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CISG CASE PRESENTATION

China 31 May 1999 CIETAC Arbitration proceeding (Indium ingot case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990531c1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19990531 (31 May 1999)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1999/27

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: United States (respondent)

GOODS INVOLVED: Indium ingots


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 4 ; 35 ; 53 ; 60 ; 77 ; 78 ; 79

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): fraud];

35C2 [Conformity of goods to contract (exception to seller's liability for non-conformity): parties have agreed otherwise];

38A [Buyer's obligation to examine goods];

53A [Buyer's obligation to pay price of goods];

60A [Buyer's obligation to take delivery];

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

78B [Rate of interest];

79B [Impediments excusing party from liability for damages]

Descriptors: Scope of Convention ; Fraud ; Unconscionability ; Conformity of goods ; Examination of goods ; Price ; Delivery ; Mitigation of loss ; Interest ; Exemptions or impediments

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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. 2022-2030

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.123, 193, 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

Indium ingot case (31 May 1999)

Translation [*] by WEI Shu [**]

Edited by LIN Zhongming [***]

The China International Economic and Trade Arbitration Commission (formerly known as the Foreign Trade Arbitration Committee of China International Trade Promotion Commission, renamed as the Foreign Economic Trade Arbitration Committee of China International Trade Promotion Commission, and renamed as the present name; hereafter "the Arbitration Commission") has accepted on 30 October 1998 an arbitration contract dispute based on:

   -    The arbitration clause of Contract No. 98US13HB23402B049 entered into by the Hebei __ Import & Export Company (hereafter referred to as [Claimant]") and the Respondent American __ Company (hereafter "[Buyer]"); and
 
   -    The Arbitration Application submitted by the [Claimant] on 20 October 1998.

According to the Arbitration Rules of CIETAC (effective as of 10 May 1998, hereafter "Arbitration Rules"), the Chairman of CIETAC appointed Mr. P as the presiding arbitrator. Mr. A, appointed by the [Claimant], Mr. D, designated by the Chairman of CIETAC for the [Buyer], and Mr. P formed an Arbitration Tribunal on 10 December 1998 to hear the case.

The Arbitration Tribunal reviewed carefully the Arbitration Application and its attachments and the Statement of Defense of the [Buyer], and held an oral hearing on 19 January 1998 in Beijing. The Representatives of the parties appeared before the Tribunal, made statements about the case, and responded to the questions of the Tribunal. After the court hearing, both parties presented supplementary materials.

The trial of the case has finished. According to the Arbitration Rules, the Arbitration Tribunal has held its deliberation and hands down its award based on the available written materials and the facts found in the court hearing. The facts, the Arbitral Tribunal's opinion and the award are as follows:

[A.] DETAILS OF THE CASE

Contract No. 98US13HB23402B049 (hereafter the "Contract") entered into by the [Claimant] and the [Buyer] states that the [Claimant] will provided the [Buyer] with 1,000 kg indium ingots on the following terms:

   -    Unit price: US $235; Total price: US $235,000
   -    Payment terms: [Buyer] shall pay by L/C within 30 days after delivery
   -    Delivery terms: CIF; Shipment: by air

In the course of performing the Contract, a dispute arose that the parties were unable to resolve by negotiation. The [Claimant] therefore applied to the Arbitration Commission.

[B.] POSITION OF THE PARTIES

The [Claimant]'s position

The claims put forward by the [Claimant] were:

      The [Buyer] is an American company with a representative office in Beijing. At about the end of July / early August, the [Buyer], via its Beijing representative office, negotiated by telephone with the [Claimant] many times, seeking to have the [Claimant] act as agent of the [Buyer]'s supplier, Jinzhou _ District Zinc-Products Manufactory, which was specially contacted and determined (by the [Buyer] alone), to export metal indium ingots to the [Buyer]. According to the market situations at that time, the [Buyer] asked the [Claimant] to conclude and perform a contract with the supplier as soon as possible. Considering the facts that:

   -    the supplier of the goods was contacted by the [Buyer] itself;
   -    the [Buyer] itself was to purchase the goods;
   -    the sale price with the supplier was negotiated and determined by the [Buyer]; and
   -    the [Claimant] was only an export agent without knowledge of the goods,

the [Claimant]'s position was that it would only agree to act as export agent if it was understood that the [Claimant] would not be called upon to assume any responsibility for the quality and quantity of the goods. The [Buyer] consented to this, and expressly told the [Claimant] that the quality and quantity of the goods were just OK, and that the [Claimant] had no responsibility for the goods. The [Buyer] further promised to issue a sight L/C to the [Claimant]. Under these preconditions, the [Claimant] agreed to the [Buyer]'s requirements, i.e., to act as an agent of the supplier to export the goods.

After the [Claimant] and the [Buyer] consented to these conditions orally, the [Buyer] then sought several times to have the [Claimant] pay the supplier for all of the goods at the time of delivery. There were several negotiations. After which, when the [Claimant] got the [Buyer]'s guarantee to pay the [Claimant] within 30 days from the date of exporting the goods, the [Claimant] then agreed that when the supplier delivers the goods to the [Buyer] in Beijing Capital International Airport, the [Claimant] would pay 90% of the total price of the goods to the supplier in advance. On 6 August 1998, the parties concluded the Contract according to aforesaid conditions. Besides the common provisions of a sales contract, the Contract stipulated in the attachment that:

   -    If the issuing bank does not make the payment, then the [Buyer] shall guarantee to pay within 30 days from shipment date;
   -    According to the contract concluded by the [Buyer] and the supplier, the [Claimant] takes no responsibility and duty for the quality and quantity of the goods.

On 13 August 1998, the [Buyer] applied to the issuing bank for issuance of the L/C to the [Claimant]. The L/C stipulated that the goods should be shipped before 20 August, 1998. On 17 August 1998, the [Claimant] consigned the goods in Beijing Capital International Airport and insured the goods in compliance with the Contract. When the [Claimant] consigned the goods, the supplier, the [Buyer] and the [Claimant] all appeared at the airport together. The [Buyer] examined the goods on the spot and certified that "the quality and quantity of the goods are in accordance with the Contract through inspection and the [Buyer] takes the delivery." In the meantime, the [Buyer] required the [Claimant] to pay 90% of the goods price of the goods to the supplier (renminbi [RMB] 1,600,000 yuan). The [Claimant] effected this payment to the supplier on demand and presented the documents to the issuing bank via another bank. The [Claimant] fulfilled all the obligations under the Contract. However, when the bank negotiated the L/C, the documents were not in compliance with the terms and conditions of the L/C in some items. The [Claimant] informed the [Buyer of this by fax on 21 August 1998. The [Buyer] immediately confirmed that it would accept all the documents as well as the inconsistent items. However, on 31 August 1998, the [Buyer] abruptly called to the [Claimant], alleging that there was fraud relating to the goods and that the [Buyer] refused to effect the duty of payment stipulated in the Contract. Then, the [Buyer] instructed the bank not to effect the payment because of the non-compliance. Then, on 10 September 1998, the bank withdrew all the documents.

Through several negotiations with the [Buyer] via phone and letters but without any result, the [Claimant] expressly informed the [Buyer] when it replied to one of the [Buyer]'s fax on 7 October 1998 that:

   -    The goods had been shipped in compliance with the Contract, and the property in the goods was transferred to the [Buyer] at the time of shipment;
   -    The [Buyer]'s delay in performing his obligation constituted a breach of the Contract, so the [Buyer] should make the payment as soon as possible;
   -    If the [Buyer] did not effect the payment in the period stipulated by the [Claimant] and just kept violating the Contract, the [Claimant] would have to resort to legal measures to solve the dispute.

Nevertheless, the [Buyer] has not made the payment, with some excuses.

It is the [Claimant]'s position that:

      Pact sunt servanda ["Pacts should be observed"] is a fundamental international legal principle. This case involves an international sales of goods, the countries of the parties are both Contracting States of the Convention of Contract for International Sale of Goods (hereinafter "CISG"), and the places of business of the parties are in two different Contractual States; thus the CISG should be applicable in this case as the Contract did not specially prescribe the applicable law.

Pursuant to the provisions of the Contract, the [Claimant] only assumed the obligations of delivering and insuring the goods. The [Claimant] presented the air transport document and insurance policy, which established that the [Claimant] had performed its contract obligations. It should be noted that because the goods were shipped by air, when one of the air transport documents was delivered to the [Buyer with the goods, the [Buyer] was able to take delivery against the air transport document as well as with any other identity certificate, and to control and dispose of the goods. According to Article 60 of the CISG, the [Buyer] had an obligation to take over the goods.

In addition, the [Buyer]'s obligation to take the delivery was specified in the Contract. As prescribed in the attachment to the Contract, the [Buyer] had the responsibility for the quality and quantity of the goods. Therefore, the duty to examine whether the quality and quantity were inconsistent with the Contract was not undertaken by the [Claimant], but by the [Buyer] itself. Legally, this stipulation in the attachment established that the [Buyer] had waived the right to request the [Claimant] to assume the obligation that the goods should be in compliance with the Contract. The fact that the [Buyer] examined the goods in Beijing Capital International Airport and issued a certificate proving that the goods were in accordance with the Contract, established, in a legal sense, that the [Buyer] took the delivery and thus lost the right to claim inconsistence of the delivery with the Contract. In the meantime, the [Buyer]'s obligation to make the payment was an absolute one.

As to the relationship of the parties concerned, the fact that the [Buyer] expressed to the [Claimant] that [Buyer] accepted the inconsistent items in the documents was a waiver of any right against the [Claimant].

Article 1 of the Attachment of the Contract should be considered as a special conditional guarantee by the [Buyer] on the payment. Because the issuing bank refused to pay the price, the condition stipulated by Article 1 was satisfied, and the [Buyer]'s duty of payment then turned into an unconditional duty. This guaranty provision prescribes that the [Buyer] should pay the price within 30 days from the date of shipment. The goods were shipped on 18 August 1998; the deadline of the payment period was thus 18 September 1998. Therefore, [Buyer]'s refusal to pay the price constituted a breach of the Contract.

Due to the breach, the [Buyer] should pay the whole price to the [Claimant] as prescribed in the Contract, as well as interest on the price from 18 September 1998 to the actual payment date. The [Claimant] applied for the Arbitration Tribunal to determine the actual ending date of the payment of interest. Pursuant to Article 74 of CISG, the [Buyer] had to compensate the damages for breach of the Contract suffered by the [Claimant]. The losses included the arbitration fees paid by the [Claimant] for applying for arbitration, and attorneys' fee and other charges by the [Claimant].

The [Buyer]'s breach of the Contract caused the [Claimant] to suffer serious economic losses. The [Claimant] had sought to solve the dispute through negotiation, but the [Buyer] did not cooperate with the [Claimant]. The [Claimant] therefore appealed to arbitration, claiming that:

1.  The [Buyer] should pay the price, US $235,000;

2.  The [Buyer] should pay interest on the price from the date when [Buyer] should have paid the price to the date when [Buyer] actually makes the payment;

3.  The [Buyer] should bear the arbitration fee;

4.  The [Buyer] should compensate for the attorneys' fee and other expenses the [Claimant] incurred.

Defense of the [Buyer]

The [Buyer] alleged against the [Claimant]'s claims and main points of contention that:

1. The attachment of the Contract

The relevant provisions in the attachment of the Contract were grossly unconscionable, thus could not be the legal base to set forth rights and obligations of the parties concerned. The [Claimant] had the obligation to guarantee the compliance of the goods with the Contract, and was not entitled to require the [Buyer] to make the payment due to the non-compliance of the goods with the Contract.

The [Claimant] alleged in the Arbitration Application that the [Claimant] was not liable for the quality and quantity of the goods according to Article 2 of the attachment of the Contract, which suggested that the [Buyer] waived the right to request the [Claimant] to assume the duty of guaranteeing the compliance of the goods with the contract. In addition, the [Claimant] had an absolute duty of paying the price pursuant to Article 1 of the attachment. The [Buyer] alleged that the aforesaid opinions of the [Claimant] do not have sufficient legal basis for the reasons that:

      (1) The [Claimant] played an important role in the contract relationship of this case -- without the participation of the [Claimant], the contract could not have been formed, and the economic objectives of the [Buyer] could not have been satisfied. Under these circumstances, in order to promote the deal, upon the [Claimant]'s frequent requests, the [Buyer] entered into the attachment of the Contract and stipulated that the [Claimant] was not liable for the quality and quantity of the goods. However, as a seller, it was the most important and fundamental obligation to provide goods compliant with the Contract. But Article 2 of the attachment entitled the [Claimant] not to undertake this primary obligation, but merely to enjoy rights that made the rights and obligations of the parties concerned seriously imbalanced and grossly unconscionable thus violating Chinese legal principles that rights and duties of contract parties shall be equal, and of justice and mutual benefit. Therefore, the Contract was a revocable legal act, and should be cancelled.

Furthermore, Article 12 of Law of the People's Republic of China on Economic Contracts Involving Foreign Interests provides that a Contract shall contain the terms of quality and quantity, but Article 2 of the attachment of the Contract in essence excludes such quantity and quality terms from the Contract. Thus the [Claimant] cannot rely on this article to make any claim against the [Buyer].

The Contract had an explicit stipulation on the quality of the goods. According to the examination of the goods by an authoritative inspection institution (i.e., ALFRED H. KNIGHT), the goods provided by the [Claimant] were seriously not in compliance with the Contract:

   -    The content of metal indium was far below 99.9919%, the number stipulated in the Contract;
   -    Furthermore, some of the goods had indium content on the surface but the internal part was other metal;
   -    In addition, it should be pointed out that the quality flaw in this case was not common non-compliance with the goods, but a flaw caused by the fraud of the factory director Mr. Gao of the supplier, Jinzhou _ District Zinc-Products Manufactory.

In light of the economic fraud involved in this case, the [Buyer] had reported to the authoritative organization. The document published by the Economic Investigation Department of Jinzhou Public Security Bureau on 26 November 1998 confirms that Jinzhou Public Security Bureau had registered the case and investigated the economic crime in this case. The [Buyer] insisted that the serious non-compliance of the goods with the Contract caused by the fraud was an impediment beyond the [Buyer]'s control, and that the [Buyer] could not conceive, foresee, avoid or overcome its consequence at the time of conclusion of the Contract. Consequently, to say the least, even if Article 2 of the attachment could effectively be the legal basis for establishing the rights and duties of the parties, the fraud constituted an exemption of the [Buyer] pursuant to Article 79(1) of CISG. In other words, the [Buyer] was not liable for the failure not to pay the price. In fact, as a victim of the aforesaid fraud, the [Buyer] had suffered considerable economic losses. On 29 September 1998, the [Buyer] sent a letter to the [Claimant], suggesting that both parties deal with the fraud of the supplier, and negotiate with each other to mitigate the loss, but the [Claimant] waived it aside.

      (2) As to Article 2 of the attachment, the [Buyer] alleges that it was just for the purpose of arranging of the payment, and that the [Buyer] never indicated, expressly or impliedly, that it would waive any right including examination of the goods or claim for indemnity by reason of this arrangement. Furthermore, this article did not constitute an "unconditional responsibility" as described in the [Claimant]'s Arbitration Application. The [Buyer]'s refusal of payment is just a legal remedy [Buyer] is entitled to resort to by the law in case of a serious lack of conformity of the goods with the Contract, but not an "actual breach" of the Contract.

In performance of the Contract, the negotiation documents presented by the [Claimant] had several discrepancies. Although the [Buyer], nevertheless confirmed them, it aimed at facilitating the document deal, so there was no sufficient legal bases for the [Claimant] to state that the [Buyer] waived any right.

2. The examination of the goods at the airport

The examination of the goods by the [Buyer] at Beijing Capital International Airport did not mitigate any right of the [Claimant] to examine the goods in accordance with the Contract. The [Buyer] performed the right of examining the goods subject to the Contract stipulation, and had the right to claim against the [Claimant] for quality flaws of the goods.

The [Claimant] alleged in its Arbitration Application that the [Buyer] examined the goods and issued a certificate of examination in Beijing Capital Airport so that the [Buyer] lost the legal right to thereafter claim a lack of conformity of the goods, and that the duty of payment was then an absolute obligation of the [Buyer]. However, the [Buyer] holds that the aforesaid arguments of the [Claimant] violated some provisions of the contracts concerning examination of the goods, and violated the true intentions of the parties of examining the goods at the airport. The reasons are as follows:

      (1) The examination of the goods by the [Buyer] on 17 August 1998 was just to inspect grossly on the surface of the goods. By the nature of the goods, this type of examination could not precisely determine whether the goods were defective in quality, and was not the same "examination" mentioned in the Contract and in international sales of goods.

      (2) The examination by the [Buyer] was just a unilateral behavior to effect its right. This did not exclude the clauses on examination of quality prescribed in the Contract. The parties never expressly or impliedly consented to have this kind of examination deny the effectiveness of the clauses in the Contract.

In fact, it was expressly prescribed in the Contract clauses on the examination of the goods and claims for compensation that examination and claims for compensation should be made within 30 days from the date when the goods arrived at the destination. It is confirmed in the Arbitration Application by the [Claimant] that the [Buyer] informed the [Claimant] on 31 August 1998 as soon as it found the serious lack of conformity of the goods with the Contract and the fraud involved when the goods arrived at the destination. On 23 and 25 September 1998, the [Buyer] informed the [Claimant] of quality defects of the goods by letters which expressly noted that the content of mental indium was seriously inconsistent with the Contract, and enclosed an examination report by the authoritative institution. The [Buyer] alleged that its aforesaid behavior established sufficiently that [Buyer] had effectively performed its right of examining the goods as prescribed in the Contract and had challenged the quality of the goods.

3. The bona fide performance of the [Buyer]

The [Buyer] negotiated with the [Claimant] after force majeure had occurred, seeking to find a way to together to mitigate the risk losses, but the [Claimant] refused to do so. In order to mitigate the [Claimant]'s losses, the [Buyer] promoted the sale of the goods under the Contract, and remitted the residual US $35,605.06 to the [Claimant] after deducting all of the expenses that actually occurred. The aforesaid facts showed that the [Buyer] had taken all reasonable measures to mitigate, to the maximum, the [Claimant]'s loss.

The [Claimant]'s response to the [Buyer]'s defense:

1. The claim of the [Buyer] that it did not pay the price because of the crime involved in this case

It was reported that the supplier of the goods under the Contract was investigated by the local security bureau due to suspicion of fraud, but this has no direct connection with the legal relationship between the [Claimant] and the [Buyer]. The Arbitration Tribunal can only judge the responsibility on the performance of the contract, not the crime.

2. The quality of the goods

The [Claimant] and the [Buyer] promised in their negotiation before concluding the contract and prescribed expressly in the Contract and its attachment that the [Claimant] was not liable for the quantity and quality of the goods. In the meantime, the [Buyer] promised to the [Claimant] to pay the price within 30 days from the date of export of the goods. Furthermore, because the [Buyer] found the goods under the Contract and the supplier itself, so the [Buyer] guaranteed to pay the price within 30 days even if the quality of the goods was inadequate, for which [Buyer] itself would undertake the consequence.

3. The examination of the goods at the airport

Pursuant to Attachment 2 of the Contract, the [Buyer] itself was responsible for the quality and quantity of the goods; therefore, the [Buyer] could determine the method of examination by itself. Accordingly, the [Buyer] examined the goods at the airport and issued a certificate of quality to the [Claimant], which established that the [Claimant] did not bear any responsibility for the quantity and quality of the goods, but that the [Buyer] itself bore such responsibility.

4. The payment to the supplier: Explanation for the payment of RMB 1,600,000 yuan by the [Claimant] to the supplier (Jinzhou _ District Zinc-Products Manufactory) on the date of delivery

On 17 August 1998, the supplier, the [Claimant] and the [Buyer] all appeared at Beijing Capital International Airport, making the delivery together. The [Buyer] examined the goods on the spot and issued a certificate, stating that the quality, quantity of the goods are all qualified through inspection and that the [Buyer] takes the delivery, and requires the [Claimant] to pay the 90% price of the goods (i.e., RMB 1,600,000 yuan) to the supplier. Because the [Buyer] promised to pay the price and issued the certificate of examination, the [Claimant] bona fidedly satisfied the [Buyer]'s request and paid RMB 1,600,000 yuan to the supplier.

The payment of RMB 1,600,000 yuan in advance, as 90% of the total price, was calculated as follows:

The Contract price was US $235,000, deducting:

   -    Commission charge of 3.5%: US $8,225
   -    Insurance premium of the goods: US $780.16
   -    Transportation fee by airway: US $3,604.89
   -    Commission fee charged by bank: US $375.51

In total, [234,000 - (8225.00 + 780.16 + 3604.89+375.51)] = US $222,014.44 * 90% * 8.26 = RMB 1,650,455.34 yuan, the integral number of which was RMB 1,600,000 yuan. In regard to the exchange rate, the parties prescribed it as RMB/US $ = 8.26/1.

5. Commission charge of US $10 on remittance

The [Claimant] received part payment of the price of US $35,595.06 on 10 January 1999, not US $35,605.06, as alleged by the [Buyer]. The price difference of US $10 was a commission charge for the remittance. The [Buyer] had the right to take the price of the goods so that it should not undertake the commission charge.

According to the attachment of the Contract which specially prescribed that payment should be within 30 days at latest from the date of delivery, after the [Claimant] made the delivery in Beijing International Capital Airport on 17 August 1998, the [Buyer] should pay the whole price of US $235,000 before 17 September 1998 at the latest, but, as of 10 January 1999, the [Buyer] had just paid US $35,595.06 and still owed US $199,404.94 to the [Claimant].

6. Interest

The [Buyer] should compensate for loss of interest suffered by the [Claimant]. The interest should be calculated in two parts: US $235,000 for the period from 18 September 1998 to 10 January 1999; interest on the residual goods priced at US $199,404.94 from 11 January 1999 to the date when the [Buyer] actually makes the payment. In regard to the interest rate, considering that there is no uniform interest rate for business load in Chinese banks, the [Claimant] suggested an interest rate of 9 per month, the interest rate introduced in the loan contract concluded by the [Claimant] with the Heibei branch of Bank of China, under which the loan was for the [Claimant] to pay the price of the Contract in advance.

The first and second items in the Arbitration Application were revised by the [Claimant] to claim compensation for goods at the price of US $199,404.94 and all of the interest related thereto.

[C.] THE ARBITRATION TRIBUNAL'S OPINION

1. Applicable law

It was determined by the Tribunal that the parties did not stipulated in the Contract the applicable law. The Arbitration Tribunal noted that the parties' places of business are China and USA, which are both Contracting States of the Convention on Contract for International Sale of Goods in 1980 (hereinafter "CISG"), thus the CISG is the applicable law.

2. The crime involved in this case

The Arbitration Tribunal noted that the [Buyer] maintained that the quality defect in this case was not only a common lack of conformity of the goods with the Contract, but a defect resulting from the fraud of the supplier, Director Mr. Gao of Jinzhou _ District Zinc-Products Manufactory. The [Buyer] alleged that it could not foresee that an economic swindle was involved in this case, and that such swindle was the actual reason causing the dispute of this case, so that the criminal proceeding, to further determine the swindle behavior, would be the legal base for this case to be determined.

However, the Arbitration Tribunal holds that the economic swindle involved in this case had no direct relationship with the rights and duties of the parties based on the Contract. The relationship between the [Claimant] and the supplier, or whether Security Bureau investigated Mr. Gao's swindle were not in the jurisdiction of the Arbitration Tribunal, and would not affect the Tribunal's ability to render the award.

3. Liability for breach of the contract

The Arbitration Tribunal noted that the [Claimant] alleged that it had rendered its performance of the Contract after its conclusion, but the [Buyer] did not pay the price as prescribed in the Contract, thereby causing the [Claimant] to suffer losses, and so the [Buyer] should compensate for this. However, the [Buyer] argued that the Contract was grossly unconscionable, and should be terminated; and that the [Claimant] did not deliver the goods in conformity with the Contract; and consequently, the [Claimant] was not entitled to claim for payment. At the same time, considering that the [Buyer] could not foresee the economic swindle involved in this case, the [Buyer] alleged that the fraud of the supplier constituted an exemption of the [Buyer].

The Arbitration Tribunal determined that, before the conclusion of the Contract, the [Buyer] initially requested the [Claimant] to be the foreign trade agent of the supplier -- a firm with which the [Buyer] had connected by itself alone -- for the export of metal indium to the [Buyer]. The supplier was contacted by the [Buyer] itself alone; the pricing of the transaction was determined by the [Buyer] with the supplier; and the [Claimant] was just requested to be foreign trade agent. Because the [Claimant] did not know about the goods, the parties specially stipulated in the Contract that:

      (1) If the issuing bank did not make the payment, the [Buyer] would pay the price within 30 days from the shipment date;

      (2) Pursuant to the contract concluded by the [Buyer] and the supplier, the [Claimant] was not at all liable for the quality and quantity of the goods.

The Arbitration Tribunal held that:

      The Contract and its attachment for sale of Indium ingots were entered into by the parties through negotiation and by mutual agreement, and were a reflection of autonomy of will of the parties, thus a legally effective document. The parties should have the rights and perform the duties subject to the Contract and its attachment. The [Buyer]'s claim that the attachment of the Contract was grossly unconscionable and should be cancelled was untenable. In this case, the [Claimant] just assumed duties of making delivery and insuring for the goods in accordance with the Contract and its attachment. The air transport document and insurance policy presented by the [Claimant] established that the [Claimant] had performed its duties. The [Buyer] examined the goods at the Capital Airport and issued a certificate of quality, which showed that the [Buyer] took the delivery and admitted that the [Claimant] had performed the duties in the Contract. According to attachment 2 of the Contract, the responsibility for quantity and quality of the goods was undertaken by the [Buyer]. Therefore, the liability for the serious inconsistence of the quality and quantity of the goods with the Contract should be undertaken by the [Buyer]. The [Buyer] did not make the payment, which constituted a breach of the Contract, and the [Buyer] should assume the liability for it.

4. Claims of the [Claimant] against the [Buyer] on the payment of price and interest

The Arbitration Tribunal held that because the [Buyer] did not make the payment, thus constituting a breach of Contract, the [Buyer] should pay the price of the goods and interest on it.

The Arbitration Tribunal noted that the [Claimant] paid 90% of the price in advance to the supplier on demand of the [Buyer], an amount of RMB 1,600,000 yuan, and did not pay the residual price of the goods. The Arbitration Tribunal held, therefore, that the [Claimant] was not entitled to require the [Buyer] to pay the residual price. The residual price, 10% of the total price, should be calculated in the same method that the [Claimant] used to make the advance payment, that is:[235,000 - (8,225.00 + 780.16 + 3,604.89 + 375.51)] = US $222,014.44 * 10% = US $22,201.444.

The Tribunal noted in the meantime that the [Buyer] had remitted US $35,605.06 to the [Claimant] on 10 January 1999 and the [Claimant] actually received US $35,595.06 after deducting the commission charge of US $10.

Therefore, the Tribunal held that the [Buyer] should pay 235,000 - 22,201.444 - 35,595.06 = US $177,203.496 to the [Claimant].

In regard to loss of interest, the Tribunal supported the [Claimant]'s calculation of the interest. But the interest rate of 9 per month presented by the [Claimant] was relatively high, and should be adjusted to 6% per year.

In conclusion, the [Buyer] should pay:

   -    US $177,203.496;
   -    Interest on the above amount from 11 January 1999 to the date of actual payment, at the rate of 6% per year;
   -    Interest on the price of US $212,798.556 from 18 September 1998 to 10 January 1999, at the rate of 6% per year, i.e., 212,798.556 * 0.06 * 94 days / 365 days = US $3,987.787.

5. Other arbitration claims

As to attorneys' fee, the Tribunal did not support the claim of the [Claimant] because the [Claimant] could not confirm the actual amount and did not present the attorneys' invoice.

The [Claimant] should bear 10% of the arbitration fee, and the [Buyer] 90%.

[D.] THE AWARD

The award is as follows:

1.  The [Buyer] should pay the price of US $177,203.496 to the [Claimant] and the interest on this price from 11 January 1999 to the date of actual payment at the rate of 6% per year;

2.  The [Buyer] should pay interest on US $212,798.556 from 18 September 1998 to 10 January 1999 at the rate of 6% per year, i.e., US $3,987.787;

3.  The [Claimant] should bear 10% of the arbitration fee, and the [Buyer] 90%;

4.  The other arbitration claims of the [Claimant] are dismissed.

The [Buyer] should pay the aforesaid to the [Claimant] within 45 days from the date the award is handed down. Otherwise, interest at yearly rate of 7% in US dollars or 8% in RMB should be added for delayed payment.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of the People's Republic of China is referred to as [Claimant] and the Respondent of the United States 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].

** Wei Shu, LL.M. Peking University School of Law, Beijing, P.R. China, 2004; LL.B. Peking University School of Law, 2000.

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

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Pace Law School Institute of International Commercial Law - Last updated December 18, 2006
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