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CISG CASE PRESENTATION

China 26 November 1998 CIETAC Arbitration proceeding (Leather gloves case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/981126c1.html]

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

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Case identification

DATE OF DECISION: 19981126 (26 November 1998)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1998/06

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Germany (respondent)

GOODS INVOLVED: Leather gloves


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission [CIETAC] 26 November 1998 (Leather gloves case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/120]
CLOUT abstract no. 1169

Reproduced with permission of UNCITRAL

Abstract prepared by Aaron Bogatin

A German buyer and a Chinese seller entered into a contract for the purchase of leather gloves. The contract stated the way the goods were to be packaged, including number and weight of the boxes, and their delivery CIF (cost, insurance, freight) Hamburg, Germany.

During the performance of the contract, disputes arose over modifications of the original agreement, thickness of the leather, weight of the boxes and payment of the goods.

The seller alleged that the original contract was modified so that the weight of the boxes was adjusted and the contract became a sale by sample. The buyer raised objections over the weight of the boxes (which had to do with thinness of leather) as well as the quality of the goods delivered. Despite the seller claiming that several options were offered to the buyer to mitigate damages and solve the dispute, the buyer chose to resell the goods to a third party for a lower price. The buyer stated that after reselling the goods, a certain amount for the goods sold was paid to the seller.

The Arbitration Tribunal found that since the parties had their places of business in Contracting States to the CISG, the Convention would govern the contract.

On the merits, the Tribunal ruled that by not paying for the goods as provided under the contract the buyer had violated Article 53 CISG. According to the tribunal, the buyer had not provided any evidence that the actual price of the goods was paid to the seller, who denied receiving any sum. The Tribunal further noted that even though the buyer had failed to provide an inspection certificate showing the defects on the goods, the seller had agreed to exchange them and promised to bear the cost. Referring to the statements made by the parties, the Tribunal deemed that there were defects on the goods; therefore, it was reasonable to resell them at a discount price. After making an adjustment for defects in the quality of the goods, the Tribunal held that the buyer should be required to pay 70 per cent of the contract price.

The Tribunal denied the seller’s request for recovery of bank interest, holding that “loss of bank interest was not foreseeable by the buyer; therefore, the seller shall bear it on its own”.

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 35 ; 53 ; 74 ; 78

Classification of issues using UNCITRAL classification code numbers:

35A [Conformity of goods: quality, quantity and description required by contract];

53A [Buyer's obligation to pay price of goods];

74B [Outer limits of damages: foreseeability of loss (interest not allowed: held not foreseeable)];

78A [Interest on delay in receiving price or any other sum in arrears]

Descriptors: Conformity of goods ; Price ; Damages ; Foreseeability of damages ; Interest

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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) 1998 vol., pp. 2919-2921

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.207, 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

Leather gloves case (26 November 1998)

Translation [*] by Meihua Xu [**]

Edited by John W. Zhu [***]

The China International Economic and Trade Arbitration Commission (formerly known as the Foreign Economic and Trade Arbitration Committee of China Council for the Promotion of International Trade, hereafter, the "Arbitration Commission") accepted the case according to:

   -    The arbitration clause in the sales contract signed by Claimant [Seller], China Wuhan __ Import & Export Company, and Respondent [Buyer], Germany __ Company, on 12 January 1995; and
 
   -    The written arbitration application submitted by [Seller] on 16 September 1997.

Since the amount in dispute in this case is less than renminbi [RMB] 500,000, according to Article 64 of the Arbitration Rules (effective 1 October 1995), the summary procedure is applicable.

Because the parties failed to jointly appoint or ask the Director of the Arbitration Tribunal to appoint the sole arbitrator, pursuant to Article 65 of the Arbitration Rules, the Director of the Arbitration Commission appointed Mr. P as the sole arbitrator to form the Arbitration Tribunal to hear this case.

The Arbitration Tribunal held a court session in Beijing on 26 August 1998. The [Seller] sent an arbitration agent to the court session who made a statement on the case and answered the Arbitration Tribunal's questions. The [Buyer] did not attend the court session.

After the court session, the Secretariat of the Arbitration Commission notified the [Buyer] of the court session and forwarded the [Seller]'s supplementary statement and evidence, asking the [Buyer] whether it needed a second court session, informing that the [Buyer] could still make a statement or present its opinions. And on 19 October 1998, the [Buyer] submitted a defense.

Pursuant to Article 73 of the Arbitration Rules, this case should have been concluded on 26 September 1998; however, due to special reasons, the Arbitration Tribunal asked the Secretary-General of the Arbitration Commission for a two-month postponement of making judgment, which was approved. This case has now been concluded. The Arbitration Tribunal handed down its award within the aforesaid time limit.

The following are the facts, the Tribunal's opinion and award.

I. FACTS

On 12 January 1995, the [Buyer] and the [Seller] signed the aforesaid contract by which the [Buyer] purchased gloves on the following terms:

   -    Products: 2,500 dozen 88-PASA leather gloves and 2,500 dozen 88-PBSA leather gloves, totaling 5,000 dozen;
   -    Price: The total price is US $45,375;
   -    Packaging: The goods shall be packaged in paper boxes with 10 dozen in each box; each box should weigh 16kg;
   -    Shipping term: CIF Hamburg.

On 5 February 1995, the [Buyer] issued an irrevocable sight L/C with the [Seller] as the beneficiary.

During the performance of the contract, the parties had disputes on modification of the contract, thickness of leather, weight of the box, and on payment for the goods. The parties failed to resolve the disputes after negotiations and having been mediated by Wuhan Mediation Center and Hamburg Mediation Center; therefore, the [Seller] filed this arbitration application.

[POSITION OF THE PARTIES]

[Seller] 's position

The [Seller] alleges that:

After the [Buyer] issued the L/C, the parties reached an agreement on decreasing the weight of each box, modifying the L/C, and for the [Seller] to provide sample goods as the basis for delivery.

On 25 March 1995, the [Buyer] went to Wuhan to inspect the sample goods, and the two parties confirmed the samples by signing on them. The samples were kept by the [Buyer]. On 25 March 1995, the [Seller] shipped the contract goods from Shanghai to Hamburg. When the [Seller] negotiated the payment, the Bank of Germany rejected the payment, raising that there was an inconsistency between the documents and the L/C.

On 29 April 1995, the goods arrived at Hamburg, the [Buyer] urged the [Seller] to ask the notifying bank to release the documents, promising that the [Buyer] would make payment within 24 hours after receiving the goods.

On 30 May 1995, after the [Seller] completed the bank procedure for releasing the documents, the [Buyer] received the goods. On the same day, the [Buyer] declared that it could not accept the goods because of defects on thickness of leather and the weight of each box. The [Buyer] did not return the goods, instead unilaterally sold the goods at a discount price in spite of the [Seller]'s objection, and appropriated the [Seller]'s entire contract price.

The [Seller] asserts that:

  1. The [Seller] has been performing honestly and has fulfilled its contract obligation by delivering the goods on the basis of the confirmed samples and the modified contract. The [Buyer] resold the goods, and rejected the [Seller]'s offer to exchange the goods or to take other measures to mitigate the loss, and has not make any payment;

  2. The [Buyer] has never provided any legal and effective inspection certificate showing that there were defects on the goods delivered by the [Seller], nor did it provide a "price evaluation on inferior goods" issued by the Customs in Germany. In fact, the [Buyer] has sold all the goods that were called "trash" by the [Buyer], which indicates that opinions given by a person who was not authorized to perform inspection could not be the basis for determining the defects on the goods.

The following are the [Seller]'s claims:

  1. [Buyer] should pay the price for the goods of US $45,375 immediately;
  2. [Buyer] should pay the interest on the aforesaid sum of RMB 126,315 (RMB 92,872 + RMB 33,443);
  3. [Buyer] should bear the arbitration fee and related costs of RMB 30,000.

[Buyer]'s defense

The [Buyer] counter argues that:

The [Buyer] and the [Seller] have had a long business relationship. On 12 December 1994, (which should be 2 December 1994 instead - noted by the Arbitration Tribunal), the [Seller] sent an offer to the [Buyer], and later the two parties signed the contract in this case, confirming that the goods should be A grade, and that each box should weigh not less than 16kg.

On 14 February 1995, the [Seller] asked to modify the box weight to 13 ~ 14 kg/box, which was rejected by the [Buyer]. The [Buyer] could only accept 15kg/box.

Later the two parties confirmed the samples, and the [Seller] agreed to deliver the goods.

After receiving the goods, the [Buyer] discovered that the leather of the gloves was very thin, and each box weighed less than 11kg. On 30 May 1995, the [Buyer] notified the [Seller] of these problems.

Later, the [Buyer] came to China again to negotiate the resolution of the dispute; however, the negotiation failed because the [Seller] had no intention to resolve the problem. The [Buyer] had to resell the goods at a discount price and paid US $1,975.90 to the [Seller] through Bank of China.

The [Buyer] alleges that:

  1. The [Buyer] has fulfilled its contract obligations;

  2. The [Seller] and the carrier ignored their contract obligations, and should bear the responsibilities accordingly;

  3. The [Seller] and the carrier should bear the entire loss.

The [Buyer] asks the Arbitration Tribunal to:

  1. Dismiss the [Seller]'s arbitration claims; and

  2. Rule that the [Seller] is obligated to bear the arbitration fee.

II. OPINION OF THE ARBITRATION TRIBUNAL

1. The applicable law

The parties in this case did not stipulate the applicable law in their contract. Considering the fact that the places of business and registration places of the [Seller] and [Buyer], China and Germany, are Contracting States of the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), therefore, the CISG should be applied.

2. [Buyer]'s responsibility for contract violation

After investigation, it was found that on 25 March 1995, the [Seller] delivered the goods from Shanghai, and on 30 May 1995, the goods were received by the [Buyer]. On the same day, the [Buyer] raised objection to the quality of the goods. The parties have no dispute on the aforesaid facts.

According to Article 53 of the CISG, "the [Buyer] must pay the price for the goods and take delivery of them as required by the contract and this Convention." The [Buyer] asserts that it has paid US $1,975.90 to the [Seller]. However, the [Seller] denied this assertion of the [Buyer] and the [Buyer] failed to provide any evidence proving it had made payment on the goods; therefore, the Arbitration Tribunal does not accept this assertion. The [Buyer] has accepted the goods without making payment; therefore, according to the CISG, the [Buyer] has fundamentally breached the contract.

The Arbitration Tribunal notes that even though the [Buyer] failed to provide an inspection certificate showing the defects on the goods, the [Seller] had agreed to exchange the goods and promised to bear the cost. In addition, from the statements made by the two parties, the Arbitration Tribunal deems that there are defects on the goods; therefore, it was reasonable to resell the goods at a 30% discount.

3. Resolution of the [Seller]'s arbitration claim

      (1) Price for the goods: Considering the [Buyer]'s contract violation and the quality of the goods: the Arbitration Tribunal holds that [Buyer] shall pay 70% of the contract price to the [Seller], i.e., US $45,375 70% = US $31,762.50;

      (2) Bank interest: The Arbitration Tribunal notes that loss of bank interest was not foreseeable by the [Buyer]; therefore, the [Seller] shall bear it on its own;

      (3) [Buyer] shall bear the [Seller]'s actual cost for processing this case, which is US $1,200;

      (4) [Seller] shall bear 40% of the arbitration fee, and [Buyer] shall bear 60%.

III. THE AWARD

The Arbitration Tribunal rules that:

1. [Buyer] shall pay to the [Seller] the price for the goods of US $31,762.50;

2. [Buyer] shall pay [Seller]'s actual cost for processing this case of US $1,200;

3. [Seller] shall bear 40% of the arbitration fee and [Buyer] shall bear 60%. The [Seller] has paid RMB __ in advance; therefore, the [Buyer] shall pay back RMB __ to the [Seller];

4. [Seller]'s other arbitration claims are dismissed;

5. [Buyer] shall pay the aforesaid sum within 60 days of this award; otherwise, 7% annual interest shall be added.

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 the Peoples' Republic of China is referred to as [Seller] and Respondent of Germany 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].

** 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 a 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.

*** John W. Zhu, LL.M. China University of Political Science and Law (National Graduate Scholarship); Bachelor of Law, Southwest University of Political Science and Law; Double Degree, English Literature, Sichuan International Studies University, Chongqing, China. Focus: International Economic Law.

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Pace Law School Institute of International Commercial Law - Last updated December 5, 2012
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