- Arbitral Award
- CIETAC China International Economic and Trade Arbitration Commission
APPLICATION OF CISG BY VIRTUE OF INTERNATIONAL PRIVATE LAW RULES (ART 1 (1)(B) CISG).
NOTICE OF LACK OF CONFORMITY NOTICE- TIMELY NOTICE - BUYER MUST NOTIFY SELLER WITHIN REASONABLE TIME (ART.39 CISG).
A Chinese buyer and a Japanese seller entered into a contract for the sale of a sheet metal production system unit for an agreed upon purchase price. When the system was put in use, the buyer claimed the system was not the advanced technology that was advertised and promised by the seller.
A dispute arose between the buyer and the seller regarding the contract. The buyer claims the seller committed fraud by concealing facts to lure the buyer to sign the contract in bad faith by abusing its dominant position in technology and information. However, the seller affirmed the legality of the contract and rejected the breach of contract claim because the buyer failed to rely on a lack on conformity claim within the legal time limit prescribed. The seller also alleged in its defense that the contract between the parties was valid, effective, and made by the general consent of the parties. Additionally the seller claims the buyer must perform its obligation without modification as the seller had already completed his portion of the contract. The seller filed a counterclaim for the outstanding amount on the contract, punitive damages, and arbitration and attorney’s fees.
As to the applicable law, the court held that CISG had to be applied to the dispute since the rules of private international law led to the application of General Principles of the Civil Law of the People’s Republic of China and the Contract Law of the People’s Republic of China, a contracting state (ART.1(1) (b) CISG).
As to the merits, the Arbitral Tribunal held that there was not any fact that proved that the seller concealed facts and committed fraud. More specifically, the court held that the contract signed was clear and sufficient. The contract was written in Chinese and English and was concluded by both parties’ signatures. Both parties signed a memorandum to revise the payment condition. The seller performed its obligation of delivery (Art.30 CISG). The buyer paid twice according to the memorandum (Art.53 CISG). Therefore, the tribunal held that the contract was valid and effective.
Secondly, the detailed contract’s provisions and the signature of both parties on every page of the annex affirmed that the provisions were not grossly unconscionable or that the contract concealed the real nature of the system. The buyer failed to provide facts or relevant proof to substantiate a reduction of the price; the buyer neither examined the goods according to the provisions of the contracts, nor presented written claims to the seller within the time limit.
Thirdly, the Arbitral Tribunal held that, according to the provisions in the Contract Law of the People’s Republic of China, the goods delivered by seller were regarded as conforming to the contract (Art.35 (1) CISG); therefore, according to the provisions of CISG, the buyer had lost the right to rely on lack of conformity of the goods (Art.39 CISG). Consequently, the buyer was in breach and was liable for the unpaid amount of the contract.
Additionally, the Arbitral Tribunal decided that all the fees caused by the arbitration application and the seller’s counterclaims were to be borne by the buyer.
Original in Chinese:
- available at the University of Pace website, http://www.cisg.law.pace.edu/}}