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CISG CASE PRESENTATION

China 28 May 1999 CIETAC Arbitration proceeding (Veneer import case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990528c1.html]

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

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Case identification

DATE OF DECISION: 19990528 (28 May 1999)

JURISDICTION: Arbitration ; P.R. China

TRIBUNAL: China International Economic & Trade Arbitration Commission (CIETAC), Shenzhen Commission

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1999/02

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Malaysia (Respondent)

BUYER'S COUNTRY: China (Claimant)

GOODS INVOLVED: Veneer


UNCITRAL case abstract

PEOPLE'S REPUBLIC OF CHINA: China International Economic & Trade
Arbitration Commission (CIETAC) 28 May 1999 (Veneer import case)

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/98],
CLOUT abstract no. 979

Reproduced with permission of UNCITRAL

Abstract prepared by Jean Ho

This case involved the calculation of damages under the CISG. After determining that the absent party had breached the contract, the tribunal calculated the damages.

The Malaysian seller and the Chinese buyer entered into a contract for the sale and purchase of 4,000 steres of Malaysian veneer. The parties agreed to chose Chinese law, and the tribunal applied the CISG as part of that law. The buyer applied for an irrevocable letter of credit (L/C) for the entire purchase price. Then the seller issued an invoice to the buyer and the buyer agreed to undertake the L/C for the invoiced sum. Subsequently, the buyer was informed that the seller was unable to deliver the goods. The buyer asked the seller to return the sum already paid by L/C. The seller remitted 60 per cent of that sum and withheld the remainder. Subsequently, the buyer entered into a substitute transaction for replacement goods. Before the arbitral tribunal, the buyer claimed payment of the unreturned portion of the price, interest, lost profit and liquidated damages.

The tribunal ordered the seller to return the remainder of the price, to pay interest, and to compensate for lost profits as consequences of the seller's breach of contract and late repayment. The tribunal however dismissed the liquidated damages claim because the buyer knew before conclusion of the resale contract that the seller was unable to deliver the goods and, furthermore, it had already received a partial refund from the seller. By nevertheless entering into a resale contract, the buyer did not mitigate its loss and was therefore liable for any loss suffered in this respect.

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Classification of issues present

APPLICATION OF CISG: Yes, along with Chinese domestic law

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 76 ; 77 ; 78 ; 84(1)

Classification of issues using UNCITRAL classification code numbers:

74A ; 74A1 ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Includes loss of profit; Outer limits of damages: foreseeability of loss];

76B [Damages recoverable based on current price];

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

78A ; 78B [Interest on any sum in arrears; Rate of interest];

84A [Seller bound to refund price must pay interest]

Descriptors: Damages ; Foreseeability of damages ; Profits, loss of ; Mitigation of loss ; 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): Zhongguo Guoji Jingji Maoyi Zhongcai Caijueshu Xuanbian [Selected Compilation of Awards of CIETAC] (1995-2002), Law Press, at page 272

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at n.123, 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, Shenzhen Commission Arbitration Award

Veneer import case (28 May 1999)

Translation [*] by YUAN Xiaotong [**]

Edited by JIANG Chi [***]

[Abstract]
I.  Facts of the case
II. Arguments of the parties
       -  [Seller]'s Argument
       -  [Buyer]'s Argument
III. Opinion of the Arbitration Tribunal
       -  Choice of law
       -  Repayment of purchase price and interest
       -  [Buyer]'s damages: loss of profit (expectation interest),
            and liquidated damages paid to its client
IV. The Award

[ABSTRACT]

[Buyer] agreed to purchase 4,000 steres of veneer from [Seller]. However, [Seller] did not deliver the goods after [Buyer]'s payment. Since [Seller] returned only a part of [Buyer]'s prepayment, [Buyer] resorted to arbitration. The Arbitration Tribunal determined that since [Seller] did not deliver the goods; it has breached the contract. The Arbitration Tribunal sustains [Buyer]'s claim for repayment. [Seller] shall also pay [Buyer] damages to compensate the loss of profit calculated on the basis of the difference between the current price and the contract price at the place where delivery of the goods should have been made. However, [Buyer]'s claim for consequential damages is denied. [Buyer] had made a resale contract with its customer at a time when it knew [Seller] could not deliver the goods. This conduct breached [Buyer]'s duty to mitigate the loss; therefore, the liquidated damages [Buyer] paid to its customer [under another contract] should not be imposed on [Seller].

In accordance with the arbitration clause specified in the "No. XX Goods Import Contract" between [Buyer] and [Seller] [(the "Contract")], and the arbitration application of [Buyer], China International Economic & Trade Arbitration Commission Shenzhen Commission (hereinafter "CIETAC Shenzhen Commission") accepted this arbitration case on 25 November 1998. The arbitration procedure shall observe the Arbitration Rules of the China International Economic & Trade Arbitration Commission effective as of 10 May 1998.

[Buyer] appointed one arbitrator, while [Seller] neither appointed nor entrusted anyone to make such appointment. In accordance with the CIETAC Arbitration Rules, the Chairman of CIETAC appointed one arbitrator for [Seller]. Since the parties did not jointly appointed a third arbitrator in the specified period required by the Arbitration Rules, the Chairman of CIETAC made such appointment; the third arbitrator acted as the presiding arbitrator. The presiding arbitrator and the two appointed arbitrators formed an Arbitration Tribunal to jointly hear the case.

The first oral hearing was held on 21 April 1998 in Shenzhen China. [Buyer]'s representative attended the oral hearing, while [Seller] failed to appear at the hearing. In accordance with the CIETAC Arbitration Rules, the Arbitration Tribunal proceeded with the hearing by default.

[Buyer] supplemented its documents after the first oral hearing.

Pursuant to the CIETAC Arbitration Rules, the Secretary of CIETAC mailed to [Seller] all documents submitted by [Buyer], as well as documents and notices related to the arbitration procedures. However, [Seller] did not provide any response after it received all the materials.

The Arbitration Tribunal made its final award in writing on 28 May 1999. The facts of the case, the opinion of the Arbitration Tribunal and the award are as follows.

I. FACTS OF THE CASE

On 28 January 1997, [Buyer] and [Seller] signed "No. XX Goods Import Contract" at XX (the place of contract). The goods under contract were 4,000 steres of Malaysian veneer for the total price of US $1,980,000. The port of loading was Malaysia Port; the port of destination was Shantou (China). The time of shipment was to be before 1 March 1997. The contracting parties further agreed that:

  1. Arbitration. Any dispute arising out of or in connection with this Contract shall be submitted for arbitration to China International Economic and Trade Arbitration Commission in accordance with the provisions of the said Commission. The award by this Commission shall be deemed as final and binding upon both parties.

  2. [Governing law]. The laws of the People's Republic of China shall apply if either the place where the contract is signed or the place where goods are tendered is in the People's Republic of China, or where the defendant is a Chinese legal person. Otherwise, the United Nations Convention on Contracts for the International Sale of Goods (hereinafter CISG) shall apply.

A dispute arose between the parties over performance of the Contract. On 29 October 1998, [Buyer] filed an arbitration application with CIETAC Shenzhen Commission against [Seller] in accordance with the arbitration clause of the Contract.

II. ARGUMENTS OF THE PARTIES

[Buyer]'s argument

[Buyer] argued that:

  1. [Seller] shall return the full amount of payment made by [Seller] in the amount of US $526,961.15 for the goods which were not delivered by [Seller], as well as interest of US $106,314.41 for loans extended by the bank for the purpose of opening and maintaining the letter of credit [L/C] [([Buyer]'s "L/C Loan")] [****]. The principal and interest totaled US $633,275.56. In addition, [Buyer] also claimed other direct economic loss in the amount of US $98,501.58 as a result of [Seller]'s failure to deliver. The sum of these claims amounted to US $731,777.14.

  2. [Buyer] claimed that [Seller] should bear all the arbitration fees.

[Buyer] alleged:

[Seller]'s position

Respondent [Seller] did not provide any response or defense to [Buyer]'s claims.

III. OPINION OF THE ARBITRATION TRIBUNAL

1. Choice of law

The Contract was signed in China. As contemplated by the Contract, the laws of the People's Republic of China shall apply if the Contract is signed in China. Accordingly, the laws of People's Republic of China are the governing law for this case.

2. Repayment of US $526,961.15 and interest of US $106,314.41 for loans

The Arbitration Tribunal finds as follows:

3. [Buyer]'s damages: loss of profit (expectation interest), and liquidated damages paid to [Buyer]'s client

[Buyer] alleged that it failed to realize the profits it expected under the Contract because [Seller] did not deliver the goods under the Contract. The amount of [Buyer]'s loss of profit (expectation interest) totals RMB 399,168 which equaled US $48,501.58 at the exchange rate published by Bank of China. The Arbitration Tribunal finds that [Buyer] stated in the letter to its attorney on 10 September 1998, that at the time the Contract was concluded, the price for Malaysian veneer in the international market was US $450/stere whereas the price in the China market was RMB 4,150. (One stere can contain 112 slices of board. The price for each slice was about RMB 37.00 to 37.30). [Seller] rendered no defense, nor objection to the market price submitted by [Buyer]. The Arbitration Tribunal concludes that the price of RMB 37.00 per slice was the reasonable then current price. [Buyer]'s proposition is sustained.

[Buyer] also alleged that it paid liquidated damages of US $50,000 to its domestic customer because of its failure to perform the Resale Contract. The Arbitration Tribunal finds that on 28 April 1997, [Buyer] entered into the Resale Contract with XX Industry and Trade Company for goods that [Buyer] expected to receive under the Contract. In this Resale Contract, the price was agreed to be RMB 37 per slice. However, it is proved that [Buyer] knew that [Seller] was unable to deliver the goods before that Resale Contract was concluded. As indicated in the testimony of Mr. Xu, the date that [Buyer] knew of [Seller]'s anticipatory failure to deliver goods was around 6 April 1997. Moreover, on 17 April 1997, [Seller] had remitted US $1,453,444.35 to XX Group Ltd. Hong Kong as per [Buyer]'s instruction. It was after that date, on 28 April 1997, that [Buyer] concluded its Resale Contract with its domestic customer. It is clear that [Buyer] concluded a contract with a third party at a time when it knew that [Seller] was unable to perform its obligation under the Contract and had already received a partial refund from [Seller]. The reason, as [Buyer] explained, was the deficiency of communication within its internal departments. As such, [Buyer] shall bear any loss arising out of its internal miscommunication. [Buyer]'s claim for US $50,000 against [Seller] is dismissed.

IV. THE AWARD

The Arbitration Tribunal hereby decides:

  1. Within forty days of the effective date of this award, [Seller] shall pay to [Buyer] the un-refunded prepayment of US $526,961.15, and interest for the L/C loan in the amount of US $106,314.41. In addition, [Seller] shall compensate [Buyer] US $48,501.58 as foreseeable profits under this transaction. The sum totals US $681,777.14.
  2. [Buyer]'s claim for the reimbursement of [Buyer]'s payment of liquidated damages to its customer under the Resale Contract is dismissed.
  3. [Seller] shall bear all the arbitration fees and expenses.
  4. If [Seller] delays in performing the payment referred to in items (1) and (3), [Buyer] is entitled to interest on any unpaid amount at the rate of 8% per year.

This award is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of China is referred to as [Buyer]; Respondent inland in Malaysia 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]

** YUAN Xiaotong, LL.M. candidate, Faculty of Law McGill University, Montreal Canada, 2001 to present; LL.B. Renmin University of China Law School, 2001.

*** JIANG Chi is an Associate with the New York office of Debevoise & Plimpton LLP.

**** In the total amount of the letter of credit, a part of US $667,000 is the loan offered by CIBC XX Branch. The interest claimed by [Buyer] and referred in this case arise from the aforesaid loan.

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Pace Law School Institute of International Commercial Law - Last updated October 20, 2010
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