(2013) Jin Gao Min Si Zhong Zi No. 91
High People’s Court of Tianjin Municipality




[CLOUT Case no. 1743]

In 2011, a Canadian buyer (the plaintiff) entered into a contract with a Chinese company for the sale and purchase of chemical products. Under the contract, the buyer would pay 10 per cent of the total purchase price upfront and the remaining 90 per cent upon receipt of independent third-party reports attesting the quality of the goods. The contract also dealt with packaging, inspection, consequences for breach of contract, amongst other things. The buyer first paid 10 per cent of the total purchase price, and later paid a further 48.35 per cent of the outstanding purchase price to the seller. Subsequently, the seller, together with a third party “Z”, provided the buyer with a letter of guarantee in respect of the chemical products which were partly delivered, stating that the products fulfilled quality requirements. In 2012, the Chinese seller was liquidated and struck off. At the time, it had been wholly owned by a Chinese national “P” (the defendant).
The buyer, however, alleged that the seller had breached their contract by failing to deliver goods in conformity with the contract, and sued P, as the sole shareholder of the defunct seller, for the return of the paid portion of the purchase price.

At first instance, the court held that, since the parties agreed to the application of Chinese law, in accordance with the rules of private international law, the dispute should be governed by Chinese law. The court dismissed the buyer’s claim because it found that the buyer failed to discharge its burden of proving that the goods did not satisfy the quality required by the contract. However, the value of the goods delivered by the seller had been lower than the amount paid by the buyer. Under Chinese company law, a sole shareholder would assume the liabilities of his wholly owned company if his business assets could not be distinguished from his personal assets. Since P could not prove that his business and personal assets were separate, the court ordered P to return the difference in value to the buyer.
The buyer appealed against the court’s dismissal of its claim for the return of the full amount paid, and adduced new evidence to prove that the goods fell short of the quality required by the contract. P also appealed against the court’s decision, claiming that shipping fees were payable by the buyer and therefore he should not have been ordered to pay the difference in value to the buyer.

The appeal court held that, since the buyer and the seller were respectively located in Canada and China, which were both Contracting States to the CISG, and the contract did not exclude the application of the CISG, the dispute ought to be governed by the CISG. As to the consequences of the Chinese seller’s liquidation, in accordance with the rules of private international law, the court would apply Chinese law as chosen by the parties. Regarding the buyer’s claim, the court affirmed the findings made at first instance. Applying Article 35(1) CISG, the court held that the buyer failed to prove that the goods were not of the quality required by the contract. The court reasoned that the buyer had accepted the goods without requiring inspection by a third party as stipulated in the contract, and the new evidence adduced by the buyer was inadmissible. The court also confirmed the first instance ruling that, under Chinese
law, P, as the sole shareholder, was responsible for the seller’s liabilities following its liquidation. As to P’s claim that the amount he was ordered to return to the buyer was covered by shipping fees payable by the buyer to the seller, the court found that there was no basis to P’s claim. Accordingly, both appeals were dismissed, and the first instance decision was upheld.




Case Law on UNCITRAL Texts, A/CN.9/SER.C/ABSTRACTS/189}}