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CISG CASE PRESENTATION

China 30 June 1999 CIETAC Arbitration proceeding (Peppermint oil case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990630c1.html]

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

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Case identification

DATE OF DECISION: 19990630 (30 June 1999)

JURISDICTION: Arbitration ; China

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

JUDGE(S): Unavailable

DATABASE ASSIGNED DOCKET NUMBER: CISG/1999/30

CASE NAME: Unavailable

CASE HISTORY: Unavailable

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

BUYER'S COUNTRY: United Kingdom (claimant)

GOODS INVOLVED: Peppermint oil


Case abstract

PRC: Award of China International Economic & Trade Arbitration Commission [CIETAC] 30 June 1999 (Peppermint oil case)

Case law on UNCITRAL texts (CLOUT) abstract no. 807

Reproduced with permission of UNCITRAL

Abstract prepared by John Zhu

A Chinese seller faxed to a British buyer a contract document for the sale of two containers of peppermint oil. In order to confirm its agreement, the buyer sent back to the seller its standard purchase confirmation form, which listed all of the main clauses of the seller's contract document. However, the seller complained that the buyer's confirmation form was too complicated and asked the buyer to sign and send back the contract document it had originally sent. The buyer complied with this request and faxed the document back to the seller.

Since the market price of the goods kept rising, the seller then requested the buyer to negotiate a price increase of the goods. After the first container of oil was delivered at the original price, therefore, the buyer and the seller entered into an oral agreement to increase the price of the remaining peppermint oil. The seller sent a fax to the buyer to confirm this agreement. However, later on the seller terminated this new agreement, still due to market fluctuation, and refused to deliver the remaining goods. The buyer filed for arbitration.

Since the parties had not stipulated any provision on the law applicable to the contract, the Arbitral Tribunal held that the law of the country with the closest relationship with the contract should apply, i.e. the Chinese Law on Economic Contracts Involving Foreign Interest. According to that law, for any matter not covered by it, international practice should be applied: therefore the CISG was applicable.

The Tribunal held that a valid contract had been concluded between the parties. It thus rejected the seller's allegation that the buyer had signed the seller's contract document only for the purpose of the arbitration due to lack of sufficient evidence. The contract document sent by the seller and duly signed by the buyer was binding and effective on both parties. Therefore, whether or not the seller had accepted the buyer's standard confirmation form did not affect the validity of the contract. The Tribunal further stated that since both parties had initiated performance of their respective obligations after the conclusion of the contract, this amounted to additional evidence that the contract had been duly formed.

Therefore, since the seller had performed only part of its obligation to deliver the goods, this constituted a breach of contract. According to Chinese Law, thus, the buyer was entitled to claim damages, price difference and loss of interest. In order to determine the price difference, Article 76 (1) CISG should apply. Pursuant to that article, the Tribunal considered that the price difference for the goods in default was to be calculated with reference to the difference between the contract price and the current price at the time of taking over of the partial delivery. In order to determine this price difference, since neither the seller nor the buyer had submitted the current market price to the Tribunal, the Tribunal held that it was reasonable to regard as the current price the new price agreed by the parties when they renegotiated the original agreement. As to the loss of interest, the Tribunal held that, according to Chinese Law, the buyer was entitled to interest.

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Classification of issues present

APPLICATION OF CISG: Yes. "The CISG has been deemed as a trade usage of international sales contracts; therefore, it should be the most suitable applicable law in this case."

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 9 ; 18 ; 19 ; 62 ; 76 ; 78

Classification of issues using UNCITRAL classification code numbers:

9A [International usages: Convention referred to as "trade usage of international sales contracts];

18A1 ; 18A2 [Criteria for acceptance of offer: statement of acceptance; Other conduct indicating assent: acts of performance];

19C ["Acceptance" of offer with modifications: modifications that are material];

76B [Avoidance: damages recoverable based on current price];

78B [Rate of interest]

Descriptors: Usages and practices ; Offers ; Acceptance of offer ; Battle of the forms ; 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., pp. 2127-2133

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Dong WU, CIETAC's Practice on the CISG, at nn.28, 156, 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

Peppermint oil case (30 June 1999)

Translation [*] by Meihua Xu [**]

Reviewed by LIU Ping [***]

The China International Trade and Economic Arbitration Commission (hereafter, "CIETAC") accepted the case according to:

   -    The arbitration clause in the Contract No. ESN0708 (hereinafter: the Contract) signed by Claimant [Buyer], United Kingdom __ Company, and Respondent [Seller], China Huaiyin City __ Trade Company in July 1996; and
 
   -    The written arbitration application submitted by [Buyer] on 28 February 1997.

[Buyer] appointed Mr. A as an arbitrator. After receiving a Notice of Arbitration, related documents and the CIETAC arbitration rules applicable in this case (effective from 1 October 1995) (hereinafter: the Arbitration Rules), [Seller] failed to appoint an arbitrator in accordance with the Arbitration Rules. Therefore, according to Article 26 of the Arbitration Rules, the Chairman of CIETAC appointed Mr. D as an arbitrator in this case. According to Article 24 of the Arbitration Rules, the Chairman also appointed Mr. P as the Presiding Arbitrator. Mr. P, Mr. A, and Mr. D formed an arbitration tribunal to hear this case (hereinafter: the Arbitration Tribunal).

On 15 June 1998, the Arbitration Tribunal issued (98) Mao Zhong Zi No. __ document, and informed both parties that the Arbitration Tribunal had been formed and that a hearing was to be held in Beijing on 9 September 1998.

On 3 August 1998, Mr. Wang, attorney of [Seller], who is with Global law firm's Nanjing office, sent a letter to CIETAC, advising that Mr. D is also with the Global law firm, and that according to the Arbitration Rules, Mr. D was not qualified to be the arbitrator in this case. Therefore, as attorney of [Seller], he would appoint Mr. K as [Seller]'s arbitrator.

On the same day, Mr. D also sent a letter to CIETAC resigning from his position as [Seller]'s arbitrator, raising the same reason stated by Mr. Wang, and returned the case file to the Secretary of CIETAC.

After discussion, the Chairman of CIETAC permitted Mr. D's resignation and agreed to have Mr. K serve as [Seller]'s arbitrator. Mr. K, Mr. A, who was appointed by [Buyer], and the Presiding Arbitrator continued to process this case.

I. THE JURISDICTION ISSUE AND PROCEDURAL MATTERS

The Arbitration Tribunal examined [Buyer]'s arbitration application and [Seller]'s Objection to Jurisdiction. On 9 September 1998, a hearing was held in Beijing. Both parties sent representatives to the hearing. [Buyer] made a statement of facts and presented its reasons for filing the claim. [Buyer] also pointed out that [Seller] had received [Buyer]'s arbitration application on 28 February 1997, and it could not understand why [Seller] raised its objection to jurisdiction after one year had passed.

[Seller] argued that the Contract had not been formally concluded, and therefore, there did not exist a written arbitration clause.

Both parties made arguments about whether the Contract had been signed, and answered the Arbitration Tribunal's questions.

After the hearing, [Buyer] submitted its Opinion regarding [Seller]'s Objection to Jurisdiction dated 15 September 1998. [Seller] also submitted a Supplementary Opinion on Jurisdiction and its attachment dated 21 September 1998. The Secretary of CIETAC forwarded the Supplementary Opinion on Jurisdiction to [Buyer].

Based on the statements, the assertions, and the evidence on jurisdiction presented by the parties, on 12 March 1999, CIETAC issued its "Jurisdictional Decision on the Peppermint Oil Case".

CIETAC noted that the essential part of the jurisdiction issue in this case was the validity and the binding effect of the arbitration clause in the copy of the Contract as submitted by [Buyer]. After analyzing the facts in this case, CIETAC concluded that the Contract was the sales contract for Peppermint Oil entered into by the two parties, and that the Contract was also the contract actually performed by both parties. Both parties should therefore be bound by the Contract, and the arbitration clause in it has binding effect.

It is stated in the arbitration clause that the arbitration institution should be CIETAC, and that both parties agreed to submit any dispute arising from the Contract to arbitration. Therefore, CIETAC has jurisdiction in this case. CIETAC decided that: (1) CIETAC has jurisdiction; and (2) the arbitration proceeding should continue in accordance with the Arbitration Rules.

On 16 March 1999, CIETAC informed both parties of the aforesaid decision, and asked whether they requested another hearing. If the parties did, they should reply in writing before 10 April 1999. Otherwise, it would be deemed that they did not request another hearing, and CIETAC would render its arbitral award.

On 7 April 1999, the representative of [Buyer] submitted a "Representation Statement" and related documents dated 7 April 1999. However, [Seller] never replied before 10 April 1999, and [Buyer] did not answer the question about whether to hold another hearing.

Considering these, the Arbitration Tribunal held that there was no need to hold another hearing and decided the case based on the written documents submitted by both parties and the hearing on 9 September 1999.

On 23 April 1999, CIETAC sent notice of the aforesaid decision to both parties, and forwarded the copy of the Representation Statement and related documents dated 7 April 1999, which was submitted by [Buyer]'s representative, to [Seller]. [Seller] has not given any response until now.

Because of the circumstances stated above, the case could not be closed by 15 March 1999, as defined by the Arbitration Rules. The Arbitration Tribunal asked the Secretary of CIETAC to extend the deadline for rendering the award. Following the Arbitration Rules, the Secretary extended the deadline to 15 July 1999 and notified both parties on 15 March 1999.

The Arbitration Tribunal has closed the case and rendered its award.

The following are the positions of the parties, the Arbitration Tribunal's opinion and award.

II. POSITION OF THE PARTIES

A. [Buyer]'s claim

After negotiations by phone calls and letters, [Seller] sent a sales contract numbered ESN0708 to [Buyer] on 8 July 1996 (hereinafter: Seller's Contract Document). Seller's Contract Document contained main terms which had been agreed by both parties:

Goods: Peppermint Oil Dementholized 50%.
Quantity: 28,000 Kg.
Loading: 14,000 Kg of Polar Bear brand in one 20 foot container
14,000 Kg of Glacier brand in one 20 foot container
Price: US $7.25/Kg
Shipment: CIF C3 major ports in Europe
Total price:    US $203,000
Delivery: One container should be loaded in July 1996; and the other should be loaded in August 1996.

On 9 July 1996, following the business practices established by both parties, in order to confirm the contract mutually agreed, [Buyer] sent a purchase confirmation numbered 10883 in its standard format to [Seller] (hereinafter: Buyer's Confirmation), in which [Buyer] listed all important clauses in Seller's Contract Document, especially the standard CIETAC arbitration clause. As to this, [Buyer] has made further statement in its Opinion on Objection to Jurisdiction. It was clear that Buyer's Confirmation confirmed Seller's Contract Document. However, [Seller] asked [Buyer] to sign on Seller's Contract Document, alleging that clauses in Buyer's Confirmation were too complicated. [Buyer] signed Seller's Contract Document and sent it back to [Seller]. Apparently, not only in form and in logic, but also in fact, both parties have agreed in writing with Seller's Contract Document [and thus concluded the Contract].

B. [Seller]'s reply

[Seller] stated in its Objection to Jurisdiction that even though it sent Seller's Contract Document to [Buyer] on 8 July 1996, [Buyer] never accepted in writing and/or returned a signed contract to [Seller]. [Seller] had never received Buyer's Confirmation. Even though [Buyer] sent the confirmation, judging from its contents, it does not constitute a confirmation of Seller's Contract Document, because main clauses in Buyer's Confirmation, such as packaging, insurance, payment conditions, and arbitration, were totally different from the counterpart clauses of Seller's Contract Document. [Seller] never accepted in writing or signed Buyer's Confirmation.

[Seller] also argued in its Supplementary Opinion on Objection to Jurisdiction that, based on the facts in this case, neither Seller's Contract Document nor Buyer's Confirmation had formed [a Contract between Seller and Buyer]. In fact, on 3 July 1996, [Seller] sent an offer via fax numbered HSN0703 to [Buyer], stating: "2 containers of Peppermint Oil. One is 14,000 Kg of Polar Bear brand, and the other is 14,000 Kg of Glacier brand. Immediate shipment, CIF C3 EMP US $7.25/Kg, L/C payment". It was also stated that the offer was effective until 5 July.

[Buyer] did not respond before 5 July. On 6 July 1996, [Seller] sent another fax numbered HSN0706 to [Buyer]'s Shanghai office. At 8:35 a.m. on 8 July 1996, [Buyer] sent a fax to [Seller], stating: "2 containers of Peppermint Oil 50%, loading in July 1996, CIF C3 EMP US $7.25/Kg."

In the afternoon of 8 July 1996, [Seller] sent Seller's Contract Document to [Buyer], which stated: "28,000 Kg Peppermint Oil 50%. 14,000 Kg of Polar Bear brand in one 20 foot container should be shipped in July 1996. 14,000 Kg of Glacier brand in one 20 inch container should be shipped in August 1996. CIF C3 EMP US $7.25/Kg. To be paid by insured, irrevocable, transferable and dividable L/C."

As to the fax sent by [Buyer] in the morning of 8 July, Seller's Contract Document still constitutes a new offer, which [Buyer] did not sign or accept in writing. [Buyer]'s signature on Seller's Contract Document, which is submitted by [Buyer] to CIETAC, was placed on Seller's Contract Document afterward only for arbitration purposes, and therefore does not have the effect of acceptance [of Seller's Contract Document].

Buyer's Confirmation sent by [Buyer] on 9 July 1996 is a counter-offer, which constitutes a rejection of Seller's Contract Document (i.e., Seller's offer).

In all fax communications between Seller and Buyer, both parties never mentioned Seller's Contract Document [i.e., contract numbered ESN0708], which is [now] submitted by [Buyer] for arbitration. [Buyer] mentioned "Contract No. ESN0706" in all of its faxes. The possibility that [Buyer] mis-typed [Seller's] Contract No. ESN0708 as "Contract No. ESN0706" should be excluded.

[Seller] believes that "Contract No. ESN0706" mentioned in all faxes [of Buyer] refers to [Seller]'s fax No. HSN0706 [which was sent by Seller to Buyer's Shanghai office on 6 July].

Finally, [Seller] claims that if CIETAC bases its jurisdiction on the fact that [Buyer] once mentioned Seller's Contract Document [No. ESN0708] and Buyer's Confirmation in its fax, then the problem of which contract's arbitration clause should be applied will not be resolved. Therefore, [Seller] asserts that CIETAC has no jurisdiction in this case. If CIETAC insists on continuing the arbitration proceeding, [Seller] will apply for a refusal to recognize and enforce the award by the People's Court.

C. [Buyer]'s rebuttal

In response to [Seller]'s reply, [Buyer] stated that even if [Seller] did not receive Seller's Contract Document and/or Buyer's Confirmation, as illogically and untruthfully alleged by [Seller], in fact [Buyer] referred to the contract number "S/C ESN0708" [i.e., sales contract ESN0708] in the letter of credit No. DCLD1611324 opened by [Buyer] through its bank. (Because the fax was unclear, it was difficult to ascertain whether the last number was "6" or "8". Both parties admitted in faxes sent afterwards that ESN0706 and ESN0708 were the same contract.) On 22 July 1996, as requested by [Seller], changes were made to the L/C. By then, in fact the Contract was confirmed by [Buyer] in writing through the L/C. Neither during the performance of the Contract nor in the faxes sent between both parties afterwards, did [Seller] raise any objection to the contract number "ESN0706" quoted by [Buyer].

[Buyer] also stated in its arbitration application that [Seller] did not ship the goods of the first container before the end of July [as required by the Contract], but instead demanded a higher price of US $8.1/Kg, and this was expressly rejected by [Buyer]. On 27 August, [Buyer] sent a fax to [Seller], demanding immediate shipment [by Seller] at the [agreed] contract price [i.e., US $7.25/Kg]. On 4 September, [Seller] confirmed its shipment of the goods of the first container [i.e., 14,000 Kg] and proposed to negotiate the price for the goods of the second container [i.e., 14,000 Kg] based on the then-current market price.

Considering the business cooperation relationship, [in a fax to Seller] [Buyer] agreed to extend the shipping date for 11,900 Kg Peppermint oil until 20 September, and increased the price to a net price of US $7.25/Kg. [Buyer] also agreed to further negotiate the price for the remaining goods [i.e., 16,100 Kg = 28,000 Kg minus 11,900 Kg] after [Seller] shipped the 11,900 Kg goods.

After receiving the aforesaid fax of Buyer, [Seller] made its first delivery of 11,900 Kg goods. [Buyer] contacted [Seller] to negotiate shipment of the remaining goods right after the first delivery, and suggested increasing the net price to US $7.70/Kg, CIF major ports in Europe. However, [Seller] asked for US $8.5/Kg, CIF major ports in Europe.

Finally, Mr. Zhu [of Seller] and Mr. M. W. Sewell [of Buyer] reached an oral agreement at Guangzhou Business Fair on 23 October to increase the price for the remaining 16,100 Kg goods to US $8.4/Kg. As requested by [Buyer], on the same day [Seller] sent a fax to [Buyer] to confirm this agreement on price increase. However, on 11 November, [Seller] rescinded this agreement on price increase in excuse of market fluctuation. Later negotiations were unsuccessful. [Buyer] had to terminate the Contract on 23 December 1996.

The facts above show that even though [Buyer] made great effort and compromise, [Seller] still did not deliver the remaining goods, and this constitutes a violation of the Contract. Therefore, [Buyer] requests the Arbitration Tribunal to order

1. [Seller] to pay the difference between the market price for Peppermint Oil on 8 January 1997 and the contract price, which is US $268,387.00. The market price on the day when the Contract was violated was US $23.7/Kg.

2. [Seller] to pay interest on the aforesaid amount from 8 January 1997 to the day when the payment is made.

3. [Seller] to pay 3% of [Buyer]'s claimed amount as [Buyer]'s attorneys' fees.

4. [Seller] to bear the arbitration fees and other fees incurred.

D. [Buyer]'s surrebuttal

[Buyer]'s representative stated in its representation statement on 7 April 1999:

1. [Seller] should pay the price difference for the goods that it failed to deliver in the amount of US $268,346.75, which is (the market price of US $23.7/Kg CIF EMP - contract price of US $7.25/Kg CIF C3 EMP) (1-3%) undelivered goods (28,000 Kg - 11,900 Kg).

The market price of US $23.7/Kg CIF EMP was the price offered by [Seller] in January 1997. In addition, the then-current market price can be referred to in GEORGE UHE Co., INC's Market Report in the United States (see supplementary document 1). It is clearly stated in this report that in November 1996 the price for the goods (Peppermint Natural 50%, namely the subject matter under the Contract) on hand was US $17.25/Pound (2.2046 Pound = 1 Kg), which is US $17.25 2.2046 = US $38.0294/Kg. Futures price was US $15 ~ US $17.5/Pound.

2. [Seller] shall pay the interest on the aforesaid amount to the day the payment is made. (From 8 January 1997 to the day the payment is actually made. It will be US $88,017.73 if calculated for the time being to 8 April 1999 at a 0.04% monthly rate).

3. [Seller] should pay [Buyer]'s attorneys' fees of renminbi [RMB] 88,735, arbitration fees of US $__, and other related costs of RMB 2,187.40.

III. OPINION OF THE ARBITRATION TRIBUNAL

(1) Contract formation

The Arbitration Tribunal finds that the key issue of this case is whether there is a contractual relationship between [Seller] and [Buyer], and if so, when the Contract was concluded.

[Buyer] argues that on 8 July 1996 it sent Seller's Contract Document (No. ESN0708), and on 9 July 1996 in order to confirm their contract [Buyer] sent Buyer's Confirmation (No. 10883) in which it listed all main clauses in Seller Contract Document. [Seller] complained that Buyer's Confirmation was too complicated and asked [Buyer] to sign on Seller's Contract Document. Thus, [Buyer] signed on Seller's Contract Document and faxed it back to [Seller]. Therefore, both parties reached a written contract.

However, [Seller] asserts that, in fact, Contract (No. ESN0708) has not been formally concluded. [Seller] alleges that Buyer's Confirmation (No. 10883) materially changed [Seller]'s offer (i.e., Seller's Contract Document, which is numbered ESN0708), and therefore Buyer's Confirmation document was not an acceptance, but a counter-offer. [Seller] further claims that [Buyer] signed on the fax of Seller's Contract Document (No. ESN0708) afterwards only for the purpose of this arbitration.

After hearing the statements and arguments made by both parties and examining the evidence submitted by both parties, the Arbitration Tribunal concludes:

     1. The applicable law

The parties in this case did not negotiate or stipulate the applicable law during the course of negotiation or in Contract (No. ESN0708). Applicable law was only mentioned among the general clauses of Buyer's Confirmation (No. 10883), which was not accepted by [Seller]. [Buyer] did not provide any evidence to show that [Seller] had accepted Buyer's Confirmation. According to international principles and Chinese law regarding determination of applicable law in sales contracts, the law of the country which has the closest relationship with the contract should apply.

The Arbitration Tribunal holds that relevant law of the People's Republic of China should apply to determine whether the Contract has been concluded and to resolve disputes in relation to the Contract.

The Contract, as a standard contract, was prepared in China, and the business place of [Seller] is in China. When interpreting the principle of "closest connection", the Supreme People's Court provides that generally in contracts for international sale of goods the law of the seller's place of business should apply.

According to "the Law of the People's Republic of China on Foreign-related Economic Contracts"[1] (hereinafter: the Foreign-related Economic Contracts Law), if a matter is not covered by Chinese law, international practice should be applied. The United Nations Convention on Contracts for the International Sale of Goods (hereinafter: the CISG) is internationally recognized rules on contracts for the international sale of goods; and therefore, it should be the most proper international practice applicable in this case [for any matter not covered by Chinese law].

     2. The validity of the Contract (No. ESN0708)

[Seller] alleged that [Buyer] signed Contract (No. ESN0708) afterwards for the purpose of arbitration. However, [Seller] did not provide strong evidence to prove this assertion. The Contract, submitted by [Buyer] to this Arbitration Tribunal, satisfies the requirements of the Foreign-related Economic Contracts Law to be a valid contract.[2] Whether or not [Seller] has accepted Buyer's Confirmation (No. 10883) does not affect the validity of the Contract.

In fact, both parties started to perform their respective obligations [after the Contract was concluded]. On 11 July 1996, [Buyer] issued L/C No. DCLD1611324 L/C through its bank (in the L/C, ESN0708 was mistakenly typed as ESN0706). After receiving the L/C, [Seller] asked to change the destination port on 19 July 1996. The issuing bank made the change on 22 July 1996. After that, [Seller] did not raise any other objection. Thus, [Buyer], as the beneficiary of the L/C, established another kind of contractual relationship with the issuing bank.

Apparently, the contractual sale of goods relationship between [Buyer] and [Seller] is different from the contractual relationship between [Buyer] (beneficiary) and the L/C issuing bank. The latter (the L/C) does not exist without the former (contract for sale of goods). This shows that both parties indeed formed a contractual relationship.

Thereafter, both parties negotiated about the performance of the Contract (No. ESN0708, or ESN0706 [as mistakenly typed]), and on 19 September 1996, [Seller] shipped 11,900 Kg Polar Bear brand Peppermint Oil and thus partially performed its obligation of delivery. This sufficiently proves that the Contract (No. ESN0708, or ESN0706 [as mistakenly typed]) has been concluded, and neither party raised objection at that time.

(2) The liabilities for contract violation and damages

Based on the facts found by and the evidence submitted to this Tribunal, the Arbitration Tribunal concludes that in accordance with the Foreign-related Economic Contracts Law, the Contract (No. ESN0708) is valid. From the moment when the Contract was concluded, it was legally binding on both parties, and they should perform their obligations under the Contract. However, [Seller] only performed part of its obligations by shipping 11,900 Kg of Peppermint Oil. [Seller] did not deliver the remaining 16,100 Kg at the time and under the price agreed by both parties afterwards, and this constitutes a violation of the Contract. On 11 November 1996, in a fax to [Buyer], [Seller] stated that it could not deliver the remaining 16,100 Kg of goods under Contract No. ESN0708 (ESN0706) as mutually agreed.

According to Article 18 of the Foreign-related Economic Contracts Law:

"[I]f 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. If the losses suffered by the other party cannot be completely made up after the adoption of such remedial measures, the other party shall still have the right to claim damages."

The Arbitration Tribunal holds that [Buyer] has the right to claim damages, and its requests for the price difference and loss of interest should be upheld.

As to price difference, Article 76(1) CISG provides that:

"If the contract is avoided and there is a current price for the goods, the party claiming damages may, if he has not made a purchase or resale under article 75, recover the difference between the price fixed by the contract and the current price at the time of avoidance as well as any further damages recoverable under article 74. If, however, the party claiming damages has avoided the contract after taking over the goods, the current price at the time of such taking over shall be applied instead of the current price at the time of avoidance."

With respect to 11,900 Kg goods, the current price at the time of taking over [by Buyer] should apply, because [Buyer] did receive that part of the goods delivered by [Seller].

It is also stated that:

"the current price is the price prevailing at the place where delivery of the goods should have been made, or if there is no current price at that place, the price at such another place as serves as a reasonable substitute ...".

The Arbitration Tribunal asked both parties to submit to the Tribunal the current market price. However, neither party did so. The price mentioned by [Buyer]'s representative in its Representation Statement, namely US $23.7/Kg, was not the current price at the place where delivery of the goods should have been made, but was [Seller]'s subsequent offering price.

The Arbitration Tribunal also notes that after the first delivery of the goods [of 11,900 Kg], on 23 October 1996, both parties agreed to increase the price for the remaining 16,100 Kg goods to US $8.4/Kg. The Arbitration Tribunal holds that this price reflected the market price at that time, and it is reasonable to use this price as the current price. Therefore, [Seller] should pay [Buyer] US $(8.40 - 7.25) 16,100 Kg = US $18,515.

As to the loss of interest, according to Article 23 of the Foreign-related Economic Contracts Law:

"If a party fails to pay the price or any other sum that is arrears, the other party is entitled to interest on it. The parties may stipulate the way to calculate interest in their contract."

Therefore, [Buyer] is entitled to interest on the aforesaid price difference, from 8 January 1997 to the day when this award is actually enforced at a 5% annual rate. The formula to calculate the interest should be US $18,515 5% 365 (days) the number of days from 8 January 1997 to the day this award is enforced.

[Buyer]'s representative stated in its Representation Statement that the interest should be calculated at a 0.04% daily rate. The Arbitration Tribunal finds that rate too high, and does not uphold it.

(3) The arbitration fees and other costs

Because part of [Buyer]'s requests were upheld and part were not, it is reasonable for both parties to bear part of the arbitration fees. [Seller] shall bear 80%, and [Buyer] shall bear 20%.

[Buyer] requests payment of its attorneys' fees of RMB 88,735, hotel fees and transportation fees of RMB 2,187.40. Even though [Buyer] provided effective evidence for the aforesaid claims, according to Article 59 of the Arbitration Rules, the amount that the losing party shall pay should not exceed 10% of the sum that the winning party is entitled to recover. Therefore, RMB 15,000 is a proper sum for [Seller] to pay to [Buyer].

IV. THE AWARD

(1)    [Seller] shall pay [Buyer] the price difference of US $18,515.
(2) [Seller] shall pay [Buyer] interest on the price difference. (It should be calculated as stated in the Arbitration opinion).
(3) [Seller] shall pay [Buyer]'s attorneys' fees of RMB 15,000.
(4) [Buyer] shall bear 20% of the arbitration fees, and [Seller] shall bear 80%. [Buyer] has paid in advance, therefore, [Seller] shall pay US $___to the [Buyer].

[Seller] shall pay the aforesaid fees to [Buyer] within 45 days after this award takes effect.

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 United Kingdom is referred to as [Buyer] and Respondent of the People's Republic of China 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].

** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.

*** 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 Law of the People's Republic of China on Foreign-related Economic Contracts (effective as of 1 July 1985) was repealed by the Contract Law of the People's Republic of China (effective from 1 October 1999).

Article 5 of the Foreign-related Economic Contracts Law provides:

"The parties to a contract may choose the proper law applicable to the settlement of contract disputes. In the absence of such a choice by the parties, the law of the country which has the closest connection with the contract shall apply. ... For matters that are not covered in the law of the People's Republic of China, international practice shall be followed."

The relevant provision under the Contract Law is Article 126:

"The parties to a contract involving foreign interests may choose the law applicable to the settlement of their contract disputes, except as otherwise stipulated by law. If the parties to a contract involving foreign interests have not made a choice, the law of the country to which the contract is most closely connected shall be applied."

2. Note by Reviewer: Article 7 of the Foreign-related Economic Contracts Law provides:

"A contract shall be formed as soon as the parties to it have reached a written agreement on the terms and have signed the contract. ..." Go to Case Table of Contents
Pace Law School Institute of International Commercial Law - Last updated October 27, 2008
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