- Arbitral Award
- CIETAC China International Economic and Trade Arbitration Commission
SCOPE OF CISG - EFFECTS OF CONTRACT ON PROPERTY - MATTER NOT GOVERNED BY CISG (ART. 4(B) CISG) - DOMESTIC LAW APPLICABLE
LACK OF CONFORMITY OF GOODS (ART. 35 CISG) - BUYER'S RIGHT TO AVOID (TERMINATE) THE CONTRACT (ART. 49(1) CISG)
DAMAGES (ART. 74) – BUYER ENTITLED TO RESTITUTION OF THE PURCHASE PRICE AS WELL AS COMPENSATION FOR THE COSTS INCURRED
RIGHT TO INTEREST ON REFUNDED PRICE (ART. 84(1) CISG)
A Swedish company (seller) concluded a contract with a Chinese company (buyer) for the supply of powder, whose color, moisture and place of origin were specifically described in the contract. According to the contract, the buyer had to pay the price by means of a letter of credit. After delivery, the goods turned out to be defective. The buyer notified the seller of the lack of conformity and requested the latter to arrange for the return of the goods and to cancel payment under the letter of credit. However, since the seller did not act as required, the bank paid it the whole price. Subsequently, the seller agreed to the goods’ return to their place of origin (Indonesia) and the buyer arranged for the return at its own expense. As a result, the seller promised to compensate the buyer for the costs incurred as soon as the goods were resold to a third party. However, in the five months subsequent to the arrival of the goods to Indonesia, the seller continuously refused to take delivery of goods as well as to pay back the contract price and compensate the buyer. The buyer then commenced an arbitral proceeding requesting termination of the contract due to the seller’s fundamental breach, as well as repayment of the contract price and damages.
As to the applicable law, the Tribunal held that CISG governed the contract according to Art. 1(1)(a) thereof, supplemented when necessary by Chinese law.
With respect to the merits, the Arbitral Tribunal found that the goods delivered by the seller did not conform with the contractual requirements and were unfit for importation (Art. 35 CISG). Therefore, the seller had fundamentally breached the contract and should be considered liable vis-à-vis the buyer (Arts. 25 CISG). The Tribunal also found that the buyer was entitled to terminate unilaterally the contract (Art. 49 CISG). However, since the buyer had never made an express request to this end, the contract had to be treated as terminated on the date the arbitral award would be rendered.
As to the issue of the passing of risk in the case of the seller's fundamental breach, the Arbitral Tribunal applied Chinese law and found that the seller should bear the risk of damage or loss to the goods. Moreover, the Tribunal held that Chinese law was applicable to the matter of the transfer of ownership (Art. 4(b) CISG) and accordingly it declared that the title to the goods had passed back to the seller at the time when the parties agreed to the return of the goods.
Furthermore, the Tribunal ruled that the seller should return the contract price (Art. 84(1) CISG) and was responsible for all the relevant costs incurred by the buyer (Art. 74 CISG). The Tribunal also awarded interest on the total amount due by the seller (Art. 84 CISG).
Original in Chinese:
- available at the University of Pace website, http://www.cisg.law.pace.edu/}}