Data

Date:: 26-12-2014
Country:: Arbitral Award
Number:
Court:: China International Economic and Trade Arbitration Commission
Parties:: --

Keywords

OFFER - OFFER FIXING TIME FOR ACCEPTANCE - ACCEPTANCE NOT EFFECTIVE IF IT DOES NOT REACH OFFEROR WITHIN THE FIXED TIME (ART. 18(2) CISG)

ACCEPTANCE - MODIFIED ACCEPTANCE - AMOUNTING TO COUNTER-OFFER (ART. 19(1) CISG)

TIME FOR DELIVERY - CIRCUMSTANCES INDICATING THAT BUYER IS TO CHOOSE A DATE (ART. 33 (b) CISG)

Abstract

[CLOUT Case no. 1901]

On 17 April 2012, the claimant, a seller based in China, sent by email an offer in the form of a draft contract for the sale of urea to the respondent, a buyer based in Switzerland, and asked the respondent to make a commitment before 5 p.m. the same day. On 18 April 2012, the respondent sent by email a revised draft contract to the claimant and the claimant replied with a request for confirmation. Accordingly, both parties signed contract No. 1 and contract No. 2 and agreed that the seller would sell 25,000 metric tons of small-granule urea and 25,000 metric tons of large-granule urea, both types produced in China, in bulk to the buyer on the basis of free-on-board terms. Contract No. 1 concerned the small-granule urea, which was worth over $450 per ton, while contract No. 2 concerned large-granule urea, which was worth $470 per ton.
The payment initially agreed in the two contracts was to be made by means of irrevocable letter of credit but the method of payment was later changed through negotiation to telegraphic transfer.

With regard to the shipment period, both contracts specified that the goods must be delivered in July 2012 but no later than 31 July 2012. After the two contracts were signed, during performance the parties communicated further by email with respect to specific issues relating to stocking and dispatch of a ship to collect the goods, informing each other of developments in that respect.
Since May 2012, the domestic and international market prices for small- and large-granule urea had fluctuated: the free-on-board export price of large-granule urea increased in that month and then decreased steadily in June. From the end of May, the domestic ex-factory price and free-on-board export price of small-granule urea had both decreased considerably.
Delivery was not completed within the shipment period agreed in the two contracts owing to disputes over stocking and shipping. After the expiration of the shipment period, the parties entered into negotiations with regard to the continued performance of the contract but failed to come to an agreement. Subsequently, the seller resold the goods but suffered a loss as a result of the price difference arising from worsening domestic and international market conditions. The seller therefore went to arbitration, requesting that the two sales contracts be terminated and the respondent compensate for the loss resulting from the change in price, pay interest and bear all expenses arising from the case.

The main focus of the dispute was as follows:
1. The law applicable to the dispute
The parties agreed neither in contract No. 1 nor in contract No. 2 on the law that would apply to any dispute arising between them.
The tribunal noted that the parties’ places of business were located in China and Switzerland, respectively, both of those States being parties to the CISG. At the same time, it noted that whether in writing or in court, both parties should proceed with their statements, pleadings and even debates by relying on relevant Chinese laws and regulations. Therefore, according to article 47, paragraph 2, of the Arbitration Rules of CIETAC: “Where the parties agree on the law applicable to the case, that agreement shall prevail. Where the parties do not reach an agreement, or their agreement conflicts with the mandatory provisions of the law, it is up to the arbitration tribunal to decide on the law applicable to the case.” The tribunal decided to apply both the CISG and the relevant Chinese laws. Furthermore, article 16 of both contracts stated that the contracts were to be interpreted with reference to Incoterms 2010 and the revised version of those rules as formulated by the International Chamber of Commerce. Therefore, in
making its decision on the rights and obligations of both parties concerning delivery as referred to in contract No. 1 and contract No. 2, the tribunal was to be guided by Incoterms 2010 and its revised version.

2. The validity of the two contracts
The tribunal established that the two contracts had been concluded as follows: the claimant had initiated the transaction by sending an offer to the respondent by email on 17 April 2012, following which the respondent had returned the text of the contract specifying the terms of the transaction and bearing its signature.
The claimant had subsequently added its own signature and official seal to the text of the contract upon receipt, the contract thus being concluded. Neither party expressed any objections to those findings.
The tribunal found that the contents of the contracts in their entirety were in conformity with the law and that neither party had expressed any objection to the validity of the two contracts. The tribunal therefore concluded that the contracts represented the true intention of both parties, were in accordance with the relevant legal provisions and were both legitimate and valid.

3. The problem of stocking
(1) The time limit for stocking
The respondent claimed that when the claimant had sent its offer by email on 17 April 2012, clause 5 of that offer had indicated that the goods would be ready before the end of June. The respondent alleged that it had understood the offer to represent the true intention of the claimant to conclude a contract, as reflected in the content of the contract, which was confirmed by both parties. According to the respondent, the failure of the claimant to prepare the goods within the
promised stocking period constituted an anticipatory breach of contract.
The claimant alleged that the respondent, having received the offer on 17 April 2012, sent a reply on 18 April 2012 in the form of the text of the contract setting out the various terms of the transaction. However, that text failed to include any “goods ready” clause and the respondent had also changed the price clause. The deadline for submitting the acceptance as specified in clause 9 of the offer dated 17 April 2012 was 5 p.m. on 17 April, whereas the respondent replied with the modified text of the contract – which effectively constituted a new offer – on 18 April. The claimant then accepted the new offer by adding its signature and seal to the text of the contract. Consequently, the offer dated 17 April and its “goods ready” clause (clause 5) should be assumed to be no longer valid. Since neither contract indicated that agreement had been reached with respect to the stocking period, the respondent’s claim that the claimant had delayed stocking and thus breached the contract was supported neither by fact nor by the relevant laws.
The tribunal found that the respondent had not replied to the claimant’s offer until 18 April 2012, which was later than the time limit specified in clause 9 of the offer. Article 18, paragraph 2, CISG stipulates that “An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable
time.” Thus, the claimant’s offer was invalid since the respondent’s acceptance notice had not been delivered within the specified time frame, and the parties were therefore not bound by the content of the offer.

Article 19, paragraph 1, CISG stipulates that “A reply to an offer which purports to be an acceptance but contains additions, limitations or other modifications is a rejection of the offer and constitutes a counter-offer.” Paragraph 3 of the same article stipulates that “Additional or different terms relating, among other things, to the price, payment, quality and quantity of the goods, place and time of delivery, extent of one party’s liability to the other or the settlement of disputes are considered to alter the terms of the offer materially.” The text of the contract
sent by the respondent to the claimant on 18 April was essentially a new offer.
The fact that the claimant had signed and added its seal to the text of the contract sent by the respondent constituted acceptance by the claimant of the respondent’s new offer. Consequently, both parties should take the terms stated in the final text of the contract as the basis for determining their rights and obligations.

The tribunal therefore disagreed with the claim made by the respondent to the effect that, since the “goods ready” clause was incorporated into the offer sent by the claimant on 17 April 2012, it was reasonable to assert that that clause had been confirmed by both parties at the time of signing the contract and subsequently included in the final terms of the contract. The two contracts eventually concluded did not include clauses on stocking by the seller or on the
dispatch of a ship by the buyer, nor did they include the information which ought to have been reflected in the relevant clauses, such as stocking time, cargo collection time, estimated time of arrival and notice of ship dispatch.

(2) The question of shipment date in the contract
The claimant claimed that both parties had agreed on the time of delivery of the goods (the shipment date); the buyer was to ensure that the goods were shipped in July 2012 and no later than 31 July 2012. According to article 33 (b) CISG, if a period of time is fixed by or determinable from the contract, the goods may be delivered at any time within that period unless circumstances indicate that the buyer is to choose a date. Accordingly, the shipment period as stated in the contract in question should be understood to indicate that the claimant, as the
seller, could deliver the goods at any time within the delivery period stated in the contract. The agreement did not set out any restrictions with respect to the time period for the seller’s stocking of the goods.
The respondent alleged that the claimant had misinterpreted the provisions of article 33 (b) CISG. The shipment period as referred to in the two contracts, namely, the requirement that the buyer take delivery of the goods in July 2012, but no later than 31 July, represented an exception to article 33 CISG. The aforementioned provisions indicated that the buyer had the right to select a specific delivery date and to proceed with the carriage of goods at any time between 1 and 31 July 2012. The claimant was to prepare the goods prior to the shipment period (in other words, before 30 June 2012) so that the respondent could have the goods shipped at any time thereafter.
The tribunal indicated that the buyer was responsible for arranging transportation under the two contracts and the delivery by the seller ought to be coordinated with the transportation arranged by the buyer. The terms used to describe the “shipment period” in the two contracts suggested that the shipping clause usually intended to specify the period for delivery by the seller had been
formulated as a time clause aimed at specifying the period within which the buyer could send a ship to take delivery of the goods. In other words, the buyer was entitled to send a ship to the port to take delivery of the goods on any day from 1 to 31 July 2012 but no later than 31 July. As long as the buyer sent a shipping notice to the seller, informing the seller of its specifically designated vessel, the seller was obliged to prepare the goods before the arrival of that
vessel and load them onto the designated vessel in order to complete the delivery. The tribunal therefore dismissed the claimant’s claim that it was entitled to prepare the goods on any day in July 2012 on the basis of article 33 (b) CISG.
However, the tribunal also indicated that, according to the free-on-board provisions of Incoterms 2010, the buyer must give the seller adequate notice of the name of the ship, the loading point and the delivery time (if necessary) selected by the buyer within the agreed period. As the respondent did not select a specific delivery time compatible with the shipment period specified in the two contracts, the claimant was not entirely liable for its failure to prepare the
goods within the established time limit.

Damages
The claimant claimed that in mid-August 2012, when negotiations between the parties broke down, the claimant resold the goods under the contract in a reasonable manner and within a reasonable time as provided for in article 75 CISG. According to article 74 CISG, the respondent was liable for damages for breach of contract, including loss of profit, suffered by the claimant as a consequence of the breach.
In response to that claim, the tribunal indicated that since the parties had not agreed explicitly on clauses concerning stocking and the dispatch of a ship in the two contracts, both parties were at fault with regard to performance of the contract. Although the respondent had ultimately failed to rent and dispatch a ship, partly owing to the claimant's responsibilities, that failure did not
constitute a fundamental breach, nor did it entitle the claimant to declare the two contracts avoided. Therefore, with regard to the damages claimed by the claimant in order to recover the difference between the contract price and the resale price resulting from the resale the claimant had made after declaring avoidance of the contract in accordance with article 75 CISG, the tribunal held that those provisions were not applicable in the case in question.
Since it was impossible for the two contracts to be performed and neither party had expressed willingness to continue with performance, the tribunal declared the contracts terminated. In the dispute over the dispatch of a ship under the two contracts, the claimant was at fault for late stocking of the goods and the respondent had failed to fulfil its contractual obligation to dispatch the ship. The principle of fault-sharing dictated that the parties should be held jointly liable
for failure to perform the two contracts. Insofar as legal liability was concerned, the share of the respondent was greater than that of the claimant. According to the principle of fairness and reasonableness, both parties should bear the loss arising from the price difference in a manner proportionate to their share of liability. The tribunal held that it was appropriate for the claimant to bear 45 per cent and the respondent 55 per cent of that loss.

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