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CISG CASE PRESENTATION

China 21 May 1999 CIETAC Arbitration proceeding (Excavator case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990521c1.html]

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

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Case identification

DATE OF DECISION: 19990521 (21 May 1999)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1999/26

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Republic of Korea (claimant)

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

GOODS INVOLVED: Excavators


Case abstract

PRC: Award of China International Arbitration Commission [CIETAC] 21 May 1999 (Excavator case)

Case law on UNCITRAL texts (CLOUT) abstract no. 771

Reproduced with permission of UNCITRAL

Abstract prepared by Jean Ho

The case deals with the conformity of the goods, the claim for a reduction in price on the basis of non-conformity and general rules for measuring damages.

A Korean seller and a Chinese buyer entered into a contract for the sale and purchase of excavators. The payment terms included the price for the goods and interest. Upon receipt of the goods, the buyer made a partial payment to the seller and subsequently resold the excavators. After numerous failed attempts to get the buyer to make the outstanding payment and suffering severe economic loss, the seller filed for arbitration proceedings against the buyer.

The buyer argued that the excavators delivered by the seller were not those contracted for, but were related to previous arrangements, since the Bill of Lading showed that they had been shipped in September 1994. As the seller had changed the content of the contract, the buyer was merely helping the seller to deal with the excavators. In addition, the width of two excavators did not conform to the contract and other excavators had various quality defects. According to the experts hired by the buyer, because of these defects the buyer was entitled to claim a reduction in price (CISG article 50).

The seller argued that a delivery date different from the date stipulated in the contract or prior to the date of conclusion of the contract did not prevent the goods delivered from being the goods contracted for (CISG article 9). The buyer was therefore not entitled to claim a reduction in price for non-conformity after it had inspected and accepted the goods. Any claim for the reduction in price should have been made before the acceptance of the goods. The buyer was also not entitled to claim damages for defective goods since it had not produced a Certificate of Inspection from the relevant Commodity Inspection Bureau.

The arbitral tribunal decided to allow a reduction of 10 per cent of the contract price. The buyer was to pay the seller the unpaid contract price, and interest on the paid price, as well as interest on the paid and the unpaid price (CISG article 78). The tribunal found indeed that it was not essential that the excavators were delivered prior to the date of the conclusion of the contract, the issue being whether the goods delivered were those under the contract. The tribunal stated that the seller had fulfilled its duty to appropriate the excavators from the goods delivered as the buyer had accepted the Bill of Lading submitted by the seller and had taken delivery of the excavators. By accepting delivery of and reselling the excavators, the buyer had lost the right to claim that the excavators were not the ones contracted for. The tribunal agreed with the buyer that it was entitled to claim damages for the two excavators that did not comply with contractual specifications (CISG article 74). The buyer was also entitled to claim damages for quality defects raised within the warranty period despite the absence of a Certificate of Inspection. The tribunal considered that since the seller did not contest the buyer's claims of the goods being defective, this led the buyer to think that it was unnecessary to produce a Certificate of Inspection in order to prove its claims.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 9 ; 50 ; 74 ; 78

Classification of issues using UNCITRAL classification code numbers:

9A ; 9C [International usages; Practices established by the parties];

50A [Buyer's right to reduce price for non-conforming goods];

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]

Descriptors: Usages and practices ; Reduction of price, remedy of ; Damages ; Interest

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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 Mao Yi Zhong Cai Wei Yuan Hui Cai Jue Shu Hui Bian [Compilation of CIETAC Arbitration Awards] (May 2004) 1999 vol., p. 1980-1988

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.21, 24, 106, 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

Excavator case (21 May 1999)

Translation [*] by Zheng Xie [**]

Reviewed by LIU Ping [***]

China International Economic and Trade Arbitration Commission (hereinafter: CIETAC) accepted this case according to:

   -    The arbitration clause in Contract No. 94GB/200026KR signed on 1 December 1994, by Claimant [Seller], Korea ___ Company, and Respondent [Buyer], Sichuan ___ Company; and
 
   -    The written arbitration application submitted by [Seller] to CIETAC on 11 May 1998.

On 16 June 1998, the Secretariat of CIETAC sent the notice of arbitration to the parties.

[Seller] appointed Mr. A as arbitrator. [Buyer] appointed Ms. D as arbitrator. According to Article 24 of the Arbitration Rules, the Chairman of CIETAC appointed Ms. P as presiding arbitrator. These three arbitrators formed the Arbitration Tribunal on 22 July 1998. The Arbitration Tribunal decided to hold a hearing in Beijing on 21 September 1998, and sent the notice of the hearing to the parties on 4 August 1998.

On 24 August 1998, [Buyer] submitted its response to CIETAC.

On 21 September 1998, the Arbitration Tribunal prepared for the hearing. When the Arbitration Tribunal verified the parties' representatives who attended the hearing and announced the beginning of the hearing, [Buyer] submitted an Objection to Jurisdiction. The Arbitration Tribunal, accordingly, cancelled this hearing, and reported to CIETAC for its decision on the jurisdiction.

On 29 October 1998, CIETAC ruled that it had jurisdiction on this case.

On 4 December 1998, the Arbitration Tribunal held a hearing again in Beijing. Both [Seller] and [Buyer] attended, presented statements and arguments, and answered the Arbitration Tribunal's questions. After the hearing, both parties submitted tsupplementary materials.

According to the Arbitration Rules, the Arbitration Tribunal should render it award on or before 22 April 1999, but due to certain reasons, it could not close the case within the stipulated period. The Arbitration Tribunal asked the Secretary General of CIETAC for a one-month extension. On 21 April 1999, pursuant to Article 52 of the Arbitration Rules, the Secretary General granted this extension and provided that the Arbitration Tribunal should render its award before 22 May 1999.

Considering the parties' opinions, the written materials and the hearing, the Arbitration Tribunal has concluded the case and handed down its award by consent.

The following are the facts, the opinion of the Arbitration Tribunal and the award.

FACTS

On 1 December 1994, [Seller] and [Buyer] signed Contract No. 94CB/200026KR (hereinafter: the Contract), which stipulates that [Buyer] purchases eleven excavators from [Seller], including four sets of DH320 at a price of US $95,000 per set, two sets of DH280 at a price of US $85,000 per set, five sets of DH220LC at a price of US $ 65,000 per set. The total contact price is US $875,000. The price term is CIF Qingdao [People's Republic of China]. The payment term is D/A 270 days plus interest on the part of [Buyer] at the annual rate of 6%.

As the guarantor, S Company showed [Seller] the letter of guarantee for performance [by Buyer] on 6 February 1995.

After the Contract was signed, the goods were shipped to Chengdu [People's Republic of China] on 23 April 1995. On 15 February 1996, [Buyer] paid [Seller] US $627,000, part of the contract price. [Seller] urged [Buyer] to pay the remaining balance many times, but [Buyer] did not make that payment. Then, [Seller] applied for arbitration.

[POSITION OF THE PARTIES]

[Seller]'s claim

After signing the Contract, [Seller] performed its duty in accordance with the Contract, but [Buyer] did not make the payment according to the Contract. After making partial payment one month later [than the date specified by the Contract], [Buyer] did not pay the remaining balance. By now, [Buyer] has not made the payment for almost three years, and [Seller] has suffered severe economic loss.

[Seller] made the following claims:

1. [Buyer] should pay [Seller] the remaining balance under the Contract, US $248,000 [US $ 875,000 - US $627,000];

2. [Buyer] should pay [Seller]'s loss of interest in the amount of US $31,350, including the interest on the unpaid balance US $248,000, from 23 April 1995 to the day when the payment is actually made, at an annual interest rate of 6%, and the interest on the paid part US $627,000, from 23 April 1995 to 15 February 1996, at an annual interest rate of 8%.

3. [Buyer] should pay for all the arbitration fees, and [Seller]'s actual expenses for this case including attorneys' fee.

[Buyer]'s reply

[Buyer] submitted its reply, asserting that the goods delivered by [Seller] did not comply with the Contract, and therefore [Buyer] has the right to reduce the contract price. Moreover, the defects of the goods caused loss to [Buyer]. Thus, [Buyer] has already paid the [reduced] contract price and damages [caused by Buyer's late payment of the reduced contract price], and should not pay the contract price again. [Seller] should pay all of the expenses of this case.

[ISSUES]

The disputed issues in this case are:

I. Whether the goods delivered by [Seller] comply with the Contract

[Seller]'s Claim

[Seller] asserts that the goods delivered comply with the Contract, because:

     (1) Only factors including specification, model, quantity and manufacturer, etc., but not the date of delivery, should be considered when deciding whether the goods are in compliance with the Contract. A late delivery would simply mean non-compliance with the date of delivery stipulated in the Contract, but it does not mean that the goods are not in compliance with the Contract.

     (2) The Contract only stipulates that the shipping period is before 8 December 1994, and does not provide a specific date. Accordingly, as long as the goods were shipped before 8 December 1994, [Seller] did not breach the Contract, and it is incorrect to say that the goods do not comply with the Contract.

     (3) It is [Buyer] who caused the date of the conclusion of the contract [1 December 1994] to be later than the date of delivery of the goods. On 4 June 1994 and 8 September 1994, [Buyer] and [Seller] signed two contracts which had almost the same terms as this Contract. Because [Buyer] could not get its import license, those two contracts could not be performed. [Seller], however, had prepared the goods. Thus, the parties signed this Contract on 1 December 1994 for [Buyer] to buy from [Seller] the goods under the two un-performed contracts. This is the reason why the goods were shipped earlier than the date on which the Contract was signed. [Buyer] not only knew this, but also should be completely liable for it.

     (4) As to the two wide-track excavators, those excavators that [Seller] delivered have tracks of 800mm, while the width stipulated in the Contract is indeed 600mm. However, the prices of wide-track excavators [of 800 mm] are higher than those of normal excavators [of 600 mm] under the Contract, and the fact that [Buyer] accepted the 800mm wide-track excavators and resold them to a third party shows that [Buyer] has accepted and agreed with this non-compliance. Therefore, [Buyer] should not claim that the goods do not comply with Contract on this basis. [Seller] has never promised to compensate [Buyer] for this non-compliance.

[Buyer]'s reply

[Buyer] alleges that the goods delivered are not the goods under the Contract.

     1. The actual delivery date is not in compliance with the Contract

          (1) The Contract was signed on 1 December 1994, and the shipping period stipulated in the Contract is "before 8 December 1994". So [Buyer] infers that the reasonable loading period is between 1 December 1994 to 8 December 1994, and any goods shipped outside of this period are not the goods under the Contract and therefore are not binding on the parties. The Bill of Lading (hereinafter: the B/L) submitted by [Seller] shows that the shipping date was 5 September 1994; therefore [Seller]'s action of performance is invalid. [Seller] did not deliver the goods within the valid shipping period stipulated in the Contract, [Seller] therefore breached the Contract. Since the contents of the Contract had been changed [by Seller], what [Buyer] actually did was not to accept the goods under the Contract, but to help [Seller] deal with the eleven excavators.

          (2) [Seller] asserts that the date of the conclusion of the Contract was later than the date of delivery of the goods because the parties signed two contracts with almost the same terms on 4 June 1994 and 8 September 1994 and those two contracts could not be performed due to [Buyer]'s lack of import license. [Buyer] submits that because both parties have signed a valid contract [i.e., the Contract], the standard of the goods should be that provided in the valid contract; and it is groundless for [Seller] to base its claim on two abolished contracts [i.e., the contracts of 4 June 1994 and 8 September 1994]. [Seller] asserts that [Buyer] knew that the goods had arrived at the port, but [Seller] does not provide any evidence to support this. As a result, this assertion of [Seller] should not be upheld.

     2. The specification of the goods is not in compliance with the Contract

Two DH320 excavators that [Seller] delivered are not in compliance with the Contract. The belt width stipulated in the Contract for these two excavators is 600mm, but the belt width of the DH320 excavators delivered by [Seller] was 800mm. In order to transport these two wider excavators, [Buyer] had to pay additional freight to the railroad to add width and limit transportation speed, and this caused extra costs to [Buyer]. The fact that [Buyer] accepted the 800mm excavators and sold them to a third party could not prove that the two excavators are the goods under the Contract or that [Buyer] accepted them [as the goods under the Contract] for the price provided by the Contract.

     3. The price of the wide-track excavators is not in compliance with the Contract

[Seller]'s assertion that the price of these two wide-track excavators is higher than that of other excavators just shows [Seller]'s admission that the price of the goods delivered by it is not in compliance with the price stipulated in the Contract.

     4. The marks in the invoice and the B/L are not in compliance with the Contract

The marks in the invoice and the B/L for the goods delivered by [Seller] are "94GB/200028KR WUZHOU, CHINA", but the mark in the Contract is "QINGDAO, CHINA". Contract No. 94GB/200028KR is the second contract that the parties signed. This shows that [Seller], in fact, did not perform the Contract signed on 1 December 1994.

     5. The goods under the B/L were not prepared for this Contract

[Seller]'s B/L was sealed with a "China Qingdao Foreign Agency Modification Seal". This shows that the goods delivered by [Seller] [with this B/L] were not prepared for this Contract, and were only transferred to [Buyer] by modifying the transportation path.

II. Whether [Buyer] has the right to reduce the price of the eleven excavators delivered by [Seller]

[Seller]'s claim

[Seller] asserts that it is unreasonable for [Buyer] to decide the price of the goods according to [Buyer]'s unilateral inspection, because:

     (1) The goods delivered are the very goods that [Buyer] bought under the Contract. Except for the two wide-track excavators, all of the [other] goods comply with the Contract. [Buyer] has accepted and agreed on the two wide-track excavators whose width does not comply with the Contract. Moreover, the price of those two wide-track excavators is higher than that of normal excavators. Accordingly there is no factual basis for [Buyer] to claim a reduction of the price. [Buyer] alleges that [Seller] promised to compensate it when it accepted the two wide-track excavators. [Seller] denies this allegation.

     (2) The claim for reduction of the price should be made before acceptance of the goods. Only with [Seller]'s consent, can [Buyer] accept the goods with a reduced price. It is unreasonable for [Buyer] to unilaterally claim a price reduction after it has received the goods and resold them to a third party.

     (3) The margin of the price reduction should be decided by relevant authority or a third party that the parties agree on. It should not be decided unilaterally by one party.

[Buyer]'s reply

The fact that [Buyer] accepted the goods does not mean that [Buyer] accepted the price of the goods. Because of the change in respect of the subject matter of the Contract [i.e., from two 600mm normal excavators to two 800mm wide-track excavators], the contract price should also be changed accordingly. [Seller] and [Buyer] should have reached a new agreement about the contract price of the eleven excavators. Although the parties did not reach such agreement, certainly the price of the eleven excavators should not be in accordance with the contract price. Both Article 50 of the United Nations Convention on Contracts for the International Sale of Goods (1980) (hereinafter: the CISG) and Article 18 of Foreign-related Economic Contract Law of People's Republic of China [1] have such stipulation.

[Buyer] invited experts to appraise the eleven excavators' price and quality, and the result shows that the goods delivered by [Seller] have defects and the total value of the goods is US $600,000. [Buyer] asserts that the value of the goods is US $600,000 according to the quality, usage and life expectancy of the goods under the Contract as compared to those of the excavators manufactured by other domestic and foreign manufacturers. On 1 February 1997, [Buyer] paid [Seller] the price of the goods delivered US $600,000 and interest of US $27,000 for nine months at an annual rate of 6%.

III. The quality of the eleven excavators and damages

[Buyer]'s position

[Buyer] asserts that shortly after the eleven excavators were sold to and used by [Buyer]'s client, the client alleged that the excavators had severe defects. [Buyer] listed the defects of each excavator. [Buyer] alleges that because the eleven excavators have severe defects, [Buyer]'s client has claimed damages of RMB 1,128,000 against [Buyer], and there is an unpaid price of RMB 823,540 due from the client.

In addition, when the Contract was signed, [Seller]'s Chengdu repair service station was just set up, without trained repair workers, components and capacity to provide repair service. However, the price of excavators includes repair fees, so the price should be lower than the price of the excavators covered by repair services. Inspection shows that the goods are rusted and components are missing.

Moreover, the defects of the goods have severely affected [Buyer]'s reputation and business interest, and [Buyer] has suffered severe loss.

[Buyer] did not inspect the goods simply because [Seller] made the promise and admission that the goods were not those under the Contract and were not in compliance with the Contract. [Seller] promised to solve the problem and requested [Buyer] to help it dispose of the goods. If [Buyer] applied for inspection, as provided by the Contract, the goods could not pass the inspection. On 6 February 1995, [Seller]'s Jinan [People's Republic of China] representative Ms. Zhang replied that the goods did arrive in China in September 1994 [i.e., before the Contract was concluded], and the non-compliance of the goods with the Contract would be solved by [Seller]. She also requested [Buyer] to help [Seller] dispose of the goods. As to demurrage [owed to the port] and the late penalty [owed to the custom], Ms. Zhang replied that [Buyer] assumed 50% first and finally that [Seller] would settle this with [Buyer].

[Buyer] also alleges that since the goods are not those under the Contract, it is not necessary to claim for damages according to the Contract.

In addition, [Buyer] asserts that [Seller] still owes [Buyer] the following amount:

     (1) RMB 300,000, the value of two arms and other components of the excavators which [Seller] failed to deliver;

     (2) RMB 210,000, demurrage and late penalty paid by [Buyer] for [Seller] on 12 February 1995;

     (3) RMB 310,324.29, [Buyer]'s expense to get and send certain components for repair;

     (4) RMB 18,000, exhibition charges paid by [Buyer] for [Seller] in Korea in 1996;

     (5) RMB 290,000, the amount unpaid by [Buyer]'s client due to the defects of the goods;

     (6) RMB 188,000, transportation and other costs paid by [Buyer] due to the extra width of the two 800mm wide-track excavators;

     (7) The interest on each of the above amounts.

[Seller]'s position

1. The Contract clearly provides for damages. [Buyer] did not provide a certificate of inspection to prove any defect of the goods within the period specified by the Contract, so [Buyer] lost the right to claim damages (if any). If [Buyer] claims damages caused by design or manufacture defects, it should do so before 7 February 1996 with an inspection certificate issued by relevant Commodity Inspection Bureau. However, half of the "defective" excavators alleged by [Buyer] only have quality problems after their warranty periods. Thus, [Buyer] has no right to claim for damages as to these goods at all. Furthermore, [Buyer] did not claim for damages with an inspection certificate issued by the Commodity Inspection Bureau, as required by the Contract, so it lost the right to damages.

2. Quality and guaranteed repair are fundamentally different. Contractual claims for damages due to the quality of the goods should be raised in strict compliance with the Contract. If [Buyer] does not claim in accordance with the Contract, [Seller] has the right to refuse. Guaranteed repair refers to free repair of problems that occur during proper use of the goods within the guaranteed period. If a problem is caused by improper use, [Seller] has a right to refuse to repair or to charge repair fees. Accordingly, [Seller]'s consent to provide post-sale repair service to [Buyer] does not mean that it agrees or has duty to compensate [Buyer] according to the Contract.

3. [Seller] repaired or changed components of most of the problematic excavators. This conduct of [Seller] does not mean that it agrees that [Buyer] could claim damages not in accordance with the Contract. As to [Seller]'s service, if the problem occurred within the guaranteed period and in the course of proper use, [Seller] would repair for free; and if beyond the guaranteed period or caused by improper use, [Seller] has the right to charge [Buyer], although [Seller] in fact [did not exercise its right and] repaired the excavators for free.

4. [Buyer] does not provide evidence to support its explanation for its failure to inspect the goods. Ms. Zhang's reply alleged by [Buyer] is only based on a "statement of the situation" made by one employee of [Buyer], and is still a one-sided statement of [Buyer]. And this is not supported by any real evidence.

THE OPINION OF THE ARBITRATION TRIBUNAL

1. Applicable law

[Seller] and [Buyer] did not stipulate the applicable law in their contract.

In its reply and other supplementary materials, [Buyer] cited the CISG and Foreign-related Economic Contract Law of People's Republic of China (hereinafter: the Foreign-related Economic Contract Law) many times, and made its reply accordingly.

[Seller] commented on [Buyer]'s citation of the CISG and the Foreign-related Economic Contract Law. [Seller] does not object to the application of the CISG, but only asserts that "because the goods are in compliance with the Contract, [Buyer] has no ground to apply Article 50 of the CISG and Article 18 of the Foreign-related Economic Contract Law."

Therefore, the Arbitration Tribunal holds that since both parties agree to apply the CISG and the PRC's law, the CISG, the PRC's law and relevant international trade custom are applied to this case.

2. Whether the goods delivered by [Seller] were those under the Contract

[Buyer] refused to pay the entire contract price US $875,000 according to the Contract, alleging that the goods delivered are not those under the Contract. [Buyer] gave five reasons.

     (1) The background to the signing of the Contract

[Buyer] asserts that the goods delivered by [Seller] are not those under the Contract, mainly because the date of the B/L is earlier than the date of the conclusion of the contract.

As to [Buyer]'s assertion, [Seller]'s explanation is that before 1 December 1994 when [Seller] and [Buyer] signed the Contract, the parties had signed two contracts for sales of equipments (including the excavators delivered by [Seller]) on 4 June and 8 September 1994. These two contracts include not only excavators but also other items of equipment. Because [Buyer] did not apply for an import license for the other equipment under these two contracts, [Seller] delivered the excavators first on 5 September 1994 and then on December 1 [Seller] signed the Contract in this case with [Buyer]. This Contract does not include the other equipment for which [Buyer] did not have an import license.

[Buyer] admits that there exist two contracts signed on 4 June and 8 September 1994 for [Buyer] to buy excavators and other equipment, and also that it did not get the import license for the other equipment. However, [Buyer] points out that when signing the contracts on June 4 and 8 September [Buyer] asked [Seller] to deliver the goods after [Buyer] got the import license. In addition, [Seller] is also liable for non-delivery of the other equipment.

The Arbitration Tribunal holds that:

   -    The liability for non-performance of the contracts signed on 4 June and 8 September is an issue irrelevant to this case. Moreover, the parties do not claim any rights under these two contracts in this arbitration.
 
   -    It is not essential that the eleven excavators were delivered earlier than the date of the conclusion of the Contract. The issue here is whether the goods delivered are those under the Contract.

     (2) Whether the subject matter of the Contract can be goods which had already been delivered [before the conclusion of the Contract]

In an international sale of goods, the buyer usually understands that the goods will be delivered within a shipping period after the conclusion of the contract, and this is buyer's reasonable expectation.

However, the Arbitration Tribunal notes that the price term in this Contract is CIF. According to international trade custom, if the goods have already been in transit or have arrived at the destination port when the contract is signed, usually the seller will notify the buyer of this situation and will appropriate the goods to the contract. The appropriation need not be done before the documents are delivered to the buyer, and the delivery of the documents means the appropriation of the goods to the contract.

In this case, [Seller] asserts that it informed [Buyer] about the fact that the goods had been delivered on 5 September 1994, before 1 December 1994 when the Contract was signed. [Buyer] denied [Seller]'s assertion. [Seller] does not provide more evidence to prove its assertion. However, the performance of the Contract shows that [Buyer] accepted the B/L submitted by [Seller] and took the delivery. [Seller] therefore fulfilled its duty to appropriate the goods to the Contract.

3. Whether [Buyer] accepted the goods under the Contract

The evidence shows that [Buyer] did not refuse, but accepted the goods.

[Buyer] asserts that it did not accept the goods, but just helped [Seller] to dispose of the goods as requested by [Seller]'s Qingdao representative. However, [Buyer] does not provide any evidence of this. Moreover, this assertion conflicts with other evidence. According to the document submitted by [Buyer] - "cooperation with ___ and problems to be resolved" - which is recorded by ** company (to which [Buyer] resold the excavators) and dated 27 May 1997, and ** company's fax to [Seller] on 6 February 1995,

   -    [Buyer]'s inspectors inspected the goods on 4 February, and on February 6 they knew that the goods had arrived in China before 1 December 1994 when the Contract was signed; and
 
   -    [Buyer]'s inspectors also knew that the width of the two excavators was 800mm, not 600 mm as stipulated in the Contract.

Although at that time [Buyer] asserted that the extra width would cause trouble for transportation, [Buyer] did not assert that the goods were not those under the Contract, as it states in the arbitration.

In fact, [Buyer] sold the goods, and S Company, as [Buyer]'s guarantor, showed [Seller] the letter of performance guarantee on 6 February 1995. This guarantee clearly referred to Contract No. 94CB/200026KR [i.e., the number of the Contract in this case], and guaranteed the total contract price of US $875,000. This guarantee was notarized on 12 February 1995, and was delivered to [Seller] later. The "Excavator Inspection Record" prepared by [Buyer] on 23 April 1995 also refers to Contract No. 94CB/200026KR.

[Buyer] took the above actions with knowledge that the goods had been shipped before the Contract was signed. Since [Buyer] knew that the goods had been delivered before the Contract was signed and accepted and resold the goods, it loses the right to claim that the goods were not those under the Contract.

In sum, the Arbitration Tribunal does not uphold [Buyer]'s allegation that the eleven excavators were not those under the Contract.

     (3) [Buyer]'s assertion that it had the right to re-appraise the price of the goods

[Buyer]'s reason for refusing to make the payment is that the eleven excavators are not the goods under the Contract and therefore according to CISG it has the right to reduce the contract price. [Buyer] cites the following articles to support its allegation.

Article 50 of the CISG states:

"If the goods do not conform with the contract and whether or not the price has already been paid, the [Buyer] may reduce the price."

Article 18 of Foreign-related Economic Contract Law provides:

"If a party fails to perform the contract or its performance of the contractual obligations does not conform to the agreed terms, which constitutes a breach of contract, the other party is entitled to claim damages or demand other reasonable remedial measures."

[Buyer] invited experts to appraise the quality and price of the eleven excavators, and the appraisal shows that the goods are defective and the value is only about US $600,000.

The Arbitration Tribunal notes that [Buyer] draws its conclusion regarding the value of the excavators [i.e., US $600,000] by comparing prices of excavators of the same model from different manufacturers, but [Buyer] did not provide the expert's analysis report or any other technological analysis. The Arbitration Tribunal holds that the basis for [Buyer]'s appraisal is its belief that the eleven excavators are not the goods under the Contract. However, as the Arbitration Tribunal analyzed above, such belief of [Buyer] cannot be established. Furthermore, [Buyer]'s evidence is not sufficient to be upheld.

     (4) Quality of the goods and non-compliance

[Buyer]'s asserts that the goods do not comply with the Contract, because of:

          1. Broken arms of the excavators

The Arbitration Tribunal notes that the Contract stipulates a one-year warranty. As alleged by [Buyer], the arms broke after the one-year warranty period. And [Buyer] does not provide any special reasons for [Seller] to bear liabilities after the warranty period. So [Seller] shall not be liable for the broken arms.

          2. 800 mm wide track of the two excavators

The Contract stipulates that the width of these two excavators shall be 600mm, but the width of the excavators delivered was 800mm.

[Buyer] asked [Seller] to bear the extra transportation expenses. However, [Seller] asserts that the price of the 800mm wide track excavators is higher than that of the 600mm excavators.

The Arbitration Tribunal notes that [Buyer] notified [Seller] that the width of the two DH320 excavators was not in compliance with the Contract, after [Buyer] found it. And [Seller] acknowledged this non-compliance. [Buyer] therefore has right to claim for damages due to the non-compliance of these two excavators.

          3. Other quality problems

Within the 90-days period stipulated by the Contract, [Buyer], at least before 4 May 1995, notified [Seller] about the lack of certain components and damages to certain components, the lack of operation manual, list of ancillaries and repair booklets, and so on, and claimed for damages by requesting [Seller] to deliver the missing and the damaged components and the relevant documents. Although [Buyer] did not provide the inspection certificate issued by China Commodity Inspection Bureau, as required by the Contract, [Seller] does not object to the factual basis of [Buyer]'s claim, and indeed sent all or part of the components and documents to [Buyer]. [Seller]'s action may have led [Buyer] to believe that the inspection certificate was no longer necessary.

Accordingly, the Arbitration Tribunal holds that [Buyer] is not deprived of its right to claim damages in respect to quality problems that it raised within the warranty period, by its lack of the inspection certificate. Thus, the Arbitration Tribunal will consider the price reduction in accordance with specific facts in this case.

Because the goods have defects mentioned above, and because [Buyer] does not provide a specific amount or standard by which to reduce the price, the Arbitration Tribunal, according to the facts, holds that the price of the eleven excavators shall be reduced by 10%.

     (5) [Buyer]'s other claims

          1. As to [Buyer]'s request that [Seller] should compensate [Buyer] for the late penalty and the demurrage in the amount of RMB 210,000 paid by [Buyer] for [Seller] on 12 February 1995, the Arbitration Tribunal holds that [Seller] fails to prove that [Buyer] knew the goods had been shipped and had arrived at the port when signing the Contract, and therefore [Seller] has no right to let [Buyer] bear the late penalty and the demurrage. In addition, [Seller] does not deny the fact that [Buyer] paid RMB 210,000.

Therefore, the Arbitration Tribunal holds that [Seller] shall bear this amount, and this shall be deducted from the payment that [Buyer] shall make to [Seller].

          2. Because [Buyer] does not provide relevant evidence for its claim that [Seller] should compensate its expenses to fetch and send for repair the missing and damaged

components, RMB 310,324.29, the Arbitration Tribunal cannot uphold this claim.

          3. The Arbitration Tribunal holds that [Buyer]'s claim for the exhibition expenses, RMB 18,000 is not related to this case and cannot be upheld.

          4. The Arbitration Tribunal does not uphold [Buyer]'s claim for extra transportation expenses for 800mm wide-track excavators, because the contract price is reduced by 10%.

          5. The Arbitration Tribunal cannot uphold [Buyer]'s claim for interest, because [Buyer] in fact withheld part of the contract price that it owed to [Seller].

     (6) [Seller]'s claims

          1. [Seller] requests [Buyer] to pay the balance of the contract price, US $248,000. The Arbitration Tribunal finds that the goods are not in compliance with the Contract to the extent that 10% of the contract price [i.e., US $87,500] shall be reduced, and that [Seller] shall pay [Buyer] the late penalty and the demurrage, RMB 210,000 [i.e., US $25,301.20 (the exchange rate is 1:8.3)]. Thus, [Buyer] shall pay US $135,198.80.

          2. The interest that [Seller] claims includes two parts.

The first part is the interest for the paid part of the contract price, US $627,000, at the annual rate of 6% from 23 April 1995 to 15 February 1996, totaling US $31,350. Because [Buyer] made the payment later than the time stipulated in the contract, [Buyer] shall pay this interest.

The second part is the interest on the unpaid part of the contract price, US $135,198.80, at the annual rate of 6% from 23 April 1995 to the time when the payment is made.

          3. Because [Seller] does not provide evidence for its attorneys' fees and traveling expenses, the Arbitration Tribunal cannot uphold this claim.

          4. The arbitration fee is __, and [Seller] shall bear 30% and [Buyer] shall bear 70%.

AWARD

1. [Buyer] shall pay the unpaid contract price, US $135,198.80;

2. [Buyer] shall pay interest of US $31,350, and interest on the unpaid contract price of US $135,198.80, at the annual rate of 6% from 23 April 1995 to the day when the payment is made;

3. [Buyer] shall bear 70% of the arbitration fee, and [Seller] shall pay 30%;

4. [Seller]'s other claims are dismissed.

[Buyer] shall make the above payment within 30 days of the date of this award.

This award is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the Republic of Korea is referred to as [Seller]; Respondent of the People's Republic of China is referred to as [Buyer]. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB].

** Zheng Xie, LL.M. Washington University in St. Louis, LL.M., BA in Economics, University of International Business and Economics, Beijing.

*** LIU Ping, Lawyer, Baker & McKenzie, Beijing, People’s Republic of China; LL.M., Harvard Law School (2003-2004); Master of Civil and Commercial Law, Tsinghua University Law School (2000-2003).

1. Note by Reviewer: The Foreign-related Economic Contract Law of People's Republic of China, effective on 1 July 1985, was superseded by Contract Law of the People's Republic of China which came into effect on 1 October 1999.

Article 18 of the Foreign-related Economic Contract Law provides that:

"Where one party does not perform the contract or does not perform the obligations of the contract in accordance with the conditions agreed on, that is, breaches the contract, the other party has the right to claim compensation for damages or take other reasonable remedial measures. If after other remedial measures have been taken the other party cannot be completely compensated for the damages it has sustained, the other party still has the right to claim compensation for damages."

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Pace Law School Institute of International Commercial Law - Last updated May 29, 2008
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