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CISG CASE PRESENTATION

China 6 January 1999 CIETAC Arbitration proceeding (Australian raw wool case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990106c1.html]

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

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Case identification

DATE OF DECISION: 19990106 (6 January 1999)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1999/04

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Australia (claimant)

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

GOODS INVOLVED: Australian raw wool


Case abstract

PRC: China International Economic & Trade Arbitration Commission (CIETAC), 6 January 1999

Case law on UNCITRAL texts (CLOUT) abstract no. 717

Reproduced with permission of UNCITRAL

Abstract prepared by Xiaotong Yuan

The case deals with fundamental breach of contract, the calculation and mitigation of damages.

An Australian company (the seller) entered into a contract with a Chinese company (the buyer) for the sale of raw wool in May 1998. The contract mentioned a payment by letter of credit by a specified date. The seller prepared the goods for delivery and notified the buyer. However, the buyer did not issue a L/C even after the seller sent a notice to urge the buyer and declared that the wool would be resold. The seller resold the goods and commenced arbitration proceedings to claim compensation for the price difference loss and additional expenses.

Since the parties had not specified the governing law of the contract, the Arbitration Tribunal held that the CISG should apply since both China and Australia are contracting states. In addition, the Arbitration Tribunal decided that the terms of the China Textile General Trading Terms and Conditions for Purchase of Wool & Wool Bar (hereinafter the "General Terms"), which were incorporated into the contract by the parties, were a legitimate part of the contract and binding on the parties.

One major issue of the dispute was whether the buyer should issue the L/C and what the conditions for the issuance should be. The Arbitration Tribunal decided that the buyer had the obligation to issue the L/C subject to the contract and this obligation did not rely on the seller's performance as a condition. Unless the buyer could prove the seller might fail to deliver the goods, the buyer was not exempt from the obligation to issue the L/C. The Arbitration Tribunal noted that the shipment period was specified in the contract to be June 1997, and that the buyer was obligated to issue the L/C no later than 31 May 1997. The Tribunal confirmed that the buyer had committed a fundamental breach of contract according to Article 64 CISG and that the seller had the right to claim damages pursuant to Articles 61 and 75 CISG.

The seller claimed compensation for the price difference loss, interest loss, the additional storage expenses and the expected profits. The Arbitration Tribunal confirmed the price difference loss which was calculated comparing the contract price and the actual price for the resold goods. The Tribunal noted that the seller had declared that the buyer had violated the contract and that it would resell the goods. This was considered as a declaration of avoidance by the seller pursuant to Article 64 CISG. In such a case, the seller should take all reasonable measures to mitigate the loss in accordance with Article 77 CISG. The Tribunal decided that, for the part of loss incurred after the declaration of avoidance, the seller had no right to claim damages - due to the seller's failure to mitigate the loss. Therefore, the compensation for the interest loss and storage expenses should be only calculated till the day on which the contract was declared void and the goods were resold. For the seller's claim for the loss due to termination of a forward foreign exchange contract, the Arbitration Tribunal noted that the loss was caused in connection with a new contract which was signed for the purpose of the expected profits from the wool sales contract. The Tribunal held that such a loss had exceeded what the buyer foresaw or ought to have foreseen at the time of the conclusion of the contract. In accordance with Article 74 CISG, the seller had no right to claim the damages for this loss.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 26 ; 64 ; 74 ; 75 ; 76 ; 77 ; 78 [Also cited: Articles 53 ; 54 ; 60 ; 61 ]

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

26A [Notification of avoidance: effective declaration of avoidance];

64A1 [Seller's right to avoid contract (grounds for avoidance): fundamental breach of contract];

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

75A1 [Damages established by substitute transaction after avoidance: resale by aggrieved seller];

76B [Damages recoverable based on current price];

77A [Obligation to take reasonable measures to mitigate damages];

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

Descriptors: Fundamental breach ; Avoidance ; Letters of credit ; Damages ; Cover transactions ; Mitigation of loss ; 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 Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 1999 vol., pp. 1417-1424

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.108, 127, 152, 161, 210, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC Arbitration Award

Australian raw wool case (6 January 1999)

Translation [*] by WEI Shu [**]

The China International Economic and Trade Arbitration Commission (formerly known as the Foreign Trade Arbitration Committee of China International Trade Promotion Commission, renamed as the Foreign Economic Trade Arbitration Committee of China International Trade Promotion Commission (hereafter "the Arbitration Commission") has accepted in August 1998 an arbitration contract dispute based on the arbitration clause of Raw Wool Sales Contract No. 68385 presented by the Claimant ** Company, Australian (hereafter "the [Seller]"), and on the request for arbitration by the Respondent ** Import and Export Ltd. Tianjin (hereafter as "the [Buyer]").

The amount in dispute does not exceed RMB 500,000 yuan, therefore the Summary Procedure applies to this case under Article 64 of Arbitration Rules (effective as of 10 May 1998).

Since the parties failed to appoint an arbitrator according to the Arbitration Rules and request of the Arbitration Commission, therefore, according to Article 65 of the Arbitration Rules, the Chairman of the Arbitration Commission appoints Mr. P as a sole arbitrator to form an Arbitration Tribunal on 14 October 1998 to hear the case alone.

The Arbitration Tribunal reviewed the application for arbitration of the [Seller] and the defense of the [Buyer], and heard this case on 7 December 1998 in Beijing. The representatives of the parties appeared before the Tribunal, made their presentations and debates, and answered questions presented by the Tribunal.

After the hearing, both parties submitted supplementary materials.

The Arbitration Tribunal renders the following award based on the facts found in court hearing and available written materials. The Tribunal's opinion and award are as follows:

[A.] DETAILS OF THE CASE

On 9 May 1997, the [Seller] sent a fax to Mr. Liu ** (or James Liu) of T Co., New Zealand to confirm the sale of 50,000 kg Australian raw wool:

   -    Type of goods: T425 FNF 32.2mic max 4 "up 1% vm max ave 1.8% max lot;
   -    Price: 4.15 USD/KA C 1%;
   -    Shipment date: June 1997;
   -    Shipment port: Yingkou;
   -    Trade term: CIF Yingkou L/G 180 days from B/L date.

On that day, Mr. Liu ** of T Company, New Zealand sent a fax to the [Seller] to confirm that he had purchased 50,000 kg raw wool from the [Seller] via telephone. The main part of the fax stated:

"50 MT T425 FNF 32.2 MIC MAX EACH LOT 4.5 INCHES UP. AT USD 4.15/KG. CIF YINGKOU CHINA. JUNE SHIPS, LC180 DAYS FROM B/L DATE. OTHERS AS USUAL CHINA TEXTILE'S TERMS ...... COMM. AT%".

It was speculated in this fax that the buyer of these goods was Tianjin ** Import & Export Group Co. Ltd, i.e., the Respondent in this dispute. The fax stated that "our order number is 97AU018". This fax was on printed paper with written words at the top of it; the main meaning of these words was "please prepare contract for the aforesaid buyer."

On 12 May 1997, the [Seller] faxed to T Company the sales contract signed and sealed by itself with the date stipulated as 9 May 1997. The sales contract stated: "Our contract number is 68385, and yours is 97AU018." The Claimant is referred to in the contract as the [Seller] and the Respondent as the [Buyer]. The main part of the Contract provides:

   -    Specification of goods: Australian raw wool T 425 FNF 32.2 MIC MAR 4.5 UP C 1% VM MAX AVE 1.8% VM MAX AOL
   -    Quantity: 50,000kgs
   -    Unit price: US $4.15, CIF Yingkou per kg
   -    Total price: US $207,300
   -    Country of origin: Australia
   -    Shipment date: June 1997
   -    Destination port: Yingkou
   -    Payment term: LC 180 days from bill of lading date

The remaining terms and conditions were in compliance with the "General Trading Terms and Conditions for Purchase of Wool and Wool Bar" set by China Textile Original Material International Trade Corporation on 1 July 1990.

On 21 May 1997, Mr. Tian, Vice Manager of the Second Fluff Export Office and Vice Director of Fluff Processing Factory, signed the aforesaid contract (hereafter as "the Contract") on behalf of the [Buyer] and faxed it back to T Company. Then, T Company faxed it to the [Seller].

From then on till 20 August 1997, the [Buyer] had not issued the letter of credit (L/C), although the [Seller] contacted the T Company via fax or telephone many times to urge the [Buyer] to issue the L/C.

On 20 August 1997, the [Seller] faxed to T Company a paper with the [Buyer] as the addressee, and pointed out that:

"In relation to the 500,000 kg Australian raw wool in Order No. 68385 ... Mr. Liu ** of T Company is the acting agent between our two companies ... Till now, we have not received any L/C, advance payment, or any other type of payment ... It is your company which had violated the Contract, so that I would inform you that the wool will be resold in a favorable method as soon as possible. Our company suffered considerable losses due to this Contract, including losses of interest, storage fee, and market profit loss due to resale of the goods. Now I have to inform you that once the wool is resold , we will contact you to claim the damages on the Contract caused by your company."

On 5 September 1997, T Company, via fax, asked the [Seller] to contact the [Buyer] directly and negotiate the Contract.

On 13 November, the [Seller] faxed directly to the [Buyer], stating that:

"With regard to the 50,000 kg Australian raw wool in Order No. 68385, and in conformity to our fax of 20 August 1997, I inform you that, because I still have not received the damages, our lawyers will lodge a complaint to China International Economic and Trade Arbitration Commission to claim damages ... You should pay US $36,440.17 to settle this arbitration or contact our company about this matter."

On 26 November 1997, the [Buyer] replied by fax to the [Seller], stating:

"... Thank you for fax on 13 November ... As to Order No. 68385 ... we are entrusted by Mr. Mi of ANZ WOOL Trading Co. Ltd. as an agent to sign the Contract. We would like to actively assist you to coordinate with Mr. Mi and James Liu to perform the order. They are both big vendees of wool. We would like to resolve this order problem satisfactorily through negotiation, and hope it will not harm the further cooperation between us."

Then, although the [Seller] contacted the [Buyer] many times, this Contract had not been performed, and the [Seller] had not received the damages. The [Seller] therefore applied the dispute to China International Economic and Trade Arbitration Commission (the Commission).

[B.] [SELLER]'S CLAIMS

The claims put forward by the [Seller] are:

1. The [Buyer] should compensate for damages as follows:

     (1) US $6,928.18 damages due to price difference;

     (2) US $8,719.74 interest loss of payment for goods;

     (3) US $7,186.34 for the loss of extra storage charges;

     (4) US $16,499.04 loss for violation of fixed-exchange contract;

     (5) US $8,110 loss of commission;

     (6) US $3,305 loss of attorneys' fee; and

2. The [Buyer] should bear all of the suit fees of this case.

[C.] MAIN POINTS OF CONTENTION

I. The status of Mr. Liu **

The [Seller] alleged that Mr. Liu ** of T Company, New Zealand, was the agent of the [Seller], and the [Buyer] also knew that. On 12 May 1997, Mr. Liu ** had faxed to the [Buyer]. The fax said:

"This is to confirm the following deal of wool with your company now:

1. 200MT T425FNF Australian raw wool, with the price of US $4.15/KG, ... 100MT of which will be shipped in June. The contract No. is 97AU017/ 97 AU018 ...

...

  1. Price term: CIF YINGKOU LC 180 DAYS FROM B/L DATE
  2. 50 MT per contract.

The contract is enclosed for reply. Please fax us back."

The deal mentioned in this fax was the deal of 50,000 KG Australian raw wool under the Contract of this case. The [Seller]'s position is that it was very clear that the [Buyer] knew the relationship between the [Seller] and Mr. Liu **. In the common practice of the international wool trade, it is the usual practice for the agent of the seller to connect with the buyer, and enter into a contract and ask the buyer to issue the L/C, in order to gain commission. In this case, however, even though Mr. Liu ** tried for four months, the [Buyer] still did not issue the L/C, so Mr. Liu ** had to urge the [Seller] to deal directly with the [Buyer].

The [Buyer] argued that, although the [Seller] alleges that Mr. Liu ** was its agent, the [Seller] had never expressly informed the [Buyer] of this. Therefore, the [Buyer] believed that Mr. Liu ** was just an introducer of the Contract, and that his duty was to facilitate the [Seller] and [Buyer] entering into the agreement. If Mr. Liu ** were the agent of the [Seller], he should undertake the responsibility of an agent. In other words, acting as an agent, he should transfer the [Seller]'s fax and requests to the [Buyer]. However, Mr. Liu ** just replied to the [Seller] in his own name. It was due to his aforesaid conduct that the Contract was not performed, so that the [Seller] should ask Mr. Liu ** to compensate the loss due to his conduct.

II. Whether the [Buyer] knew that the [Seller] had prepared all of the goods

The [Seller] asserted that the goods under the Contract of this case had been prepared already in May 1997. On 1 June 1997, the [Seller] faxed to Mr. Liu **, stating that the goods under Contract No. 68385 will be loaded on the vessel Gu Heikou of COSCO for Voyage No. 243. The scheduled departure time is Melbourne 28/06/97; the arrival time is Yingkou 28/07/97. The [Seller] informed Mr. Liu ** of the sailing date and the name of the vessel in advance, and let Mr. Liu ** then inform the [Buyer]. In addition, the [Seller] urged the [Buyer] to issue the L/C many times via Mr. Liu **. However, the [Buyer] alleges that he had never known of any complaints or notices of the [Seller]'s, directly from the [Seller] or via Mr. Liu ** and that was likely that Mr. Liu ** had never shown the [Seller]'s faxes to the [Buyer], because documents between Mr. Liu ** and the [Buyer] did not prove it.

However, it was the [Seller]'s position that the [Buyer]'s argument that he did not know the progress of the Contract was not reasonable. If the reason for the [Buyer]'s failure to perform the Contract was that Mr. Liu ** had never contacted him about issuance of the L/C during these six months, then the [Buyer] would not have mentioned in its reply on 26 November 1997, that Mr. Liu ** had not contacted with him about performance of the Contract; and furthermore, the [Buyer] would not just put responsibility of performing the Contract on Mr. Mi without mentioning Mr. Liu **. Moreover, it was only in the arbitration process that the [Buyer] commenced blaming the [Seller] for not requesting the performance of the Contract for as long as six months. In fact, the [Buyer] was fully aware that the [Seller] had prepared the goods, reserved the vessel and was waiting for the L/C to be issued by the [Buyer].

The [Buyer] argued that the Contract was signed by Mr. Liu ** and ** Wool Trade Co., Ltd. and that the [Seller] did not contact the [Buyer] within six months from the conclusion date. Therefore, the [Buyer] could not know exactly to whom and to where he should issue the L/C; also, he did not know the progress of the Contract. As the contracting party, the [Seller] should have contacted the [Buyer] about the performance of the Contract. However, the [Seller] only connected with Mr. Liu ** after the conclusion of the Contract, not with the [Buyer], so the [Buyer] could not make sure how to perform the Contract. Therefore, the loss suffered from this should be borne by the [Seller].

III. The issue of samples

The [Seller] claimed that the definition of sample in Article 2 of China Textile General Trading Terms and Conditions for Purchase of Wool and Wool Bar, which provides that "quality standard: quality of sample is fixed on the sample's quality selected previously by the buyer with the notes as follows", makes it clear that the buyer should check the sample before entering into an agreement. However, in this dispute, the contracting parties had not chosen a sample in advance. Also, Article 2(1) of the General Trading Terms and Conditions for Purchase of Wool and Wool Bar of China Textile also sets forth provisions about samples, that is:

"Raw wool: appearance and form, tenacity, color and luster shall be in compliance with the selected sample. Fair average quality needs no sample unless the buyer requests."

In this case, the subject matter of the dealing was just fair average quality "with FNF 32.2 MIC MAX EACH LOT 4.5 INCHES UP". Furthermore, from the date of conclusion of the Contract to the date of application of the [Seller] for arbitration, the [Buyer] never requested the [Seller] to provide samples. In addition, in the international wool trade, it is never required to provide samples of fair average quality wool unless otherwise required by the buyer; the quality term is in accordance with rules set by International Wool Textile Organization.

The [Buyer] argued that he was entrusted by ** Wool Trade Co., Ltd to act as an agent to import wool. ** Wool Trade Co., Ltd negotiated with Mr. Liu **, requiring the [Seller] to offer a sample so that the [Buyer] could ascertain the wool's quality and perform its duty of consignee. This was totally in compliance with international practice and General Trading Terms and Conditions for Purchase of Wool and Wool Bar. However, the [Seller] never did provide a sample of the goods to the [Buyer], so the [Buyer] could not ascertain the wool's quality and in such circumstances, he could not issue the L/C without check up of the quality.

IV. Issues involving breach of duty and compensation

This involves two problems. One has to do with the time of issuance of the L/C, the other with the duty of resale of goods and compensation.

     (1) Time of issuance of L/C

The [Seller] asserted that the clause "L/C 180-days from bill of lading date" in the Contract set forth payment time limit, i.e., "payment by forward L/C in 180 days from the date of bill of lading", not the time of issuance of the L/C. [Seller] alleges that the applicable rule on the time to issue the L/C is Article 10 of the China Textile General Trading Terms and Conditions, which reads "payment terms: irrevocable L/C issued by Buyer before shipment, with Bank of China or its branch banks as the issuing bank, and the Seller as the beneficiary." In this case, the loading period in the Contract is June 1997, so the [Buyer] was obligated to arrange issuing the L/C before that time.

The [Buyer] argued that the issuing time is the essence element in performing the Contract. Article 7 of the China Textile General Trading Terms and Conditions for Purchase of Wool & Wool Bar provides that, "the seller under C&F or CIF shall inform the Buyer of the vessel's name, registry, voyage number, etc. It is the [Seller]'s duty to inform the [Buyer] of shipment. However, in this case, the [Seller] had never informed the [Buyer] that he had reserved a berth; moreover, he never obtained the agreement of the Buyer. Since the loading period was not confirmed, the time for [Buyer] to have the L/C issued could not be ascertained. Therefore, the understanding of the [Seller] about the issuing time was incorrect.

     (2) Responsibility and compensation for resale of the goods

The [Seller] claimed that according to the Contract, the [Buyer] was obligated to issue the L/C before the loading period of June, 1997. However, after three consecutive months, the [Buyer] did not issue the L/C until 20 October 1998. The [Buyer] failed to issue the L/C within the period set forth by Article 10 of the China Textile General Trading Terms and Conditions which was incorporated into the Contract according to Articles 53 and 54 of United Nations Convention for International Sales of Goods (hereafter as "CISG"), and therefore he had breached the Contract. However, the [Seller], as the non-defaulting party, had a duty to take reasonable measures to mitigate loss and damages due to the breach of the [Buyer] under CISG Article 77. On 20 October 1997, the [Seller] informed the [Buyer] that he will resell the goods under the Contract. In fact, on 18 December 1997, the [Seller] shipped goods under this contract as ones under the purchase contract signed on 20 October 1997, and resold them. In these circumstances, subject to CISG Articles 74, 75, the [Seller] claimed that the [Buyer] compensate him for the loss of price differences, profit loss, and damages of storage charges, etc., suffering from resale of the goods. As to the relationship among the [Buyer], **Wool Trade Co. Ltd. and Mr. Mi, although Mr. Mi had written on 13 December 1997 to Tianjin Economic and Trade Commission as well as to the [Buyer] a guarantee "[I] guarantee that my company will directly bear all the responsibility and loss", however, this dictation just concerned inter relationship among themselves, and might not counterplead the outer contract relationships under the CISG. Therefore, the [Buyer] should undertake the liability of breach for the Contract.

The [Buyer] argued that, the [Seller] did not inform the [Buyer] of the sailing date in order for the [Buyer] to determine whether to agree to it or not, and to issue the L/C under the former circumstance. Therefore, it was the improper performance of the [Seller] that caused the non-performance of the Contract. So the [Seller] was at fault and the [Buyer] should not bear the liability of compensation. To say the least, even though the [Buyer] has the obligation to issue the L/C but did not do so, the [Seller] should request the [Buyer] to perform the Contract a within certain period in accordance with CISG Article 60. However, on the contrary, the [Seller] just resold the goods on 20 October 1997, and did not contact the [Buyer] until November 1998, when he claimed for damages. Thus, the [Seller] had violated the Contract, and should be liable for the loss alone. The [Buyer] should not assume any compensation liability. On the contrary, the [Seller] resold the goods and unilaterally avoided the Contract without any evidence to demonstrate that the [Buyer] would not perform the Contract, so he violated the Contract. The [Seller] was the defaulting party and should bear the breach responsibility. The [Seller]'s arbitration claims should be rejected and he must compensate the [Buyer] for the loss, attorneys' fees and other charges due to his default.

[D.] OPINION OF THE ARBITRATION TRIBUNAL

I. Applicable law

The [Seller] alleges that the CISG is the applicable law in this case because China and Australia are both Contracting State parties to CISG. The [Buyer] asserts that "the applicable law is the China Textile General Trading Terms and Conditions for Purchase of Wool & Wool Bar first of all. If it has no relative provisions, then CISG applies."

The Arbitration Tribunal holds that the CISG is the applicable law to this dispute because the [Seller] has its place of business in Australia and the [Buyer]'s in China, both of which are Contracting State parties of CISG and the contracting parties have not excluded the application of this Convention. With regard to the China Textile General Trading Terms and Conditions for Purchase of Wool & Wool Bar, it is invoked by both parties and therefore is part of the Contract provisions in this case with the legal effects to which the two parties should comply.

II. The performance of the Contract

     (1) The terms and time of issuance of the L/C

The parties differ in this issue. The [Seller] claims that the [Buyer] should issue the L/C in May 1997, and otherwise he would breach the Contract. The [Buyer] asserts that the [Seller] should provide a sample at first, then book a ship and get the agreement of the [Buyer] in time, which is the precondition for the [Buyer] to determine issuing time.

The Arbitration Tribunal holds that,

            (i) The [Seller] has no duty to provide a sample under this Contract. Article 2 of the China Textile General Trading Terms and Conditions for Purchase of Wool & Wool Bar, as a part of the Contract in this case, states that before a contract is concluded, the buyer may ask the seller to provide a sample so that after the buyer checks the sample, they can enter into a contract. But these circumstances do not exist in this case, for [Buyer] did not check a sample before entering into the Contract. Article 2(1) of the China Textile General Trading Terms and Conditions for Purchase of Wool & Wool Bar provides expressively that only upon the buyer's request, shall a sample shall be offered. But in this case, no evidence was presented by the [Buyer] to demonstrate that he had asked for a sample. In fact, the [Buyer] did not submit any other papers in writing or evidence except for the dictations and statements in writing or oral.

            (ii) The [Buyer] was obligated to issue the L/C after conclusion of the Contract, which obligation does not rely on the precondition of performance of the [Seller]. Unless the [Buyer] has evidence establishing that the [Seller] cannot assume the duty of delivery, [Buyer] was not exempt from his duty of issuing the L/C. When the Contract was concluded, the [Seller] has the obligation to prepare the goods in time, and the [Buyer] has the obligation to issue the L/C on time. The meaning of "L/C 180 DAYS FROM BILL OF LADING DATE" seems not very clear. In the meantime, Article 7 "payment" of China Textile General Trading Terms and Conditions for Purchase of Wool & Wool Bar, paralleling the other "payment terms", states that "the buyer shall issue an irrevocable L/C by Bank of China or its branch banks with the seller as beneficiary before shipment". Under these circumstances, the much clearer rule without different meanings weighs heavily. In as much as the loading period prescribed in the Contract is June 1997, the [Buyer] must issue the L/C before June 1997, in other words, no later than 31 May 1997 so that the [Seller] can deliver the goods during the period 1 to 30 June 1997.

     (2) Whether the [Buyer] has known that the [Seller] has prepared the goods

Mr. Liu ** has a certain relationship with this issue, but his role is not of much importance. The importance is whether he has communicated to the [Buyer] the contents of the letters faxed by the [Seller], including those in which the [Seller] urged the [Buyer] to issue the L/C and stated that he would resell the goods on 20 October 1997. With regard to this, the Arbitration Tribunal holds that the [Buyer] has known via Mr. Liu ** that the [Seller] has prepared the goods and his several requirements of issuing the L/C, and that the [Seller] would resell the goods. The reasons are as follows:

            (i) The fact that the [Seller] has indeed faxed several times to Mr. Liu ** has not been doubted or argued by the [Buyer].

            (ii) In the light of commercial motivation, Mr. Liu **, as an introducer of contract, wanted to gain 1% commission prescribed in the contract order, so it would not makes sense for him to hold back the faxes and not inform the [Buyer].

            (iii) From 13 November 1997 when the [Buyer] received directly from the [Seller] the first fax about the Contract to the beginning of the arbitration, the [Buyer] has never told the [Seller] that he has never received any notification or requirements contained in [Seller]'s fax, even though the [Seller] claimed the exact amount of damages in the first fax.

            (iv) The [Buyer] has never required the [Seller] to prepare goods either through Mr. Liu ** or by directly contacting the [Seller], nor has the [Buyer] blamed the [Seller] for non-preparation of goods in time or non-informing of the shipment in time.

            (v) The statement of the [Seller] is in accordance with the evidence [Seller] presented, which is reasonable and reliable. However, there is no evidence backing up the [Buyer] except for his sole arguments and denial statements, which are not reasonable and which the Arbitration Tribunal does not accept.

On the basis of settlement of these two issues, it is time to judge which party is in default. When the Contract was concluded, both parties have certain obligations: [Seller] was obligated to prepare the goods, rent a berth and load the goods on board; the [Buyer] was obligated to issue L/C not later than 31 May 1997. On the basis of the facts judged above, the [Seller] has prepared the goods, and rented a berth, but the [Buyer] postponed the issue date over and over. Although the [Seller] urged for several times (via Mr. Liu **), the [Buyer] did not issue the L/C prior to 20 October 1998. In accordance with CISG Article 64, the [Buyer]'s nonfeasance constituted a fundamental breach of the Contract, so the [Seller] as non-defaulting party may claim damages in accordance with CISG Articles 61, 75.

III. The claims of the [Seller]

The Arbitration Tribunal notes that the [Seller]'s claims are conditioned on avoidance of the Contract. After avoiding the Contract, the [Seller] resold the goods in order to mitigate the loss; [Seller] then sought to have the [Buyer] compensate the price difference between the price fixed in the Contract and the resale price, storage charges as well as loss of profit reasonably expected as a consequence of successfully performing the Contract. In principle, the [Seller] is entitled to claim for damages. However, some of [Seller]'s damages claims are calculated in an unreasonable manner and should be adjusted.

     (i) US $6,928.18 for loss due to difference in resale price

The loss calculated by the [Seller] consists of the difference between the price fixed in the Contract and the actual resale price, making due allowance for the long-term letter of credit and commission as well as more or less elements. This method is reasonable, and the [Buyer] should compensate for the loss of US $6,928.18.

     (ii) US $8,719.74 for interest loss on the money not paid by the [Buyer] and US $7.186.34 for storage charges

The [Seller] regards June 1997 as the performance time of the Contract and December 1997 as the time of reselling goods, as the basis on which the [Seller] calculates the losses. The Arbitral Tribunal holds that, as early as 20 August 1997 when the [Seller] declared the Contract was avoided and the goods would be resold, the [Seller] has the basis on which to have the Contract avoided under CISG Article 64. However, the contracting parties went on negotiating about the performance of the Contract after that. Therefore, although the [Seller] is entitled to claim damages, at the same time, it bears the duty to take necessary measures to mitigate loss under CISG Article 77. In fact, the [Seller] had a reasonable opportunity at that time to resell the goods under the Contract, that is, the opportunity to resell the goods as ones under another contract because the [Seller] had not prepared the goods for the other contract and the requirements of quality and specifications under both contracts are the same. Furthermore, the loading period under the other contract is "at once", so the [Seller] would be entitled to damages if the other party fails to perform or delays in performance. In any event, as to the Contract of this case, the loss arising after 20 August 1997 is due to the [Seller]'s failure to take reasonable measures to prevent further loss, and thus the [Seller] may not claim damages for such further loss. Therefore, the losses of interest and storage charges the [Seller] may claim are till 20 August 1997, not December 1997. According to this, the [Seller] may claim damages of US $2,422.15 for loss of interest (8,719.74*[(180-130)/180] = 2,422.15) and the damages for loss of storage charges is US $1,996.21 (7,186.34*[(180-130)/180] = 1,996.21).

It is noted that although the [Seller] declared the Contract was avoided and then terminated the Contract on 20 August 1997, [Seller] asserted at that time that the resale of goods was to mitigate loss, not to declare that [Seller] would not perform the Contract. In fact, after 20 August 1997, the [Seller] still urged the [Buyer] to issue the L/C. Even in November, and December, 1997 when the [Seller] directly contacted the [Buyer], the two parties still negotiated about performance of the Contract. Therefore, the [Seller] still had the will to perform the Contract. However, the evidence presented by the [Seller] to calculate the damages of loss does not establish that the [Seller] has prepared to purchase other institute goods in order for the performance of the Contract after resale of the goods. Hence, the loss including loss of interest and storage charges that the [Seller] can prove and claim, may only be calculated up to the resale date of goods under the Contract, that is, up to 20 August 1997. Accordingly, the actual amount claimed by the [Seller] for interest loss and storage charges should be reasonably adjusted.

     (iii) US $16,499.04 for loss due to termination of the forward foreign exchange contract

This loss directly resulted from the new forward foreign exchange contract with the expected profit of the Contract as subject matter. However, this obviously, is not a loss that the [Buyer] can foresee or have reasonably foreseen at the time of the conclusion of the Contract. Therefore, under CISG Article 74, the [Seller] is not entitled to claim damages for this loss.

     (iv) US $8,110 for loss of commission

In fact, this loss consists of two parts: one is management expenditure, the other is commission on resale of the goods, and both are counted as 2% of the total price of the goods. However, the [Seller] cannot prove that the management expenditure is actually 2% of the total price of the goods, and furthermore the commission has been considered in the calculation of loss of price difference. Therefore, this loss of US $8,110 should not be double calculated; the Arbitral Tribunal does not support it.

     (v) US $3,305 for loss of attorneys' fee

The [Buyer] should not bear the whole attorneys' fee because not all of the above claims of the [Seller] have been supported. The Arbitral Tribunal holds that it is reasonable for the [Buyer] to compensate US $1,000 to the [Seller].

     (vi) The arbitration fee

25% of the arbitration fee shall be borne by the [Seller], the other 75% by the [Buyer].

[E.] THE AWARD

  1. The [Buyer] shall compensate the [Seller] US $6,928.18 for loss due to price difference.
  2. The [Buyer] shall pay the [Seller] US $2,422.15 to compensate for interest loss and storage charges US $1,996.21.
  3. The [Buyer] shall compensate US $1,000 to the [Seller] for the attorneys' fees.
  4. The [Seller] bears arbitration fee ** dollars, and the [Buyer] bears ** dollars. The whole arbitration fee has been paid in advance by the [Seller], so the [Buyer] should compensate ** dollars to the [Seller].
  5. The Arbitral Tribunal rejects the other claims of the [Seller].

The [Buyer] should pay the above money to the [Seller] within 45 days from the decision is made. Interest with yearly rate of 9% should be added for delayed payment.

The decision is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of Australia is referred to as [Seller] and the Respondent of the People's Republic of China is referred to as [Buyer]. Amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB]; amounts in the currency of the United States (dollars) are indicated as [US $].

** Wei Shu, LL.M. Peking University School of Law, Beijing, P.R. China, 2004; LL.B. Peking University School of Law, 2000.

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Pace Law School Institute of International Commercial Law - Last updated November 7, 2007
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