A U.S. seller and a Chinese buyer entered into a contract for the sale of PVC suspension resin. A dispute arose between the parties concerning the mislabeling of the goods which had caused the buyer’s end user to reject the goods and, as a consequence, the buyer’s obligation to pay the damages provided for in the third party contract.
Lacking an express choice of applicable law by the parties, the Arbitral Tribunal applied the Law of the People’s Republic of China on Economic Contracts Involving Foreign Interests (by virtue of the principle of closest relation with the contractual performance) and CISG, as China and the United States are both contracting countries. The Tribunal made also reference to the Incoterms 1990, since the parties had chosen CFR as the delivery term in the contract.
As to the merits, the Arbitral Tribunal rejected seller’s argument that under CFR the risk of loss passed to the buyer at the time when the goods passed over the ship’s rail at the port of shipment, so any damages or losses happened thereafter should be recovered from the carries or the insurer. The Arbitral Tribunal, applying art. 35 CISG held that the seller was in breach of contract because the mislabeling amounted to non conformity, and according to art. 36(1) CISG, the non conformity existed before the passing of risk occurred. As a consequence, the Arbitral Tribunal awarded buyer damages in the amount sought.
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