Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography

CISG CASE PRESENTATION

China 8 April 1999 CIETAC Arbitration proceeding (New Zealand raw wool case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990408c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19990408 (8 April 1999)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1999/21

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: New Zealand (claimant)

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

GOODS INVOLVED: Raw wool


Case abstract

PRC: Award of China International Economic & Trade Arbitration Commission [CIETAC] 8 April 1999 (New Zealand raw wool case)

Case law on UNCITRAL texts (CLOUT) abstract no. 810

Reproduced with permission of UNCITRAL

Abstract prepared by Aaron Bogatin

Four contracts were concluded between a New Zealand seller and a Chinese buyer. The contracts, concluded through the agent of the seller, concerned the delivery of wool and required payment by letter of credit ("L/C") issued by the buyer 180 days from the bill of lading (B/L).

Despite several reminders of the seller's agent, the buyer never issued the L/C. In order to mitigate any future losses, therefore, the seller resold the goods to a third party [Article 77 CISG]. It then sued the buyer arguing that the buyer's failure to provide the L/C was a fundamental breach of contract [Article 25 CISG] and requested, among others, damages for the difference in contract pricing [Article 75 CISG], loss of interest and storage charge.

In its defence, the buyer asserted that it did not issue the L/C because, contrary to the General Trading Terms of the sector, the seller had not provided samples of the wool after the contracts had been concluded. This was a seller's obligation unless the buyer did not require it. Furthermore, the seller had not notified the buyer that the goods were ready for shipment, which was required for the L/C to be issued. If no issuance time is stated, the time of issuance shall be set at after the B/L [Article 58 CISG]. Since the B/L had not been given to the buyer, the L/C could not be issued. With regard to reselling the goods, the seller never received confirmation that the buyer was not going to perform. Therefore under Article 63 (2) CISG the seller had no right to resort to any remedy for breach of contract. Finally, there were no documents confirming the agency agreement between the agent and the seller; thus the seller never actually informed the buyer of the requirement to issue the L/C, and of the issuance time, place and bank.

Although the contract was silent as to governing law, both parties had their places of business in countries that had adopted the CISG, therefore the Arbitral Tribunal deemed the CISG applicable. If the CISG were silent on a pivotal issue, then the laws and regulations of China would be referred to. If neither could resolve the dispute, international practices would be applied.

The Arbitral Tribunal held that the buyer failed to fulfil the basic requirement of all four contracts, i.e. issuing the B/L within a specified period of time, and that its arguments for not issuing the L/C, i.e. lack of samples provided by the seller, were not a valid reason. The correct interpretation was that a sample is only required if requested [Article 35 (2) (c) CISG].

The Tribunal also noted that though the CISG requires the seller to deliver the goods, hand over the relevant documents and transfer the property in the goods [Article 30 CISG], it does not require the seller to notify the buyer of these activities. Therefore, in this specific case the seller's behaviour was not a breach of contract and in any case it could not excuse not issuing the L/C.

As for issuing the L/C, ignorance of the relevant information for the L/C could not be argued as the four contracts listed considerable information about the seller. Failure to provide the L/C thus amounted to a non-performance of the contract and a fundamental breach [Article 25 CISG].

As to the position of the agent, there is no provision under Chinese law, international custom or the CISG that dictates the existence of an introducer to a contract. Therefore, it is up to the will of the parties. Since the buyer interacted with the seller's agent until the arbitration proceeding, and until then never questioned its relationship with the seller, the buyer could not claim it was unaware of the relationship.

The Tribunal thus recognized the seller's right to avoid the contract [Article 64 CISG]; however, it noted that the seller had resold the goods prior to the declaration of avoidance [Article 26 CISG]. This was to be considered a seller's failure, though, given the specific circumstances of the case, the seller should have known that the buyer had no intention to perform the contracts. However, since the buyer had already breached the contract, the buyer had lost the right to "blame" the seller.

Therefore the Tribunal upheld the seller's requests. It only denied the seller's claim for loss of interest on the resale price difference, since the seller had resold the goods prior to the declaration of avoidance.

Go to Case Table of Contents

Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 64 ; 74 ; 75 ; 76 ; 77 [Also cited: Articles 26 ; 30 ; 53 ; 58(1) ; 63 ]

Classification of issues using UNCITRAL classification code numbers:

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

64A [Seller's right to avoid contract: grounds for avoidance];

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

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

76A [Damages based on current price: avoidance without purchase or resale under article 75];

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

Descriptors: Fundamental breach ; Avoidance ; Letters of cedit ; Damages ; Cover transactions ; Mitigation of loss

Go to Case Table of Contents

Editorial remarks

Go to Case Table of Contents

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 1814-1822

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.42, 45, 108, 128, 148, 158, 215, Nordic Journal of Commercial Law (2/2005)

Go to Case Table of Contents
Case text (English translation)

Queen Mary Case Translation Programme

China International Economic & Trade Arbitration Commission
CIETAC Arbitration Award

New Zealand raw wool case (8 April 1999)

Translation [*] by WEI Shu [**]

Edited by William Zheng and Raymond Tan [***]

The China International Economic and Trade Arbitration Commission (formerly known as the Foreign Trade Arbitration Committee of China International Trade Promotion Commission, renamed as Foreign Economic and Trade Arbitration Committee of China International Trade Promotion Commission (hereafter as "the Arbitration Commission") has accepted an arbitration case of a raw wool sales contract dispute based on following facts:

The Claimant [Seller], *** Company of New Zealand, and the Respondent [Buyer], Tianjin *** Import and Export Group Company of China, entered into Contracts 97NZ021, 97NZ022, 97NZ023 and 97NZ024 on 15 January 1997, in which, Article 12 provides that "all other provisions follow those in 'General Trading Terms for Purchase of Wool and Wool Bar' set by China Textile Original Material Import and Export Company on 1 July 1990"; Article 13 of these "General Trading Terms" has corresponding provisions on arbitration. The [Seller] filed a written arbitration application with the Arbitration Commission on 28 May 1998.

The [Seller] appointed Mr. A as an arbitrator, and the [Buyer] designated Mr. B. Because both parties had not designated a chief arbitrator and have not entrusted the Chairman of the Arbitration Commission to appoint one, the Chairman appointed Mr. P as the chief arbitrator for this case in accordance with Article 24 of the Arbitration Rules of the Arbitration Commission. These three arbitrators established, on 15 July 1998, the Arbitral Tribunal to hear this case.

The Arbitral Tribunal held a hearing in Beijing on 12 October 1998. Both the [Seller] and the [Buyer] assigned their representatives to appear before the court. During the trial, both parties had made oral statements on the case, responded to the questions by the Arbitral Tribunal, and disputed on related legal issues. After the court hearing, both parties submitted supplementary materials.

Now the trial of this case has finished. The Arbitral Tribunal renders the following award based on the facts found in court hearing and available written materials. The Arbitral Tribunal's opinions and award are as follows:

[A.] DETAILS OF THE CASE

The [Seller], via a Mr. Liu ***, entered into four contracts with the [Buyer] on 15 May 1997 to purchase 50,000 kg of raw New Zealand wool from the [Buyer] under each contract, totaling 200 tons with all of the shipments in June, 1997. The contract numbers and prices are listed below:

97NZ021           $3.62 dollars per kg
97NZ022 $3.62 dollars per kg
97NZ023 $3.57 dollars per kg
97NZ024 $3.57 dollars per kg

The total price for all four contracts was US $719,000.00 by payment of [Buyer]'s L/C 180 days from B/L.

[B.] POSITION OF THE [SELLER]

The [Seller] has made the following statements in its arbitration application:

a. The [Buyer] failed to issue the L/C during the period June to September 1997 in accordance with the contract, despite the fact that the [Seller], via Mr. Liu ***, repeatedly urged the [Buyer] to issue the L/C promptly, so that the shipment date would not be missed. The [Buyer] also stated, via Mr. Liu ***, that the L/C would be issued soon, but failed to do so.

b. Following the [Buyer]'s failure to issue the L/C and the continuous falling of wool price, the [Seller] managed to resell the wool under the contract after efforts to mitigate further loss. The goods under Contract No. 97NZ021 and No. 97NZ022 were resold via Contract No. 831013NZ and No. 831014NZ on 5 January 1998 and 21 September 1997, respectively. The goods under Contract No. 97NZ023 and No. 97NZ024 were resold via contract No. 8P2876 on 22 September 1997 domestically in New Zealand.

c. *** Law Firm, as the [Seller]'s representative, sent faxes to the [Buyer] on 26 March and 31 March 1998, noting formally to the [Buyer] that, because of the [Buyer]'s gross breach of contracts and resultant serious economic loses imposed on the [Seller], the contracts were avoided and the [Buyer] should pay for the related damages of the [Seller] immediately.

d. The lawyers representing the [Seller] have tried many times to contact the [Buyer] for discussion of idemnification; the [Buyer], however, has temporized with various excuses, with no substantial settlement offered.

e. The [Seller] thus filed an arbitration action to claim the following damages from the [Buyer]:

     1. Losses in price differences between the original contracts and resale contracts

          (1) On Contracts 97NZ021 and 97NZ022: US $85,532.64;

          (2) On Contracts 97NZ023 and 97NZ024: US $34,207.30.

     2. Losses in interest:

          (1) Interest losses for the price of the goods under all four contracts: US $20,966.99;

          (2) The interest on the resale price difference of the goods under all four contracts and the interest on such extra expenses as storage charges of the goods under all four contracts should be calculated to the actual paying dates.

     3. Losses in storage charges and other expenses: US $14,240.81.

     4. Arbitration fee, attorneys' fee and other expenses related to this case paid by the [Seller].

[C.] POSITION OF THE [BUYER]

The [Buyer] presented the following statements in its defense:

          (1) The responsibility for failure of performance of the contracts should be on the [Seller];

          (2) The loss and damages arising from the resale of the goods under the contracts should be undertaken by the [Seller] itself.

The [Buyer] asks the Arbitral Tribunal to refuse all of the [Seller]'s arbitration claims, and to require the [Seller] to compensate the [Buyer]'s attorneys' fee and other expenses related to this case as well as to undertake the arbitration fee.

The [Buyer] presents its defense as follows:

     1. The [Seller] failed to offer wool samples to the [Buyer].

Four contracts were entered into between the parties. "After entry into contracts, the [Buyer] has asked the [Seller] to offer samples, but the [Seller] has so far failed to do so. The [Buyer] cannot issue the L/C to the [Seller] when the [Buyer] cannot confirm the [Seller]'s samples of the goods"

"In addition to the agreed terms in the contracts, the 'General Trading Terms for Purchase of Wool and Wool Bar' set by China Textile Original Material Import and Export Company should also be followed. Article 2 of these 'General Trading Terms' has provisions on 'trading based on buyer's prior selected sample standards'. Under Paragraph 1 of that provision, 'except that the buyer requires no sample of raw wool,' the [Seller] should offer samples to the [Buyer], so that the [Buyer] can determine the quality of wool and perform the contract... Because the [Seller] has failed to offer samples, the [Buyer] cannot perform the contract."

     2. The [Seller] has not notified the [Buyer] that the goods have been made ready.

"The [Buyer] has never received a letter from the [Seller] to inform that the goods have been prepared and the L/C should be issued ..." It can be found from the [Seller]'s letter to Mr. Liu *** (the introducer of the contract) that the [Seller] "will not prepare the wool for shipment. And the reason for the agreement by both parties to a 180-day deferred L/C is just to make sure there is enough time to prepare the goods and to rent a vessel."

"The [Seller] has provided no evidence to establish that the goods for the [Buyer] have been prepared, the resold goods cannot be confirmed as the goods under the contracts, and thus the resold goods have nothing to do with the [Buyer]."

     3. [Seller] has not satisfied the prerequisites for the [Buyer] to issue the L/C.

"After the contracts were entered into, the parties became buyer and seller, respectively. Thus, the role of Mr. Liu *** as an introducer of the contracts was terminated. The [Buyer] has never accepted the behavior of Mr. Liu ***, because the [Buyer] has never received any related authorization document issued by the [Seller] to Mr. Liu ***. Therefore, the [Buyer] has always required Mr. Liu *** to contact the *** Company each time Mr. Liu *** communicated to the [Buyer] ... The [Seller] has made no communication with the [Buyer] and made no requirement to issue the L/C..."

"If the full responsibility of failure to perform a contract rested on not issuing the L/C, then how could the [Buyer] issue L/C when the [Seller] had given no notification to the [Buyer] of information on issuance time, issued-to place, to bank or the beneficiary he should issue? Obviously, there is no answer. Thus, the [Seller] maintains that no L/C issued is only a facial result and the reason of failure to issue L/C should be the essence. Here, the essence is that the [Seller] failed to notify the [Buyer] of the issuing time; therefore, the [Seller] should bear the responsibility."

"Another reason for the [Buyer] not to issue the L/C is that *** Company, represented by the [Buyer], claimed that performance has been made via other organizations, and claimed that it would bear all representative termination cost."

     4. Only after confirmation of the vessel schedule or receipt of the B/L, can the [Buyer] issue the L/C.

"The contracts do not clearly specify the time to issue the L/C... The 'General Trading Terms for Purchase of Wool and Wool Bar' provide that the time for issuance of the L/C is prior to loading on board. In as much as the [Seller] gave no notification to the [Buyer] of the readiness of the goods and the loading time, the [Buyer] of course cannot issue the L/C..." The [Buyer] also quotes the text of Paragraph (1), Article 58 of the United Nations Convention on Contracts for the International Sale of Goods (CISG) and claims that "the right to disposition referenced by the CISG is generally about the Bill of Lading (B/L) for the goods. Under the CISG, if the contract does not specify the L/C issuance time by the buyer, then the [Buyer] should pay the price only after the [Seller] has submitted the B/L for the goods to the [Buyer]; and only after this time and if the [Buyer] fails to pay the price, does the [Buyer] breach the contract. In as much as the [Seller] has not submitted the B/L to the [Buyer], the [Buyer] will of course not issue the L/C; ...because the [Seller] unilaterally terminated the contracts, [Seller] should bear all breaching responsibilities."

After referring to Article 17 of Foreign Related Economic Contract Law of China and Article 63 of CISG, the [Buyer] alleges that "no evidence has been shown in the court investigation to establish that ... the [Seller] had notified the [Buyer] of the performance deadline of the contracts. The [Seller], without confirmed evidence that the [Buyer] would not perform the contracts, terminated the performance of the contracts and resold the goods ... and the [Seller] did not notify of contract avoidance until 26 March 1998 ... Those facts demonstrate that the [Seller] has formed the purpose to terminate the contracts very early, and his behavior of reselling the goods breaches provisions of Article 17 of the Foreign Related Economic Contract Law of China and CISG Article 63. Thus, the [Seller] should bear the responsibility for breach of contract, and the loss should be undertaken by the breaching party, i.e., the [Seller].

[D.] [SELLER]'S RESPONSE

With regard to the defense by the [Buyer], the [Seller] offers the following refutation:

     1. The [Buyer]'s issuance of the L/C is a precondition for [Seller]'s performance.

Citing Articles 30 and 53 of CISG, statements in The Law & Practice of International Banking written by G. A. Penn, A.M. Shea and A. Arora, and the judgment of Trans Trust S. P. R. L v. Danubian Trading Co. Ltd. by the famous British judge Lord Denning, the [Seller] maintains that it is an established conclusion among international business institutions that, for payment by L/C, the seller's obligation to deliver goods is based on the buyer's issuing the L/C in accordance with the contract ... Because the contracts provide for the shipment date as June, 1997, the [Buyer], therefore, should issue the L/C prior to June of that year. Or else, the behavior of the [Buyer] should be regarded as a fundamental breach, and the seller can avoid the contracts correspondingly.

The [Seller] states as well: "In order to ship the goods under the contracts as scheduled in June, 1997, the [Seller] bought in all the wool needed to perform the contracts from 15 May 1997 to 14 June 1997."

     2. Lack of knowledge of details on the issuance of the L/C should in no way be regarded as an excuse for failure to issue the L/C

The [Buyer] has argued that it did not know to which place to issue L/C ... But [Buyer] could write to the [Seller] for communication. The contracts clearly show the address, fax and telephone numbers of the [Seller]. In such a society with advanced information, sending a fax for enquiry should not be difficult, should it? Is it really an immovable obstacle?

     3. The contracts do not require the [Seller] to offer samples

As to samples, Article 12 of the contracts sets out to follow the "General Trading Terms for Purchase of Wool and Wool Bar" set by China Textile Original Material Import and Export Company, in which, Paragraph 1 of Article 2 provides that no sample may be needed for staple goods of raw wool unless otherwise required by the buyer. The contracts have no specific stipulations on samples.

The disputed goods under the four contracts are all staple goods, and the contracts have made clear and specific stipulations on the specification of goods; thus, no sample needs to be offered by the [Seller]. Furthermore, the [Buyer] has never made such a requirement.

     4. The relationship between the [Buyer] and *** Company has nothing to do with this case

*** Company first entrusted the [Buyer] to form a sales contract and then contacted other companies. But those events are problems to be settled by them under their agency contract. The [Buyer] may, or may not, look into the breaching responsibility of *** Company under its agency contract. Nevertheless, changes in the situation under the [Buyer]'s agency contract should never be an excuse for failure to perform the sales contracts.

     5. The [Seller] need not grant to the [Buyer] a grace period for performance

From the end of the loading period provided under the contracts to the date of reselling the first batch of goods under the contracts by the [Seller] on 22 September 1997, the time gap is up to three months; from the end above to the date of reselling the second batch, the gap is seven months. If the [Buyer] had a sufficient bona fide to honor the contacts, he could have found sufficient time to issue the L/C.

Since the [Buyer] failed to issue the L/C, the goods related to this case were still controlled by the [Seller], the risk of damage to the goods also rested on the [Seller], and the ownership of the goods belonged to the [Seller] as well. Therefore, the [Seller] had the full right to dispose the goods, without the duty to take care of goods for the [Buyer].

     6. Mitigation of losses

As the goods under the contracts saw their prices drop continuously, the resale by the [Seller] mitigated losses.

[E.] OPINION OF THE ARBITRAL TRIBUNAL

(I) Applicable law

The parties to the contracts in this case did not stipulate the law applicable to settle their disputes. In view of the States of both parties' places of business being Contracting States to the CISG, the Arbitral Tribunal holds that the CISG should be applied to resolve the contractual dispute in this case. If there is no provision in the CISG, the laws and regulations of China should be applied; and if there is no provision in either the CISG or China's laws, international practices should be applied.

(II) All four contracts in this case have payment provisions as follows: L/C 180 days from B/L. As to other terms and conditions for the contracts in this case, Article 10 of "General Trading Terms for Purchase of Wool and Wool Bar" (hereafter as "the General Trading Terms") set by China Textile Original Material Import and Export Company provides: "Payment: prior to loading on vessel, irrevocable L/C with the seller as beneficiary issued by buyer via the headquarters or a branch of the Bank of China." The [Buyer] has failed to issue the L/C as required under the contracts.

The [Buyer] has presented four reasons for its failure to issue the L/C. After careful review, the Arbitral Tribunal finds all four reasons ungrounded.

     1. On the issue of the [Seller] not offering samples of the goods

In the trial of this case, the Arbitral Tribunal finds that the [Buyer] is in error in quoting Paragraph 1, Article 2 of the General Trading Terms. Paragraph 1, Article 2 of the General Trading Terms reads as: "Raw wool: ... no sample may be needed for staple goods unless otherwise required by the buyer."

The [Buyer] quotes Paragraph 1, Article 2 of the General Trading Terms as "except that the buyer requires no sample of raw wool", claiming that no sample is needed only if the buyer ask the seller not to offer a sample. On the other hand, the [Seller], when citing the same provision, maintains that the text means, "No sample may be needed for staple goods of raw wool unless otherwise required by the buyer."

The Arbitral Tribunal holds that the [Seller] has correctly interpreted the text of the General Trading Terms. In the hearing, the Arbitral Tribunal has specifically examined whether the [Buyer] had required the [Seller] to offer samples or not. As a result, the [Buyer] presented no evidence to prove that [Buyer] had done so. The Arbitral Tribunal thus decides: the claim by the [Buyer] that [Buyer]'s failure to issue L/C is due to the [Seller]'s failure to offer samples cannot be supported.

     2. On the issue of notification by the [Seller] of the readiness of the goods

The [Buyer] has repeatedly alleged that the [Seller] made no notification to the [Buyer] of the readiness of the goods.

Based on the material presented by both parties, the Arbitral Tribunal confirms: the [Seller] has in fact not given to the [Buyer] any information on the readiness of the goods. However, did the [Seller]'s failure to do so amount to a breach of contract and form a basis for the [Buyer] not to issue the L/C?

Under CISG Article 30, the obligation of the [Seller] includes: "deliver the goods, hand over any documents relating to them and transfer the property in the goods." Obviously, the [Seller], in order to perform these obligations, must prepare the goods; nevertheless, the CISG does not specify the obligation of the seller to inform the buyer of that information. Neither does the Foreign Related Economic Contract Law of China specify the obligation of the seller to inform the buyer of that. Neither the contracts nor the General Trading Terms specify the obligation of the [Seller] to provide the [Buyer] with that information.

Thus, the Arbitral Tribunal concludes that the failure of [Seller] to provide the [Buyer] with information on the readiness of the goods does not amount to a breach of contract and the claim of the [Buyer] cannot be supported.

     3. On the question of so-called detailed information for issuance of the L/C

The Arbitral Tribunal notes that Article 10 of the General Trading Terms clearly specifies that the L/C should "make the seller the beneficiary" and that all of the four contracts in this case clearly list a considerable amount of information on the [Seller], including its name and address. Therefore, the [Buyer] ought to have fully known the issued-to State of the L/C, i.e., New Zealand, and the payee or the beneficiary of the L/C, i.e., the [Seller].

The Arbitral Tribunal notes that Article 10 of the General Trading Terms clearly specifies that the L/C should be issued by the buyer prior to shipment; and that all four of the contracts in this case clearly specify the period of shipment as June (Time of Shipment: June). Thus, the time for issuing the L/C is clear. The [Buyer] should issue the L/C to the [Seller] prior to the shipment date as provided in the contracts, i.e., prior to 1 June 1997. The [Buyer]'s failure to issue the L/C prior to this date amounts to breach of contract.

The [Buyer]'s argument of no knowledge of the issued-to bank cannot become a proper reason for [Buyer]'s failure to issue the L/C. Here, the [Buyer] is confused between an issuing bank and an advising bank. In fact, generally, it is the issuing bank itself that selects its own branches or its correspondent bank in the seller's State as advising bank and/or negotiating bank. Although advising banks may be specified by the seller, it is not necessary. As concerns this case, because the contracts do not provide that the [Seller] should specify an advising bank, the issuing bank will on its own select a proper advising bank when the [Buyer] provides instructions for the issuance of the L/C. Thus, this claim of the [Buyer] cannot be supported.

The [Buyer] argues that, because the [Seller] failed to offer the B/L, [Buyer] therefore could not issue the L/C. This argument is fundamentally contrary to the basic principle of documentary L/C mechanism and is incorrect.

     4. Whether the [Buyer]'s failure to issue the L/C in accordance with the contract amounts a fundamental breach of contract

Based on the investigation and analysis described above, it is clear that the excuses presented by the [Buyer] for its failure to issue the L/C - including the [Seller]'s failure to offer samples, to inform as to the readiness of the goods, and to provide details on the issuance of the L/C - are not supported.

The Arbitral Tribunal notes the following submissions in the [Buyer]'s defense:

"Another reason for the [Buyer] not to issue L/C is that *** company, represented by the [Buyer], claimed that performance has been made via other organizations, and claimed that it would bear all representative termination cost."

The Arbitral Tribunal has also carefully reviewed a letter presented as evidence by the [Buyer]. This is a letter sent by the General Manager of the *** Wool Trade Ltd. Co. to the Economic and Trade Commission of Tianjin on 13 December 1997.

Generally speaking, this matter runs between the [Buyer] and his principal and is not related to this case. However, the statement in the [Buyer]'s defense discloses an important message: The reason for the [Buyer]'s refusal to issue the L/C is that his principal has terminated [Buyer]'s agency appointment contract. This is the true reason, and is the sole reason. The *** Company's termination of the agency appointment contract with the [Buyer] is out of this court's trial scope; and this Arbitral Tribunal will neither make any trial of it nor comment on it. The contract in this case is formed by the [Buyer], in its own name, with the [Seller]. Under Article 15 in the Temporary Provisions on Foreign Trade Agent System set out by the then China Foreign Economic Trade Ministry (now China Foreign Trade and Economic Cooperation Ministry) in 29 August 1991, the buyer should "assume contractual obligations and enjoy contractual rights as to foreign businesses". The [Buyer] having failed to issue the L/C in accordance with the contracts, this amounts to non-performance of contractual obligations and is thus a fundamental breach of contract. The [Buyer] should bear all responsibilities.

(III) On the position and role of Mr. Liu *** as an introducer of contracts in the trade concerned

It is very important to understand the position and role of Mr. Liu *** following the formation of the contracts.

The [Buyer] states in its defense: "After the contracts were entered into, the parties have become the buyer and seller of the contracts signed, respectively. And the role of Mr. Liu *** as an introducer of contracts has thus terminated." The [Seller]'s response was: "Mr. Liu *** was the introducer of contracts in this deal. According to customary practice in the wool trade, there is often an introducer of contracts involved. The role of such an introducer of contract is to help both parties finish their commerce business."

The Arbitral Tribunal concludes that, whether under China laws, CISG or related international practice, there is no mandatory provision on whether an introducer of a contract should exist or not. Therefore, after the formation of the contracts in this case, the position and role of Mr. Liu *** would be determined by the will of the [Seller] and the [Buyer].

The [Buyer] did not want to see Mr. Liu ***, an introducer of contract, involved. And [Buyer] hoped both parties would contact one another directly. This is understandable and justifiable. Nevertheless, when the [Buyer] blames the [Seller] for not contacting [Buyer] directly, [Buyer] does not explain to the Arbitral Tribunal as well why [Buyer] itself has not contacted the [Seller] directly. The [Buyer] claims that [Buyer] "has never accepted the behavior of Mr. Liu ***, because the [Buyer] has never received any related authorization document issued by the [Seller] to Mr. Liu ***". Then, logically, the [Buyer] should ask Mr. Liu *** to present an authorization document issued by the [Seller], or notify the [Seller] to contact him directly rather than via Mr. Liu ***. But the [Buyer] states in its defense: "Therefore, the [Buyer] has always required Mr. Liu *** to contact the *** Company each time Liu *** communicated to the [Buyer]..." This means that the [Buyer] virtually does not deny the fact that Mr. Liu *** really carried with him some message from the [Seller]. The [Buyer] just does not want to receive the message carried by Mr. Liu ***; rather, [Buyer] asks Mr. Liu *** to forward the message to the [Buyer]'s principal, i.e., the *** Company, so that the [Seller] contacts the *** Company via the introduction of Mr. Liu ***. Obviously, such behavior of the [Buyer] is not consistent with the Temporary Provisions on Foreign Trade Agent System set out by the China Foreign Trade and Economic Cooperation Ministry.

The Arbitral Tribunal further notes that, via the introduction of Mr. Liu ***, the [Seller] and the *** Company (but the [Seller] misunderstands the latter as the [Buyer]) have exchanged information on, and even reached some agreements about, such aspects as change of destination port, modification of shipment date and deferral of L/C issuing deadline. Now that the [Buyer] demonstrates that all those activities should not be representative of its intent, then, in accordance with the Temporary Provisions on Foreign Trade Agent System, the information exchanges and/or agreements made via Mr. Liu *** as an introducer of contracts should be regarded as void. As a result, the shipment date of goods under the contracts has no change, and the deadline for the [Buyer] to issue L/C is still prior to 1 June 1997. The denial by the [Buyer] of the position and role of Mr. Liu *** as an intermediary/broker cannot change the [Buyer]'s liability for fundamental breach of contact arising from [Buyer]'s failure to issue the L/C in accordance with the contracts.

(IV) On the avoidance of the contracts in this case

Because the [Buyer]'s failure to issue the L/C in accordance with the contracts amounts to a fundamental breach of contract, the [Seller] is fully entitled to declare the avoidance of the contracts under CISG Article 64. The Arbitral Tribunal holds that, in accordance with CISG Article 26, the [Seller] declared avoidance of the contracts on 26 March 1998. Therefore, the Arbitral Tribunal confirms that the contracts in this case terminated on 26 March 1998 because of the declaration of avoidance by the [Seller].

(V) On resale of the goods by the [Seller]

The Arbitral Tribunal notes that the [Seller] alleges that the goods in this case were resold separately on 21 September 1997 and 5 January 1998. For this, the [Buyer] has the following arguments in his defense:

  1. The [Seller] did not prepare the goods; and the goods resold were not those under the contracts in this case;

  2. The [Seller] resold the goods prior to declaration of avoidance of the contracts. This action is not in accordance with provisions in the CISG.

With respect to the [Buyer]'s claim that the [Seller] did not prepare the goods, the [Seller] presents to the Arbitral Tribunal its corresponding purchase records and resale records in order to prove that "the goods resold by the [Seller] were those under original contracts".

And, after discussion of some provisions in the CISG, the [Seller] states:

"Since the [Buyer] failed to issue the L/C, the goods related to this case were still controlled by the [Seller], the risk of damage to the goods also rested on the [Seller], and the ownership of the goods belonged to the [Seller] as well. Therefore, the [Seller] has full right to dispose the goods, without the duty to take care of the goods for the [Buyer]."

The [Buyer] still holds its own opinions and states that "the documents about the goods presented by the [Seller] to the Arbitral Tribunal all come from the [Seller]'s company itself, without any official proof."

The Arbitral Tribunal concludes that, with regard to preparing the goods, as stated above, in order to perform the shipment and delivery obligation under the contracts, the [Seller] should prepare goods; but when and how to prepare the goods are wholly the [Seller]'s own business; [Seller] needs neither to report to the [Buyer] nor to acquire any "official proof". The contracts in this case were formed on 15 May 1997, which set the shipment date as June 1997, with a rather tight timeline. On the part of the [Seller], it purchased goods on 15 May (the signing date of the contracts), 26, 30 May and 14 June 1997. Those actions were reasonable, representing [Seller]'s good faith in the performance of contracts. On the part of the [Buyer], as analyzed above, [Buyer] should have issued the L/C prior to 1 June 1997 at the latest. It has been discussed above that the [Buyer] had no unconquerable difficulty to do so. Nevertheless, the [Buyer] had shown no action, message or intention to do so until the last day of shipment set by the contracts, i.e., 30 June 1997, and even until after nearly three months when goods were resold. With wool price going down day by day, the [Seller] began to resell goods to lessen the loss, a justifiable action.

After reviewing the documents presented by the [Seller], the Arbitral Tribunal finds that the goods resold by the [Seller] are identical with those goods purchased by [Seller] in May and June 1997.

The Arbitral Tribunal must also mention that, under those circumstances, the [Seller] should have known that the [Buyer] had no intent to perform the contracts. Thus, the [Seller] has some mistakes in reselling prior to declaration of termination of the contracts. However, because the [Buyer] breached the contracts in advance, [Buyer] loses the right to blame the [Seller] for reselling.

(VI) On the [Seller]'s arbitral claims

The Arbitral Tribunal holds that the [Buyer]'s failure to issue the L/C in time as set in the contracts amounts to a fundamental breach of the contracts and that [Buyer] should bear all the responsibilities for the results incurred by this behavior. Under CISG Article 74, the [Buyer] should make full compensation for the damage suffered by the [Seller] hereby.

     1. The Arbitral Tribunal holds that the damage suffered by the [Seller] can be calculated based on either CISG Article 75 or Article 76. From the price information presented by the [Seller] specific to the goods under the contracts in this case, it can be found that the price level was further lower in March 1998, when the [Seller] declared avoidance of the contracts, than in August 1997 and January 1998, when the [Seller] resold the goods. Hence, the [Seller] did actually mitigate the loss when it calculates damage and claims compensation based on reselling prices. Therefore, the Arbitral Tribunal concludes that it is reasonable and should be supported that the [Seller] regards the reselling price as the basis of the damage calculation.

The Arbitral Tribunal supports the first claim by the [Seller]. The [Buyer] should pay the [Seller] US $119,739.94 for the price loss on the goods suffered by the [Seller] arising from the [Buyer]'s breach of contract.

     2. As to the second claim by the [Seller], the Arbitral Tribunal concludes that the [Seller]'s claim for damage of interest on the contract price is justifiable and should be supported. The Arbitral Tribunal determines: The [Buyer] should pay the [Seller] US $20,966.99 for loss in interest on the contract price.

However, as to the loss in interest on the resale price difference claimed by the [Seller], the Arbitral Tribunal concludes that, as stated above, the [Seller] has some mistakes in its declaration of avoidance of the contracts. Further, the price difference should be calculated on the basis of ruling that the [Buyer] shall pay the compensation, which means the credit thereof be formed when this award is rendered. Thus, the Arbitral Tribunal does not support the claim by the [Seller] for the loss in interest on the price difference.

     3. The Arbitral Tribunal supports the claim by the [Seller] for the loss in storage charges and other expenses, determining that the [Buyer] should pay the [Seller] US $14,240.81 for losses in storage charges and other expenses suffered by the [Seller].

(VII) On the arbitration fee of this case and the attorneys' fee of the [Seller]

The arbitration fee of this case is undertaken by the [Seller] and the [Buyer] with shares of 20% and 80%, respectively.

The [Seller] presented a bill of attorneys' fee for this case. Based on Article 55 of the Arbitration Rule, the Arbitral Tribunal determines that the [Buyer] should pay the [Seller] US $15,000 to partially compensate the attorneys' fee incurred by the [Seller].

[F.] THE AWARD

The Arbitral Tribunal unanimously decides:

  1. The [Buyer] should pay the [Seller] US $119,739.94 to compensate for the price difference losses suffered by the [Seller].

  2. The [Buyer] should pay the [Seller] US $20,966.99 to compensate for the interest losses suffered by the [Seller].

  3. The [Buyer] should pay the [Seller] US $14,240.81 to compensate for the losses in storage fee and other expense suffered by the [Seller].

  4. The [Buyer] should pay the [Seller] US $15,000 to partially compensate for the lawyers' fee for this case suffered by the [Seller].

  5. The other arbitration claims by the [Seller] are rejected.

  6. 20% of arbitration fee for this case is undertaken by the [Seller], and 80% by the [Buyer].

  7. In total, the [Buyer] should pay the [Seller] US $175,840.54. The [Buyer] should finish the payment within forty-five days following this decision; interest at the yearly rate of 8% should be added for delay in payment.

This decision is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of New Zealand 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 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.

*** 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. Raymon Tan is an Associate with this law firm.

Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated October 27, 2008
Comments/Contributions
Go to Database Directory || Go to CISG Table of Contents || Go to Case Search Form || Go to Bibliography