CISG CASE PRESENTATION

China 12 April 1999 CIETAC Arbitration proceeding (Bud rice dregs case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990412c1.html]

Case Table of Contents

• Case identification
• UNCITRAL abstract
• Classification of issues present
• Editorial remarks
• Citations to case abstracts, texts, and commentaries
• Case text (English translation)

• Guide to links contained in case presentations

Case identification

DATE OF DECISION: 19990412 (12 April 1999)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1999/22

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: Switzerland (claimant)

GOODS INVOLVED: Bud rice dregs

PRC: China International Economic & Trade Arbitration Commission,
Bud rice dregs case of 12 April 1999

Case law on UNCITRAL texts (CLOUT) abstract no. 684

Reproduced with permission of UNCITRAL

A Swiss Company contracted to buy from a Chinese Company bud rice dregs. The contract provided for payment by sight L/C fifteen days prior to the shipment date and FOBT Dalian (China). On each unit of the goods there was a commission fee. After inspection of the goods, the buyer opened the L/C, for which he had to pay an administration fee. The buyer then noticed that the seller had secretly exchanged the inspected quality goods for defaulted ones. The buyer notified the seller, who unloaded the goods. However, it did not provide the buyer with other goods. Subsequently, the buyer entered into new contract for bud rice dregs FOBT Dalian on a higher price. For this contract, it had to pay an identical commission fee.

The buyer sought compensation for damages before the arbitral tribunal for (1) price difference of the goods; (2) the administration fee for the L/C; (3) the commission price per unit price under the new contract; (4) the attorney's and arbitration fee; (5) the loss of interest on the aforesaid sums (8 per cent). Further, the buyer alleged that it encountered losses, because its ship had to stay at the Dalian Harbour to obtain the replacement goods, which caused stagnation at the dock.

The parties did not stipulate the applicable law in the contract. The arbitral tribunal applied the CISG, since it was an international contract and both parties' places of business were in Contracting States of the CISG [Art. 1(1)(a) CISG]. Referring to Art. 25, 30 and 35(1) CISG, the arbitral tribunal held that the seller had fundamentally breached the contract by failing to provide the goods after unloading the exchanged ones. The seller, thus, deprived the buyer of its expected economic benefits from the contract. Therefore, the tribunal granted the buyer's claim for loss of price difference and loss of the L/C issuing fee pursuant to Art. 45, 74 [to 77] CISG and interests thereon (7 per cent) (Art. 78 CISG). Further, the tribunal ordered the seller to pay for the buyer's attorneys' and arbitration fee but without interests. The tribunal denied the buyer's claim for losses due to the stagnation at the dock, since the buyer had not provided any relevant evidence. In addition, the tribunal denied the buyer's claim for the commission price, since this would have had to be paid in both contracts.

Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 74 ; 75 ; 77 ; 78 [Also cited: Articles 30 ; 35 ; 45 ; 76 ]

Classification of issues using UNCITRAL classification code numbers:

25A1 ; 25B [Definition of fundamental breach: substantial deprivation of expectation, etc.; Effect of a fundamental breach: avoidance of contract

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

75A2 [Avoidance (damages established by substitute transaction): repurchase by aggrieved buyer];

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

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

Descriptors: Fundamental breach ; Damages ; Cover Transactions ; Interest

Editorial remarks

• Unavailable

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., p. 1829-1833

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.146, 158, 188, Nordic Journal of Commercial Law (2/2005)

Case text (English translation) Queen Mary Case Translation Programme

China's International Trade and Economic Arbitration Commission (hereafter, "the Arbitration Commission") accepts the present case according to the arbitration clause set forth in the sale contract signed by Claimant Swiss XX Company [Buyer] and Respondent Dalian XX Company Limited [Seller] of the People's Republic of China on 25 May 1998 and the arbitration application submitted by the [Buyer].

Since the claimed amount of this dispute does not exceed renminbi [RMB] 500,000, according to Article 64 of the Arbitration Rules of the Arbitration Commission, this case is qualified to use the summary procedure prescribed. On 23 October 1998, the Secretariat Office of the Arbitration Commission to the [Seller] by express courier a (98) Mao Zhong Zi No. ___ Arbitration notice, [Buyer]'s arbitration application and the attached evidence, the Arbitration Rules of the Arbitration Commission, and the list of arbitrators.

Because the parties did not jointly appoint or ask the Chairman of the Arbitration Commission to appoint the sole arbitrator, in accordance with Article 65 of the Arbitration Rules, on 25 November 1998, the Chairman of the Arbitration Commission assigned Mr. P as the sole arbitrator of the case, set the Arbitral Tribunal to arbitrate the case. On that same day, the Secretariat Office of the Arbitration Commission sent a (98) Mao Zhong Zi No. ___ Arbitral Tribunal Formation Notice to the [Seller] by registered mail.

In December 1998, the above arbitration notice and the supplementary materials were returned to the Arbitration Commission by the express courier, with the notation "unit does not exist". Later, the Arbitral Tribunal Formation Notice was returned with the notation "no response". In accordance with the Arbitration Rules, on 24 February 1999, the Secretariat Office of the Arbitration Commission informed the [Buyer] of the incidence on mailing the documents to the [Seller] during the arbitration process of the case.

On 2 March 1999, the arbitration representative of the [Buyer] sent a letter to the Arbitration Commission, stating that "from the mail sent from [Seller] to the Dalian Harbor inquiry control room, it can be seen that the address of [Seller] as of 1 July 1998 was still at Dalian city XX District XX Road XX Suburb, Block 5 ... and that on 18 August 1998, on behalf of the [Buyer], we had sent and faxed a legal letter to [Seller] at the above address. It can be said that the address of [Seller] was the [Seller]'s address listed on the arbitration application form up until 18 August 1998.

[Buyer]'s representative alleged that:

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The conduct of [Seller] in this case was obviously in an attempt to change its place of business in order to avoid the arbitration case raised by [Buyer] and that for this kind of malicious behavior, it is stated clearly in Article 77 of the CIETAC Arbitration Rules that: "[A]ny written correspondence to the parties and/ or their arbitration agents shall be taken to have been properly served if it is delivered to the addressee or delivered at his place of business, habitual residence or mailing address, or if, after reasonable inquiries, none of the aforesaid addresses can be found, the written correspondence is sent to the addressee's last other means which provides a record of the attempt to deliver it."

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In accordance with the above rule, the 'court set-up notice', 'arbitration application form', 'arbitration rules' and 'panel of arbitrators' were all sent to the last known mailing address of [Seller]. The appointment of Mr P by the Arbitration Commission as the sole arbitrator of this case is valid. This arbitrator has the right to arbitrate this case.

According to Article 77 of the CIETAC Arbitration Rules, the arbitration notice, court set-up notice and all the related document have been posted to the last known address of the [Seller], in accordance to the method as set in the arbitration rules and therefore have been sent to the [Seller].

The Arbitral Tribunal decided to hold a court session on 26 March 1999 at Beijing. In accordance with the Arbitration Rules, a notice to hold the court session was sent to the [Seller] by express courier on 3 March 1999.

The court session was held in Beijing on 26 March 1999 as scheduled. The [Buyer] sent its arbitration representative to the Tribunal. [Buyer]'s arbitration representative orally presented its case in brief and answered the questions asked by the Tribunal. [Seller] did not send a representative to the court session, nor did it submit any reason for its absence.

The case has been closed. The Tribunal, in accordance with the facts and the law, decided the case within the mandated period of time.

[Seller] has not sent any written material during the arbitration process.

The facts of the case, the opinions of the Arbitral Tribunal and the award are as follows:

1. FACTS OF THE CASE

- [Buyer]'s position

[Buyer] alleged:

-	On 25 May 1998, the [Buyer] and the [Seller] signed a sales contract (no. 98002).
-	The contract required [Seller] to provide 2,200 metric ton of bud rice dregs to the [Buyer] by end of June 1998, FOBT Dalian US $57/ metric ton, payment by sight letter of credit.
-	The [Buyer] had the letter of credit issued through Swiss Bank Corporation Geneva, with the [Seller] as the beneficiary. The [Buyer] paid an administration fee of US $550 for the letter of credit.
-	Nevertheless, while performing the obligations of the Contract, the [Seller] switched the qualified goods (inspected by the commercial goods inspection agency) to mouldy and deteriorated goods, attempting to cheat the carrier, yet discovered by the [Buyer]. After an on-site investigation, the Dalian Commercial Goods Inspection Department issued a charge disallowing the loading of the goods. The [Seller] had to unload the goods, yet did not provide other appropriate goods.
-	To mitigate the loss, the [Buyer] signed another trade agreement with Heilongjiang agriculture foreign trade company, purchasing 2,200 metric ton bud rice dregs at FOBT Dalian US $69/ metric ton plus US $1 commission charge per metric ton. This contract was completed and was paid by electronic transfer.
-	[Buyer] suffered a loss both on price difference and on commission charge amount to US $26,400 and US $2,200 respectively. In addition, in order to obtain goods in replacement, the [Buyer] had its ship stay at Dalian Harbor and that caused stagnation at the dock. The [Buyer] may have to bear the damage of the stagnation.
-	After the damages incurred, the [Buyer] communicated to the [Seller] several times demanding that [Seller] bear the cost of the damages, yet [Buyer] never received a firm response from the [Seller].

The [Buyer] therefore raises the issue before the Arbitration Commission in accordance with the arbitration clause provided in the contract.

The [Buyer]'s arbitration claims are:

-

[Buyer] seeks to have the Tribunal to hold that the [Seller] should bear the loss of US $26,400 caused by the price difference as a result of [Seller]'s breach of contract; the administration fee of US $550 for the letter of credit; damages caused by the stagnation of the ships; interest of 8% p.a. charged on the above fees calculating from the date of incurrence to the day when payment has finalized; the attorneys' fee paid by the [Buyer] for the case; and the arbitration fee for the case.

-

Later, on 15 March 1999, the [Buyer] submitted an "additional arbitration claim application form", requesting the Arbitral Tribunal to hold the [Seller] liable for an extra payment of US $2,200 for the commission on the replacement contract signed as a result of the breach of the Contract and to bear the attorneys' fee amounting to US $3,366.76 paid by the [Buyer] for the case.

The [Buyer] also alleged that since both China and Switzerland are Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereafter, CISG), this Convention should be the applicable law for resolving this dispute.

-	In reference to Articles 74 and 75 of CISG, damages for breach of contract by the [Seller] consist of a sum equal to the loss suffered by the [Buyer] as a consequence of the breach. If the contract is avoided, the [Buyer] may recover the difference between the contract price and the price of the goods in replacement.
-	Furthermore, according to Article 78 of the CISG, is the [Seller] fails to pay the price or any other sum that is in arrears, the [Buyer] is entitled to interest on it. Therefore, the arbitration claims by the [Buyer] should be approved.
-	In addition, the attorneys' fee and the arbitration fee paid by the [Buyer] for this case and the [Seller]'s breach show correlation. Hence, the [Seller] should bear both fees.

2. OPINION OF THE ARBITRAL TRIBUNAL

(1) Applicable law

The sale and purchase contract of 2,200 metric ton bud rice dregs was signed by means of facsimile by the [Buyer] and [Seller] on 25 May 1998. No applicable law for dispute resolution was stated in the contract. Since this is a contract for the international sale of goods, the place of business of the [Buyer] (Switzerland) and of the [Seller] (China) are in Contracting States of the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereafter, CISG), and the parties had not avoided the application of the Convention, the Tribunal ruled that the CISG is the applicable law to resolve the dispute between the parties.

(2) The manner in which the contract was performed

The Tribunal ruled as follows on the facts:

1. Contract No. 98002, signed by the [Buyer] and the [Seller] provided for the sale of 2,200 metric ton of bud rice dregs to the [Buyer], at a price of FOBT US $57 per metric ton, in addition to US $1 per metric ton as commission for Sun XX. The goods were to be loaded at Dalian Harbor by the end of June 1998. The [Buyer] was to provide to the [Seller] an irrevocable sight letter of credit, to be debited within twenty-one days after loading onto the ship.

2. On 29 May 1998, the [Buyer] had a letter of credit issued with the [Seller] as the beneficiary. According to the letter of credit and the contract, the goods were to be loaded for delivery not later than 30 June 1998, with the relevant documents submitted no later than 15 July 1998, and the price of goods paid by 21 July 1998. In order to issue the letter of credit, the [Buyer] paid US $550 administration fee to the issuing bank on 16 July 1998.

3. Before the end of the loading period for the goods, the [Buyer] sent its staff to the quay, where the ship "Le Dicey" was moored, awaiting the loading of the goods onto the vessel. Before the goods were loaded, the [Buyer] discovered that there were quality problems associated with the goods. The [Buyer] submitted to the Arbitral Tribunal a document signed by Mr. Zhou, the intermediate of the Dalian Import-Export Commercial Goods Inspection Department, stating that the 2,200 metric tons of goods supplied by the [Seller] had been exchanged (by the owner of the goods) for mouldy and deteriorated goods while loading, and that this was discovered by the [Buyer]. After investigating the facts at the quay, the Commercial Goods Inspection Department verified that this was true and that therefore the goods could not be loaded to export.

4. On 7 July 1998, the representative of the [Seller], Sun XX, signed a "cease loading notice" to Dalian Export Centre. The "notice" stated that, "Due to the incompleteness of the goods, the invoice of the carrier ship, namely Le Dicey line: B/L No:1, assigned by our company at this centre, has been void. In any event, our company will be liable for the consequences." The [Seller] did not deliver the contract goods to the [Buyer] afterwards.

5. Due to the fact that the [Seller] had not delivered the goods in a timely manner, the [Buyer] signed an agreement to purchase 2,200 metric ton bud rice dregs (replacement goods) from Heilongjiang agriculture foreign trade company (hereafter, agriculture company). The unit price of the replacement goods was US $69 per metric ton, in addition to a commission of US $1 per metric ton paid to Shi XX, the representative of the agriculture company, by the [Buyer]. This contract was completed and, on 13 July 1998, the [Buyer] paid the price of the goods to the agriculture company, as well as the agreed commission to Shi XX.

6. The [Buyer] had paid the agency fee and actual expenses, amounting to US $3,366.76, to its arbitration agent for this present case.

7. The [Buyer] had paid the arbitration fee of US $3,614, in advance, to the Arbitration Commission for this present case.

(3) Analysis of liability

      1. According to CISG,

The [Seller]'s failure to provide the contract goods after the [Buyer] discovered that the goods were being exchanged at the loading dock for non-conforming goods, deprived the [Buyer]'s of its expected economic benefits from the contract. [Seller] thereby committed a fundamental breach of contract.

      2. As the [Seller] did not deliver the goods, the [Buyer], in accordance with Articles 45, 74, 75 and 76 of CISG, had the right to resort to a remedy to purchase goods in replacement in a reasonable manner, and then claim from the [Seller] damages related thereto as a consequence of [Seller]'s fundamental breach of contract.

      3. According to the facts as stated in paragraph 2 above, due to the breach of contract by the [Seller], the [Buyer] suffered the following economic losses:

          (1) The [Buyer] incurred as a loss the price difference in the purchase of replacement goods, i.e., the difference between the unit price of US $69 as set in the sale agreement between the [Buyer] and the agriculture company and the US $57 price specified in the contract between the [Buyer] and the [Seller]: US $69 per metric ton - US $57 per metric ton) x 2200 metric ton = US $26,400.

However, since both contracts require a commission of US $1 for every metric ton, the commission paid by the [Buyer] to Shi XX of the agriculture company should be seen as an autonomous expense to perform the contract, and should not be regarded as additional damages as a result of the [Seller]'s breach of contract.

          (2) The administration fee of US $550 to issue the letter of credit, paid by the [Buyer] to perform the contract, was a direct loss of the [Buyer] as a result of the breach of contract by the [Seller].

          (3) The attorneys' fee and the arbitration fee paid by the [Buyer] were also an economic loss of the [Buyer] due to the [Seller]'s breach.

          (4) The [Seller] sought compensation for loss due to the stagnation at the dock. However, since no relevant supporting evidence was submitted, the Tribunal cannot determine this loss.

      4. Therefore, the [Seller] should be liable, to the [Buyer], of the following damages:

          (1) The above-mentioned US $26,400 price difference and, according to Article 78 of CISG, interest of 7% p.a. should apply to that US $26,400 from 14 July 1998 to the actual payment day;

          (2) The US $550 administration fee for the letter of credit and interest of 7% p.a. on that US $550 from 17 July 1998 to the actual payment day according to Article 78 of CISG;

          (3) US $3,614 arbitration fee, no interest to be charged; and

          (4) US $2,700 attorneys' fee, which did not exceed 10% of the [Buyer]'s claimed amount, no interest to be charged on this.

3. AWARD

The Tribunal held:

1. The [Seller] should be liable to the US $26,400 price difference and interest of 7% p.a. should apply to that US $26,400 from 14 July 14 1998 to the actual payment day according to Article 78 of CISG.

2. The [Seller] should bear the US $550 administration fee for the letter of credit and interest of 7% p.a. on that US $550 from 17 July 1998 to the actual payment day according to Article 78 of CISG.

3. The [Seller] should compensate US $2,700 for the attorneys' fee paid by the [Buyer] for the present case.

4. The other arbitration claims of the [Buyer] were disapproved.

5. The [Seller] should bear all the arbitration fee of this present case.

The above items should be paid by the [Seller] to the [Buyer] within thirty days of the date of this decision.

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 Switzerland is referred to as [Buyer]; Respondent of the People's Republic of China 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].

** Alison Hoi-Yan, Ng. Research Student of the University of New South Wales (Australia, Sydney), Chief Editor and Researcher on legal texts - Principles of Business Law (General Press Pty Limited t/a Law Press Asia) and Tourism Law (CCH Australia Ltd).

*** 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.