacking.
The dock storage charges are also attributed to the fact that the goods were piled at the port for a prolonged time due to the lack of a legal importing approval certificate. As far as loss of sales is concerned, the market price of steel plate in China began to drop in June 1997. In the middle of July, the market price dropped further. According to "Bao Shang Steel Information", the price of the type 08YU standard steel under the contract was first RMB 4,120 per ton; then on 12 August it was RMB 4,030 per ton; on 26 August it was RMB 3,850 per ton; and on 9 September it was RMB 3,700 per ton. On 8 July [Buyer] signed a contract with Fujian Metal Company Shanghai Branch to sell the goods at RMB 4,250 per ton, which is RMB 165 per ton higher than the market price at that time. Thus the price does not reflect the true market price. According to Article 50 of United Nations Convention on Contracts for International Sale of Goods (CISG)
"If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time."
If the goods did not conform to the contract, Buyer can only claim for the difference between the value that the goods actually delivered had at the time of the delivery bears and the value that conforming goods would have had at that time. The value of conforming goods at that time is RMB 4,120 per ton, not RMB 4,285 per ton.
In conclusion, because [Buyer] did not submit valid importing approval documents or certificates to Shanghai Customs, it missed the best selling opportunity. [Buyer]'s loss was not caused by [Seller], but was caused by its own negligence delay of the customs declaration as well as by a falling market.
OPINNION OF THE ARBITRATION TRIBUNAL
(1) The Arbitration Tribunal notes that the contract describes the quality only as "08YU ACCORDING TO 19045-80", and "TOLERANCE: TO GOST19904-90" (Tolerance Standard is GOST1990490). There are no disputes on the interior quality of the goods. [Buyer]'s claim arises from the damage of the packages, which cause the goods to become rusty and other defects that affect the sale of goods. According to [Buyer]'s statements, when the goods arrived at the destination port, because China Ocean Shipping Tally Company discovered the damage of the goods, [Buyer] applied for CCIB's inspection in accordance with the contract. The inspection report shows that the goods were damaged. After doing investigation, [Buyer] asserts that the damage was original defects. However, [Seller] asserts that the damage was caused by labor during the process of loading and unloading.
The Arbitration Tribunal finds:
1. On 17 July 1997, SGS inspected the goods at Nakhodka Port before the goods were loaded on board. SGS only inspected the visible surface of the goods, i.e., the outside package. According to this report, the goods with one or two belts broken are 3% of the goods bound. The goods with edges of the packages, which subsided about 60-120mm, are 40% of the total goods bound.
2. Although [Seller] received a clean bill of lading signed by the shipping company on 19 July, the mate receipt does not show that the surface of the goods is in good condition. On the contrary, the mate receipt describes the following condition: (1) the packages have atmospheric rust and eclipse; (2) 40% of the packages are curved and subsided; (3) 5% of the angles of the packages are damaged.
3. When the goods arrived at the destination port, China Ocean Shipping Tally Company made the inspection, but this company's opinion does not conform with the carrier's, and there are disputes.
The Tally Company noted:
"(1) Shanghai Ocean Shipping Tally Company represents the carrier and sent enough employees to inspect damage according to the tally craft and operation condition. On the 24th from 8:00 a.m. to 14:00 p.m. we found 196 damaged units. The carrier signed and admitted this. In fact, the goods in the deckhouses are damaged severely. We request the carrier to inspect the damage jointly, but the carrier replied that they had not enough labor and trusted us to inspect the goods. At last, the carrier only admits there are 35 damaged units. There is no evidence to support the carrier's assertion that customs declaration was delayed. The operation that the goods were spaded by forklifts to the middle and then unloaded is proper.
"(2) The carrier's objection is biased, so we disagree with it.
"(3) We do not accept the carrier's unreasonable notation."
The owner of the ship "Ji Xing" states:
"The tally clerks inspected the goods on the dock out of the ship. According to custom, the carrier's responsibility ended at the board, beyond which it cannot distinguish whether the damage is original or caused by labor. The carrier's overseer, the mate, the driver on duty and the tally clerk saw that the workers delayed the customs clearance when unloading the goods, which caused labor damage. However, only one clerk of the tally group on the ship cannot make clear whether the damage is original or caused by labor. Furthermore, there are two deckhouses, which one tally clerk intermittently watched and sometimes was not in. The tally clerk cannot know the amount of the damages caused by labor. For example, on 24 July 1997 when the tally clerks were talking about the work in the mate's room, how could they supervise the workers? When they walked out of the mate's room, in only five minutes they found that five units were damaged because of delaying customs clearance, so that day's reports at 8:00 a.m, and 14:00 p.m. are subjectively falsely made! The last statistics, i.e., on 546 units, are subjectively falsely made too. According to the statistics in the surveillant's report, there are only 300 units with the packages curved and 30 units with angles damaged, and the contents are not clear. In addition, the packages are rusty. For the above reasons, the carrier does not accept the figures (subjectively falsely made) provided by the tally company."
4. On August 1 1997, Shanghai Export and Import Commodity Bureau issued Inspection Certificate No. 3101/6670084, and the report is:
"After accepting the application, the Bureau sent inspectors to Yang Jia Du Port in time to inspect the goods on board, which were loaded in No. 1 and No. 2 deckhouses of the ship Ji Xing. The inspectors inspected in the deckhouses and did not find that the deck was wet or in other abnormal condition. The goods were wrapped with steel strap, underlayed with wood, and bound by seven iron belts. All iron belts are rusty. The edges or angles of some iron belts are damaged. The contents are exposed. The workers for unloading spaded the steel plates from the deckhouses to the hatchway using forklifts. The ship hangs and steel wire rope were used to hoist the goods to the flatbeds which are near the ship. Then the goods were transported to the indoor warehouse of Yang Jia Du Port."
On the opinion of inspection:
"The Bureau believes that because there is a notation in the mate's receipt, the ship only spent four days for this voyage, and the deckhouses was not wet, the rust of the packages and the damage of the edges or angles existed before loading at the loading port."
5. On 22 August 1997, SGS inspected the goods again in Shanghai. The results are:
"There are 15 bundles of the goods, which are severely damaged, with the packages broken and steel plates exposed. The damage of other goods is mainly that the angles are broken or the edges of the steel plates are slightly rusty."
Considering the above facts, the Tribunal concludes:
1. CCIB's inspection report states that the rust of the packages and the damage of the edges or angles existed before loading at the loading port. The rusty goods caused by broken packages are 418 bundles, 58.3% of the total goods. SGS' inspection report before loading shows that the goods with broken packages were 43% of the total goods. The mate's receipt at the loading port describes that the goods with defective packages were 45%. However, although the tally company and the owner of the ship admit the goods were in damaged condition at the unloading port, their descriptions are very different. Considering the above facts, the Tribunal decides that it is clear and true that defects existed in the outward appearance of the goods.
2. The disputes between the parties are what the quantity of the goods in defects is and who should be liable for the defects. The Tribunal, referring to CCIB's and SGS' inspection reports, and especially considering the description in the mate's receipt, thinks that CCIB's and SGS' inspection reports are different, and factitious factors affected the packages of the goods before signing the above inspection reports, so the notation about the outward appearance of the goods in the mate's receipt is important to prove the quality of the goods when delivered at the loading port. The Tribunal decides that it is proper to rely on the description in the mate's receipt signed at the loading port to decide the quality of the goods.
3. In light of the above analysis, the Tribunal decides that 45% of the goods had superficial defects (including the damage, curve, or concavity of the edges or angles) when they were loaded on board. [Seller] is liable for such condition, because it existed at the time of loading and before shipping the goods.
4. On the grounds of [Seller]'s description about the process of signing the contract, [Buyer] and [Seller] began to negotiate about this contract in March 1997. On 28 May, the parties confirmed the contract. The goods under the contract were piled at the port until loading on 25 July. The goods were at the dock due to detention. Thus the rust had existed before delivering, because the packages were broken. Although [Buyer] delayed opening the L/C and changed the sailing date, [Seller] confirmed. So [Buyer] is not liable for the effects on the outward appearance of the goods caused by the detention before loading.
The Tribunal's opinion is thus that [Seller] shall be liable for the damages of 45% of the goods, which were originally damaged due to the broken packages before loading.
(2) [Buyer] claims for loss of sales, fine for late customs clearance, fee of inspection for damage and dock storage charges. According to each party's responsibility, the Tribunal analyzes the above loss as the following:
1. Cargo damage inspection fee. The fee of inspection for damage referred to by [Buyer] is CCIB's inspection fee. The basis of [Buyer]'s claim for such fee is Clause 13 of the contract. The Tribunal decides that the goods were originally damaged, and the defects exist before loading, so [Buyer] is entitled to the indemnification of this fee. Thus [Seller] shall pay to [Buyer] the Fee of inspection for damage.
2. Fine for late customs clearance. The Tribunal believes that it is the importer's duty to make the customs declaration, which should be done in a timely manner when the goods go through customs. Though there are disputes about the quality of the goods, Claimant as Buyer and recipient should process the customs declaration formalities in a timely manner, and then claim for damages from [Seller] according to the contract. The goods arrived at Shanghai port on 24 July 1997, but [Buyer] had to pay a fine for late customs clearance as it did not file its customs declaration until 27 August. This is 20 days later than the stipulated time. The fine for late customs clearance should be borne by [Buyer].
3. Dock storage charges. The goods arrived at Shanghai Port on 24 July, and the unloading finished on 25 July. Contract No. 970501 signed by [Buyer] and XX Company stipulated that the delivery date was 5 August. Because XX Company found the goods were damaged severely, it cancelled the contract with [Buyer], which caused the goods to be piled on the dock for a prolonged time. The Tribunal rules that the dock storage charges from 24 July to 5 August should be paid by [Buyer] and are not within the scope of [Seller]'s indemnification. The dock storage charges after 5 August is a loss [Buyer] incurred due to the damage of the goods; this loss should be compensated by [Seller]. According to [Buyer]'s evidence, [Buyer] sold the goods in two installments on 13 August and 15 September. [Seller] should pay for the dock storage charges of 3,950 metric tons steel plates from 5 August to 13 August, and the charges for 1,200 metric tons steel plate from 5 August to 15 September. In total, [Seller] should pay 2/3 of the dock storage charges.
4. Loss of Sales. [Buyer] notified [Seller] immediately, when it found that the goods were damaged and rusty. After obtaining [Seller]'s approval, [Buyer] looked for new buyers, and signed Contracts No. 970812 and 970814 to resell the goods at RMB 3,500 per ton and RMB 2,890 per ton respectively, which is a reasonable mitigation measure complying with the stipulation of CISG.. [Buyer] suffered the loss of price difference when selling the goods under the contract due to the change of market in 1997. However, according to Article 50 of CISG, "If the goods do not conform with the contract and whether or not the price has already been paid, the buyer may reduce the price in the same proportion as the value that the goods actually delivered had at the time of the delivery bears to the value that conforming goods would have had at that time," and the market price, RMB 4,120 per ton, of the goods under the contract at that time published by the magazine "Bao Shan Steel Information", [Buyer]'s claim should be the difference between the value that the goods actually delivered had at the time of the delivery bears and the value that conforming goods would have had at that time. On the grounds of the Tribunal's decision that [Seller] is liable for the original damage, it is justifiable for [Seller] to pay for 45% of the sales loss.
This is the final award.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of The People's Republic of China is referred to as [Buyer]; Respondent of Hong Kong 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].
** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.
*** 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.Go to Case Table of Contents