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CISG CASE PRESENTATION

China 12 February 1999 CIETAC Arbitration proceeding (Nickel plating machine production line equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990212c2.html]

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

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Case identification

DATE OF DECISION: 19990212 (12 February 1999)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1999/09

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (claimant)

BUYERS' COUNTRY: People's Republic of China (respondent)

GOODS INVOLVED: Nickel plating machine production line equipment


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 75 ; 78

Classification of issues using UNCITRAL classification code numbers:

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

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

78B [Rate of interest]

Descriptors: Damages ; Cover transactions ; Legal costs ; Interest

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): 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) 1999 vol., pp. 1552-1556

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.108, 157, 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

Equipment for nickel plating machine production line case
(12 February 1999)

Translation [*] by Zhan Changzheng [**]

Edited by William Zheng and Julie Yu [***]

INTRODUCTION

China International Economic and Trade Arbitration Commission (CIETAC, "Arbitration Commission") accepted the written application for arbitration on 27 December 1994 which had been submitted by Claimant [Seller], German ___ company, in accordance with the arbitration clause contained in Contract 92YN - MS7139 DE (Contract) dated 25 July 1992 that [Seller] entered into with the first Respondent ["first Respondent"], Shanghai ___ Foreign Trading Company, and the second Respondent ["second Respondent"], China Textile ___ Import and Export Company, [collectively, "Buyers"] and the arbitration agreement signed by the three parties on 21 June 1994. The case shall be governed by the Arbitration Rules of CIETAC effective as of 1 June 1994.

The second Respondent requested Beijing Second Intermediate People's Court to abolish the award after the Arbitral Tribunal issued (96) CIETAC No. ___ Award on 12 July 1996.

On 24 October 1997, the Beijing Second Intermediate People's Court notified CIETAC that "regarding the case in which the [Seller] requested to abolish (96) CIETAC No. ___ Award, because the Award has met the second item of Article 260.1 of the People's Republic of China's Law of Civil Procedure, the Court decided that, the case should be reheard by CIETAC Arbitration due to the specific issue existing in the Award according to Article 70 of the PRC Arbitration Law", and the procedure of abolishment has been ruled to be suspended according to Article 61 of the Arbitration Law of the People's Republic of China. Now the Court hereby notifies CIETAC to rehear the No. ___ case within 7 days of receipt of the Notice."

CIETAC decided to rehear the case on 29 October 1997 according to the preceding notice of the Beijing Second Intermediate People's Court and sent the decision to the parties.

On 31 December 1997, the second Respondent submitted a Challenge to the Jurisdiction of CIETAC over the second Respondent.

On 31 December 1997, the [Seller] submitted to CIETAC the Application for Arbitration and related documents again. After the [Seller] completed all of the procedural matters for the renewal of the application, the Secretariat of CIETAC sent the Notice of renewing the arbitration and the related arbitration documents to the [Seller] and the [Buyers] on 27 February 1998. The Arbitration Rules of CIETAC effective as of 1 June 1994 (Arbitration Rules) remained applicable to the case.

On 10 April 1998, CIETAC decided that the Arbitration Commission had jurisdiction over the case in accordance with the Arbitration Rules.

On 20 May 1998, the Chairman of the Arbitration Commission appointed Mr. P as the Chairman of the Arbitral Tribunal according to the Arbitration Rules. Mr. P, Mr. A appointed by the [Seller], and Mr. D appointed by the Chairman of the Arbitration Commission on behalf of the [Buyers] formed the Arbitral Tribunal and started to hear the case.

On 7 October 1998, the Arbitral Tribunal held a hearing in Beijing at which the [Seller] and the [Buyers] presented statements and oral arguments by the representatives of each party. The second Respondent submitted its Response to the Tribunal on 21 October 1998. The [Seller] and the first Respondent also submitted supplementary materials and evidence after the hearing.

The Arbitration Tribunal has concluded the case and decided as follows based on the facts and the written materials clarified by the Tribunal.

1. THE FACTS

The [Seller] entered into Contract 92YN129-MS7139DE with the [Buyers] on 25 July 1992 in which the parties agreed that "the [Seller] shall sell to the [Buyers] a set of equipment for nickel plating machine production line at the price of CIF Shanghai Deutsche Mark [DM] 1,550,000. Appendix 6 stipulates that 10% of the total amount shall be paid as down payment at sight of Bank Letter of Guarantee after the Contract enters into force.

The Contract further provided that [Seller] shall deliver the goods within eight months upon receipt of the down payment.; that ninety percent of the Contract price shall be paid by a Letter of Credit (L/C), in which eighty percent of the Contract price shall be negotiated upon receipt of shipping documents; with the remaining ten percent paid upon receipt of the inspection report issued by the end user. After the conclusion of the Contract, the [Seller] issued a Bank Letter of Guarantee on 18 August 1993. The [first Respondent] remitted a deposit of 10% of the Contract price to the [Seller] on 24 September 1992. However, a dispute later arose from this Contract because the [Buyers] failed to open a L/C for 90% of the Contract price, which renders the Contract unenforceable, and the [Seller] therefore applied to arbitrate the dispute.

2. POSITION OF THE PARTIES

[Seller]'s claims

The [Seller] alleges that it had finished all of the goods prior to the delivery date under the Contract, but the [Buyers] failed to open a L/C thereunder, which resulted in that the [Seller] could not take back the huge amount of the Contract price, and has borne the interest, and has also had to pay additional warehousing fees due to the failure to ship on time. The damages incurred by the [Seller] were continuously increasing. The [Seller] hereby requested the Arbitral Tribunal to rule that:

1) The [Buyers] shall continue to execute the Contract.

2) The [Buyers] shall pay to the [Seller] damages of DM 265,094.

3) The [Seller] shall bear the arbitration fee and the attorneys' fee.

Because the end user had been declared bankrupt and the [Buyers] was unable to open a L/C and accept the goods under the Contract, the [Seller] had sold the equipment for nickel plating machine production line to ECOGRPH AG (a Swiss Company) at the price of DM 354,380.

Based on the abovementioned facts, the [Seller] altered its requests in the supplementary statements submitted on 22 October 1998 as follows:

1) The [Buyers] shall pay damages of DM 1,040,620 for the price difference and damages of DM 959,282.80 for interest loss calculated until November of 1998 at the annual rate of 12.5%.

2) The [Buyers] shall pay to the [Seller] damages of DM 16,330 for warehousing and interest of DM 10,206.25.

3) The [Buyers] shall pay to the [Seller] the legal expenses of DM 35,000 (including attorneys' fee, investigation fee, and living and traveling expense).

4) The [Buyers] shall bear the fee of renewed arbitration.

The [Buyers]' position

- The position of the [second Respondent]

The [second Respondent] lodged the following in its Response:

1) The [second Respondent] had not been involved in the disputed Contract.

  1. Its representative office in Shanghai and Mr. Xu ___ had no right to sign an external agreement.

  2. The disputed contract does not contain a contract number of the [second Respondent], signature of its legal representative, and the seal of the [second Respondent].

  3. The disputed contract was entered in the name of the [first Respondent].

  4. Mr. Xu ___ 's ultra vires activity of signing the contract on behalf of [second Respondent]'s Shanghai Representative Office should be nullified.

  5. The assumption that Mr. Xu ___ represented [second Respondent]'s Shanghai Representative Office is not established by the [Seller] because he has used the paper specifically used by the Shanghai representative office many times.

  6. The arbitration agreement, which Mr. Xu entered into with the [Seller] on his own behalf, is invalid.

2) The [second Respondent] is not obligated to notify the [Buyer] of related circumstances.

3) The [Seller] shall be responsible for the invalid agreement.

- The position of the [first Respondent]

The [first Respondent] alleges in its defense submitted after the hearing that:

1) The [second Respondent] is the main party to the disputed contract, and should be held responsible for the Contract entered into by its Representative Office. Mr. Xu, who signed the Contract, played a leading role in negotiating, signing, and performing the Contract. The correspondence between the parties also shows that other staffs of the Representative Office of the [second Respondent] have also been involved in the matter. The [first Respondent] maintains a long-term cooperative relationship with the Representative Office of the [second Respondent]. According to the customs of cooperation between them, the allegation of the [second Respondent] that the signature of Mr. Xu ___ is an individual act is de facto groundless.

2) The [first Respondent] shall not be responsible for the renewed requests submitted by the [Seller] because the [first Respondent] has been always dealt with the Contract and the dispute in a bona fide manner, and does not have any negligence resulting in arbitrating the case anew.

[Seller]'s rebuttal

The [Seller] rebutted the allegations of the [second Respondent] in its supplementary statements submitted after the hearing, and alleged that the [second Respondent] should bear civil liabilities under the Contract.

3. REASONING OF THE TRIBUNAL

1) The applicable law

The disputed parties did not agree upon the applicable law to settle the dispute in the Contract. The Arbitral Tribunal shall apply CISG to the dispute because the places of business of the [Seller] and the [Buyers] are located in China and German, which are Contracting States of the CISG.

2) The eligibility of the [second Respondent] in the disputed Contract

The Arbitral Tribunal reviewed Contract 92YN129 - MS7139 DE. In the Contract, the signature of "Shanghai office Mr. Xu ___" and the [first Respondent]'s Company name and the signature of its representative are present in the position where a buyer should sign. "___" is the shorthand version of the [second Respondent]'s English name. The [second Respondent] alleged that Mr. Xu ___ had never been authorized to sign the Contract and its Shanghai office is not competent to sign an external agreement. In this respect, the Arbitral Tribunal decides that Mr. Xu ___ is on the staff of the Shanghai office of the [second Respondent], and is not a third party who has nothing to do with the [second Respondent]. Moreover, Mr. Xu ___ entered into the Contract with other parties not in his own name, but as a representative of the [second Respondent]'s Shanghai office, and it is an internal issue inside the [second Respondent] that whether its staff has been authorized to sign the Contract; and it will not impact negatively on the binding force of the Contract with respect to the [second Respondent] no matter whether Shanghai office is competent or not to sign an external agreement only if Mr. Xu ___ had signed the Contract on behalf of the [second Respondent]. Therefore, the Arbitral Tribunal decides that the [second Respondent] has signed the Contract as buyer. In addition, the written evidence shows that the [second Respondent] not only signed the Contract but has been involved in and aware of the whole performance of the Contract: the [second Respondent] demanded the [Seller] in the fax of 24 April 1993 "[P]lease patiently wait for another month until May, we can open L/C for the said M/C"). On 21 June 1994, the [second Respondent] and the [first Respondent] as the buyers entered into an agreement with the Claimant as the seller to arbitrate the Contract before CIETAC. To sum up, the Arbitral Tribunal finds that the [second Respondent] and the [first Respondent] are the buyers to the Contract and the Contract shall be binding on the [second Respondent], the [Seller] and the [first Respondent].

3) Performance of the Contract

The Arbitral Tribunal finds that the [Seller] presented its Bank Letter Guarantee on 18 August 1992. The [first Respondent] remitted to the [Seller] 10% of the total amount as down payment on 24 September 1992. The [Seller] notified the [Buyers] that the goods under the Contract had been produced, and requested them to open a L/C. On 24 April 1993, the [second Respondent] notified the [Seller] by fax that "[P]lease patiently wait for another month until May, we can open L/C for the said M/C". On 28 June 1993, the [first Respondent] notified the [Seller] that the end user, Shanghai ___ Equipment Factory had not received its loan from bank, and had asked the [Seller] to coordinate with Shanghai ___ Equipment Factory and the [second Respondent] in the event of any problem. On 14 October 1993, the [second Respondent] notified the [Seller] by letter that "[W]e can inform you before the end of this month when to open the L/C", but the [Buyers] failed to open an L/C. The Arbitral Tribunal accepted the above facts, which are not challenged by the parties.

4) Liability for breach of contract

Based on the above facts, the Arbitral Tribunal finds that the [first Respondent] and the [second Respondent] as co-buyers failed to perform the obligation to open an L/C, which constitutes a fundamental breach of the Contract, and they shall be liable for breach of the Contract.

5) Damages

The [Seller] resold the equipment for a nickel plating machine production line to E Company (a Swiss firm) at the price of DM 354,380 on 30 October 1995 knowing that the end user of the [Buyers] had been declared bankrupt and that the [Buyers] had been unable to open an L/C and accept the equipment according to the Contract. The [Seller] shall be entitled to damages of DM 1,040,620 for the price difference between the original contract price with a deduction of the deposit (10% of the original contract price) and the resale price. According to Article 74 and Article 75 of CISG, the [Buyers] shall indemnify the [Seller] for the above damage. According to Article 78 of the CISG, the [Buyers] shall indemnify the [Seller] for the interest loss caused by the breach of contract. The [Seller] asks to have the interest calculated at the annual rate of 12.5% to November 1998. The Arbitral Tribunal sustains this request and decides that the damage for the interest is DM 959,282.80. In addition, due to the [Buyer]'s fundamental breach of contract, the [Seller] has incurred damages of DM 16,330 for additional warehousing and damages of DM 10,206.25 for its interest loss due to the [Buyers]' fundamental breach of contract. The [Seller] submitted evidence of the above damages, and evidence of the attorneys' fee, investigation cost, and traveling fee, which was accepted by the Tribunal. According to Article 74, the Arbitral Tribunal decided that the above loss was a foreseeable loss that can be expected and should be expected by the [Buyers] when entering into the contract, which then shall be indemnified by the [Buyers]. The arbitration fee shall be borne by the [Buyers] because the dispute had arisen out of the [Buyers]' breach of the Contract.

In conclusion, the Arbitral Tribunal sustained all the [Seller]'s renewed requests.

4. THE AWARD

1) The [Buyers] shall pay to the [Seller] damages of DM 1,040,620 for price difference and damages of DM 959,282.80 for interest loss.

2) The [Buyers] shall pay to the [Seller] damages of DM 16,330 for warehousing and its interest of DM 10,206.25.

3) The [Buyers] shall pay to the [Seller] the legal expense of DM 35,000 (including attorneys' fee and other expenses).

4) The [Buyers] shall bear the fee of the renewed arbitration. The arbitration fee has been countervailed by the equal arbitration fee by the [first Respondent]. The [Buyers] shall pay to the [Seller] for the prepaid arbitration fee.

All the above amounts shall be paid within 30 days of the award. The award shall be final and binding and has taken the place of (96) CIETAC No. ___ Award.


FOOTNOTES

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

** Zhan Changzheng is an Associate with Shanghai Haoliwen PRC Attorneys.

*** William Zheng is a graduate of the Pace University School of Law. He is Special Counsel with the Shanghai office of Sheppard Mullin Richter & Hampton, LLP. Julie Yu is a Chinese Consultant with this law firm. Ms. Yu actively participates in pro bono projects, such as volunteering at the Legal Aid Centre.

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