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China, CIETAC Arbitration award of 1999 (Piperonal aldehyde case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990000c1.html]

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

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Case identification

DATE OF DECISION: 19990000 (1999) [date of a PRC publication of award]

JURISDICTION: Arbitration ; P.R. China

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

JUDGE(S): Unavailable


CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Peoples' Republic of China (Respondent)


GOODS INVOLVED: Piperonal aldehyde

Case abstract

PRC: China International Economic & Trade Arbitration Commission,
Piperonal aldehyde case of 1999

Case law on UNCITRAL texts (CLOUT) abstract no. 683

Reproduced with permission of UNCITRAL

Abstract prepared by Jean Ho

A Chinese seller and an American buyer entered into a sales contract for Piperonal aldehyde. The contract stipulated delivery CIF to New York. The buyer faxed the seller repeatedly warnings on the sensitivity of the goods, advising him to keep them from high temperature and to arrange for non-stop shipment. The seller assured the buyer on the temperature at the port being fit for the goods. The seller then shipped the goods via Hong Kong to New York. Upon unloading, the transport company discovered that the goods had melted and leaked. The transport company then handed the goods over to the buyer's client. The latter rejected the goods and the buyer notified its insurer and the seller accordingly Art[t]. [35,] 38 [and 39(1)] CISG). Tests revealed that the goods were damaged by high temperature during transport. After negotiations, the buyer, the seller and the insurer agreed on indemnifications for the buyer paid by both the insurance company and the seller. Subsequently, the buyer and the seller entered into a supplemental agreement, in which the seller agreed to pay the buyer additional money. However, the seller did not fulfil this obligation. Thus, the buyer commenced arbitration proceedings to recover the money.

The seller denied liability for any damages to the goods according to Art. 30 CISG and the contract agreement on CIF New York. It further alleged that it had called the transport company on the appropriate temperature for the shipment. Additionally, the seller denied the validity of both agreements, since they were both premised on its liability.

The arbitral tribunal held the CISG to be the applicable law [Art. 1(1)(a) CISG]. Both parties had places of businesses in different states, which were both Contracting States to the CISG. The tribunal noted that usually the agreement on CIF referred the seller's liability on to the buyer as soon as the goods passed the ship's rail. However, the communication between the parties regarding the appropriate transportation temperature constituted a special agreement pursuant to Art. 66 CISG. The seller breached this agreement [Art. 45, 74 CISG]. It neither arranged for non-stop shipment nor was its phone notice to the carrier sufficient, which, besides, it did not prove. Consequently, the court deemed the two agreements valid and ordered the seller to pay the buyer the promised sum.

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Classification of issues present



Key CISG provisions at issue: Articles 35 ; 38 ; 39 ; 66 ; 74 [Also cited: Article 30 ]

Classification of issues using UNCITRAL classification code numbers:

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

38A [Buyer's obligation to examine goods];

39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];

66A1 [Conformity of goods determined as of time risk passes: prior damage or deterioration at seller's risk];

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

Descriptors: Conformity of goods ; Examination of goods ; Lack of conformity notice, timeliness ; Passage of risk ; Damages

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Editorial remarks

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Citations to other abstracts, case texts and commentaries




Original language (Chinese): Arbitration Research Institute of China Chamber of International Commerce (CCOIC) (ed): Commentary on Typical Arbitration Cases of International Economy and Trade, Beijing: Law Press, 1999.6, pp. 51-58.

Translation (English): Text presented below


English: CISG-AC advisory opinion on Examination of the Goods and Notice of Non-Conformity [7 June 2004] (this case and related cases cited in addendum to opinion)

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Case text (English translation)

Queen Mary Case Translation Programme

CIETAC Arbitration award, People's Republic of China

Piperonal aldehyde case (1999)
[date of a PRC publication of the award]

Translation [*] by JIANG Xueyan [**]

Translation edited by Meihua Xu [***]


CAUSE OF ACTION. Dispute on quality of the goods. PARTIES AND COUNSEL. Claimant [Buyer]: E company registered in U.S.A., Respondent [Seller]: D company registered in P.R. China.


[Seller] and [Buyer] entered into Contract No.** (the "Contract") entitled "Piperonal aldehyde purchase" on 9 September 1992. They agreed on 10,000 kilograms of Piperonal aldehyde (the "goods") at a price of US $21 per kilogram; total price US $210,000; delivery term CIF (New York). The Contract required that the degree of purity of the goods be at least 99% and that the goods be made only for export by a factory in Hangzhou.

On 14 September 1992 after concluding the Contract, [Buyer] established a Letter of Credit [L/C] in favor of [Seller] for an amount in the total sum of US $210,000. The goods were shipped and sent by [Seller] from Shanghai on 30 September 1992 and arrived in New York on 18 November. On 27 November, the transportation company entrusted by [Seller] (the "Carrier") found the goods in serious meltage and leakage during unloading of the goods, and so stopped it. On 30 November, the Carrier unloaded all of the goods, labeled them, and on 4 December, handed over the goods to [Buyer]'s client, the final user, who, however, required that the goods be returned. On 4 December, [Buyer] gave a notice to [Seller] and the American deputy of PICC, Shenyang branch (the "Insurer"). The Insurer's deputy entrusted Worman & Co. Inc. to have the goods tested. On 10 December and on 22 December, Worman & Co. Inc. provided a preliminary testing report and final testing report, which showed that the reason for the damage of the goods was over-high temperature during transportation. Later, [Buyer] negotiated several times with [Seller] and the Insurer concerning compensation. In the middle of May 1993, [Seller] and the Insurer inspected the goods in New York, where [Buyer], [Seller] and Insurer, on 28 May 1993, entered into an Agreement (the "Tripartite Agreement") concerning the evaluation of remnant value and settlement of the damage for the 10,000 kg of Piperonal aldehyde. They agreed that:

-   The goods shall be sold immediately by public bidding together by [Buyer] and by the Insurer's deputy;
- The remnant value of the goods shall be US $40,000;
- The impaired value of the goods shall be US $170,000, of which the Insurer agreed to be liable for US $110,000 (paid to [Buyer] directly), and [Seller] agreed to be liable to indemnify [Buyer] for US $60,000.
- [Buyer] shall be responsible for the settlement of the remnant value and bear other related expenses.

[Buyer] and [Seller] decided thereafter that [Buyer] shall be responsible for the settlement of the remnant value and bear other related expenses. After concluding the Tripartite Agreement, the Insurer paid US $110,000 to [Buyer] on 16 June 1993. Subsequently, [Buyer] and [Seller] entered into another agreement concerning indemnification for the damage of Piperonal aldehyde (the "Supplemental Agreement") on 19 June 1993 at Shenyang, in which they agreed:

-   [Seller] promised to pay US $60,000 to [Buyer],
- Of which US $20,000 shall be paid to [Buyer] in cash before 15 August 1993 and US $40,000 shall be paid by commission or discount during the two parties' business cooperation thereafter.

However, after the agreement was signed, [Seller] did not fulfill its promise to pay US $20,000 as [Buyer] had requested many times, nor did [Seller] made any other deal with [Buyer], though [Buyer] was desirable to make deals with it. Therefore, [Buyer] submitted the dispute for arbitration to China International Economic & Trade Arbitration Commission (CIETAC).

[Buyer]'s position. [Buyer] asserted:

1. [Seller] should be liable for the damage of the goods.

According to the testing reports provided by Worman & Co. Inc., the fundamental reason for the damage of the goods was the over-high temperature during transportation. [Buyer] faxed [Seller] respectively on 24 September and on 27 September 1992, telling [Seller] to be cautious of temperature. [Buyer] told [Seller] that Piperonal aldehyde would become yellow and its original quality would be destroyed in high temperature, so [Seller] had to carefully keep piperonal aldehyde at a temperature not too high and to try to arrange nonstop shipment. On 28 September 1992, [Seller] sent [Buyer] a reply fax, saying: "Now the temperature at port is fitting for the goods, no adverse influence. Please take it easy". However, high temperature led to the meltage of the piperonal aldehyde; thereupon [Seller] should be liable for damage of the goods.

2. About the two agreements concerning settlement of the damage of the goods:

Upon becoming aware of damage of the goods, [Buyer] immediately informed [Seller] about it and asked for a settlement agreement as soon as possible, but the negotiation between [Buyer], [Seller] and the Insurer lasted for nearly half year, until [Buyer] and the Insurer came to New York to check the goods in May 1993. On 28 May 1993, [Buyer] and [Seller] agreed upon an indemnity of US $60,000 in the Tripartite Agreement. Also, [Buyer] made a great concession to agree that indemnifying ways might be bargained thereafter.

Later, [Buyer] and [Seller] entered into the Supplemental Agreement on 19 June 1993 based on the Tripartite Agreement. During the negotiation of the Supplemental Agreement, [Buyer] could have demanded that [Seller] pay the indemnity all in cash because, as a matter of fact, [Buyer] was indeed in urgent need of ready money. However, considering further cooperation between both parties, [Buyer] agreed that [Seller] could pay US $20,000 in cash before 15 August 1993 and another US $40,000 by commission or discount during further business cooperation. This was another concession made by [Buyer]. However, [Seller] did not pay the US $20,000 as required in the Supplemental Agreement, which resulted in difficulties of cash flow for [Buyer]; and [Seller] never expressed any true intention for the promised business indemnification. [Buyer] deemed that [Seller] was not sincere in his promise of further business cooperation and that it would prove impossible to seek business indemnification from [Seller].

Based on the above, [Buyer] applied for an arbitration award seeking to have:

A. [Seller] pay to [Buyer] US $60,000;

B. [Seller] bear all the arbitration fees and [Buyer]'s attorney fees.

[Seller]'s Position. [Seller] asserted:

1. [Seller] should not be liable for damage of the goods.

The clean Bill of Lading issued by the Carrier in this case and the Eligibility Testing Certificate provided by the Commodities Inspection Authorities of China prove that [Seller] has delivered to [Buyer] the goods in accordance with the Contract. Furthermore, neither did [Buyer] declare any deficiency before reselling the goods, nor did [Buyer] claim an indemnity by any means against [Seller] when its client returned the goods. From the very beginning, the person claimed against by [Buyer] was the Insurer, not [Seller] who was required only to provide assistance during the claiming period. [Buyer]'s behavior proved that [Seller] had performed his obligation in accordance with Contract. According to Contract, Article 30 of CISG and the provisions of Economic Contract Law Involving Foreign Interest of the People's Republic Of China, [Seller] had performed his own obligation.

The delivery term specified in the Contract is CIF (New York) under which the risk passed to [Buyer] from [Seller] at the time when the goods passed ship's rail. If [Buyer] failed to prove that there were deficiencies prior to the time of shipment, [Seller] should not be liable for damage incurred after shipment. The testing report provided by Worman & Co. Inc. proved that the damage resulted from abnormally heating the goods during transportation. Besides, the Commodities Inspection Authorities also regarded the Carrier as liable for the damage. More important, since [Seller] has bought insurance for [Buyer] as required in CIF terms, [Buyer] should claim an indemnity against the Insurer instead of [Seller]. [Seller] had also expressed these points in corresponding faxes between both parties.

In claiming against the Insurer, [Buyer] made a big mistake adversely influencing the outcome. After the goods arrived at the destination port, [Buyer] did not examine the goods immediately as required in Article 38 of CISG and by international business practice. Instead, [Buyer] resold the goods to a third party. Only after the third party complained about the quality of the goods, did [Buyer] apply for examination and then claim damages against the Insurer. Moreover, [Buyer] failed to acquire the evidence for the damage of the goods, absence of which directly led to a blurry liability in the claim against the Insurer.

2. The two agreements concerning the settlement of damages should be void. In supplemental materials submitted after session, other than restating his opinion in pleadings, [Seller] further defended:

[Seller] should not be liable for the damage of the goods. [Seller] had given notice to [Buyer] via fax prior to time of shipment that the temperature at port was fit for the goods. [Seller] also gave notice to the Carrier via phone of this problem, although [Seller] did not think it was bound to inform the Carrier on the matters based on the Contract, on laws or on international business practice.

[Buyer]'s arbitration claims should not be regarded as tenable. Since [Seller] should not be liable for the damage of the goods, the two agreements settling damage of the goods are soft agreements without enforceability; the claim that [Buyer] asked to have [Seller] pay US $60,000 should not be upheld. Even if the agreements were valid, [Buyer] could claim only US $20,000, because [Seller] would be entitled to pay the indemnity of another US $40,000 by commission or discount under normal price without time limit as agreed by both parties in the Supplemental Agreement. The behavior of [Buyer] asking [Seller] to pay US $40,000 more in cash constituted a breach of the agreement.

Because of [Buyer]'s failure to providing any evidence to prove his losses, the claim by [Buyer] of asking [Seller] to compensate his losses resulted from [Seller]'s delay of payment has no supported fact or legal basis.


[Seller] shall pay US $60,000 to [Buyer] as indemnities.

[Seller] shall bear all the arbitration fees.


1. On the applicable law

According to Article 1 of CISG, the Convention applies to contracts of sale of goods between parties whose places of business are in different States. In this case, such a contract of sale of the goods was made by the parties. [Buyer]'s place of business is in U.S.A. and [Seller]'s place of business is in P.R.China; both U.S.A. and P.R.China are Contracting States. Therefore, the Convention should be applied to the dispute in connection with the Contract if the Contract has no provision stipulating the application of law when disputes arise.

2. Since both parties have negotiated in advance with each other about the temperature of the goods, the term CIF cannot exempt [Seller]'s obligation to guarantee the quality of the goods.

After concluding the Contract, [Buyer] sent two faxes to [Seller], pointing out that high temperature would alter the quality of piperonal aldehyde and requiring [Seller] to carefully keep the temperature not too high in transportation and storage. [Buyer] also requested [Seller] to arrange nonstop shipment, which should not be a difficult thing because 10 tons of piperonal aldehyde can just match the capability of one 20 ship cupboard. [Seller] did not express any discontent with these requirements of [Buyer]. [Seller] simply faxed back saying that the temperature of the port was appropriate, that the goods would be well taken care of, and that [Buyer] could take it easy.

On these facts, Arbitral Tribunal holds that there was a dependent special agreement about the temperature of the goods between [Seller] and [Buyer]. [Seller] was bound to pay careful attention to the temperature when arranging shipment, to require the Carrier to place the goods on cool location, and to try its best to arrange nonstop shipment. Even if [Seller] informed the Carrier of the temperature problem via phone, the phone notice is not enough to inspire the Carrier's high attention to this problem. The facts show that [Seller] did not try to arrange nonstop shipment; the result was that the goods passed by Hong Kong where the weather is relatively warm. Furthermore, [Seller] failed to provide any evidence to support its claim of phone notice. Thus, the Arbitral Tribunal regards [Seller]'s performance of its obligation as defective.

According to the term CIF, risk passes to [Buyer] when the goods pass over ship's rail. Given, there was no agreement in advance between the two parties about the temperature, [Seller] should not be liable for any damage of the goods, such as melting, after shipment. However, the parties had a special agreement beforehand while [Seller] failed to perfectly perform its obligations under this special agreement; therefore, according to Article 66 of CISG, [Seller] shall be liable for the loss or damage due to its own act of omission.

3. On the inspection of the goods

According to Article 38 of CISG:

"The buyer must examine the goods, or cause them to be examined, within as short a period as is practicable in the circumstances".

In this case, the goods were transferred directly to [Buyer]'s client immediately after arrival. The application of inspection and the damage claim began only after [Buyer]'s client appealed the quality of the goods. As a matter of the fact, before arriving, two hundred of barrels of piperonal aldehyde had all melted. Since the bottom of the barrels clung to the bottom of the container, the goods could not be unloaded from the ground floor of the container. [Buyer]'s failed to find out the damage of the goods and obtain evidence of the cause of the damage brought adverse influence to the damage claim, but considering the time [Buyer] claimed, that is, 27 November 1992 when the goods were unloaded from the port, 30 November when unloaded from the container and 4 December when claim was raised by [Buyer], it is impossible that [Buyer]'s delay resulted in substantial influence on the damage claim to the Insurer. Furthermore, the critical issues concerning this case are the Tripartite Agreement and the Supplemental Agreement, which will be analyzed hereafter.

4. Proposition without support of evidence shall not be accepted

The Tripartite Agreement on May 28 1993 was made by [Buyer], [Seller] and the Insurer under the current circumstance of that time and the status of three parties. Although alleging that [Seller] was forced to accept the agreement by the Insurer's pressure, [Seller] failed to provide any evidence to prove what pressure the Insurer applied so as that [Seller] made such an untrue declaration of will. Instead, [Seller] and [Buyer] executed the Supplemental Agreement on 19 June 1993 in Shenyang. Therefore, the Arbitral Tribunal takes the position that [Seller]'s argument for the invalidity of the two agreements cannot be upheld; [Seller] should be bound to the two agreements.

5. The Arbitral Tribunal has the right to adjust the sum of indemnity based on ex aequo et bono

In supplemental defense, [Seller] argued that, even if the two agreements were valid, [Buyer] could claim only US $ 20,000. As far as the other US $ 40,000 was concerned, according to the agreement, [Buyer] should be indemnified by commission or discount under a normal price without time limit. [Seller] regarded that [Buyer]'s request for cash indemnity constituted a breach of the agreement.

According to two parties' corresponding letters, [Seller] had been promising to pay [Buyer] US $ 20,000 by cash and another US $ 40,000 by other business means. Based on this, the Arbitral Tribunal takes the position that [Seller] admitted the two agreements and never doubted their validity. As for [Buyer]'s complaints, such as "[Seller] did not mail the sample in accordance with the agreement", "Quoted price is higher than general current price" and "[Seller] did not reply to any fax or call after 8 September 1993", neither did [Seller] respond to them nor did [Seller] provided evidence contrary to them. The fact is [Seller] neither paid the US $ 20,000 nor did [Seller] have a sincere intent to indemnify another US $ 40,000 by business means as soon as possible. If [Seller]'s argument is upheld, [Buyer] will never acquire the indemnity of US $ 40,000 unless [Buyer] accepts any condition of [Seller] in further business. Such a result is obviously unreasonable to [Buyer]. Therefore, the Arbitral Tribunal directs [Seller] to pay [Buyer] the other US $ 40,000 directly by cash instead of indirectly by other business means. In total, the Arbitral Tribunal decides, [Seller] shall directly indemnify [Buyer] US $ 60,000.


* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of U.S.A is referred to as [Buyer]; Respondent of China is referred to as [Seller]. Amounts in the currency of the United States (dollars) are indicated as [US $].

** JIANG Xueyan, LL.M. candidate, Peking University Law School, Beijing, P.R. China, 2002 to present; LL.B. Peking University Law School, 2000.

*** 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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Pace Law School Institute of International Commercial Law - Last updated May 23, 2007
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