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CISG CASE PRESENTATION

China 30 March 1999 CIETAC Arbitration proceeding (Electric heaters case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990330c3.html]

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

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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/1999/15

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Switzerland

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

GOODS INVOLVED: Electric heaters


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 33 ; 74 ; 77 ; 84(1)

Classification of issues using UNCITRAL classification code numbers:

33C [Time for delivery: reasonable time after contract's conclusion];

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

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

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

Descriptors: Delivery ; Damages ; Mitigation of loss ; 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. 1700-1703

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Joint translation project:
New York University School of Law
and Pace University School of Law


 

China International Economic & Trade Arbitration Commission
CIETAC (PRC) Arbitration Award

Electric heaters case (30 March 1999)

Translation [*] by Jun Wang [**]

Translation edited by Meihua Xu [***]

China International Trade and Economic Arbitration Commission (previously Foreign Trade Arbitration Commission of China Council for the Promotion of International Trade, name later changed to Foreign Economic and Trade Arbitration Commission of China Council for the Promotion of International Trade, then changed to the current name, hereafter CIETAC) accepted this case of dispute according to:

   -    The arbitration clause in Contract 3ER0460009/93SIT05-J104CH (hereinafter referred to as the Contract) signed by the Claimant, Hainan ___ Corporate Company (hereafter [Buyer]) and the Respondent, Swiss ___ Corporation (hereinafter [Seller]), on 17 May 1993; and
 
   -    The written arbitration application submitted by [Buyer] to CIETAC in August 1997

The [Buyer] appointed Mr. A as arbitrator. Since the [Seller] failed to appoint an arbitrator and the [Buyer] and the [Seller] failed to jointly appoint the presiding arbitrator within the specified time period, the Chairman of CIETAC appointed Ms. D as arbitrator for the [Seller], and Mr. P as the presiding arbitrator according to Articles 23 and 25 of the Arbitration Rules of the Arbitration Commission. Together they formed an Arbitral Tribunal to hear this case.

The Arbitration Tribunal held a court session on 17 August 1999 in Beijing. The [Buyer] sent a representative and an arbitration agent to attend the court session while the [Seller] did not attend. Pursuant to Article 41 of the Arbitration Rules, the Arbitration Tribunal held the court session by default. The Arbitration Tribunal heard the [Buyer]'s presentations on the facts and legal issues that applied, and asked several questions. After the court session, the [Buyer] submitted supplementary materials within the specified period; the Secretariat forwarded these materials to the [Seller] in time.

All of the submissions of the Case and all of the materials submitted by the [Buyer] have been properly sent to the [Seller] by the Secretariat of the Arbitration Commission. However, the [Seller] did not reply or react at all. After the hearing on 17 August 1998, the Secretariat sent a letter informing the [Seller] that the court session was held on schedule, and advised that any comment or suggestion about the case should be forwarded in written form within thirty days of the receipt of the letter. However, the [Seller] did not react at all.

The Tribunal was formed on 30 March 1998. Pursuant to Article 52 of the Arbitration Rules, the Arbitration Award should be rendered within nine months, which would be before December 30, 1998. Due to the complexity of the case, pursuant to Article 52 of the Arbitration Rules, ratified by the Secretary-General, the period was extended by three months. That is, the final deadline was extended to 30 March 1999.

The Arbitral Tribunal has now, on the basis of the current materials and the hearing, made its award by consent. The following are the details of the case, the opinion of the Arbitral Tribunal, and the award.

FACTS

The [Buyer] and the [Seller] signed Contract No. 3ER0460009/93SIT05-J104CH on 17 May 1993. It was stipulated in the contract:

   -    Goods: The [Buyer] agreed to purchase [electric heaters] from the [Seller] in material and quality of 3SP weighing 15,000 tons, with 5% more or less;
 
   -    Unit price: CFR Zhangjiagang of China US $313/MT;
 
   -    Period of shipment: Within fifty days after the [Seller] receives the Irrevocable Sight L/C issued by the [Buyer];
 
   -    Inspection and claim of compensation: Port of destination for unloading, the [Buyer] has the right to apply to the Commodities Inspection Bureau of People's Republic of China for inspection. If, the quality/quantity/weight of the goods are found to be inconsistent with the terms of the contract, except the responsibilities of the insurance company or the freight corporation, the [Buyer] is entitled to claim for compensation to the [Seller] upon presentation of the certification of inspection issued by National Commodities Inspection Bureau within ninety days after the goods have arrived at the port of destination. The [Seller] shall bear all the expenses due to the claim (including the inspection fee).

[ALLEGATIONS AND CLAIMS OF THE BUYER]

The [Buyer] alleged that after the Contract was signed, the [Buyer] entrusted the China Zhejiang Province __ Foreign Trade Company to open a letter of credit [L/C] through the Zhejiang Province branch of Bank of China, The bank opened an irrevocable L/C (the amount of the credit: US $4,695,000, L/C No: LC910053/93) in the favor of the [Seller].

The [Seller] did not deliver the goods according to the time and terms of the Contract, but obtained US $4,684,602.14 under the L/C by using a false B/L. The [Buyer] and the [Seller] negotiated and finally reached a Supplementary Agreement on the issue of postponing the time limit for the delivery of the goods, and agreeing that the [Seller] shall provide compensation of US $700,000. The [Seller] later paid the compensation amount of US $700,000. Though the time limit of the delivery of the goods was not stipulated explicitly in the supplementary agreement, the [Seller] was to fulfill its delivery obligation according to the original Contract rules on quality, quantity and time limit. However, the [Seller] did not hand the goods over to the carrier until 7 December 1993. The deferred delivery of the goods constituted another breach of contract. The electric heaters arrived at Zhangjiagang on 29 January 1994 and were inspected by the Bureau for Inspection of Commodities of Jiangsu Province. The result came out that:

   -    The weight was 14,418.387 MT with a shortage of 548.393 MT,
 
   -    Part of the goods did not satisfy the requirement of the Contract for the content of silicon and the mechanical capability; and
 
   -    The goods that were exposed to the air became rusted.

The [Buyer] faxed these test results to the [Seller] and suggested resolution of the problem, but the [Seller] did not accept the [Buyer]'s suggestions. Entrusted by Hong Kong Focus Development LTD, a well-known international commodity inspection organization SGS Hong Kong Company also inspected the goods, reporting a weight of 14,420.045 MT û a result approximately that reported by the Bureau for Inspection of Commodities of Jiangsu Province. On the quality of the goods, the [Buyer] alleged that there was no authorization for rust on the surface of the goods in either the Contract or the Supplementary Agreement. Though it is noted on the B/L on 7 December that the surfaces of the goods were rusted, the acceptance of the B/L did not constitute a waiver of a claim for lack of the conformity caused by the rust on the surface.

The [Buyer] pointed out that, on account of the two deferred deliveries and the serious quantity and quality problems caused by the [Seller], and the fact that the domestic market price for electric heaters kept declining from November 1993 to May 1994 with the price between RMB 3,000/ton and RMB 2,000/ton, caused the [Buyer]'s domestic customer, the Zhenan branch of the __ Material Company of Zhejiang Province, to suffer enormous economic loss.

The [Buyer] presented the following claims:

  1. [Seller] should compensate and refund the excess payment of goods due to the shortage of the quantity amounting to US $171,647 (US $313 X 548.393 MT) and loss of interest of RMB 943,862.13 (from June 1993 to October 1998, at the annual rate of 12.82%~5.22%);

  2. Loss of expected profit, RMB 1,441,833.70 and interest, RMB 673,696;

  3. Storage cost, RMB 234,335.73 and interest, RMB 94,484.16;

  4. The [Seller] should indemnify the [Buyer] for the expenses for the arbitration, including but not limited to attorneys' fee and travel expenses;

  5. The [Seller] should bear the arbitration fee.

OPINION OF THE ARBITRAL TRIBUNAL

1. Applicable law

The parties to the case are Chinese and Swiss companies. Considering that China and Switzerland are both member countries of the CISG (UN Convention on Contracts for International Sale of Goods), the CISG will be applied to deal with disputes under the contract, with international customs as references.

2. Deferred delivery of the [Seller]

In accordance with the rules of the Contract, the [Seller] was obligated to ship the goods within fifty days after receiving the Irrevocable Sight L/C issued by the [Buyer]. On 1 June 1993 the [Buyer] entrusted the China Zhejiang Province __ Foreign Trade Company to open a L/C through China Bank, Zhejiang Province branch, and the [Seller] confirmed that it received the L/C on 24 June. The Contract required the [Seller] to ship the goods before 14 August 1993, but the [Seller] did not fulfill this responsibility. Therefore, the parties reached a Supplementary Agreement on 16 October, providing that the [Seller] should compensate for US $700,000 and each party should continued to honor the Contract. Later, the [Seller] paid the US $700,000 compensation. At this point, the [Seller] had compensated the [Buyer] for not shipping conforming goods on time. The Tribunal noted that the Supplementary Agreement of October 16 is a multiple agreement on relevant operations, not limited to the Contract. It mentioned only the continuous performance of the Contract, and did not specify the shipment period. According to Article 33 of the CISG, the [Seller] is obligated to ship the goods within a reasonable time, especially when the [Seller] has received the payment for the goods. In fact, the [Seller] did not ship the goods until December 1993; the goods arrived at the destination in January 1994, which went beyond the reasonable time. Therefore, the [Seller] shall bear the liability of late delivery.

3. Shortage of the weight of the goods

Article 15 of the Contract provides that after the goods arrive at their destination port, the Buyer has the right to apply to the National Bureau for Inspection of Commodities for inspection. The goods arrived at the destination port on 29 January 1994, Zhangjiagang; the unloading of the goods was completed on 4 February. After that, the National Bureau for Inspection of Commodities of Jiangsu Province inspected the goods and issued the test certification. According to this test certification, the weight of the goods was 14,418.387 MT with a shortage of 548.393 MT from 14,966.78 MT on the invoice. On 12 March, the [Buyer] informed the [Seller] of the result and suggested the solution of the problem, which was within ninety days as stipulated in the Contract. Therefore, the Tribunal concludes, the fact that there is a shortage of the weight of the goods exists; the [Seller] shall return the additional payment 548.393 X US $313 = US $171,647 to the [Buyer], with interest of US $50,000 calculated from 1993.

4. Quality of the goods

The testing result by the Bureau for Inspection of Commodities of Jiangsu Province on 6 February 1994 revealed that the goods that exposed in the air were rusted, and that part of the goods did not satisfy the requirement of the Contract for the content of silicon and mechanical capability. Reviewing the Contract and the Supplementary Agreement, there was no authorization for rust on the surface of the goods. Therefore, there is a problem of the quality of the goods, but the [Buyer] has not produced enough evidence. As the quality problem did adversely effect later sales and the expected profit of the [Buyer], the [Seller] shall provide proper compensation.

5. Expected profit of the [Buyer]

According to the former 2 and 4, the Tribunal concludes there exist problems of the late delivery and the quality of the goods and that the [Seller] shall bear certain liability. Therefore, in response to the claims of expected profit loss by the [Buyer], the [Seller] shall compensate the [Buyer] RMB 700,000 and its interest, RMB 200,000.

6. Storage cost

The Tribunal holds that, as the late delivery of the [Seller] affected the sales opportunity of the [Buyer], the [Buyer] suffered storage losses; the [Seller] thereby shall bear certain liability. Nevertheless, the [Buyer], should sell the goods in time after receiving them. Waiting for the sales opportunity, the [Buyer] did not sell the goods in time. The [Buyer] shall therefore bear some liability itself. It is unreasonable for the [Seller] to bear all the liability. The Tribunal concludes that the [Seller] shall compensate the [Buyer] for RMB 70,000 and interest of RMB 20,000

7. Arbitration fee

Based the on reasons above, after comprehensive consideration, the Tribunal concludes that 30% of the arbitration fee should be paid by the [Buyer] and 70% of the arbitration fee by the [Seller]. The [Buyer] shall bear the legal fee and the travel fee by itself.

THE ARBITRATION AWARD

  1. The [Seller] shall return the excessive payment for the goods for US $171,647 and pay interest of US $50,000 to the [Buyer];

  2. The [Seller] shall compensate the [Buyer] for the expected profit of RMB 700,000 and interest of RMB 200,000;

  3. The [Seller] shall compensate the [Buyer] for the storage cost of RMB 70,000 and interest of RMB 20,000;

  4. The other claims of the [Buyer] are dismissed;

  5. The [Buyer] shall pay 30% of the arbitration fee, with the [Seller] paying 70%.

The total sum of the above items 1, 2, 3 and 5 shall be paid within sixty days after the date of this award; interest at the annual rate of 6% shall be paid on any extended payment.

The award is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of the People's Republic of China is referred to as [Buyer] and the Respondent of Switzerland 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].

** Jun Wang [LL.M. in Corporate Law, New York University School of Law; LLB. Peking University School of Law; Bachelor of Economics, CCER (China Center for Economic Research) of Peking University].

*** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.

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Pace Law School Institute of International Commercial Law - Last updated April 13, 2006
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