CISG CASE PRESENTATION

The China International Economic and Trade Arbitration Commission (hereafter, the "Arbitration Commission") accepted this case (Case Number: G...) according to:

The Arbitration Rules of the Arbitration Commission (hereafter, the "Arbitration Rules"),which became effective on 1 October 2000, apply to this case.

Because the disputed amount is less than renminbi [RMB] 500,000, according to Section 3 of the Arbitration Rules, the summary procedure applies to this case.

After receiving the arbitration documents, the [Respondent] raised objection to the effectiveness of the arbitration clause in the sales confirmation. On 15 October 2003, the Arbitration Commission made a decision, confirming that the arbitration clause in the sales confirmation is effective and that the Arbitration Commission has jurisdiction over this case.

Later, the [Respondent] submitted an arbitration defense and related evidence.

In the sales confirmation signed by the two parties, it was stipulated that the arbitration place should be in Langfang, China. With the concurrence of the parties, the Arbitration Tribunal held a court session in Beijing on 18 December 2003. Both the [Respondent] and the Claimant [Buyer] sent agents to attend the court session. At the court session, the parties made statements on the facts of this case, provided evidence, cross-examined the evidence, answered the Arbitration Tribunal's questions, and presented arguments on related facts and legal issues.

After the court session, the agents of the parties submitted written representation statements, which have been forwarded to the parties accordingly.

At the court session, the parties expressed clearly that they would like time to try to mediate this case. Therefore, as requested by the Arbitration Tribunal, on 17 January 2004, the Secretariat of the Arbitration Commission postponed the deadline for handing down an award on this case to 18 March 2004.

However, the parties failed to settle this case through mediation. The arbitration proceeded.

This case has been concluded and the Arbitration Tribunal handed down this award based on the written material and the facts and evidence ascertained at the court session.

The following are the facts, the Tribunal's opinion and award.

On 26 May 2001, the Claimant [Buyer] and the [Respondent] signed a sales confirmation, by which the Claimant [Buyer] was to purchase fireworks of No. 101, 103, and 105 specifications, totaling US $65,798.40. The sparkling rate for each specification should be 98%. The parties also stipulated other rights, obligations, liabilities for breach, and the method for dispute resolution.

Claimant [Buyer]'s position

The Claimant [Buyer] alleges that:

It was stipulated in the sales confirmation that the Claimant [Buyer] was to purchase 6,336 No. 105 fireworks, totaling US $19,134.72 with a sparkling rate of 98%. The Claimant [Buyer] paid the entire price for the goods, and the goods arrived at the Claimant [Buyer]'s warehouse on 16 July 2001. After testing, the No. 105 fireworks did not sparkle.

On 3 September 2001, the Claimant [Buyer] went to Beijing to negotiate the quality issue, and the Claimant [Buyer] discussed the quality problem with the [Respondent] and the manufacturer in room 2625 at __ Hotel. After on-site testing, it was found that the string to sparkle the fireworks could not be pulled out, which caused the fireworks to be unable to sparkle. After an open inspection, it was discovered that the reason the fireworks could not sparkle is that "the manufacturer in China failed to scrub the pressing pad, which was too long to open."

Later, the manufacturer, Qinhuangdao __ Technology Company (hereafter, "Q Company") sent a letter to the Claimant [Buyer], and the broker, Mr. Xu, promising to replace the No. 105 fireworks; however, it failed to do so.

The Claimant [Buyer] alleges that it was stipulated in the sales confirmation that the China Commodity Inspection Bureau shall issue quality and quantity certificates according to industry standard. However, the fireworks delivered by the [Respondent] were not inspected in accordance with the stipulation in the sales confirmation, with the result that No. 105 fireworks that could not sparkle were delivered to the Claimant [Buyer]. This severely violated the stipulations in the sales confirmation, the principle of good faith, and Article 35(1) of the CISG, which states :

The Claimant [Buyer] therefore, asks the Arbitration Tribunal to rule that:

1. The [Respondent] shall refund the price for No. 105 fireworks, i.e. US $19,134.72, and the interest on it calculated based on bank loan interest rate of Bank of China at the same time (calculated from 20 June 2001 to the date of this award);

2. The [Respondent] shall pay the Claimant [Buyer]'s expenses incurred due to the non-conformity of the goods, including the insurance fee of US $4,467.06, transportation fee of US $851, storage fee and penalty of US $13,007.92 (calculated to 31 July 2003), and the storage fee of US $500/month and penalty of US $50/month which would be incurred in the future and the transportation fee for shipping the goods back to China;

3. The [Respondent] shall bear the arbitration fee.

[Respondent]'s position

The [Respondent] alleged the following in its arbitration defense.

1. The Claimant [Buyer] and the [Respondent] modified the terms and the subjects of the contract during the performance of the sale confirmation;

2. The [Respondent] fulfilled its obligation to export the fireworks in accordance with the contract, and the Claimant [Buyer] paid the price for the goods directly to Q Company;

3. Before the Claimant [Buyer] filed the arbitration application, the Claimant [Buyer] had never informed the [Respondent] of the quality defect of the No. 105 fireworks;

4. The [Respondent] did not send employees to Room 2615 of __ Hotel on 3 September 2001 to negotiate the quality defect issue with the Claimant [Buyer];

5. The Claimant [Buyer] and Q Company have a joint venture relationship. They invested in the factory jointly to manufacture the fireworks for the Claimant [Buyer]'s sales in the U.S. The Claimant [Buyer] in this case is both the manufacturer and the purchaser. If the goods had quality problems, the Claimant [Buyer] and Q Company should bear the liability;

6. The [Respondent] is only a broker between the Claimant [Buyer] and Q Company;

7. The [Respondent] has performed its obligation to inspect the quality and quantity of the goods;

8. The evidence provided by the Claimant [Buyer] cannot prove that there are defects of the No. 105 fireworks.

However, by virtue of the above, even if there were quality defects of the goods, the Claimant [Buyer] and Q Company, the parties that set up the factory, shall be liable, and the [Respondent] need not refund US $19,134.72 to the Claimant [Buyer].

Further statements by [Respondent]'s arbitration agent

The following are the further statements by the [Respondent]'s arbitration agent:

1. In its arbitration application, the Claimant [Buyer] alleged that "after testing, the No. 105 fireworks did not sparkle." When, where, and at what temperature did the Claimant [Buyer] perform the test? The Claimant [Buyer] has not provided effective evidence showing that the fireworks could not sparkle after they arrived in the U.S. Regarding the effectiveness of evidence established outside China, article 11 of the Stipulations on Civil Prosecution Evidence issued by the Supreme Court of the PRC states:

The No. 105 fireworks in this case had problems at 48 ºC after they arrived in the U.S. The Claimant [Buyer] has no legal evidence; therefore, its arbitration claims cannot be established.

2. Moreover, the Claimant [Buyer] failed to inform the [Respondent] of the lack of conformity of the goods within a reasonable period of time. Therefore, it has lost the right to claim for damages due to lack of conformity. As to the inspection period, generally the inspection period is the compensation claim period on quality and quantity of the goods. Article 39(1) of the CISG states,:

It was not until the arbitration process that the Claimant [Buyer] informed the [Respondent] of the lack of conformity on the goods without providing effective evidence. Therefore, the Claimant [Buyer] has lost its right to claim lack of conformity of the goods.

3. Prior to the conclusion of the contract between the Claimant [Buyer] and the [Respondent], the Claimant [Buyer] had signed a fireworks export agreement with Q Company, which was legal and valid. The Claimant [Buyer] was planning to handle the transaction directly with Q Company; however, because Q Company has no export power and could not conduct export business directly, Q Company authorized the [Respondent] to be its export agent.

Under the circumstance that the Claimant [Buyer] was aware that the [Respondent] and Q Company had an agency relationship, the Claimant [Buyer] signed the sales confirmation with the [Respondent], which exported the fireworks to the [Buyer] as the agent of Q Company.

Article 402 of the Contract Law of the PRC states that:

Therefore, the sales confirmation submitted by the Claimant [Buyer] is directly binding on Q Company and the Claimant [Buyer]. For the defects on No. 105 fireworks, the Claimant [Buyer] should claim for compensation directly from the real seller, Q Company.

4. Because this case involves Q Company's substantial liability, Q Company should be added as a third party.

5. The Claimant [Buyer]'s assertion that "the quality of the goods exported by the [Respondent] was not inspected, causing the defective No. 105 fireworks to be exported to the Claimant [Buyer]," has no factual basis. The quality and quantity of the fireworks exported to the Claimant [Buyer] have been inspected in accordance with Article 35(1) of the CISG.

6. On 3 September 2001, the Claimant [Buyer] discussed the quality issue with Q Company at __ Hotel Room 2615. The [Respondent] neither knew nor participated in this discussion. It was a direct contact between the real buyer and seller. They changed the subject and the content of the contract. Therefore, the Claimant [Buyer] and Q Company should bear the liability in this case.

Based on the above, the [Respondent] should not bear any liability.

Response by the Claimant [Buyer]'s arbitration agent

1. For the applicable law in this case, one should refer to Article 142 Section 2 of the General Principles of Civil Law of the PRC. It states:

Therefore, the Foreign Trade Law of the PRC and the CISG shall apply to this case.

2. Article 12 of the Foreign Trade Law of the PRC states:

Therefore, for the defective goods sold to the Claimant [Buyer], the [Respondent] should bear the responsibilities to accept the return of the goods and make compensation to the Claimant [Buyer]. Q Company is not a party under this international sales contract, and the division of the responsibilities between Q Company and the Claimant [Buyer] is beyond the scope of this case, which should be settled separately.

3. Article 35(2) of the CISG states:

The fireworks delivered by the [Respondent] could not sparkle. Therefore, they did not conform to the contract.

4. The sales conformation signed by the [Respondent] and the Claimant [Buyer] does not stipulate the deadline for raising quality objections. The Claimant [Buyer] received the goods on 16 July 2001, and then raised a quality objection to the [Respondent] and the Q Company. On 2 November 2002, the Claimant [Buyer] filed a lawsuit with Shijiazhuang Intermediate People's Court of Hebei Province in accordance with Article 39(2) of the CISG, stipulating that the buyer must give notice of the non-conformity of the goods within two years after receiving the goods.

5. On 3 September 2001, the Claimant [Buyer] went to Beijing, confirming the facts and reasons why the fireworks could not sparkle together with the legal representatives of the Manufacturer, Tu, __ and Wang, __ and the agent of the [Respondent], Yin, __.

Yin, __ was an employee and the business representative of the [Respondent], who reported to the Vice President of the [Respondent], Miao, __, regarding the negotiation between the Chinese party and the American party and the fact that the fireworks were not conforming. The [Respondent]'s e-mail regarding the retirement of Yin, __ was not received by the Claimant [Buyer]. Therefore, the Claimant [Buyer] had reason to believe that Yin, __ attended the negotiation on 3 September as the [Respondent]'s representative.

6. On 3 September 2001, the parties from both China and the U.S. (U.S.: the Claimant [Buyer]; China: the [Respondent] and Q Company) confirmed the facts and the reasons for the non-conformity of the goods, and on 19 September 2001, the representatives of the manufacturer, Tu, __ and Wang, __ asked Yin, __ to issue a letter to ___ and ___, confirming the non-conformity of the No. 105 fireworks. In the fax sent by Wang, __ to the witness, Xu, ___ on 11 January 2002, Wang, ___ confirmed that they should replace 6,000 of the fireworks with the value of US $19,134.72 based on the price stipulated in the sales confirmation.

The first issue that needs to be settled is whether the Claimant [Buyer] can assert its rights against the [Respondent].

The sales confirmation does not stipulate the applicable law. Considering the fact that the parties to the sales confirmation are legal entities registered in the U.S. and China, and both China and the U.S. are Contracting States of the CISG, the Arbitration Tribunal supports the [Respondent]'s allegation that the CISG shall apply, recognizing that Article 1(3) of Chapter I, Sphere of application, of the CISG states that:

The Arbitration Tribunal notes that the [Respondent] defended that, according to Article 402 of the Contract Law of the PRC, the [Respondent] should not be held liable. The Arbitration Tribunal notes that the defense made by the [Respondent] involved the nature of the sales confirmation in this case, and that the Article of the Contract Law of the PRC mentioned by the [Respondent] was described in Section 21, i.e., the provisions on Agency Contracts of the aforesaid law. The Arbitration Tribunal needs to make a decision on the applicable law to decide the nature of the sales confirmation in this case.

After investigation, it was found that the [Respondent]'s place of business and the place for the conclusion of the sales confirmation were in China. Therefore, the Arbitration Tribunal concludes that Chinese law shall apply to determine the nature of the sales confirmation in this case.

Article 402 section 21 of the Contract Law of the PRC stipulates:

The fact confirmed by the parties in this case is that the [Respondent] signed the contract to export the goods with the Claimant [Buyer] as the agent of Q Company, for which the [Respondent] and Q Company signed an export agent confirmation. At the conclusion of the sales confirmation in this case, the Claimant [Buyer] was well aware of the agency relationship between the [Respondent] and Q Company. Therefore, in accordance with Article 402 of the Contract Law of the PRC, the Arbitration Tribunal sustains the [Respondent]'s allegation that it should not be bound by the sales confirmation.

Based on above, the Arbitration Tribunal neither supports the Claimant [Buyer]'s claims to have the [Respondent] refund US $19,134.73 of the price for No. 105 fireworks plus the interest, nor does the Tribunal support the Claimant [Buyer]'s claim to have the [Respondent] pay the Claimant [Buyer]'s expenses incurred by storing the non-conforming goods, including the insurance fee of US $4,467.06, transportation fee of US $851, storage fee and penalty of US $13,007.92 (calculated to 31 July 2003), and the storage fee of US $500/month and penalty of US $50/month which would be incurred in the future and the transportation fee for shipping the goods back to China.

The Claimant [Buyer] shall bear the entire arbitration fee.

The Arbitration Tribunal rules that:

(1)	All of Claimant [Buyer]'s claims are dismissed;
(2)	The arbitration fee for this case is US $2,516, which shall be borne by the Claimant [Buyer] entirely, and this has been paid by the Claimant [Buyer] in advance.

This is the final award, which shall be effective from the day of this award.

SOLE ARBITRATOR: ____

12 March 2004 in Langfang

FOOTNOTES