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CISG CASE PRESENTATION

China 30 March 1999 CIETAC Arbitration proceeding (Electric heater case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990330c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19990330 (30 March 1999)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1999/17

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Denmark (respondent)

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

GOODS INVOLVED: Electric heaters


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 9 ; 35(1) ; 50 ; 84(1) [Also cited: Articles 38 ; 39 ; 45 ] [Relevant by analogy: Article 74 ]

Classification of issues using UNCITRAL classification code numbers:

8C [Interpretation of party's statements or other conduct: interpretation in light of surrounding circumstances];

9B [Implied agreement on international usages];

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

50A [Buyer's right to reduce price for conforming goods];

84A [Seller bound to refund price must pay interest].

Descriptors: Intent ; Usages and practices ; Conformity of goods ; 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. 1739-1746

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.83, 105, 107, 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

Electric heater case (30 March 1999)

Translation [*] by Meihua Xu [**]

Edited by John W. Zhu [***]

-   The jurisdiction decision
-   The proceeding on the merits

THE JURISDICTION DECISION

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

   -    The arbitration clause in Contract No. 96MRPMY18 - 39016DM signed by Claimant [Buyer], China __ International Economic and Trade Company, and Respondent [Seller], Denmark __ Company; and
 
   -    The written arbitration application submitted by [Buyer] on 1 September 1997.

The Secretariat of the Arbitration Commission sent (97) Maozhongzi No. __ Arbitration Notice and the attachment by express mail on 15 September 1997, which was received by the [Seller]. On 26 September 1997, the Secretariat of the Arbitration Commission received [Seller]'s jurisdiction objection. The two parties presented sufficient arguments on the jurisdiction issue. On 25 August 1998, the Arbitration Commission handed down its jurisdiction decision after examining the relevant facts and both parties' opinions.

[...]

The position of the parties, the opinion of the Arbitration Commission and its decision on the jurisdiction issue are as follows.

POSITION OF THE PARTIES

[Seller]'s position

On 26 September 1997, the [Seller] faxed to the Arbitration Commission, asserting that:

1. The [Seller] could not accept the Arbitration Commission's jurisdiction over this case. The [Seller] had never agreed to include an arbitration clause in the contract. The signer of the contract (Mr. Cheng of America __ Company Beijing office) was not authorized by the [Seller] to sign on terms which had not been accepted by the [Seller] in the contract. He was only authorized to sign on the contract terms on the basis of the [Seller]'s No.T- 951130.05 price list.

2. Neither the [Seller] nor its attorney could comment on arbitration claims written in Chinese. The [Seller] rejects any arbitration application formally sent by the Arbitration Commission. The [Seller]'s obligations were to deliver the goods and perform the contract in accordance with its price list. This dispute was caused by the [Buyer]'s withdrawing part of the payment, thus, the [Seller] stopped its corresponding performance.

3. This dispute should not be settled by arbitration. The [Seller] was waiting for the [Buyer] to make the machine available in an adjustable condition. Several parts worth US $4,000 were damaged or in dispute; therefore, the [Seller] could not run the machine. Since the [Buyer] had withdrawn part of the payment, the [Seller] could not enter into negotiation with it. The [Seller] asked the [Buyer] to refund the payment to settle this dispute.

[Buyer]'s position

Regarding the [Seller]'s jurisdiction objection, the [Buyer] presented the following opinions:

For the effectiveness of the arbitration clause, in other words, whether the Arbitration Commission is qualified to arbitrate this case, the [Buyer] alleges that the arbitration clause in Contract 96MRPMY18-39016DM clearly stipulates that the dispute shall be submitted to the Arbitration Commission if it could not be settled by negotiation. It is true that the [Seller] has issued an authorization letter to Mr. Cheng of the Beijing office of its agent, American __ Company stating that it authorized Mr. Cheng to sign the contract in accordance with AB Company's price list, T-951130.05(B), and that if there were any inconsistencies between the final contract and the price list, AB Company should confirm them by telephone, fax, or by mail.

The [Buyer] alleges that according to international trade usages regarding technical equipment trade, integrated terms should be included at the conclusion of the contract, and it is necessary to supplement or modify the business part of the contract pursuant to the price list.

   -    After the contract was signed on 1 February 1996, Mr. Cheng faxed the contract (including the business part and the technical attachment) to the [Seller] after he returned to Beijing, and sent the original contract to the [Seller] by express mail.
 
   -    On 26 February 1996, the [Seller] faxed to the [Buyer] (and sent the original contract to the [Buyer]), notifying that it had confirmed Contract 96MRPMY18-39016DM and that, on 22 February 1996, it had asked its bank to provide to the buyer, through the buyer's bank, the bank guarantee letter on the down payment which was stipulated in the business part of the contract (not mentioned in the T-951130.05 (B) price list), to enable the [Buyer] to make the down payment.

Therefore, it could be concluded that the [Seller] had agreed to all the terms in the contract and that the contract was valid and had legal effect.

It also needs to be mentioned that during the one year and eight months period from the time of the conclusion of the contract to [Seller]'s asserting this jurisdiction objection, the [Buyer] had never received any fax, telephone, or other information asserting different opinions on business terms in the contract, and the [Seller] had never raised objection to the Arbitration Commission's jurisdiction after being notified by the [Buyer] before it filed the arbitration application.

Based on the above and according to Part II and relevant provisions in Part III of the United Nations Convention on Contracts for the International Sales of Goods, (hereafter, "the CISG"), the contract in this case is valid, and the Arbitration Commission has jurisdiction over this case.

[Seller]'s response

With regard to the aforesaid, the [Seller] gave the following further opinions on the jurisdiction issue:

1. The [Seller] did not agree to the arbitration clause in Contract 96MRPMY18-39016MD, but only accepted the business terms and technical attachment of the contract. The [Seller] never said that it accepted all the terms of the contract. Moreover, the second line of the contract indicated "terms and conditions", which implied that "terms" were different from "conditions". The [Seller] cannot accept the entire legal terms including articles 12, 13, 14, and 15, especially the article 15 arbitration clause. These clauses are to only one party's benefit. The [Seller] does not consider that it should be bound by the entire contract. The contract consists of two parts, general provisions and technical terms. The [Seller] only accepted the business terms and technical instructions including the supply limit, but never signed or entrusted anyone to sign on the entire terms of the contract.

2. In addition to the aforesaid facts, the [Seller] points out that the arbitration organization determined in the contract is the Foreign Trade Arbitration Committee of the China Council for the Promotion of International Trade in Beijing, which should arbitrate the case on the basis of its provisional rules.

According to the materials sent by the Arbitration Commission, the [Seller] knew that the aforesaid organization was established in 1954, and renamed as the Foreign Economic and Trade Arbitration Committee of the China Council for the Promotion of International Trade 17 years ago. However, the contract in this case was signed last year; therefore, the China International Economic and Trade Arbitration Commission has no jurisdiction over this case.

3. Furthermore, the [Seller] alleges that the contract was signed by its authorized representative, Denmark A Company, which is not the [Seller]. The [Seller] points out that this authorization only relates to Denmark A Company and has nothing to do with the [Seller].

Based on the above, the [Seller] insists that this dispute should be settled in Denmark according to international trade usages.

[Buyer]'s response

The [Buyer] made the following response to the seller's aforesaid statements:

1. As stated clearly in its letter and the attachment sent to the Arbitration Commission on 8 September 1997 the [Buyer] regards as effective every term in the contract. As an indivisible unity, the business terms and technical attachment could only be either valid or invalid. Since the [Seller] has confirmed the business terms and technical attachment without raising any objection, and in fact the [Seller] has performed part of the contract.

Article 8(3) of the CISG is applicable. It stipulates that:

"In determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties."

According to this, the entire provisions of the contract are effective.

2. The Arbitration Commission's change of its name was merely to accommodate the development of China's international trade and Article 79 of the Arbitration Rules clearly states that where there is an arbitration clause with the former name or new name of the Arbitration Commission mentioned as the arbitration organization it be considered that the two parties have agreed to arbitrate the case by the Arbitration Commission.

3. The [Buyer] mistakenly typed the [Seller]'s name as "A + B Co. XX" in some places of the contract, but the address, the telephone number, and the fax number of the [Seller] are correct. The [Seller] has confirmed the contract and performed part of it; therefore, according to Article 8(3) of the CISG, the typo of [Seller]'s name cannot be the basis for seller's objection on jurisdiction.

[Seller]'s further assertions

Regarding the [Buyer]'s response, the [Seller] further asserts that:

1. The [Seller] has never reached agreement on any aspect of the legal terms of the contract either by written document, by entrustment, or by confirmation.

Although the contract was formed, it was not extended to those terms that the [Buyer] is asserting. There is no stipulation in the CISG regarding the extension of the contract, and the extension of the contract was not signed, entrusted, or confirmed by written document.

2. The [Seller] did not note that the arbitration was to be conducted in China, nor did it know that the former name and rules adopted were to be afterward changed to the Arbitration Commission and its rules. The [Seller] again emphasizes that it cannot accept the Arbitration Commission's jurisdiction, because it does not agree to settle any dispute by this Commission. When concluding the contract, the [Buyer] did not mention having the Arbitration Commission as the organization to settle dispute, and the [Seller] never agreed to this clause -- directly or indirectly.

3. The [Buyer] also admitted its mistakes. It should be noted that the [Buyer]'s mistakes indicate that the [Seller] only confirmed the contract in accordance with the price list in its entrustment letter, and it accepted only the business terms. The [Buyer] used two languages in its contract form, which certainly can lead to different understanding.

4. For the aforesaid reasons, the [Seller] suggests settling this case in Denmark by traditional litigation or by arbitration. The [Seller] must reassert that it will never accept having the Arbitration Commission handle the arbitration.

OPINION OF THE ARBITRATION COMMISSION

In accordance with Article 4 of the Arbitration Rules, the Arbitration Commission notes that:

1. The [Seller] alleges that it signed the contract based only on the T-951130.05(B) price list, and that it only accepted the business terms and technical data instruction without accepting other terms, especially the arbitration clause; therefore, the Arbitration Commission has no jurisdiction over this case.

The Arbitration Tribunal also notes that according to international trade usages, integrated terms should be included when signing the contract. After the conclusion of the contract, the representative of the [Seller] sent the contract to the [Seller] by fax, and mailed the original contract to the [Seller] by express mail. On 26 February 1996, the [Seller] faxed and later mailed the original contract to the [Buyer], confirming the contract. The [Seller] asserts that it only confirmed the part which conforms to the T-951130.05(B) price list; however, after the conclusion of the contract, in order to enable the [Buyer] to make the down payment through its bank, the [Seller] sent the guarantee letter on down payment to the [Buyer] through the [Buyer]'s bank. This was stipulated in the contract but was not mentioned in the price list. The [Seller] in fact performed this stipulation in the contract, which indicated that the [Seller] confirmed and actually performed Contract 96MRPMY18-39016MD; therefore, the entire provisions of the contract have binding effect on the [Seller], the [Seller] should be bound by the arbitration clause in the contract, and the Arbitration Commission has jurisdiction over this case.

2. In its letter, the [Seller] asserts that the arbitration organization mentioned in the contract was the Foreign Trade Arbitration Committee of the China Council for the Promotion of International Trade and that therefore, the Arbitration Commission has no jurisdiction over this case. The Arbitration Commission holds that, as every one knows, the Foreign Trade Arbitration Committee of the China Council for the Promotion of International Trade was the former name of the Arbitration Commission, and that they were different names of the same organization at different times. Article 79 of the Arbitration Rules clearly states that where there is an arbitration clause with the former name or new name of the Arbitration Commission mentioned as the arbitration organization, it should be considered that the parties have agreed to arbitrate the case by the Arbitration Commission. Therefore, the Arbitration Commission has jurisdiction over this case.

3. The [Seller] also mentioned in its letter that it was A+B Co. XX who signed the contract with the [Buyer] but not the [Seller]; therefore, the arbitration clause in the contract had no binding effect on the [Seller], and the Arbitration Commission had no jurisdiction to the [Seller] either. The Arbitration Commission holds after examining the contract and relevant documents that the [Seller]'s name was typed as A+B Co. XX in some places in the contract, however, the address, the fax number, and the telephone number were the same as those of the [Seller]'s, and the [Seller] confirmed and partially performed the contract without raising objection on the qualification of the signer; therefore, it could be inferred that it was a typo that the [Seller]'s name in the contract was different from the [Seller]'s real name, but not a mistake of subject. Thus, the Arbitration Commission holds that the [Seller] is a party to the contract, that it should be bound by the arbitration clause, and that it should accept the jurisdiction of the Arbitration Commission.

JURISDICTION RULING

In conclusion, the Arbitration Commission rules:

1. The arbitration clause in the contract is effective, and the Arbitration Commission has jurisdiction over this case;

2. The arbitration process of this case should be continued.

THE PROCEEDING ON THE MERITS

According to the Arbitration Rules of the Arbitration Commission (which became effective on 1 October 1995, hereafter, "the Arbitration Rules"), the Director of the Arbitration Commission appointed Mr. P as the Presiding Arbitrator. Mr. P, Mr. A, the arbitrator appointed by the [Buyer] and Ms. D, the arbitrator appointed by the Director of the Arbitration Commission on behalf of the [Seller], formed the Arbitration Tribunal to hear this case.

After examining the [Buyer]'s arbitration application and the attachment, the Arbitration Tribunal decided to hold a court session on 18 November 1998 in Beijing. The Secretariat of the Arbitration Commission sent (98) Maozhongzi No. __ Arbitration Court Session Notice to the [Seller].

On 18 November 1998, the court session was held in Beijing as scheduled. The [Buyer] sent its arbitration agent to attend the court session. The agent made statement on the facts of this case, and answered the Arbitration Tribunal's questions. The [Seller] did not present in the court session.

After the court session, the [Buyer] modified its arbitration claims and completed relevant procedures. The Arbitration Tribunal accepted the [Buyer]'s modified arbitration claims. After the court session, the Secretariat of the Arbitration Commission sent the [Buyer]'s supplementary documents to the [Seller] by express mail, notifying that if the [Seller] wanted a second court session, it should submit a written application before 30 January 1999; if it did not want another court session, it should submit a written opinion on the dispute in this case before 10 February 1999; otherwise, the Arbitration Tribunal would not accept any written materials, and the case would get into the next arbitration process. The [Seller] accepted the aforesaid document, but failed to provide any document within the stipulated time limit.

This case has been concluded. The Arbitration Tribunal handed down this award by consent on the basis of the written materials submitted by the [Buyer] and the court session.

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

I. FACTS

The [Buyer] and the [Seller] signed Contract No. 96MRPMY18-39016DM at Luoyang, China on 1 February 1996 with the following terms:

   -    Goods: One set of AXA-EX-250 electric heater at US $180,000, CIF Shanghai; spare parts of US $16,800, CIF Shanghai;
   -    Technical service: US $13,000 (seven working days/man);
   -    Total contract price: US $209,800;
   -    Shipment period for the electric heater and the spare parts: Before the end of May 1996.

The [Seller] sent the goods from Hamburg on 10 July 1996 (the issuing date of the B/L), and the goods arrived at Shanghai at the end of August. On 6 September 1996, the [Buyer] completed the procedures for customs clearance and took delivery of the goods. At the end of October, the goods were transported from Shanghai by railroad to the customer's site.

After the arrival of the goods, the [Buyer] applied to the Luoyang Commodity Inspection Bureau (hereafter, "Luoyang CIB") for inspection, and gave notice to the [Seller]'s Beijing Office. On 15 November 1996, the representatives of the [Buyer] and the [Seller] conducted an inspection of the goods under the supervision of Luoyang CIB, with the result, part of the goods were found missing or damaged. After reinspection, some goods delivered by the [Seller] were found not in conformity with the contract. The representatives of the [Buyer] and the [Seller] signed an inspection report, and Luoyang CIB issued inspection certificates on 12 March 1997 and 21 July 1997.

The [Buyer] notified the [Seller] after discovering problems on the goods. The [Seller] first asserted that the goods should have been inspected in Shanghai, and that the damages to part of the goods and the water entered into the containers were caused by improper handling in transportation. Later, the [Seller] denied that it had done anything wrong in delivering the goods, and did not send engineers to the [Buyer]'s factory to test the goods as required by the contract. Therefore, the [Buyer] filed this arbitration application to the Arbitration Commission in 1997, claiming compensation from the [Seller] for the [Buyer]'s direct and indirect losses of US $44,800 (In [Buyer]'s supplementary statement, this was later modified to US $53,288.83) due to the [Seller]'s non-performance of its obligation, and for [Seller] to bear the [Buyer]'s entire costs for this arbitration.

The [Buyer] asserts in its arbitration application and supplementary statement that:

1. The [Seller] did not perform its contract obligation

      (1) The [Seller] did not deliver the goods in accordance with the contract. Before opening the boxes of the goods, the wooden boxes were undamaged; however, after opening the boxes, the following items were found missing:

   -    One temperature controller (4-20MA);
   -    Five flame-proof cable glands;
   -    One 9303/11-22-22SID transformer;
   -    One hot oil volume control valve (separation valve);

In addition, there were the following problems with the goods:

   -    The entire technical documents were not provided as required by the contract;
   -    Specifications of two hot oil circulation pumps and two engines were not in conformity with the contract;
   -    There was rust on flanges and pipe exposed;
   -    Exhaust pipe on top of degassing tank was broken;
   -    One set of valves fell off onto the top of the degassing tank;
   -    Nut of bolt on bottom of gage board inside control box fell off;
   -    Surfaces of temperature controller and monitor were frayed;
   -    Two graphite collars on two ends of heater were broken;
   -    One electromagnetic valve on degassing tank looked old;
   -    Specifications of some connectors and one time relay delivered by the [Seller] were not in conformity with the packing list.

When the [Buyer] informed the [Seller] of the problems discovered upon inspection, the [Seller] refused to admit there were problems in delivering the goods, and asserted in its faxes sent on 17 January 1997, 27 January, and 5 March that the inspection should have been done in Shanghai, and that the damages to part of the goods and water entered into the boxes were caused by improper handling in transportation. Furthermore, the [Seller] alleged that the [Buyer] failed to inform the [Seller] seven days prior to the opening the boxes, that Pulute Company was not the [Seller], and that if the [Buyer] had informed the [Seller], it would have sent a representative.

In its fax sent on 1 April 1997, the [Seller] stated that the problems discovered after opening the boxes were caused by transportation, which had nothing to do with the inspection. The [Buyer] however argued that since Pulute Company signed the contract as entrusted by the [Seller], contacted the [Buyer] on behalf of the [Seller] during the performance of the contract, and signed the meeting memorandum with the [Buyer]'s client on behalf of the [Seller]; therefore, the Pulute Company's sending staff over to the [Buyer] was a performance of the contract on behalf of the [Seller].

It was clearly stipulated in the contract that the inspection should be conducted at customer's site, not Shanghai port, and that the inspection certificate issued by Luoyang CIB should be the basis for compensation claims for problems discovered upon inspection. The contract provisions have legal effect.

      (2) The [Seller] failed to perform its obligation to provide technical support.

According to Article 11(2) of the contract, the [Buyer] should inform the [Seller] three weeks before test running the machine and the [Seller] should not delay test running after receiving notice from the [Buyer]. The [Seller] should send experienced, healthy engineers who know the machine well to the customer's site to do the test running, which is a seven-working-day technical support. Therefore, from 10 April 1997, the [Buyer] had been requesting the [Seller] to send engineers to the customer's site to provide technical support to test run the machine on 10 May 1997 as stipulated in the contract directly or through the [Seller]'s agent; however, the [Seller] employed various excuses -- especially the [Buyer]'s asking the [Seller]'s engineer to bring a separation valve to the customer's site -- to refuse to perform its contract obligation. The [Buyer]'s customer had to delay the test running, asking the [Seller] to send engineers no later than 25 May.

The [Seller] further stated that the No. 250 valve was a safety valve, but not a separation valve (the contract indicated it was a separation valve), and that the test run could not be done without a separation valve; therefore, the [Seller] was unable to send engineers, with the result, the [Buyer]'s electric heater could not be used for two years, and the [Seller] has caused severe economic loss to the [Buyer]. In fact, the separation valve was included in the items which should have been delivered by the [Seller] as required by the contract; however, the [Seller] failed to attach it before sending the goods.

2. Compensation claim

The [Buyer] claims that according to the contract, the [Seller] should compensate the [Buyer] US $53,288.83 for [Buyer]'s losses in missing parts, non-conforming parts, and loss caused by [Seller]'s non-performance of the contract. The basis for [Buyer]'s claim is:

      (1) Hot oil volume control valve (separation valve) of US $3,150, referencing [Seller]'s price lists sent on 28 April 1997 and 1 May 1997, respectively, plus 5% transportation insurance fee;

      (2) Two hot oil circulation pumps (including two engines) of US $16,785, calculation on the basis of the price list Belgium __ Company sent to __ Company on 1 September 1995, plus 5% annual price increase (the original goods delivered by the [Seller] can be returned, but the [Seller] should bear the costs incurred thereof by itself);

      (3) Transformer of US $867.55, referencing the [Buyer]'s customer's average purchasing price for goods of various specifications purchased internationally;

      (4) Costs for redesign, disassembling, changing, and installing two hot oil circulation pumps (including two engines) and separation valve of US $7,650.06, referencing "standard cost for engineering design" in China (1992 revision);

      (5) Costs for repairing damaged parts, removing dust, and maintenance fee before operation, totaling US $500;

      (6) Refund of technical support charge, US $13,000;

      (7) Loss of interest of US $13,882.33, calculated as: contract price US $209,800 + US $82,460.23 (customer's charge of renminbi [RMB] 648,181.30 + domestic transportation insurance fee of RMB 35,414 = RMB 683,595.30, which is exchanged to the aforesaid US $ by 1: 8.29 exchanging rate) = US $292,260.23. Interest is calculated on the basis of an annual interest rate of 3%, the average interest rate of the European Union for one year and seven months (from 10 May 1997, when the machine should have been able to be used to the end of 1998), totaling US $13,882.33;

      (8) The Custom's charge and Value Added Tax of US $6,943.89 for repurchasing the missing parts (separation valve and transformer), hot oil circulation pumps, and engines, i.e. US $(3,150 + 16,785 + 867.55) 33.38% (consolidated tax rate);

      (9) Due to the [Seller]'s failure to deliver the goods and provide technical service as required by the contract, the machine could not be operated, which caused a loss of US $22,380.26/per day for stoppage of production;

      (10) [Seller]'s failure to perform the contract properly made it impossible to evaluate the function of the machine, with the result, the [Buyer] had to withdraw the guarantee payment of US $10,490 before the guarantee letter had expired (30 August 1997). Therefore, US $10,490 has been deducted from the total amount claimed by the [Buyer], which is US $53,288.83.

The [Seller] did not make formal defense on the dispute in this case, just faxed a letter to the Arbitration Commission, asserting that the dispute arose by [Buyer]'s withdrawing part of the payment for the goods; therefore, the [Seller] stopped its corresponding service.

II. OPINION OF THE ARBITRATION TRIBUNAL

The Arbitration Tribunal confirmed the following facts by examining the materials and evidence of this case and the court session, and makes the following opinions:

1. The applicable law

The parties did not stipulate the applicable law in Contract 96MRPMY18. Because China and Denmark are Contracting States of the CISG, and pursuant to the provisions on scope of application and on contracts for the sale of goods between parties whose places of business are in different Contracting States, the CISG should apply automatically, provided there is no stipulation of applicable law in the contract. Therefore, the Arbitration Tribunal deems that the United Nations Convention on Contracts for the International Sales of Goods (hereafter, the "CISG"), should be applied.

2. [Seller]'s contract violation

According to Article 38 of the CISG and Article 10, the inspection clause of the contract, the [Buyer] has the right to inspect the goods at the customer's site after the arrival of the goods. The Arbitration Tribunal examined the inspection report signed by the representatives of the [Buyer] and the [Seller] on 15 November 1996 and two inspection certificates issued by Henan CIB on 12 March 1997 and 21 July 1997, respectively, finding that the electric heater, the spare parts, and documents provided by the [Seller] did not conform to Contract 96MRPMY18-39016DM and the technical attachment in the following respects:

Missing parts:

   -    One temperature controller;
   -    Five flame-proof cable glands;
   -    One 9303/11-22-22SID transformer;
   -    One control board, layout maps, and one set of detailed list;
   -    Volume control valve with isolation valve(No.215)

Non-conforming parts:

   -    2 hot oil circulation pumps and 2 engines. The specification stipulated in the contract was NIT40-250; rate of flow of 30m/hour; lift of 70MLC; engine power of 10KW; 2,900 revolutions/min, but the goods actually delivered were NIT40 ~ 200/190; rate of flow of 30m/hour; lift of 50MLC; engine power of 10KW; 2,900 revolutions/min.

Missing documents:

   -    Operation manual, maintenance guidance, and some parameters

1. Telektron system control unit aegis on the drawing of "Control 250KW the oil system proj-side: 001";

2. "Pr5131 bar" and "west 5010, T1215, H10, C10, U02, U03, U04, 211" on the drawing of "Control 250KW the oil system proj-side: 005";

3. FPM 4000 monitor TYPE mA 0~300.c, ITEM No. 4523814 monitor No. 057552-101, Frode Pedersen & Co, A/S DK-3450 ALLEROD. Relevant parameters are: 1. AL1 and AL2 "-A7 UMO4" on the drawing of control 250KW the oil system proj-side: 007 and proj-side: 008"; 3. "S1.13 reset" is not marked out on the drawing of "control 205KW the oil system".

In addition, some parts were damaged.

3. [Seller]'s responsibility for contract violation

According to Article 35(1) CISG, which states that "the [Seller] must deliver the goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract", and based on the aforesaid facts confirmed by the Arbitration Tribunal, the [Seller] failed to fulfill its obligations as required by the CISG and the contract in this case; therefore, it should take the responsibility accordingly.

Pursuant to Article 39 and Article 45 CISG, the [Buyer] has the right to claim lack of conformity of the goods, require the [Seller] to remedy the lack of conformity and to compensate the loss of the [Buyer]; therefore, the Arbitration Tribunal supports the [Buyer]'s compensation claim. However, the basis and calculation of the [Buyer]'s compensation claims were either unreasonable or lacked effective evidence. Thus, according to Article 50 of the CISG, which stipulates that:

"If the goods do not conform with the contract and whether or not the price has already been paid, the [Buyer] may reduce the price ...",

the Arbitration Tribunal deems that the [Seller] shall reduce 20% of the total contract price as compensation to the [Buyer], which is US $41,960. Since the [Buyer] withdrew US $10,490 on 30 August 1997, which should have been paid by the [Buyer] as required by the guarantee letter, the [Seller] should pay US $31,470 to the [Buyer].

Moreover, according to Article 84(1) CISG, which states that:

"If the [Seller] is bound to refund the price, he must also pay interest on it, from the date on which the price was paid",

the [Seller] shall pay interest on the aforesaid sum, which should be calculated from 11 August 1996 to the date of this award is enforced at an annual interest rate of 6%. The formula is: US $31,470 6% 365 number of days from 11 August 1996 to the date of this award is enforced.

Because the [Seller] loses in this arbitration, it should bear the entire arbitration fee.

III. THE AWARD

The Arbitration Tribunal rules that:

   (1)     The [Seller] shall refund US $31,470 to the [Buyer];
 
   (2) The [Seller] shall pay interest on the aforesaid sum, calculated from 11 August 1996 to the date of [Seller]'s actual payment at 6% annual interest rate;
   (3) The [Seller] shall bear the entire arbitration fee.

The [Seller] shall pay the above amount within 45 days of the date on which the Arbitration Tribunal entered this award; otherwise, an annual interest of 7% shall be added to the US $ payment, and an annual interest of 8% shall be added to the RMB payment.

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 People's Republic of China is referred to as [Buyer] and Respondent of Denmark is referred to as [Seller]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB];

** 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.

*** 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 October 11, 2006
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