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CISG CASE PRESENTATION

China 20 April 1999 CIETAC Arbitration proceeding (Chemical cleaning product equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990420c1.html]

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

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Case identification

DATE OF DECISION: 19990420 (20 April 1999)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1999/23

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Taiwan (respondent)

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

GOODS INVOLVED: Chemical cleaning product equipment


Case abstract

PRC: Award of China International Economic & Trade Arbitration Commission [CIETAC] 20 April 1999 (Chemical cleaning product equipment case)

Case law on UNCITRAL texts (CLOUT) abstract no. 809

Reproduced with permission of UNCITRAL

Abstract prepared by Meihua Xu

A Chinese buyer entered into a contract with a Taiwanese seller for the purchase of seven items of chemical cleaning product equipment.

The equipment was sold with a warranty that would be valid for twelve months after the arrival at the destination port, but for no longer than eighteen months from the date of making the goods ready for shipment. The inspection clause obligated the buyer to have the goods inspected after they reached the destination port.

Disputes arose during the performance of the contract on some of the machines delivered, thus the buyer initiated arbitration proceedings. The buyer asked to return some of the items and a price reduction for others; it also requested the seller to return the price and compensation for loss of interest and loss of profit.

The buyer asserted that there was a lack of conformity with the goods description in the contract. The defects, discovered after the inspection of the goods, included different place of manufacturing the goods, lack of technical components, components with different specifications than those described in the contract, components installed in a different way than shown in the product introduction and defective set-up.

The seller defended that some technical components could be installed on the machines only upon specific request of the buyer, since they were quite special. Furthermore, even if they were installed, that would not change the performance of the machines. Other pieces of equipment were in normal condition and the buyer had been unable to produce a conforming product because of some material the buyer used, different from the one chosen by the parties. Finally, the seller argued that one inspection certificate submitted by the buyer had been issued beyond the deadline required by the contract and the buyer had lost its right to claim damages in accordance with Article 39 (1) CISG.

The parties had not stipulated the applicable law in the contract. However, at the hearing, they explicitly agreed to apply Chinese law to resolve the dispute. Where there was no applicable provision in the law, the CISG should be applied. The Arbitral Tribunal upheld this decision.

With regard to the buyer's claim of non-conformity of the goods, the Tribunal noted that in two cases, although the claims were beyond the deadline stipulated in the contract, they had been raised within the warranty period. The machines were installed and tested after they had been delivered to their final destination. In accordance with Article 38 (3) CISG, the Tribunal held that the seller knew that the two machines would be redirected to another site and that since this was a quite large piece of equipment, it was reasonable for the buyer to take the inspection at the final destination.

In one case, there was no indication on the contract of the place where the item had been manufactured. The product manual provided by the seller indicated that the machine was made in Italy, but the machine actually delivered was made in Taiwan. The Tribunal noted that there was no evidence that the buyer would ever accept a machine made in Taiwan. It further held that goods provided by the seller should be consistent with the product manual, and not produced by it and priced as the product originally produced by the Italian manufacturer. The Tribunal also noted that the machine could not work normally with the set-up delivered by the seller. As for the specific request of the buyer to have certain features installed on the machine, the Tribunal deemed that the seller should have stated in the contract that such an installation required extra expenses, otherwise, it was reasonable for the buyer to rely on the product manual provided by the seller and request to install the features. Therefore the seller had breached the contract for failing to perform accordingly.

With regard to another machine with a defective set-up, which could not produce goods conforming to the contract, the Tribunal ruled that the defective/missing components were in fact a necessary installation that should be provided by the seller. The Tribunal also noted that this machine had some quality defects which affected the normal use by the buyer.

Finally, the Tribunal noted that in one case, the buyer had delayed inspection with no reason and that its claims had far exceeded the deadline stipulated in the contract and were also beyond the 18-month period of the warranty. Therefore, the Tribunal concluded that the buyer had lost its right to claim deficiencies in this installation and denied the claim for loss of profit.

As for the other items, the Tribunal upheld the buyer's claim for price reduction and interests.

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Classification of issues present

APPLICATION OF CISG: "In the court session, the parties explicitly agreed to apply the laws of the People's Republic of China to resolve disputes under the Contract; where there is no applicable regulation in PRC laws, the United Nations' CISG should be applied."

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 38(3) ; 39(1) [Also perhaps relevant: Article 35 ]

Classification of issues using UNCITRAL classification code numbers:

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

38C [Buyer's obligation to examine goods (time for examining goods): deferral of examination in case of redirection or redispatch];

39A [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time]

Descriptors: Conformity of goods ; Examination of goods ; Lack of conformity notice, timeliness

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Editorial remarks

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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 Ji Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 1999 vol., pp. 1873-1885

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.83, 106, 160, Nordic Journal of Commercial Law (2/2005); Fan Yang, The Application of the CISG in the Current PRC Law and CIETAC Arbitration Practice (December 2006) n. 96

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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 and Trade Arbitration Commission
CIETAC (PRC) Arbitration Award

Chemical cleaning product equipment case (20 April 1999)

Translation [*] by Taotao Ling [**]

Translation edited by Meihua Xu [***]

China International Economic and Trade Arbitration Commission [hereinafter: CIETAC or Arbitration Commission] accepted this case according to:

   -    The arbitration clause in Contract No. IEP96-8 signed on 9 August 1996 by Claimant [Buyer] China __ Chemical Cleaning Company and Respondent [Seller] Taiwan __ Industrial Company Ltd.; and
 
   -    The written arbitration application submitted by [Buyer] to CIETAC on 30 July 1997.

The applicable rules of this case are the CIETAC Arbitration Rules effective as of 1 October 1995 [hereinafter: Arbitration Rules].

[Buyer] appointed Mr. A as arbitrator; [Seller] appointed Mr. D as arbitrator; since the parties did not jointly appoint or authorize the Chairman of the Arbitration Commission to appoint the presiding arbitrator, the Chairman of the Arbitration Commission appointed Mr. P as the presiding arbitrator. The above three arbitrators formed the Arbitration Tribunal on 20 October 1997 to hear this case.

The Secretariat of the Arbitration Commission scheduled a court session on 16 December 1997. The representatives of [Buyer] and [Seller] attended, made statements and answered questions posed by the Arbitration Tribunal. The Arbitration Tribunal instituted investigations of the facts and took evidence.

Due to the complicated technical problems in this case, the Arbitration Tribunal appointed experts to make onsite investigations of equipment stored in Lanzhou and Beijing.

   -    On 15 June 1998, the Tribunal sent Mr. P, the presiding arbitrator, staff from the Secretariat of the Arbitration Commission and Mr. Tong, the expert appointed by the Arbitration Tribunal to make an onsite investigation in Lanzhou of the BOPLAST M Medium Speed (BOPLAST M/P1-20 SK6000) Automatic Filling Screwing Capping Machine and HVM-280 Horizontal Bag Packing / Sealing Machine under the contract of this case.
 
   -    On 20 August, the Arbitration Tribunal sent Mr. Tong and staff from the Secretariat of the Arbitration Commission to make an onsite investigation in Beijing of the BOPLAST M High Speed (BOPLAST M/P2-24 SK6000) Automatic Filling/Screwing Capping Machine.

Mr. Tong issued a "Technical Evaluation Report" on the above equipment on 16 November 1998. On 20 November, the Secretariat of the Arbitration Tribunal forwarded the "Technical Evaluation Report" to the parties, and both parties provided written opinions of the "Technical Evaluation Report".

The award in this case was scheduled to be handed down before 20 July 1998. Considering that the Arbitration Tribunal needed added time to resolve the issues of the case and the above period of time was not enough to issue an arbitration award and also because the parties needed more time to evaluate and comment on the "Technical Evaluation Report" issued by the appointed expert, the Arbitration Tribunal applied to the Secretary-General of the Arbitration Commission to extend the deadline of the arbitration award respectively on 20 July 1998, 20 November 1998 and 9 February 1999. The Secretary-General of the Arbitration Commission approved the application of the Arbitration Tribunal and extended the date of arbitration award accordingly. The final deadline for the arbitration award was set at 20 April 1999.

This case has now been resolved. According to the court proceedings, facts found in onsite investigations and available written materials, the Arbitration Tribunal hands down this arbitration award by the above date. The following are the facts, the opinion of the Arbitration Tribunal and the award.

I. FACTS

On 9 August 1996, [Buyer] and [Seller] signed two contracts with the same contract number [No. IEP96-8] and appendices [the two contracts have the same content except with different names of equipment, models and prices; hereinafter, except as otherwise indicated, both contracts are referred to as the Contract]. According to the Contract, the [Seller] sold seven pieces of chemical cleaning product equipment to the [Buyer] at the price of CIP Tianji New Port US $773,725. The pieces of equipment are:

   -    One BOPLAST M (Medium Speed) (BOPLAST M/P1-20 SK6000) Automatic Filling / Screwing Capping Machine;
 
   -    One BOPLAST M (High Speed) (BOPLAST M/P2-24 SK6000) Automatic Filling Screwing Capping Machine;
 
   -    Two HVM-280 Horizontal Bag Packing / Sealing Machines; and
 
   -    Three 5400HM15-F Horizontal Bag Packing / Sealing Machines.

Payment was to be by the [Buyer] issuing a 100% irrevocable Letter of Credit with the [Seller] as the beneficiary; 85% of the L/C to be paid immediately and 15% of the L/C to be paid upon receipt of conforming documents on the test operation.

Relevant clauses in the Contract include:

   -    Shipping date: [Seller] shall ship the goods within 90 days of receipt of the L/C (Article 3).
 
   -    Shipping port: Taiwan Port (Article 4). Destination port: Beijing, China (Article 5).
 
   -    Quality warranties (Article 15):

[Seller] warrants that the goods are made with the best materials and techniques and are brand new. The goods completely conform to the contract in the quality, specification and capacity (all technical data are subject to the description of equipment materials). [Seller] further warrants that, in the event of accurate installation, normal use and maintenance, goods under the Contract will remain in good operation for twelve months after their arrival at the destination port. However, the quality warranties shall be no longer than 18 months from the date of preparing the goods ready for shipment.
 

   -    Inspection (Article 16):

(1) After the goods reach the destination port, [Buyer] shall apply to China Import and Export Commodity Inspection Bureau (or Company) [hereinafter: CIB] to inspect the quality, specification and quantity/weight of the goods. If it is found that the specification or quantity/weight of the goods received do not conform to the contract, besides seeking recovery from the insurance company or shipping company responsible for the non-conformity, [Buyer] is entitled, if it obtains the inspection certificate issued by CIB, to refuse to accept the goods and claim for damages from the [Seller] within 90 days from the time the goods reach the destination port and are unloaded.

(2) Within the warranty period of Article 14 of the Contract, if it is found that the quality/specification of the goods does not conform to the Contract or that there is a defect of the goods caused by any reason including intrinsic defect or raw materials used, [Buyer] shall immediately notify the [Seller] and shall request CIB for inspection, and is entitled to claim damages according to the inspection certificate.
 

   -    Resolution of damage claims (Article 17):

If the goods are non-conforming in a manner for which the [Seller] is responsible, and the [Buyer] claims damages within the claim period or quality warranty period, upon obtaining [Buyer]'s approval, the [Seller] shall provide the following forms of compensation:

(1) The [Seller] shall agree to have the [Buyer] return the goods, and shall also return the amount in the payment currency or amount to the [Buyer], and shall be responsible for all expenses incurred by the return of goods, including interest, bank costs, shipping fees, insurance fees, commodity inspection fees, warehouse rental fees, port uploading and unloading fees, and any other necessary expenses incurred by the storage and return of goods.

(2) Depreciation of the goods shall be according to the degree of the inferiority of the goods, scope of damage and the loss suffered by the [Buyer].

(3) The [Seller] shall exchange the defective goods with goods that are brand new and conform to the specifications, quality and capacity stipulated by the Contract. [Seller] must be responsible for all expenses and all direct loss suffered by the [Buyer] incurred hereby. If the claim for damages is raised within the original warranty period, the [Seller] shall provide a warranty for the quality of the exchanged goods for 12 months according to Article 15 of the Contract.

(4) If the [Seller] does not reply to the notice of claim for damages within 30 days upon receipt, it shall be deemed that the [Seller] agrees to all claim requests raised by the [Buyer].
 

   -    Arbitration (Article 20):

All and any disputes that arise in respect of the Contract or due to the performance of the Contract shall be resolved through friendly discussion. If the dispute cannot be settled through friendly discussion, the parties shall apply to CIETAC for arbitration in Beijing under the Arbitration Rules. The award issued by the CIETAC is final, and shall bind both the [Seller] and [Buyer]. Neither party may apply to court or other institutions for change. Arbitration fees should be paid by the party who loses the arbitration.

A dispute arose during the performance of the Contract, [Buyer] submitted the dispute for arbitration.

II. CLAIMS AND ISSUES

[Buyer]'s claims

- Initial claims

[Buyer] raised the following arbitration claims regarding one BOPLAST M (Medium Speed) (BOPLAST M/P1-20 SK6000) Automatic Filling / Screwing Capping Machine, one BOPLAST M (High Speed) (BOPLAST M/P2-24 SK6000) Automatic Filling Screwing Capping Machine and two HVM-280 Horizontal Bag Packing / Sealing Machines delivered by the [Seller]:

1. To apply to return the goods, including one BOPLAST M (Medium Speed) (BOPLAST M/P1-20 SK6000) Automatic Filling / Screwing Capping Machine, one BOPLAST M (High Speed) (BOPLAST M/P2-24 SK6000) Automatic Filling / Screwing Capping Machine and two HVM-280 Horizontal Bag Packing / Sealing Machines.

2. To request the [Seller] to return the price of the goods: total price of $335,877.50.

3. To request interest payments of renminbi [RMB] 159,362.71 (at the interest rate of 9.24%/1,000 per month) since 30 June 1997.

4. To have [Seller] pay the commodity inspection expense of RMB 3,572.00.

5. To have [Seller] pay the arbitration fees.

- Adjusted claims

On 7 August 1998, the [Buyer] changed its arbitration claims as follows:

1. To apply to dispose at a 50% discount (i.e., paying 50% of the price of the goods) for one BOPLAST M (Medium Speed) (BOPLAST M/P1-20 SK6000) Automatic Filling / Screwing Capping Machine and one BOPLAST M (High Speed) (BOPLAST M/P2-24 SK6000) Automatic Filling / Screwing Capping Machine, and to dispose at a 30% discount (i.e., paying of 30% of the price of the goods) of two HVM-280 Horizontal Bag Packing / Sealing Machines in Lanzhou.

2. To apply to return the one HVM-280 Horizontal Bag Packing / Sealing Machine in Beijing.

3. To request the [Seller] to return the price of goods: total price of US $235,222.75.

4. To request interest payments of RMB 345,951.15 (at the interest rate of 9.24%/1,000 per month) since 31 July 1998.

5. To request lost profits in the total amount of RMB 404,352.00.

6. To request damages to the [Buyer] in the amount of US $3,700.00 and RMB 6,000.00 paid to the Italian OMMI company for the expense of fixing equipment.

7. To request the [Seller] to pay the commodity inspection expenses: total amount of RMB 5,133.

8. To request the [Seller] to pay the arbitration fees and attorneys' fees.

The [Buyer]'s lost profits (in Item 5) are calculated at a 10% profit ratio during the period from 1 May 1998 to 5 August 1998, for producing 1,500 packages of 250g cleaning detergent per hour with RMB 4.16 per package, working 8 hours per day, using the HVM-280 Horizontal Bag Packing / Sealing Machine stored in Beijing.

Issues

The major points of the parties concerning the above four machines are as follows:

1. The BOPLAST M (Medium Speed) (BOPLAST M/P1-20 SK6000) Automatic Filling / Screwing Capping Machine

According to the [Buyer], this machine was delivered to Lanzhou in January 1997, adjusted and tested on 3 March, and inspected from 30 April to 8 May. Serious problems were discovered after the machine was tested and inspected. According to Inspection Certificate No. 7060068 issued by Gansu Import and Export Commodity Inspection Bureau of People's Republic of China, the problems with the quality of goods are:

     First, in respect of specification and type, the Contract provided that the type of the automatic filling machine was M/P1-20 and the filling head was 8 parts ... but the goods that actually arrived at the [Buyer]'s were not marked with the type and the filling head was 6 parts. The Contract provided that the type of the Screwing Capping Machine was to be SK6000 and the direction of filling-in was from left to right, but the type of the goods that actually arrived at the [Buyer]'s was SK600 and the direction of filling-in was from right to left.

     Second, in respect of capacity, the Contract provided that the filling-in speed was to be 2,500-3,000 bottles per hour; although the parties agreed to change it to 2,000 bottles per hour, the actual filling-in speed was 1,600 bottles per hour. Moreover, the two transducers of the filling machine were changed twice by the [Buyer/Seller] during testing for three transducers. Nevertheless, ... the settings of the transducers have not been finished yet and the machine still operates in the wrong order during operation.

     Third, there was no product manual and crucial technical material was not supplied.

In the court session, the [Buyer] raised another problem: the margin of the organic glass of the security protection cover of the filling machine was not installed with aluminum alloy as shown in the product introduction provided by the [Seller].

On 16 January 1998, in the explanation of the supplementary evidence submitted to the Arbitration Tribunal, the [Buyer] mentioned that the product introduction provided by the [Seller] showed that the machine shall have bubble-proof setting, but actually there was no such setting. The product introduction provided that the filling machine would not leak, would have no bubble, would not overflow, and that the error of filling would be between 0.2% and 0.4%, but actually there was serious leaking and the quantity was not adequate.

Regarding the label problem of the automatic filling machine raised in Inspection Certificate No. 7060068, the [Seller] admitted that this was caused by its neglect, but alleged that although the label was not affixed to the machine, it did not affect the normal use of the machine.

Regarding the problem raised by the [Buyer] that the [Seller] did not supply 8 parts according to the Contract but instead changed a 6-suit filling head to an 8-suit filling head, the [Seller] alleged that improving the equipment during testing in order to satisfy the Contract is in complete compliance with the conventions of international trade.

The [Seller] admitted that, the type "SK6000" provided in the Contract was a typing error and should be "SK600" in fact.

The [Seller] further admitted that, the filling-in direction of the SK600 Screwing Capping Machine had been adjusted to be from left to right during testing in accordance with the Contract and the condition of the [Buyer]'s factory. Although the driver was on the left of the equipment after adjustment, it did not affect the normal use of the equipment. This fact can be proved by the [Buyer]'s testing record which demonstrated that the layout of the entire product line was ideal after the adjustment. Inspection Certificate No. 7060068 has confirmed that, examined by the original 6-suit filling head and satisfying the technical requests, the filling speed was 1,600 bottles per hour. This showed that the automatic filling machine with 6 parts completely satisfied the technical requirements. After the 6-suit filling head was change to an 8-suit filling head by the [Seller], the [Seller] needed enough time and opportunity to adjust and test the equipment in order to make the 8-suit filling head reach the technical requirements. However, during testing in April 1997, the [Buyer] sent staff to stop the [Seller]'s staff from adjusting and testing the machine and collected the tools, thus preventing the staff of the [Seller] from adjusting and testing the equipment. The problems of the transducer of the machine were caused by various reasons. It was a normal measure adopted by the [Seller] to change the three transducers two times during adjusting and testing. It was because of the [Buyer]'s refusal to permit further adjusting and testing of the machine by the [Seller] that the settings of the transducers had not been completed. It is normal that the filling machine has no aluminum alloy frame on the margin of the organic glass of the security protection cover. It was a special installation of the equipment mentioned in the inspection certificate and shown in the product introduction of the [Seller] that the aluminum alloy was installed on the margin of the organic glass of the security protection cover. Since the [Buyer] did not explicitly require such a special installation in the Contract, the filling machine had no aluminum alloy frame. What is further needed to be explained is that the above installation method of the organic glass of the security protection cover did not change the performance of the equipment.

The [Seller] alleged in its reply that all technical documents of the equipment under the Contract had been provided to the [Buyer]'s contracting representative.

2. The HVM-280 Horizontal Bag Packing / Sealing Machine

According to the [Buyer], the above machine was delivered to Lanzhou on 11 November 1996, started being adjusted and tested, and was inspected from 15 April to 12 May, during which time serious problems were discovered as well. According to Inspection Certificate No. 7060069 issued by Gansu Import and Export Commodity Inspection Bureau of the People's Republic of China, major problems with the goods are:

     First, in respect of specification and type, the Contract provided that the equipment would be a Horizontal Bag Packing / Sealing Machine and the type would be HVM-280, but actually it was a vertical independent filling machine and the type was HMV-280; the product manual provided that the ... screwing coding machine would be an OMREGB2CWZ6C360 degree (p/y) screw coding machine, but actually it was a 38 degrees (p/y) screw coding machine; the product manual provided that the machine would have non-filmed examining electric eyes, but actually there was no such set-up.

     Second, in respect of capacity, the machine should have 250g and 2500g filling settings, but actually it could only fill 250g product, and the seal of the package of 250g product was at various heights, and the more serious problem was that 20% of the bags were leaking.

     Third, the product manual was not printed in large quantities.

During the court session, the [Buyer] mentioned that the expert sent by the [Seller] cut off the 250g and 2500g filling screw and then asked to solder them.

The [Seller] alleged that the type "HVM-280" provided in the Contract was the same type as the "HMV-280" marked on the goods. "H" and "M" are abbreviations of the manufacturer, "V" means "vertical". The "HVM-280" as horizontal type provided in the Contract was a typing error, and the parties in fact agreed that the machine would be a vertical type when executing the Contract. After signing, the parties amended the Contract and changed it from horizontal to vertical type. But since the [Buyer] did not tell the commodity inspection bureau about the amendment of the Contract, the commodity inspection bureau misunderstood it as horizontal.

The "product manual of the machine" mentioned in the inspection certificate was a general document and was applicable to all HVM-280 equipment sold by product manufacturers worldwide. This kind of product manual contains all options and functions of the equipment. The ... screwing coding machine marked in the product manual was an OMREGB2CWZ6C screw coding machine, which is an electrically controlled turning coding machine installed in the HVM-280 machine applicable for packing high-class medicines, and the inspection bureau misunderstood that the equipment was 360 degrees (p/v). When reporting price to each client for HVM-280 equipment purchase, equipment manufacturers would report price subject to different categories of the client's packaging materials and special requirements of packages matching different types of coding machines. The reported price of the HVM-280Vertical Bag Packing / Sealing Machine under the Contract was also subject to the actual situation of the [Buyer]'s purchasing this equipment for packing powder detergent. The coding machine of the equipment was the rotating machinery impulse coding machine (note: it was also a misunderstanding that the Inspection Bureau thought that the equipment was 38 degrees [P/Y]), and the differentiating degree of the coding machine was 9.5 degrees. This coding machine was completely appropriate to the HVM-280 equipment used for packing detergent powder. Therefore, it was a misunderstanding in the inspection certificate that the HVM280 equipment must adopt OMREGB2CWZ6C type screw coding machine. In this regard, the manufacturer of HVM-280 equipment had issued a confirmation letter to describe the above situation.

HMV-280 equipment had two settings, 250g and 2500g, which was in accordance with the request of the [Buyer], and the stand-by forming structure in the price list of HVM-280 machine attached to the Contract also had two categories, which are 250g and 2500g. Therefore, it was a misunderstanding in the inspection certificate that HVM-280 equipment should have only one filling setting.

The price list of HVM-280 equipment attached to the Contract explicitly provided that the producing capacity was from 0 to 30 packages per minute. This was subject to different producing speeds required by adopting different packing films. Prior to issuing the inspection opinion on the capacity of HVM-280 equipment's filling 250g product, the inspection certificate explicitly stated that the speed was from 29 to 30 packages per minute tested by the packing film provided by the [Buyer]. Prior to signing the Contract, the parties selected BOPP/LDPE transparent two-layer multiple film as the packing film in Shanghai ** Plastic Packing Product Company Ltd, and it satisfies the requirement by producing at the speed of 29 to 30 packages per minute with this kind of packing film. The testing record of the above equipment also proved this. However, the packing film used by the [Buyer] to adjust and test the equipment and the above BOPP/LDPE transparent two-layer multiple film are in different categories. The melting temperature of this type of packing film was higher than that of BOPP/LDPE transparent two-layer multiple film. Therefore the producing speed should be lowered, otherwise a problem would arise with the equipment's operation. Regarding this problem, the technical staff of the [Seller] had already reminded and instructed the operating staff of the [Buyer] how to pay attention to this problem during operation. But the [Buyer] still used the same speed to operate the equipment when testing with different categories of packing film, and misled the inspection officers into issuing the inspection certificate with an incorrect conclusion of the capacity of the equipment's filling 250g product.

The HVM-280 equipment provided by the [Seller] to the [Buyer] can fill a 2,500g product. The problem that occurred when filling a 2,500g product mentioned in the inspection certificate was because the ivory-white unprinted polypropylene 40u / polyethylene 85u multiple film provided by the [Buyer] did not fulfill the requirement. By request, the [Buyer] should provide BOPP/LDPE transparent two-layer multiple film, but since the [Buyer] did not provide this kind of multiple film, the equipment was not formally adjusted and tested by filling 2,500g product, regarding which problem the equipment manufacturers had explained in the confirmation letter.

The problem mentioned in the inspection certificate that the distortion of the equipment hopper and the collision with the screw were because the powder of the raw materials provided by the [Buyer] to adjust and test the equipment varied from wet to dry, and because there were hard substances in the powder. Regarding this problem, the [Seller] took pictures during the adjusting and testing of the equipment, and the distortion of the equipment hopper has been rectified.

There was no problem related to the absence of two airproof rings in the inner side of the [Heng Feng Dao Bi Zhou] The reason that the [Seller] removed the two airproof rings in the inner side of the [Heng Feng Dao Bi Zhou] and changed the original two [Heng Feng] reposition springs to one was because of adjusting and testing the equipment in order to make the equipment adaptable to the new packing film and raw material powder in a different category.

The problem mentioned in the inspection certificate to cut and weld the filling 250g and 2,500g screws during adjusting and testing of the equipment was because the raw material powder provided by the [Buyer] varied between wet and dry, and the [Seller] had to take this measure during the adjusting and testing procedure in order to make the equipment adaptable to the variations. This kind of measure was usually adopted when adjusting and testing equipment, and should not be deemed as the evidence of the equipment's non-conformity to the Contract.

Since the Spanish manufacturer continuously improves the technical data of all equipment produced by it, the product manuals would be changed from time to time. Therefore, the product manuals of HVM-280 provided by the Spanish manufacturer to its clients worldwide are not published in large quantities. The product manufacturer had stated this in its confirmation letter.

3. The BOPLAST M (High Speed) (BOPLAST M/P2-24 SK6000) Automatic Filling / Screwing Capping Machine and the other HVM-280 Horizontal Bag Packing / Sealing Machine

The [Buyer] originally requested that the two machines stored in Beijing without being inspected be returned to the [Seller]. Later, the [Buyer] changed its arbitration request on 7 August 1998 to disposing of the BOPLAST M (High Speed) (BOPLAST M/P2-24 SK6000) Automatic Filling / Screwing Capping Machine located in Beijing at a 50% discount, and insisting on returning the HVM-280 Horizontal Bag Packing / Sealing Machine located in Beijing. The reason for raising the above request was because these two machines were the same or similar. According to Article 17 subsection 1, the [Seller] should be responsible for any non-conformity of the goods to the Contract, and the [Buyer] could claim damages within the claiming period or quality warranty period in accordance with Article 15 and Article 16 of the Contract; after obtaining the [Buyer]'s consent, the [Seller] should indemnify the [Buyer] as follows: i) returning the goods; ii) depreciation; iii) exchanging the goods; iv) default indemnification. After discovering that the [Seller] defaulted on the Contract, the [Buyer] had claimed for damages from the [Seller] immediately holding the inspection certificate and in accordance with the claiming period stipulated in Article 16 of the Contract.

The [Seller] disagreed with the [Buyer]'s above statements. The [Seller] mentioned in the reply brief and its supplement that the [Buyer] did not claim damages from the [Seller] holding the inspection certificate issued by the inspection bureau within the period required by the Contract, therefore the [Buyer] had lost its right to request to return the goods and to claim damages under the Contract in accordance with Article 16 and 17 of the Contract and Article 39 of United Nations Convention on Contracts for the International Sale of Goods [hereinafter: CISG].

The [Seller] raised its own opinions in its supplementary reply brief on 18 September 1998 on the above amended arbitration requests raised by the [Buyer].

III. OPINION OF THE ARBITRATION TRIBUNAL

The parties did not provide in the Contract for the applicable law to resolve the disputes in this case. In the court session, the parties explicitly agreed to apply laws of the People's Republic of China [hereinafter: PRC] to resolve the disputes under the Contract, stating that where there is no applicable regulation in PRC laws, the CISG should be applied. Therefore, when resolving the disputes under the Contract, the Arbitration Tribunal adopts PRC laws and the CISG.

The parties dispute whether the [Buyer] has the right to claim damages and request depreciation or the return of goods under the Contract. The Arbitration Tribunal judges the above issue in dispute first.

The contract price is "CIF Tianjin New Port", but in the meantime the Contract provides the destination of the goods is Beijing. In fact, the above four machines in dispute were all shipped to Beijing, therefore the destination of the goods should be Beijing instead of Tianjin New Port.

On investigation, one HVM-280 Horizontal Bag Packing / Sealing Machine was delivered to Beijing on 4 November 1996, and was inspected in Lanzhou by Gansu Import and Export Commodity Inspection Bureau from 15 April to 12 May 1997. The "Inspection Certificate" was issued by the bureau on 14 May 1997. One BOPLAST M (Medium Speed) (BOPLAST M/P1-20 SK6000) Automatic Filling / Screwing Capping Machine was delivered to Beijing on 25 December 1996, and was inspected in Lanzhou by Gansu Import and Export Commodity Inspection Bureau from 30 April to 8 May 1997. The "Inspection Certificate" was issued by the bureau on 13 May 1997. On 5 June 1997, the [Buyer] appointed attorneys to claim damages from the [Seller] with respect to the above two machines. Although the date of the [Buyer]'s damage claim of specification and quantity had exceeded the quality claim period stipulated in Article 16 subsection A of the Contract, the claim did not exceed the warranty period stipulated in Article 15 and Article 16 subsection B of the Contract.

Upon the machines being delivered to Lanzhou on 11 November 1996 and January 1997, respectively, the parties started unpacking, installing and testing. According to Article 38(3) of the CISG, if the goods are redirected in transit or redispatched by the buyer without a reasonable opportunity for examination by him and at the time of the conclusion of the contract the seller knew or ought to have known of the possibility of such redirection or redispatch, examination may be deferred until after the goods have arrived at the new destination. In this case, the [Seller] already knew of the possibility of the two machines being redirected to Lanzhou by the [Buyer], and since it was a redirection of a large item of equipment, it is reasonable for the [Buyer] to take the inspection in the new destination. Although the parties had disputes on some items of equipment that were not delivered, they agreed on the quantity of those items. Therefore, the [Buyer] did not lose the right to claim damages.

Regarding the BOPLAST M (High Speed) (BOPLAST M/P2-24 SK6000) Automatic Filling / Screwing Capping Machine and the other HVM-280 Horizontal Bag Packing / Sealing Machine, the evidence shows that these two machines were delivered to Beijing in late December 1996. The [Seller] wrote to the [Buyer] on 6 December 1996. The letter mentioned the two machines stored in the Beijing manufacturing plant. But since the machines could not be adjusted and tested until 1997, the [Seller] agreed:

(i) To extend the warranty period of the machine for one year from the formal adjusting and testing date;
(ii) The quality claim for the machines would start ... from one year since the date of unpacking and testing date; but
(iii) Neither the warranty period nor the quality claim period should exceed 18 months after the date of delivery.

The [Buyer] unpacked and examined the above automatic filling / screwing capping machine on 26 May 1998, and inspected it together with Beijing Import and Export Commodity Inspection Bureau on the second day. The inspection bureau issued its quantity/quality inspection certificate on 1 July 1998. But the [Buyer] neither unpacked and tested the other bag packing / sealing machine mentioned above, nor applied for commodity inspection. The Arbitration Tribunal holds that the [Buyer] unpacked, tested and applied for inspection of the automatic filling / screwing capping machine within the warranty period and quality claim period agreed by the [Seller] and thus does not lose the right of claim. However, the [Buyer] did not unpack, test or apply for inspection of the other bag packing / sealing machine even today, neither did the [Buyer] claim for damages holding the inspection certificate issued by the China Import and Export Commodity Inspection Bureau in accordance with the Contract. Therefore, the [Buyer] shall be deemed to have lost the right of claim for that machine.

The Arbitration Tribunal hereby provides the following analyses and judgment regarding:

   -    The one BOPLAST M (Medium Speed) (BOPLAST M/P1-20 SK6000) Automatic Filling / Screwing Capping Machine [hereinafter: Medium Speed Liquid Automatic Filling / Screwing Capping Machine] in Lanzhou;
 
   -    The one HVM-280 Horizontal Bag Packing / Sealing Machine [hereinafter: Powder Packing Machine] in Lanzhou; and
 
   -    The other BOPLAST M (High Speed) BOPLAST M/P2-24 SK6000 Automatic Filling / Screwing Capping Machine [hereinafter: High Speed Liquid Automatic Filling / Screwing Capping Machine] in Beijing.

(I) The Medium Speed Liquid Automatic Filling / Screwing Capping Machine

Four issues are under dispute between the parties.

1. Regarding the types of Liquid Automatic Filling Machine and Screwing Capping Machine

The [Buyer] thought the machine it purchased was a BOPLAST M/P1-20 Automatic Filling / SK6000 Screwing Capping Machine produced by Italian OMMI Group, but in fact the automatic filling machine was produced by the [Seller] in Taiwan, and the SK600 Screwing Capping Machine was produced by the S Company in the US.

As proved by the No. *** Inspection Certificate issued by Gansu Import and Export Commodity Inspection Bureau on 13 May 1997, the type of the automatic filling machine is M/P1-20 and the machine has 8 parts of filling head according to the Contract, while the filling machine that actually arrived was not designated as any particular type and the machine had 6 parts of filling head.

According to the investigation held by the staff sent by the Arbitration Tribunal and experts, the automatic filling machine indeed was not designated ... and the label on the machine showed that the manufacturer was "OMMI KK&KK; the type of the manually capped screwing capping machine was SK600 and it was produced by S Company of US.

The [Seller] admitted in the reply brief that, the label problem of the BOPLAST M Medium Speed (BOPLAST M/P1-20) Automatic Filling Machine was caused by its negligence.

The expert appointed by the Arbitration Tribunal provided the following opinions of the manufacturer in its Technical Evaluation that, seen from the label of the manufacturer "OMMI KK&KK", when two company names are listed on the same equipment in this industry, it should be explained that the equipment, as authorized by the OMMI Company, was produced by the KK & KK Company, despite the fact that the way of authorization was not clear.

According to the Contract, the parties did not agree on the producing place and the manufacturer in the Contract. However, as seen from the product manuals provided by the [Seller] to the [Buyer], it was indicated that the producing place of the machine was Italy and the manufacturer was OMMI Company, but the goods that actually arrived were produced in Taiwan by the [Seller] as authorized by the Italian OMMI Company. There is no evidence proving that the [Buyer] ever agreed to accept the same type of machines produced in Taiwan. The Arbitration Tribunal holds that, without being provided in the Contract, the goods provided by the [Seller] should be subject to the product manuals, but should not be the product produced ... by the [Seller] itself, and priced as the products originally produced by the Italian manufacturer. Therefore, the price of this machine should be reduced accordingly.

Regarding the Screwing Capping Machine in Lanzhou produced by the S Company of the United States, the expert appointed by the Arbitration Tribunal provided the following technical evaluation opinions:

According to the materials of United States S Company viewed onsite in Lanzhou, the SK600 was the manually capped screwing capping machine analyzed by the photo, the SK6000 was the automatically capped screwing capping machine, while THE SK6000-SP was the separately structured automatic capped screwing capping machine. The main parts of the three different machinery types have the same structure of a screwing capping machine. Therefore, if it is the manually capped screwing capping machine without the automatic capping equipment that is needed by the [Buyer], the SK6000 type should be SK600. It is the [Seller]'s mistake that the filling direction of SK600 was from left to right (note of the Arbitration Tribunal: should be from right to left). To adjust the filling direction during the testing procedure to be from right to left, technically it only needs to change the rotating direction of the electromotor, and the direction change of the [Dao Ping Gan] should not affect the normal use of the equipment.

The [Buyer] offered a different opinion of the above expert's technical evaluation opinion, alleging that what the [Buyer] needs is the SK6000 screwing capping machine without the capping system, and the contract price is also set by the SK6000's excluding the capping system, but this does not mean it is the SK600. However, the [Buyer] did not provide evidence to prove what kind of SK6000 screwing capping machine without the capping system it needed. Therefore, the Arbitration Tribunal does not accept the above opinion.

Regarding the actual filling direction of the screwing capping machine being from right to left, the [Seller] had already admitted it was due to its mistake, and the expert's technical evaluation report had also pointed out the mistake. The Arbitration Tribunal holds that, it is a breach of contract that the [Seller] did not provide conforming goods as agreed in the contract. However, the Arbitration Tribunal noticed that the testing record made unilaterally by the [Buyer] also provided that, after the filling direction's being thus adjusted, the layout of the entire production line was more ideal. The Technical Evaluation Reported issued by the expert appointed by the Arbitration Tribunal also provided that, technically the adjustment only needs to change the rotating direction of the electromotor, and the direction change of the [Dao Ping Gan] should not affect the normal use of the equipment.

2. Regarding the problems of the quantity of filling head and the filling speed

According to the contract, the [Seller] should deliver filling heads with 8 parts to the [Buyer], while the actual goods delivered were filling heads with 6 parts. This fact had also been proved by the Gansu Import and Export Commodity Inspection Bureau, and the [Seller] had admitted it as well.

Regarding the filling speed, the contract provided that it should be 2,500-3,000 bottles per hour, and the parties agreed to change it to 2,000 bottles per hour. The Gansu Import and Export Commodity Inspection Bureau proved that, by inspection of the original filling head with 6 parts, the filling speed was 1,600 bottles per hour under the situation of satisfying the technique requirement. This shows that the filling head with 6 parts could reach the normal filling speed when the bottle has the minimum volume and under the normal liquid slimy degree. But the inspection bureau proved in the meantime that, although the adjusted filling machine with 8 parts can reach the filling speed of 2,000 bottles per hour, since the adjusted filling head seriously leaks, the machine cannot be inspected. The staff sent by the Arbitration Tribunal together with experts found the similar situation while unpacking and testing the filling head with 8 parts. By onsite investigation, the [Seller] changed the 6-suit filling head to 8-suit filling head during the testing of the machine, the expert issued the following opinion:

Since the bracket used to fix the filling head in the filling machine has multiple standing positions, there are still vacant positions, thus to add two filling heads would not affect the entire layout of the machine. However, the dosage piston crock in the below cabinet has only six standing positions, and the extra two dosage piston crocks have to be set on the base of the bottom shelf of the piston crock, therefore it looks crowded. Since the two extra piston crocks increase the electric machinery load of the driving piston wheel by 33%, but generally the installing modulus of the electric machinery is higher than 3, it will turn fine ... to adjust the parameter of the transducer. Overall, although this change would not affect the normal use of the equipment, the layout is unreasonable, therefore the base of the bottom shelf of the piston crock should be changed to eight standing positions. Since the filling head seriously leaks after being changed, the machine could not work normally.

In sum, the Arbitration Tribunal holds that, the [Seller] did not deliver filling machines with 8-suit filling head to the [Buyer] in accordance with the Contract; after being changed, the machine still had serious defects and was unable to reach the technical request and production capability required by the Contract. Therefore the price should be reduced accordingly.

3. Regarding the problem of whether the margin of the security protection cover of the filling machine shall be installed with an aluminum alloy frame

The contract does not have a provision on this subject. The [Buyer] alleged that, the production description provided by the [Seller] showed that the margin of the security protection cover of the filling machine was installed with an aluminum alloy frame. However, the [Seller] alleged that, filling machines without an aluminum alloy frame is normal and that an aluminum alloy frame was a special installation of the equipment; the [Buyer] did not request to have such a special installation in the contract, so there was no such installation, and there was not any difference in the use of equipment without such installation.

The technical analysis opinion issued by the expert appointed by the Arbitration Tribunal is: the aluminum alloy frame is a decoration, which can enhance the appearance of the entire machine without affecting the capacity of the entire machine.

However, from the dispute of the parties, the focus of the dispute is not on whether the aluminum alloy frame is needed to be installed, but rather on whether the [Seller] should deliver the aluminum alloy frame to the [Buyer]. The Arbitration Tribunal holds that, if the installation does not belong to basic installation but requires extra expense, the [Seller] should have explained to the [Buyer] when reporting the price and should have listed it in the contract. Without being explicitly listed in the price list and contract, it is reasonable that the [Buyer] relied on the product manual provided by the [Seller] and requested to deliver such installation. Therefore, the [Seller] breached the contract by not having added such an installation.

4. Regarding the problem whether the filling machine should have bubble-proof installation

On investigation, the price list attached to the contract included the bubble-proof installation, but in the goods actually delivered there was no such installation, and the [Seller] did not deny it. Therefore, the [Seller] should be liable for not having delivered the installation.

Given the issues discussed above, the [Seller] did not deliver to the [Buyer] the liquid automatic filling machine originally produced by the Italian manufacturer, nor did the [Seller] deliver the equipment with 8 parts of filling head in accordance with the contract. The machine could not reach the technical requirement and producing capacity agreed upon between the parties even after being changed. Furthermore, the [Seller] did not deliver the bubble-proof installation which should be equipped thereto. The screwing capping machine as part of the filling machine also had some defects, part of which affected the normal use of the screwing capping machine. Therefore, the Arbitration Tribunal supported the [Buyer]'s request to dispose of the machine at a lower price. But the 50% reduced price requested by the [Buyer] is a bit high. The Arbitration Tribunal has determined that a 40% price reduction is proper, i.e., a price reduction of US $21,462.00 [US $53,655 (the price of the machine) times 40%].

(II) The powder packing machine

Regarding this powder packing machine, through court session and explanation by the [Seller], some of the disputes have been resolved. For example, the [Buyer] originally thought the powder packing machine should be installed with an electrically controlled wheel coding machine, while after being explained by the [Seller], the [Buyer] no longer insisted on its original claim. But the parties still have disputes in three aspects.

1. Regarding the problem of whether the powder packing machine should be horizontal or vertical

When submitting the case for arbitration, the [Buyer] alleged that since the contract provided the machine was to be horizontal, the machine delivered should be horizontal.

The [Seller] contended that, the horizontal type written in the attached price list was a typing error, and it should be vertical in fact.

The opinion of the expert appointed by the Arbitration Tribunal provided that, by carefully reading the materials provided by the parties, we found that the product name explicitly written on the two letters of credit (No. 6600122/96 and No. 6600123/96) issued to French Bank by Bank of China Lanzhou Branch on behalf of China ** Chemical Cleaning Company on 15 August 1996 was "2. Vertical Stand-up Bag Packing Machine for solid 1 unit", the Chinese translation of which was ... Therefore, the following opinions can be concluded:

     (1) The packing machine should be vertical, the "horizontal" provided in the contract is a typing error for which the signatories for the parties should be responsible, but for which the typing party should not be responsible.

     (2) The [Buyer] had known and corrected the error by November 1996 before the machine delivered was unpacked and inspected in Lanzhou (i.e., before 15 August 1996).

The [Buyer] has accepted the above opinion issued by the expert in the "Feedback Opinion of the Expert's Technical Evaluation Report" issued on 2 December 1998.

2. Regarding the problem of whether the machine should be equipped with "non-filmed inspection installation"

The Inspection Certificate issued by the Gansu Import and Export Commodity Inspection Bureau proved that the product manual of the powder packing machine marked that the machine was installed with non-filmed inspection electric eyes, but the machine currently does not have this installation. The supplier of the [Seller] explained that, the product descriptions are general and standard, including all general and special installations and spare parts under normal conditions, but without special requests raised by clients, they never provide special and discretional parts for clients such as non-filmed inspection transducer.

The Arbitration Tribunal holds that, the [Seller] who better understands the capacity of its products, when reporting prices to or discussing the Contract with the [Buyer], especially when the [Buyer] discussed the purchase of many machines, should report prices separately, and explicitly list in detail the equipment or installation to purchase or sell in the Contract. Otherwise, the [Buyer] could only rely on the product descriptions provided by the [Seller], while when signing the contract, the [Seller] did not give necessary explanations to its product manuals. Therefore, the Arbitration Tribunal decides that the above installation is a necessary installation that should be delivered by the [Seller].

3. Regarding the capacity of the powder packing machine

The Contract provided that the packing speed of the powder packing machine would be from 0 to 30 packages per minute, and the packing capacity would be no more than 2,500g.

The inspection certificate issued by the Gansu Import and Export Commodity Bureau proved that, when filling 250g product and tested with the packing film provided by the [Buyer], the packing speed of the powder packing machine was 29 to 31 packages per minute. But the stand-up bags after being filled have different heights, with a general difference between 5 to 8 mm, and in a squeezing test, 20% of the packages leaked with air but not content. During the operation of the filling machine, the upper or lower opening of 1-2% packages could not be heat-sealed and the contents leaked out. When filling 2,500g product, tested with the ivory white multiple films not printed with polypropylene 40u/polyethylene 85u provided by the [Buyer], the packing speed was 13 to 15 packages per minute, but the ineffective horizontal/vertical heat sealing made the content leaking more serious.

The inspection certificate also revealed other major defects of the powder packing machine: the hopper muddler distorted and collided with the screw and automatically stopped during operation occasionally; the [Seller] cut and welded the screw filling 250g and 2500g during the testing.

At the Lanzhou site, the Arbitration Tribunal sent out staff and experts to investigate the above problems pointed out in the inspection certificate, but since the onsite testing did not reach the original testing status, the investigation did not take place.

Seen from the Contract, the powder packing machine should be able to pack various kinds of powder materials with 2,500g and the packing speed could reach 0 to 30 packages per minute. When filling 250g product, the packing speed was 29 to 31 packages per minute; when packing 2,500g product, the packing speed was 13 to 15 packages per minute. Therefore, the packing speed has reached the standard agreed in the Contract. But the powder packing machine indeed has the above problems raised in the inspection certificate. Furthermore, the price list confirmed by the parties also showed that the entire machine was covered with stainless steel, but by onsite investigation, part of the side columns of the "package shaped, sealing installation" has shown rust ... During the testing, the [Seller] cut and welded the volume screw without satisfying the technical request, which must affect the accuracy of the filling volume. The 250g product provided by the [Seller] as evidence indeed has the above problem that the seals of the package have various heights. It is noteworthy that the machine has been tested several times and still could not fill up 2,500g of product conforming to the Contract, and thus the producing efficiency is reduced.

Given the above judgment and analyses, the Arbitration Tribunal holds that the powder packing machine delivered by the [Seller] indeed has some quality defects and that certain necessary installations were not delivered, which affects the normal use by the [Buyer]. The machine, unable to fill up completely qualified products and reducing the producing efficiency, should be disposed at a discount. But the Arbitration Tribunal holds that, the [Buyer]'s request to dispose of the machine at a price of 30% of the original price, i.e., at a 70% discount, is too much; therefore the machine should be disposed of at a 50% discount, which equals a reduction of US $59,860 [$119,720 (the equipment price) times 50%].

(III) The High Speed Liquid Automatic Filling / Screwing Capping Machine

The inspection certificate issued by the Beijing Import and Export Commodity Inspection Bureau on 1 July 1998 proved that, based on the items listed on the price list, the High Speed Automatic Filling / Screwing Capping Machine lacked a set of PLC controlling system and a group of [Shou Ping] turnplates. Through onsite investigation, the staff sent out by the Arbitration Tribunal also agreed that the machine lacked the integrated filling PLC controlling system (filling machine PLC controlling screen).

However, subject to Article 16(a) of the Contract, after the goods reach the destination port, the [Buyer] should apply to the China Import and Export Commodity Inspection Bureau to inspect the specification, quantity and quality of the goods, and claim for damages to the [Seller] holding the inspection certificate issued by the China Import and Export Commodity Inspection Bureau within 90 days after the goods are unloaded at the destination port. The machine was delivered to Beijing in late December 1996, but the [Buyer] delayed until May 1998 in applying for inspection to the Beijing Import and Export Commodity Inspection Bureau. The above PLC system and the group of [Shou Ping Zhuan Pan] lacked are quantity claims and have far exceeded the claim period stipulated in the Contract. Moreover, this claim is not included in the 18-month quality claim period agreed by the [Seller] in the letter dated 6 December 1996. Therefore, the [Buyer] has lost its right to claim deficiencies in the above installation.

But the [Buyer] does not lose the right to file a claim regarding the quality problem of this machine. The [Buyer] alleged that, the producing speed of this machine is 3,000 to 4,000 bottles per hour according to the Contract. By investigation, the parties reconfirmed on 29 August 1996 that the speed was 2,500 to 3,000 bottles per hour. This showed that the parties had amended the original agreement. Therefore, the [Buyer]'s claim would not be supported.

(IV) The [Buyer]'s request for returning the price of the goods of US $235,222.75 and the interest of RMB 354,951.15

The two requests of the [Buyer] are calculated in accordance with the first and second arbitration requests. In accordance with the first and second arbitration requests, the [Buyer] requested that the price of the goods of US $235,222.75 be returned and the amount of interest on it should also be added in. The Arbitration Tribunal holds that, the [Buyer] has requested to reduce the goods price or return the goods, and, if its request is granted, that any extra payment remaining after the price payable is deducted, be returned to the [Buyer] by the [Seller]. The [Buyer]'s requests of both reducing the price/returning the goods and returning the amount left apparently constitute a repeated calculation. Therefore, this request of the [Buyer] should be combined with the first request and processed together. Regarding the [Buyer]'s request for the indemnification of the interest, since the Arbitration Tribunal considered that there were defects in the above two machines in type or quality or some missing installations, the [Seller] actually possessed the extra payment of the goods price, and thus shall calculate the interest accordingly. The [Buyer] requested that the interest on the extra payment should be calculated as 9.24%/1,000 per month starting from the payment date until 31 July 1998. But the Arbitration Tribunal noticed that, the parties did not agree on the interest rate in the Contract, and the interest rate of 9.24%/1,000 per month set by the [Buyer] itself is apparently high, so an 8% annual interest rate is appropriate. As approved by the Arbitration Tribunal, the discount amount of the above two machines are, respectively, US $21,462 and US $59,860, which in total is US $81,322; after deducting the US $26,006.75 payable price without being paid yet by the [Buyer] from this total amount, the [Seller] should return to the [Buyer] the amount of US $55,315.75. The interest, starting from the payment date until 31 July 1998, is RMB 63,348.18 in total. The calculation method of the interest is as follows:

Name of Machine Payment Date Amount Paid Amount Payable Amount Repayable Time Interest Rate Exchange Rate Interest
M/P1-20 96.12.4 45,606.75 32,193 13,413.75 605 8% 8.31 14,986.29
HVM280 96.11.14 101,762 59,860 41,920 625 8% 8.31 48,361.89
Total NA 147,368.75 92,053 55,315.75 NA NA NA 63,348.18

(Note by the Arbitration Tribunal: In this table, the unit of the amount paid, amount payable and amount repayable is in US dollars, the unit of time is days, the unit of interest is RMB. The interest rate is the annual interest rate, the exchange rate is US dollar to RMB.)

(V) the [Buyer]'s request for loss of profit

The [Buyer] requested the [Seller] to indemnify lost profit on the powder packing machine located in Beijing in the amount of RMB 404,352. The Arbitration Tribunal has decided in the above analysis opinion that the [Buyer] has lost its right to claim damages with respect to this machine and therefore this request of the [Buyer] should not be considered.

(VI) The [Buyer]'s request for indemnification of the machines' testing fee

The [Buyer] requested that the [Seller] indemnifies the testing fee of US $3,700 and RMB 6,000 paid by the [Buyer] to the Italian OMMI Company. The [Seller] contended that above two items of fees requested by the [Buyer] did not comply with fact. According to the fax sent by the Italian OMMI Company to the [Buyer] on 29 June 1998, the testing fee was only US $1,200.

The Arbitration Tribunal holds that, as agreed in the Note 2 of the price list confirmed by the parties, the [Seller] should test the machine for free. Therefore the testing fee should be paid by the [Seller]. But the [Buyer] did not provide enough evidence to prove that it had actually paid for the above two items of fees, so the indemnification could only be subject to the US $1,200 amount confirmed by the [Seller].

(VII) The [Buyer]'s request for indemnification of the inspection fee

In accordance with the international trade custom, unless otherwise provided in the Contract, the inspection fee of the goods in the importing country should be paid by the [Buyer]. By investigation, the parties agreed in Article 17(a) and (c) of the Contract that, the inspection fees should be borne by the [Seller] when the [Buyer] returns or requests to exchange the goods, but there was no agreement on the inspection fees when discounts and claims for damage are raised due to defect or flaw in the goods. Since the Arbitration Tribunal only satisfied the discount request of the [Buyer], therefore the [Buyer]'s request of the indemnification of the inspection fee would not be supported.

(VIII) The [Buyer]'s requesting the [Seller] to pay for the [Buyer]'s attorneys' fee

The [Buyer] requested the [Seller] to pay for the attorneys' fee, but did not raise the specific amount nor did it provide the evidence of the actual payment, therefore this request is not supported by the Arbitration Tribunal.

(IX) The obligation of payment for the arbitration fee and actual expenses

According to the holding of the Arbitration Tribunal, the [Seller] breached the Contract and shall be liable for the indemnification. According to the Contract, the arbitration fee of this case shall be paid by the [Seller]. But considering that not all the arbitration requests raised by the [Buyer] are satisfied, the [Buyer] should also pay part of the arbitration fee. Therefore, 70% of the arbitration fee of this case shall be paid by the [Seller] and 30% by the [Buyer].

The actual cost of the onsite investigation performed by the expert and staff sent by the Arbitration Tribunal was RMB 30,000, which should be afforded by the parties at RMB15,000 each.

IV. AWARD

In accordance with the above facts and opinions, the Arbitration Tribunal makes the following award:

1. The Medium Speed Liquid Automatic Filling / Screwing Capping Machine delivered by the [Seller] should be disposed of at a 40% discount, i.e., US $21,462; the powder packing machine should be disposed of at a 50% discount, i.e., US $58,860. These two items add up to US $81,322. For these two machines, the amount of the price already paid by the [Buyer] is US $147,368.75, and the amount not yet paid is US $26,006.75. After deducting the discount amount from the payable amount without being paid, the amount that should be returned by the [Seller] to the [Buyer] is US $55,315.75.

2. The [Seller] should compensate the [Buyer] for the interest on the above amount that should be returned by the [Seller] in the amount of RMB 63,348.18.

3. The [Seller] should return to the [Buyer] the testing fee of the machine in the amount of US $1,200.

4. The following arbitration requests of the [Buyer] are dismissed: (i) the High Speed Automatic Filling / Screwing Capping Machine to be discounted by 50% in the first arbitration request; (ii) the second arbitration request; (iii) the fifth arbitration request; (iv) the seventh arbitration request; (v) the request of the attorneys' fee in the eighth arbitration request.

5. The arbitration fee of this case is to be paid 30% by the [Buyer] and 70% by the [Seller].

6. The actual cost of the onsite investigation performed by the expert and staff sent by the Arbitration Tribunal was RMB 30,000, which should be paid by the parties at RMB 15,000 each. These amounts have been set-off with the US $15,000 prepaid by the parties.

The above Items 1, 2, 3 and 5 should be executed within 45 days after the date of this award. Otherwise, an annual interest of 6% shall be added to the US dollar amount and an annual interest of 8% shall be added to the RMB amount.

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 Taiwan 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].

** Taotao Ling, LL.M. New York University School of Law on the Arthur T. Vanderbilt Scholarship. She received her Bachelor of Law degree and Bachelor of Economics degree from Peking University, Beijing, China. Her focus is on corporate and commercial law.

*** 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 October 27, 2008
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