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CISG CASE PRESENTATION

China 20 May 1999 CIETAC Arbitration proceeding (Waste aluminum ingots case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990520c1.html]

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

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Case identification

DATE OF DECISION: 19990520 (20 May 1999)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1999/25

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Belgium (respondent)

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

GOODS INVOLVED: Waste aluminum ingots


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 74 ; 78

Classification of issues using UNCITRAL classification code numbers:

8A [Interpretation of party's statements or other conduct: intent of party making statement or engaging in conduct];

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

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

Descriptors: Intent ; Damages ; Interest

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Chinese): Zhong Guo Guo Ji Jing Ji Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 1999 vol., pp. 1968-1973

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.146, 158, 194, Nordic Journal of Commercial Law (2/2005)

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Case text (English translation)

Queen Mary Case Translation Programme

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

Waste aluminum ingots case (20 May 1999)

Translation [*] by LIN Zhongming [**]

Edited by John W. Zhu [***]

The China International Economic and Trade Arbitration Commission [hereafter, "Arbitration Commission"] accepted this case according to:

   -    The arbitration clause in Contracts No. 7WW0507 and No. 7WW0509 between the Claimant [Buyer], China ___ Export & Import Corporation, and the Respondent [Seller], Belgium ___ Company, concluded on 7 May 1997 and 16 May 1997, respectively; and
 
   -    The written arbitration application submitted by the [Buyer] on 26 March 1998.

After receiving the arbitration application and related documents sent by the Secretariat of the Arbitration Commission, the [Seller] raised a jurisdictional objection to the Arbitration Commission on 24 April 1998. The [Seller] alleged that the [Buyer] had sent Contract No. 7WW0507 and Contract No. 7WW0509 to [Seller] by fax, and that the arbitration clauses in the contracts were too blurry in writing to identify. Therefore, the [Seller] failed to understand the content of these arbitration clauses; consequently, the [Buyer] could not apply for arbitration based on these clauses. According to relevant provisions in the two offers [Seller] sent to [Buyer] by fax, the arbitration institution in Antwerp has jurisdiction over the case, and the Arbitration Commission in China has no jurisdiction over it.

After examined the written opinions and evidence materials submitted by [Buyer] and [Seller] with respect to the jurisdiction issue, on 2 July 1998, the Arbitration Commission handed down (98) CIETAC No. ___ "Decision on the Jurisdiction over No. ___ Waste Aluminum Ingots Sales Contract Dispute Case." The Arbitration Commission ruled that the [Seller] had failed to submit any evidence to prove that the [Seller] had raised any question or addressed any inquiry to the [Buyer] on the blurry arbitration clause so as to ascertain its content and meaning; instead, the [Seller] simply signed and sealed Contract No. 7WW0507 and Contract No. 7WW0509 containing the arbitration clause and did not raise any objection to it. This showed that the [Seller] accepted the contracts sent from the [Buyer] by fax, and agreed to be bound by all the clauses in the contracts, including the arbitration clause. Moreover, if [Seller] thought that the arbitration clause in the contracts sent by the [Buyer] was blurry, considering that [Seller] failed to inform the [Buyer] of this situation in time, the [Seller] should be liable for it. Because the [Seller] failed to provide sufficient evidence, the Arbitration Commission did not support the [Seller]'s claim that the arbitration clauses in the two contracts were invalid. With respect to the [Seller]'s allegation that there is an arbitration clause which provided for arbitration in Antwerp in the offer sent to the [Buyer] and in the last invoice for the goods, the [Seller] failed to submit evidence to prove that both parties had agreed to this clause. The arbitration clause providing for submission of the arbitration to the arbitration institution in Antwerp is therefore not binding on the parties.

Based on the above, the Arbitration Commission ruled that the arbitration clause ("If the parties fail to settle by negotiation, the disputes should be submitted to China International Economic & Trade Arbitration Commission for arbitration in accordance with its Arbitration Rules") in Contract No. 7WW0507 and Contract No. 7WW0509 is valid and binding upon the parties. According to Article 4 of the CIETAC Arbitration Rules [hereafter, "Arbitration Rules"], "the Arbitration Commission has the power to decide on the existence and validity of an arbitration agreement and on jurisdiction over an arbitration case." The Arbitration Commission therefore handed down the following decision.

  1. The Arbitration Commission has jurisdiction over the disputes under Contract No. 7WW0507 and Contract No. 7WW0509 between [Buyer] and [Seller]; and
  2. The arbitration process should proceed.

The Secretariat of the Arbitration Commission sent the aforesaid Decision on jurisdiction to both parties on 3 July 1998, and requested the [Seller] to appoint its arbitrator, submit its arbitration defense or raise its counterclaims (if any) within 20, 45 and 60 days after receiving the Decision, respectively.

After receiving the Decision, the [Seller] sent a letter to the Arbitration Commission on 14 July 1998, stating that this was Belgium's annual holiday period, that [Seller]'s attorney, who kept the detailed materials of this case, was on holiday abroad from 1 July 1998 to 15 August 1998. The [Seller] therefore requested that the time period stipulated by the Arbitration Commission for its appointment of arbitrator, submission of arbitration defense and counterclaims should be postponed to and commenced from 15 August.

In response to the [Seller]'s request, the Secretariat of the Arbitration Commission sent (98) CIETAC No. ___ Letter to [Seller] on 22 July 1998, stating that this situation should be taken into consideration, and ruling that [Seller] should appoint its arbitrator, submit its arbitration defense and raise its counterclaims within 20, 45 and 60 days after 5 August 1998.

Thereafter, the Secretariat of the Arbitration Commission received the [Seller]'s letter on 25 August 1998, stating that there was no valid arbitration clause, and that the [Seller]'s defense right and the right of obtaining a fair award was not respected by the jurisdiction Decision and the Arbitration Rules of the Arbitration Commission and that, therefore, the [Seller] would not accept this arbitration. The [Seller] alleged that the arbitration before the Arbitration Commission has no effectiveness over [Seller].

According to the Arbitration Rules, the [Buyer] appointed Ms. A as arbitrator. [Seller] failed to appoint an arbitrator or to entrust the Director of the Arbitration Commission to make such an appointment within the time limit stipulated in (98) CIETAC No. ___ Letter of 22 July 1998. The Director of the Arbitration Commission therefore appointed Mr. D as the arbitrator for the [Seller] pursuant to Article 26 of the Arbitration Rules, and because the parties failed to jointly appoint the presiding arbitrator or to entrust the Director of the Arbitration Commission to make such an appointment, the Director of the Arbitration Commission appointed Mr. P as the presiding arbitrator. The Arbitration Tribunal was formed on 14 September 1998.

The Arbitration Tribunal held a hearing on 13 November 1998. The [Buyer]'s arbitration attorney appeared at the hearing and stated the facts and answered the questions raised by the Arbitration Tribunal. The Secretariat of the Arbitration Commission had sent the Notice of the formation of the Arbitration Tribunal and the Notice of the Hearing to the [Seller], but the [Seller] failed to appear at the hearing or to submit any arbitration defense; the [Seller] simply sent letters to the Secretariat of the Arbitration Commission on 28 September and 14 October 2004, which set forth the same reasons stated in the letter of 25 August,1998 to the Arbitration Commission, namely, that the formation and the award of the Arbitration Tribunal has no effectiveness over the [Seller].

After the hearing, the Arbitration Tribunal sent information on the hearing to the [Seller], delivered to the [Seller] the supplementary materials and evidence materials submitted by the [Buyer] after the hearing, and sent a letter to the [Seller], which stated that: (1) the Arbitration Commission had the right to hand down its Decision on jurisdiction; (2) the [Seller] should respect this Decision and should actively take part in the arbitration procedure upon the Secretariat of the Arbitration Commission's request; (3) the Arbitration did not disregard [Seller]'s defense right, and the arbitration process was in conformity with the Arbitration Rules. Furthermore, the Arbitration Tribunal invited the [Seller] to submit written opinions and evidence in response to [Buyer]'s supplementary materials and on the issues of this case within the stipulated period, and advised that if [Seller] failed to do so, the Arbitration Tribunal would hand down an award by default. After that, [Seller] failed to submit any written defense, and stated again that it would not accept the award handed down by "the Arbitration Commission" (which should be the Arbitration Tribunal).

The case has been concluded. The Arbitration Tribunal has handed down its award within the time limit stipulated in the Arbitration Rules.

The facts, the opinion of the Arbitration Tribunal and the award are as follows:

1. FACTS

The [Seller] and the [Buyer] concluded Contract No. 7WW0507 and Contract No. 7WW0509 on 7 May and on 16 May 1999, respectively.

   -    In Contract No. 7WW0507, the [Buyer] was obligated to purchase 110 tons waste aluminum ingots from [Seller] at the price of US $604 CNF Nanhai per metric ton; the total amount was US $66,440, and the date of shipment was to be before 10 June 1997.
 
   -    In Contract No. 7WW0509, the [Buyer] was obligated to purchase 220 tons waste aluminum ingots from [Seller] at the price of US $602 CNF Nanhai per metric ton; the total amount was US $132,440, the date of shipment was to be before 20 June 1997.

The two contracts further stipulated that:

   -    Specification of the goods: The aluminum content should be above 65%, the zincum content should be 25%-26%, the iron content should be 6%-7%, and the silicon content should be 4%.
 
   -    Inspection and claims for compensation: "At the port of destination, the [Buyer] shall have the right to submit an inspection application to the State Administration for Import and Export Commodity Inspection of People's Republic of China/China National Import and Export Commodities Inspection Corporation (hereafter, the "Inspection Institution"). If there is any discrepancies between the quality/or quantity/weight of the goods and the contracts or invoice or certificate of quality, except for the responsibility of the insurance company and/or shipping company, within 90 days of the discharging of goods in the port of destination, the [Buyer] has the right to claim for compensation against the [Seller] on the basis of the inspection certificate issued by the Inspection Institution. The [Seller] shall be liable for all the costs and expenses (including the inspection costs) that arise out of the claim for compensation."

After the aforesaid contracts were formed, during the performance, a dispute emerged between the parties over the claim for compensation having to do with the quality of goods. No result was reached in negotiations. The [Buyer] therefore filed its arbitration application with the Arbitration Commission.

The [Buyer] stated that the [Buyer] issued the letter of credit in favor of [Seller] in the total amount of US $194,744 on 2 June 1997 and that the [Seller] drew the funds for two times. However, after the goods arrived at the port of Nanhai, China in July 1997 and the [Buyer]'s inspection staff made their first inspection of the goods, it was found that the aluminum content was far below the 65% minimum stipulated in the contracts, so the [Buyer] sent a fax to the [Seller] officially on 25 August 1997 to call attention to the defective quality of the goods, and to claim for compensation of US $60,000.

After that, the parties negotiated many times. On 15 September 1997, the [Buyer] sent a letter to the [Seller] to claim again that the [Seller] should send its staff to China to inspect the goods personally or appoint the authorized international inspection institution to test the goods. The [Seller] raised no objection to this, so the [Buyer] appointed SGS to inspect the goods, and informed the [Seller] of the result of the inspection by SGS on 13 October 1997. The inspection report of the goods under the two contracts showed:

   -    Silicon content: 1.79%;
   -    Iron content: 5.90%;
   -    Aluminum content: 52.97%;
   -    Zincum content: 29.04.

The aluminum content was far below the requirement of the contracts, while the zincum content was above the requirement of the contracts.

The [Buyer] suffered heavy losses due to the non-conforming goods provided by [Seller], which included:

1. [Buyer] had to dispose the goods at a discounted price due to the non-conforming quality of the goods provided by [Seller]; the loss is US $78,020 (323 tons US $241.55 (the US $241.55 is the price difference between the original contract price and the actual price);

2. [Buyer] paid the inspection fee of US $830, the price of warehousing and storage of US $2,043 and attorneys' fees of US $8,820 due to the non-conforming goods provided by [Seller].

3. The [Buyer]'s loss of interest:

      (1) After the goods arrived at the port on July 1997 and the [Seller] failed to settle the [Buyer]'s compensation claim for a long time, the [Buyer] had to dispose the goods at a discounted price. Through December 1997, the interest losses within this period are calculated as follows: the [Buyer]'s expected price of resale is RMB 1,938,000 (RMB 6,000 per ton [Buyer]'s actual delivered quantity: 323 tons); the interest period shall be five months (31 July 1997 to 31 December 1997); the interest rate shall be the different monthly loan interest rate determined by the Bank of China in the same period (the monthly loan interest rate over the period 31 July to 31 October 1998 was 8.4; the monthly loan interest rate over the period 1 November to 31 December 1997 was 7.2), the total amount is US $9,268.70.

      (2) The total losses of the aforesaid inspection fee, the price of warehousing and storage, the attorneys' fees and price difference are US $89,713; the interest losses calculated at the different monthly loan interest rate determined by the Bank of China in the same period (the monthly loan interest rate from 1 January to 1 July 1998 is 7.2; the monthly loan interest rate from 1 July to 30 November is 5.48), the total amount is US $6,333.74.

Based on the above, [Buyer]'s arbitration claims are:

1. [Seller] should be liable for the price difference: US $78,020;

2. [Seller] should be liable for the inspection fee: US $830, the price of warehousing and storage: US $2,043 and the attorneys' fees: US $8,820, the total amount is US $11,693;

3. [Seller] should be liable for the interest losses; the total amount is US $11,726.84;

4. [Seller] should be liable for the entire arbitration fees.

[Seller] failed to submit any defense.

2. OPINION OF THE ARBITRATION TRIBUNAL

The Arbitration Tribunal carefully examined the arbitration application and evidence submitted by [Buyer], the materials on the jurisdiction issue submitted by the parties, ascertained the facts and handed down the following opinion:

      (1) Contract No. 7WW0507 and Contract No. 7WW0509 signed by the [Buyer] and the [Seller] via fax on 7 May 1997 and on 9 May 1997, respectively, are valid contracts. The parties sealed and signed the two contracts, which indicated their intent to be bound by their provisions (all the provisions are written in both Chinese and English). The contracts were concluded in a customary way in the practice of international sales of goods. The integrity of the contracts is proved by the faxes between the parties, and both parties performed the contracts accordingly.

      (2) Disputes under the two contracts are governed by the Convention on Contracts for the International Sale of Goods (1980).

The Arbitration Tribunal examined Contract No. 7WW0507 and Contract No. 7WW0509. The parties failed to stipulate the applicable law. The Arbitration Tribunal therefore confirmed that the disputes under the two contracts are governed by the Convention on Contracts for the International Sale of Goods (1980) (hereafter, "CISG"). Because the countries of both parties, China and Belgium, are Contracting States of the CISG, the CISG should be automatically applied to the contracts between the parties of the Contracting States unless the parties agreed otherwise in the contract.

      (3) The [Seller] failed to deliver the goods in accordance with the quality requirement in the contracts, which constitutes a breach of contract. The [Buyer] has the right to claim compensation against the [Seller] on the basis of the inspection certification issued after the goods arrived at the port.

Both Contract No. 7WW0507 and Contract No. 7WW0509 contain the following quality requirements to the waste aluminum ingots: AL 65%; Zn 25%~26%; Fe 6%~7%, Si 4%. However, it was found that the waste aluminum ingots did not conform to the contracts. After the goods arrived at the port, the [Buyer] submitted an inspection application to SGS-CSTC Standards Technical Services Co., Ltd (hereafter, "CGS Corporation"), which verified that the goods delivered by the [Seller] were not in conformity with the quality requirements in the contracts. The CGS Corporation's inspection report for the 330 tons waste aluminum states: Si 1.79%; Fe 5.9%; AL 52.97%; Zn 29.04%. Among which the aluminum content is 18.51% below the standard as stipulated in the contracts, and the zincum content is 11.69% above the higher limit as stipulated in the contracts.

The Arbitration Tribunal deemed that, according to Article 13 of both contracts (the Discrepancy and Claim Clause), the [Buyer] has the right to inspect the goods at the port of destination and to claim for compensation from the [Seller] on the basis of the inspection certificate issued by the inspection institution. The contract goods arrived at the port of destination on 9 July and 23 July 1997, respectively. After arrival, the [Buyer] conducted the first inspection of the goods and found that the aluminum content was not in conformity with contracts. Then, the [Buyer] sent a fax to [Seller] officially on 25 August, 1997 to claim for return of the goods or a payment of compensation of US $60,000. After that, the [Buyer] proposed to appoint SGS's affiliate in China to inspect the goods and asked the [Seller] to send its staffs to China to conduct the inspection jointly, but the [Seller] failed to do so, and failed to raise objection to the appointment of the SGS to inspect the goods in China. The [Buyer] therefore submitted the application to SGS-CSTC Standards Technical Services Co., Ltd to inspect the 330 tons of waste aluminum ingots on September 1997. The SGS issued Inspection Certificate No. 6150/0015862. The certificate showed that the goods were not in compliance with the contracts. According to the aforesaid facts, the Arbitration Tribunal deemed that the inspection certificate issued by SGS Corporation is valid and that it can prove that the goods actually delivered were non-conforming goods.

      (4) The Arbitration Tribunal concluded that the [Seller] failed to deliver conforming goods pursuant to the contracts, which constitutes a breach of contract. According to the CISG, the [Seller] should be liable for the breach of contract and should compensate the [Buyer]'s losses.

            1) The [Seller] should compensate the price reduction to the [Buyer] in the resale of the goods to the final customer because the goods did not conform to the contracts.

Article 74 of the CISG provides that:

"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract."

During the process of concluding the contracts, the [Buyer] disclosed via fax to the [Seller] that the purpose for purchasing the goods was to resell them to the final user. Accordingly, the [Seller] should anticipated that its breach would cause the [Buyer]'s breach of contract to its customer, and consequently would do harm to the [Buyer]. The facts also proved this. Because the goods actually delivered were not in conformity with the contracts, which caused the [Buyer]'s breach of contract when reselling the goods to its customer, Guangdong ___ Car Trade Co, Ltd. The [Buyer] had to reduce its price from RMB 6,000 per ton stipulated in the original contract to RMB 4,000. The price reduction was RMB 2,000 per ton. The Arbitration Tribunal held that the [Seller] should pay the [Buyer] this price difference, which is RMB 646,000 in total (RMB 2,000 per ton 323 tons, calculated according to the exchange rate of 1:8.28 at that time, which amounted to US $78,020).

            2) The [Seller] should also pay the [Buyer] the interest on the loss involved in the aforesaid resale: US $78,020.

Because of the [Seller]'s breach of contracts, the [Buyer] suffered losses of US $78,020 in the resale of the goods under the contracts, the interest on this amount shall be calculated from 1 April 1998 (the due date for the payment of resale goods stipulated in the contract between [Buyer] and Guangdong ___ Car Trade Co, Ltd on 6 March 1997) to the actual payment day of this loss and at a 7% annual interest rate. The [Seller] should pay such interest.

Regarding the [Buyer]'s further claim that the [Seller] should pay the interest on RMB 1,938,000 over five months, the Arbitration Tribunal concluded that since the interest payable above was enough to compensate the [Buyer]'s interest loss, therefore this claim should not be accepted.

            3) The [Seller] should be liable for all the fees that arose out of the [Buyer]'s claim for compensation.

According to Article 13 of the contracts ("the [Seller] shall be liable for all the fees (including inspection fees) which arise in connection with the claim for compensation"), the Arbitration Tribunal held that the [Seller] should pay the [Buyer] the inspection fees of US $830, part of the attorneys' fees of US $3,804 and the cost of warehousing and storage of US $2,043. Attorneys' fees without invoice or receipts were not supported by the Arbitration Tribunal, nor did the Arbitration Tribunal support the claims for interest on the aforesaid fees.

            4) The [Seller] should pay the entire arbitration fees.

3. AWARD

      (1) [Seller] should pay the [Buyer] US $78,020 and the interest on this amount calculated from 1 April 1998 to the date of actual payment at a 7% annual interest rate.

      (2) [Seller] should pay the [Buyer] the inspection fees, the attorneys' fees and the cost of warehousing and storage which arose out of the [Buyer]'s claim for compensation, totaling US $6,677.

      (3) [Seller] should pay the entire arbitration fees.

      (4) [Buyer]'s other claims are dismissed.

Within forty-five days of the effective date of this award, the [Seller] should pay the [Buyer] the amounts mentioned above. If the [Seller] fails to pay the amount listed in (2) and (3), 8% annual interest shall be added.

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]; Respondent of Belgium 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].

** LIN Zhongming, LL.M. China University of Political Science and Law. Major: International Economic Law.

*** John W. Zhu, LL.M. China University of Political Science and Law (National Graduate Scholarship); Bachelor of Law, Southwest University of Political Science and Law; Double Degree, English Literature, Sichuan International Studies University, Chongqing, China. Focus: International Economic Law.

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