- Xiamen Intermediate People's Court
DAMAGES (ART. 74 CISG) - LOST PROFITS - CALCULATION
RIGHT TO INTEREST (ART. 78 CISG)
A Hong Kong seller and a Chinese buyer concluded a contract for the sale of a certain quantity of fish powder, to be delivered in two instalments. In order to secure payment, the buyer was obliged to open an irrevocable letter of credit for each instalment. After receiving delivery of the first instalment, the buyer informed the seller that it would pay only 80% of the contract price, alleging inter alia that the fish powder did not correspond to the contractual specifications. Moreover, it asked that the contract for the remaining instalment be terminated. The seller commenced an action to recover full payment and damages, pointing out that the goods had been inspected before shipment and again at arrival at destination, and that no defects had been found.
As to the delivered first instalment of fish powder, the Court held that according to usage in international documentary transactions, to pay only 80% of the price when the whole set of the documents to be negotiated is handed even after the merchandise has been inspected and cleared constitutes breach of contract. Therefore the buyer had to pay the whole price for the delivered goods.
As to the second installment, the Court held that the buyer had breached the contract by refusing to open the letter of credit. Referring to the Foreign Economic Contract Law of China (FELC) and to Art. 74 CISG, the Court awarded the seller damages for lost profit, to an amount equal to the difference between the price already paid by the seller to its supplier and the contract price for the second installment which had not yet been delivered nor been paid by the buyer.
Finally, the seller was awarded interest on the sums the buyer owed (Art. 78 CISG).
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Published in Chinese:
- Guo Guoting (ed.), Analysis of Modern Chinese Commercial Disputes with Foreign Elements, Peking, 1995, 132-136
Source and English translation:
- Prof. Dr. F. Münzel, Max Planck Institut für ausländisches- und internationales Privatrecht (Hamburg)}}