国际商法英文案例

国际商法英文案例

told Bob that he would lease him his farm for the next three years.

Prior to entering into possession of the farm, Bob asked John if he could purchase the farm. John agreed to sell the farm to Bob for $500,000. Later in the conversation, John asked Bob if he would agree to pay off a $10,000 debt owed to John by Bob's brother, Andy. Bob agreed. Bob said that he would have his lawyer prepare the agreement for the farm purchase and that he would deliver it.

Bob brought by the written agreement a few days later. Before John had signed the agreement, Mary learned that the farm was being sold to Bob and the terms of that transaction, and she called John and made an offer of $600,000 for the farm on the condition that John repaint the main house and erect a fence around the shop on the farm prior to closing. John accepted, and a written agreement was signed which contained a provision requiring the main house to be repainted prior to closing. John's lawyer had prepared the agreement. After the written agreement with Mary was signed, she asked John if he would also paint the storage shed, and he agreed that he would.

At closing, neither the house nor the storage shed had been painted and the fence had not been erected. However, the transaction was closed and deed delivered. Bob, upon learning what had occurred, filed suit for specific performance of the written agreement that he had delivered to John asking in the alternative that he have specific performance of the oral lease agreement. John answered denying Bob's claims, and he filed a counterclaim against Bob for the amount of the debt Andy owed John. Mary, who had been named a defendant, answered, denying Bob's claims, and asking the court to affirm her agreement with John and further order that John repaint the main house and the storage shed and erect the fence.

Dave tells Mark that there is an ocean of oil underneath his land (a

knowing falsehood, intending to defraud Mark into buying the property for $20,000. Unbeknownst to Dave and Mark, Peter overhears Dave's statement. The next day, believing the statement to be true, Peter makes an unsolicited offer to Dave to buy the land from him for $25,000, far more than it is worth ($5,000). Dave sells him the land. Nothing is said in their "negotiations" about oil, it was a simple offer that was immediately accepted. Six months later, and after drilling 3 dry holes at a total cost of $100,000, Peter discovers that Dave's story was a big lie when Sally, Dave's ex-employee, told him that she had heard Dave brag that he was "really gonna put the britches on Mark" by telling him there was (snicker, snicker) "an ocean of oil beneath that worthless hardscrabble crust." She

related that she heard this the night before Pete overheard Dave's statement to Mark.

J.W. Southworth and Joseph Oliver were ranchers in Grant County, Oregon俄勒岗

州. Oliver and his wife decided to sell over 2,900 acres of land in Bear Valley and asked Southworth, who owned land adjoining the sale tract, whether he would be interested in buying. Southworth said he was "very interested" in the land and would attempt to arrange financing for the purchase; he asked Oliver to let him know the price as soon as Oliver decided on it. Several weeks later, Oliver sent Southworth and three other ranchers a letter briefly describing the land and stating a price Of $ 324,419 and other specific terms of sale. Four days later, Southworth wrote, stating: "I accept your offer. "Oliver refused to sell, arguing that his letter was not an offer but merely an invitation to negotiate. Southworth filed suit for specific performance of the alleged contract. The trial court ruled in Southworth's favor, and Oliver appealed. Was the trial court's decision right?

In the fall of 1977, Rhen Marshall received a mailed Purolatoradvertising circular could be selected when ordering Purolator merchandise. The premiums varied according to the order size: Deal 5A stated that, for an order for 100,000 pounds of Purolator brand products, Purolator would send its customer a premium of a new 1978 Buick Electra automobile and 100 EK - 6 Kodak Instant cameras. Puralator stated, "You will be billed $ 500.00 for the package which has a manufacturer's suggested retail value of $17,450.00" .Rhen Marshall placed an order for over 100,000 pounds of Purolator oil filters and also ordered "Deal 5A as outlined in your brochure." The advertising circular did not contain provisions for billing or for discounts. Rhen Marshall's order requested a 5 percent truckload discount and a "30-60-90~ day billing." (In previous dealings) between these parties, a "30--60--90 day billing" meant a discount of 2 percent if paid within 30 days, a discount of 1 percent if paid within 60 days, or payment in full at the end of go days. ) Purolator rejected Rhen Marshall's order, and Rhen Marshall filed suit for breach of contract.

First Texas Savings Association promoted a "$ 5,000 Scoreboard Challenge"

random drawing would pick the winner, who would receive an $ 80 savings account with First Texas, plus four tickets to a Dallas Mavericks home basketball game chosen by First Texas. If the Mavericks held their opponent in the chosen game to 89 or fewer points, the winner was to be awarded an additional $ 5,000 money market certificate. On October 13, 1982, Yvonne Jergins deposited a completed entry form with First Texas. On November 1, 1982, First tried to amend the contest rules by posting notice at its branches that the Mavericks would have to hold their opponent to 85 or fewer points before the contest winner would receive the $ 5,000. In late December Jergins was notified that her entry form had been drawn and that she had won the $ 80 savings account and tickets to the January 22, 1983, game against the Utah Jazz. The notice contained the revised （修订）contest terms. In the game the Mavericks held the Jazz

to 88 points. Jergins filed suit when First Texas refused to pay the $ 5,000 and the trial court granted a summary judgment in her favor.

In April of 1975, Bio-Zyme Enterprises, a manufacturer of livestock feeds, began selling feed to Ken Vanderhoof, a feed dealer（饲料经销商）, on open account. Vanderhoof received monthly statements from Bio-Zyme showing all purchases. At the bottom of each statement the following sentence appeared: "Accounts not paid within 30 days will on our billing date (the 26th day of each month) be charged 1 percent each month." Whenever a finance charge was imposed, this was conspicuously noted on the statement. By April of 1976, Vanderhoof and his company, Preston Farm and Ranch Supply, owed欠Bio-Zyme over $ 45,000. When Bio-Zyme filed suit on the account, Vanderhoof argued that he had not agreed to pay the 1 percent finance charge. Was he right?

On 13 June 1988, a Hong Kong Vehicle Spare Parts Company, and a Chinese imported vehicle maintenance service center entered into a contract pursuant to which the Service Centre agreed to purchase various Japanese-made vehicle spare parts and fittings and vehicle maintenance equipment from the Hong Kong Company for US$ 100,000. The first shipment was to be shipped by the end of June 1988, and no later than 10 July 1988. After the agreement was signed, the Hong Kong Company informed the Service Centre on 17 June 1988 that the goods were out of stock in Hong Kong and the prices had risen.

On 20 June 1988, the Service Centre agreed that if the quality could be assured, it would accept similar products from Japan or Korea, but there should be immediate delivery. The parties, however, did not make a new agreement on the prices for these products. On 23 June 1988, the Hong Kong Company delivered IlK $187,569-worth of spare parts and fittings to the Service Centre. As the Service Centre lacked foreign exchange, it only remitted partial payment of

US $11,766 (equivalent to Hk$: 91,790) to the Hong Kong Company and an amount of HK $ 95,779 was left outstanding.

As a result of the buyer's failure to pay, the Hong Kong Company applied for arbitration in December 1988 seeking payment of the outstanding amount. The Service Centre argued that the Hong Kong Company' s claim for HK $ 95,779 was untenable, because this amount was calculated on the basis of prices of genuine Japanese-made products whereas the Hong Kong Company had delivered much cheaper non-Japanese products.

The arbitration tribunal found that there were clear stipulation in the contract as to the prices and country of origin of the goods. After the conclusion of the contract, the parties agreed to change the country of origin. The Service Centre agreed to accept a portion of non-Japanese products, but no new agreement was reached on the prices for the non-Japanese products. The Service Centre only found out that prices of the products were different when the Hong Kong Company sent it the invoices. The tribunal found that the Service Centre had

received the invoices.

Comprehension Questions for Case:

1). Do you think the Service Centre's act constituted a breach of the contract

because of the fact that it only paid part of purchase price and failure to

pay the outstanding sum?

2.) Did the Service Center accept the price referred to in the invoices?

3). Was the Service Centre liable for the outstanding sum under the Chinese

law?

4.) What do you think should happen if the Service Centre raised an

objection to countries of origin and the prices of spare parts?

In the following case, Simon was the managing-director of the Cynamon products Ltd and Cynthia a member of it . She had made a special journey to a paint factory to order 100 gallons of varnish清漆. He didn?t know it and sent off to a cut price firm , which was always advertising in Cabinet Maker?s World ,for 150 gallons of it .They were stuck with 2 lots of the stuff .Simon thought he had already posted the letter and accepted their offer and couldn?t cancel. Cynthia supposed that she could cancel hers because it was verbal so it was not binding.

Dickinson v Dodds

On Wednesday, 10 June, the defendant delivered to the plaintiff a written offer to sell certain property .The offer was to remain open until “9:00 a. m. Friday, 12 June.”

On Thursday ,11 June ,the plaintiff was informed by a Mr. Berry that the defendant had sold the property to someone else .At 7 :00 a.m. on 12 June the plaintiff “accepted” the offer .

The court held there was no contract between Dickinson and Dodds . The offer was effectively revoked (withdrawn ) before “acceptance” by communicati on of the withdrawal by a reliable third party .

complaint alleged that defendants were dealers in salt in Milwaukee; that

plaintiff was a dealer in salt in La Crosse, and accustomed to buy in large quantities, which fact was known to defendants; that on September 19, 1882, defendants wrote plaintiff the following letter: “Dear Sir: In consequence of a rupture in the salt trade, we are authorized to offer Michigan fine salt, in full carload lots of 80 to 95 bbs., delivered at your city ,85 per bbl. to be shipped per C&FWRRCO. Only. At this price it is a bargain, as the price in general remains unchanged. Shall be pleased to receive your order.”

Plaintiff replied to this letter on September 20 by sending the following telegram: “Your lett er of yesterday received .You may ship me two thousand(2000) barrels Michigan fine salt, as offered in your letter. Answer.”

The complaint further alleged that “On September 21,1882, defendants attempted to withdraw said offer contained in their letter of September 19,1882. Plaintiff thereupon demanded of defendants the delivery to him of 2,000 barrels of Michigan fine salt, in accordance with the terms of the said offer, accepted by plaintiff as aforesaid, and offered to pay them thereof in accordance with said terms…Nevertheless, defendants utterly refused to deliver the same, or any part thereof, by reason whereof plaintiff sustained damages to the amount of eight hundred dollars.

The counsel for plaintiff claimed that the letter of defendants was an offer to sell to plaintiff, on that terms mentioned, any reasonable quantity of Michigan fine salt that he might see fit to order, not less than one carload. The counsel for defendants claimed that the letter was not an offer to sell any specific quantity of salt, but simply a letter such as a businessman would send out to customers or those with whom he desired to trade, soliciting their patronage.

COMPENSATION FOR BREACH OF

CONTRACT IN RISING MARKET PRICES

The parties conclude a contract for the sale and purchase of ferrosilicon 铁合

金after which, the price of ferrosilicon in the international market shoots up. The parties negotiate several times to adjust the price of the goods under the contract and the buyer issues an L/C in the amount of the agreed adjusted price. In the end, the seller does not deliver the goods and breaches the contract.

The dispute centres on the applicable law for determining the manner and amount of compensation.

THE ARBITRATION DECISION

I. Facts of the Case

On 10 December 1990, the claimant (the buyer) and the respondent (the seller) signed an agreement by fax for the sale and purchase of 3,000 metric tones of ferrosilicon under the contract No. (91)GTCVMC002. It was stipulated in the contract that:

1. The respondent would sell to the claimant 3,000 metric tonnes of ferrosilicon to be shipped during the period from 15 January 1991 to 15 February 1991.

2. The unit price for the goods was to be US$462 per metric tonne, FOBST the port of Basuo, Hainan Province, China, with the total price US$1,386,000.

3. The buyer would pay 90 percent of the contract price for the goods by L/C upon receipt of the shipping documentation. The L/C was to be issued by American Carbon＆Metals Corp. on behalf of the buyer. The balance of ten per cent of the contract price for the goods was to be settled by T/T within 30 days of the date of receipt of the goods.

4. A method of calculating liquidated damages was specified, stating that

if the seller could not deliver the goods in accordance with the contract, the buyer would be compensated for any replacement goods it purchased. Any difference in price would be paid by the seller.

5. The contract would be governed by the laws of the People…s Repu blic of China.

After the contract was signed, the parties amended the contract by fax. They agreed to increase the unit price of the goods to US$468 per metric tonne. All other terms remained unchanged. The claimant issued an L/C to the respondent on 9 January 1991 for an amount calculated in accordance with the adjusted price. The respondent, however, could not confirm that it was able to source the goods. After several rounds

claimant as a result of the respondent's non-performance of the contract;

2. the respondent bear the arbitration fees for the case.

In the annex to its application for arbitration, the claimant submitted that its losses amounted to US$404,813.11. This included:

1. US$108,000 agreed by American Carbon & Metals Corp:, the partner of the claimant, and its client Tube City, Inc. as the amount of damages payable for the cancellation of a contract

2. US$102,000.00 agreed by American Carbon & Metals Corp. and, its client Northcoast Minerals & Metals, Inc. as the amount of damages payable for the cancellation of an agreement

3. US$64,063.11 paid to a shipping company by American Carbon & Metal Corp. for the cancellation of a booking for shipping space

4. a loss of profit of US$114,750

5. other losses, including the charges for issuing an L/C, transportation and travel expenses for the purpose of arbitration, which totalled US$16,000.

In its submission dated 26 May 1992 , the claimant presented supplementary explanations for its claims. In the supplementary explanations, the claimant noted the price difference between replacement goods and the contract price for the goods and the calculation of the loss of profit and raised the point that according to the Convention on International Sale of Goods Contracts of the United Nations (the Convention), if the buyer did not order replacement goods and the goods had a market price, the party claiming damages may claim the difference between the contract price and the market price of the goods at the time the contract is declared void.

The claimant considered the date the contract should be declared void, ie, when the parties clearly knew that the contract could not be performed, as 8 February 1991.On that day, the difference between the contract price and the market price of

75#(product category) ferrosilicon in the US market was US$292,890. The claimant considered that compensation based on this price difference was acceptable.

The lawyer representing the respondent presented the following defence:

1. The respondent did not dispute its breach of contract and the non-delivery of the goods pursuant to the contract and was willing to give reasonable compensation to the claimant in accordance with the contract. However, the respondent observed

that the so-called evidence submitted by the claimant to support its claim for losses suffered in ordering replacement goods was not related to the case in any manner. The claimant had never ordered replacement goods.

2. According to the contract, the damages obtainable by the claimant should be based on the price difference between the contract price and the price of any replacement goods and the expenses incurred in its performance of the contract. The claiman t submitted information on the US metals market as contained in …Metals Weekly? and used this to assess the change in price. This did not agree with the terms of the contract and was not usual international practice.

3. The respondent did not agree that the Convention was applicable to the case because Chinese law had already been chosen as the governing law for disputes. According to the Judicial Explanation of the Supreme People's Court of China (the Judicial Explanation), the applicable law chosen by the parties in handling disputes referred to substantive law and did not include the rules relating to conflicts of laws or procedures. The respondent considered that the substantive rules on damages in the Foreign Economic Contract Law of the People's Republic of China (the Foreign Economic Contract Law) should be applied to this case to determine the responsibility for, and manner of, compensation and that the rules relating to the conflict of laws in the Foreign Economic Contract Law on the applicability of Chinese laws and international conventions should not be used to change the applicable law to international conventions. International conventions were not of such a nature that they could be imposed upon parties within the countries which acceded to the Convention. Parties to a contract had the right to choose whether a particular international convention should apply.

II. Views of the Arbitration Tribunal

The arbitration tribunal made the following judgment on the facts and evidence of the case.

1. According to clause 14 of the contract, the laws of the People's Republic of China were applicable in resolving disputes arising between the parties. As both the United States of America , the country of origin of the claimant, and the People's Republic of China , the country of origin of the respondent, were parties to the Convention, the Convention was also applicable under Article 6 of the Foreign Economic Contract Law.

2. The facts of the case showed that the respondent had breached the contract in not delivering the goods: The respondent should, therefore, be responsible for the breach. The claimant was entitled to seek remedies and claim damages from the respondent in accordance with the contract and the law. In a fax message to the claimant dated 22 January 1991, the respondent apologised for its failure to deliver the goods and expressed its willingness to compensate the claimant for its losses. It also agreed to solve the problem through legal proceedings.

3. Article 20 of the Foreign Economic Contract Law stipulates that, `the parties may agree in the contract on the chargeable fine in the event of default payable by the defaulting party to the other party. The parties may also agree on the method of calculating the liquidated damages payable in the event of default.' The parties to the contract agreed on the method of calculating the liquidated damages. Clause 10 of the contract stipulated that, `if the seller cannot deliver the goods in accordance with the

contract, the buyer shall be compensated for the replacement goods it purchases. The price difference shall be paid by the seller.'

4. Amongst the evidence submitted by the claimant, there was no evidence of purchase of replacement goods on the market as a result of the non-delivery of the goods by the seller. The evidence submitted by the claimant included only the agreements reached between American Carbon & Metals Corp. with its clients Tube City, Inc. and Northcoast Minerals & Metals, Inc. on damages for cancellation of contract, and the agreement between American Carbon & Metals Corp. and the shipping company on compensation for the cancellation of shipping space. American Carbon & Metals Corp. was not a party to the contract. During the investigation of the case, the claimant did not satisfactorily explain why such evidence was submitted as the basis of claim for damages from the respondent. The claimant submitted supplementary material to the arbitration tribunal on 26 May 1992, amongst which there was a certificate signed on 2 August 1991 by American Carbon & Metals Corp. and the claimant certifying that they reached an oral agreement to co-operate with each other to buy 3,000 metric tonnes of ferrosilicon. The arbitration tribunal noted that there was no provision relating to this oral agreement in the contract. Moreover, this certificate was signed three-and-one-half months after the claimant applied for arbitration on 18 April 1991. The claimant could not prove that its claimed partnership relationship with American Carbon & Metals Corp. had been or should have been known by the respondent.

The arbitration tribunal considered that the agreements concerning compensation for cancellation of contract concluded by American Carbon & Metals Corp. with its clients, Tube City, Inc. and Northcoast Minerals & Metals Corp., and with the shipping company were not binding on the respondent and could not be used as the basis of claim for compensation from the respondent.

In its application for arbitration, the claimant also raised another three items of claim which amounted to a total of US$16,000. After examination, the arbitration tribunal considered that this amount represented the total costs incurred by the claimant in its performance of the contract and the process of claiming damages under the contract and should be borne by the respondent.

5. The arbitration tribunal considered that the claim for the difference between the market price and the contract price of the goods raised by the claimant in its …supplementary explanations? was an alternative claim to the claim based on the difference between the contract price and the price of the replacement goods. As mentioned by the claimant, under Article 76 of the Convention, if the buyer did not order replacement goods and the goods had a market price, the party claiming damages may claim the difference between the contract price and the market price at the time the contract was declared void. But the claimant wrongly determined both the time the contract should be declared void and the market price of the goods.

The date the contract was declared void was not 8 February 1991.Evidence submitted by the claimant showed that on 8 February 1991, the claimant, in a fax message to the respondent, stated that it had failed to source replacement goods from other companies in China and requested that the respondent send it notification of

cancellation of the contract and of the L/C. Prior to this, on 28 January 1991,the claimant already sent a fax requesting the respondent to reply by fax by 5 pm (PRC time) on 29 January 1991 whether it agreed to the claimant entering into a contract for replacement goods with Hainan Huiye Trading Company. After receiving notice of cancellation of the contract from the respondent, the claimant could amend the L/C so that it became a transferable L/C. On 29 January 1991,the respondent sent a fax reply t o the claimant explicitly stating that it could not deliver the goods pursuant to the contract and agreeing that the claimant could change the seller under the contract to Hainan Huiye Trading Company and change the L/C to a transferable L/C. This showed that the parties had already declared the contract void on 29 January 1991 . The fax message dated 8 February 1991 was only notification of the failure to source replacement goods.

The claimant's use of the information in …Metals Weekly? as evidence of the market price for the goods could not be accepted. …Metals Weekly? releases only the general price on the US ferrosilicon market during a certain period of time. As the conditions for payment of the goods were FOB to a port in China,the market price of the goods should be determined by reference to similar trading terms. Though the claimant a djusted the information of …Metals Weekly? by incorporating these payment terms, this price did not reflect the delivery terms of the original contract and could not, therefore, be used as the basis for determining an acceptable market price. According to the evidence submitted by the claimant, International Nonferrous Metal Trading Company had on 4 February 1991 offered to sell to the respondent 1,000 metric tonnes of ferrosilicon at the FOB price of US$522 per metric tonne. The other terms of delivery under that offer were basically similar to the terms of the contract. During the hearing, Mr Yang Shigong, representative of the respondent, explained that he was not aware of this offer as he was away on business at that time. The arbitration tribunal considered that the time that the offer was made was close to the time when the contract was declared void and could be used as the basis for determining the market price.

From the above analysis, the compensation on the difference between the market price and the contract price of the goods that the claimant is entitled to should be calculated as follows:

3000 metric tonnes x (522 - 468) = US$162,000.

6. As the respondent was responsible for the breach of contract, the arbitration fees of the case should be borne by the respondent.

III. The Decision

Based on the facts of the case and the above analysis, the arbitration tribunal decidedas follows:

1. Within 60 days of the date of this award, the respondent shall pay to the claimant US$178,000. Interest shall be payable in case of late payment.

2. The arbitration fees shall be borne entirely by the respondent.

DISCUSSION

The dispute occurred in early 1991 when the price of ferrosilicon in the international market increased rapidly. The price for the goods fixed in the contract

was far below the rising market price. The seller requested that the contractual price of the goods be raised. The buyer accepted the seller's request and issued an L/C in the amount of the price of the goods under the new contract, but the seller was unable to source the goods.

The facts of the case showed that although the price of the goods soared inside a short period of time, it did not reach a level which …could not be anticipated? at the time of concluding the contract. Goods could still be sourced on the market at a higher price. Therefore, the contract was not void nor did …force majeure? occur. The seller did not deny its responsibility for the breach of contract and agreed to compensate the buyer for this. The seller thought perhaps that the cost of performing the contract by buying goods at a high price would more or less equal the amount of damages to be paid.

As the seller admitted its breach of contract and expressed its willingness to pay compensation, the major question was how to determine the losses suffered by the buyer and the manner of compensation. In the contract, liquidated damages were to be determined as follows: if the seller did not deliver the goods pursuant to the contract, the buyer would be compensated for the replacement goods it sourced and the seller would pay the difference between the price for the goods under the contract and the price of the replacement goods. However, the buyer did not buy replacement goods. It attempted to source replacement goods but was unsuccessful. The losses it claimed before the arbitration tribunal comprised the compensation payable by its …partner? to other clients for cancellation of other contracts for the sale and purchase of ferrosilicon. The buyer claimed that this compensation was payable because of the non-delivery of goods by the seller. The goods were bought for resale and the reselling was handled by its …partner?. The buyer may not have been sure about the validity of this evidence to support this claim, however, and during arbitration, it submitted a supplementary request for compensation for the difference between the contract price and the market price of the goods when the contract was declared void on the basis that the same provision existed under the Convention.

The defence raised by the lawyer representing the seller centred on the objection on the part of the respondent to compensation based on the difference between the market price and the contract price for the goods. He did not agree that the Convention was applicable to this dispute. He reasoned that the contract had already provided for the replacement of goods as the method for the determination of compensation, and this excluded the alternative of compensation based on the difference between the market and the contract price for the goods. The contract provided that the applicable laws were to be the laws of China , and this excluded the Convention and the laws of other countries. The purpose of denying the applicability of the Convention was to oppose the buyer's claim that used the market price of the goods as the basis for assessment of compensation. The lawyer representing the seller also considered that the actual losses claimed by the buyer were not connected with the case and could not be admitted as evidence. In its decision, the arbitration tribunal did not award all the claims of the buyer. It did, however, dismiss the defence of the lawyer representing the seller and considered that the Convention was applicable to this dispute. It agreed to use an acceptable market price of the goods as the basis for the assessment of the losses suffered by the buyer.

It was stipulated in the contract that the laws of China were applicable in the event of a dispute. The buyer claimed that in determining the method of compensation, the Convention should apply. This was because it knew that there was a marked difference between the Foreign Economic Contract Law and the Convention in the determination of the manner of compensation.

The major statute in China governing international sale of goods contracts is the Foreign Economic Contract Law. The Foreign Economic Contract Law makes provision for damages payable by a defaulting party to the other party to a contract. Article 20 of the Foreign Economic Contract Law stipulates that, `The parties may agree in the contract on the chargeable fine in the event of default payable by the defaulting party to the other party. …The parties may also agree on the method of calculating the liquida ted damages payable in the event of default.? Article 18 of the Foreign Economic Contract Law stipulates that, …When one of the parties is in breach of the contract by not performing the contract or by performing the contract in a way that does not fulfilll the terms of the contract, the other party is entitled to claim damages or seek other reasonable remedies. When the other remedies cannot make up for the losses suffered by the other party, the other party is still entitled to claim damages.? Article 19 of the Foreign Economic Contract Law stipulates that, …The amount of damages payable by the party committing the breach should be equal to the losses suffered by the other party as a result of such a breach but should not exceed the amount that should have been anticipated by the party committing the breach at the time of concluding the contract.? The Supreme Court of China has issued the following explanation of the principle of compensation for breach of contract embodied in the Foreign Economic Contract Law (the Judicial Explanation): When one of the parties does not perform the contract or performs the contract in a way that does not fulfilll the agreed terms of the contract, the party committing the breach shall, apart from seeking other remedies or acting as otherwise specified in the contract, compensate the other party for the losses suffered as a result of such a breach. The compensation usually covers damage to or reduction or loss of property, the expenses incurred in the attempt to mitigate or prevent losses, and the benefit (profit in the case of international sale of goods contracts) that should have been obtained if the contract were performed, but the amount should not exceed the amount of loss that should have been anticipated by the party committing the breach at the time of concluding the contract1.

The lawyer representing the seller insisted that the Foreign Economic Contract Law be used as the basis for the assessment of the amount of compensation because he considered that its stipulations were advantageous to the seller.

We can see that the above provisions are all general principles on compensation and do not cover specific methods of calculating compensation. It is stipulated in the Foreign Economic Contract Law that the parties …may agree on the method of calculating the amount of liquidated damages payable in the event of default.? The parties agreed in the contract that if the seller did not deliver the goods; the buyer should be compensated for the replacement goods it sourced. The seller was therefore to pay the difference between the contract price of the goods and the price of the replacement goods. Though the buyer did not buy replacement goods after the seller's breach of contract, the buyer still suffered a loss. According to the Judicial

Explanation, the amount of. damages should include the expenses incurred in the performance of the contract and mitigating losses and the profits obtainable if the contract was performed. In trading transactions, profits should be the resale price difference less the cost of the goods when sold. This is closely related to the difference between the market price and the contract price for the goods.

The problem is that the law does not make provision on whether the party suffering from the breach is still entitled to claim the difference between the market price and the contract price for the goods if it has neither taken remedies open to it nor adhered to the manner of compensation as stipulated in the contract. There is specific provision for this in the Convention. Article 75 of the Convention stipulates that; …If the contract is declared void and the buyer has already purchased replacement goods within a reasonable period of time after the declaration of this voidance or the seller has already resold the goods in a reasonable manner, the party claimin damages may obtain the difference between the contract price for the goods and the price of the

r eplacement goods and any other damages provided for in Article 74.? Article 76 provides that, `(1) If the contract is declared void and the goods have a market price, the party claiming damages may, if it has not made a purchase or resale pursuant to Article 75, obtain the difference between the contract price and the market price of the goods at the time when the contract is declared void and any other damages that may be obtained pursuant to Article 74.? Here, provision is made for compensation based on the difference between the market price and the contract price for the goods to substitute for compensation based on the cost of replacement goods (on the part of the buyer) or the resale of goods (on the part of the seller). If these provisions apply, the buyer's claim in this case for compensation for the price difference should be awarded.

The lawyer representing the seller had two arguments in its refusal to accept the applicability of the Convention to this dispute:

1. The applicable laws under the contract were the laws of China, and not the Convention; and

2. According to the Judicial Explanation, the applicable laws referred to in a contract are substantive laws that do not include the rules relating to conflict of laws.

The second argument implies that as the contract specified the laws of China as the governing law, compensation should be determined in accordance with the provisions of the laws of China on compensation. The laws of other countries should not be used simply because the laws of China allow the application of the laws of those other countries under certain circumstances.

In its decision, the arbitration tribunal confirmed that the parties had chosen the laws of China as the governing law for the contract. However, it also pointed out that as the countries of origin of the parties were the United States and China, both of which are parties to the Convention, according to Article 6 of the Foreign EconomicContract Law the Convention should also apply. The arbitration tribunal seemed to consider provision under these laws on this matter to be sufficiently clear and to need no further substantiation:

Article 6 of the Foreign Economic Contract Law stipulates, …When there is a difference between relevant international treaties concluded by or acceded to by the People's Republic of China and the laws of the People's Republic of China, the provisions of those international treaties shall be applicable with the exception of

provisions on which the People's Republic of China has stated that it has reservations.? This makes provision for the relationship between a contract to which Chinese laws are applicable and the international treaties applicable to the contract. Two conclusions can be drawn from this provision:

1. There is no conflict between the applicability of Chinese law and the applicability of international treaties to which China is a party.

2. Where both the laws of China and international treaties are applicable, the provisions of international treaties shall override Chinese law where the two make different provisions.

The Convention is therefore applicable in this case. why then was the lawyer representing the seller of a different opinion?

The lawyer representing the seller misunderstood the relationship between the laws of China and the international treaties to which China is a party. The conclusion of or accession to a treaty is a sovereign act of a country. Under the generally recognised principles of international law, a country acceding to a particular international treaty has the duty to take necessary measures to ensure that the treaty is applied within its territory. As legal systems differ throughout the world, measures taken also differ. Some countries confirm the conversion of an international treaty into local law through the promulgation of special Acts, as in Great Britain. Some countries expressly provide in their laws that the international treaty is part of the laws of the country; Article 6(2) of the Constitution of the United States stipulates that the treaties concluded by United States are the superior laws of the country and override the constitutions and laws of its states. Article 55 of the 1958 Constitution of France stipulates that treaties lawfully approved by France shall take precedence over the general laws of the country.

Though the Constitution of the People's Republic of China does not establish the status of international treaties in its legal system, individual laws make provision for this. Apart from the above Article 6 of the Foreign Economic Contract Law, there are also similar provisions in the General Rules of the Civil Law of the People's Republic of China (the General Rules of the Civil Law). Chapter 8 of the General Rules of the Civil Law concerns the …Application of laws to civil cases with foreign interests?. Article 142 of this chapter stipulates that, `The application of laws to civil cases with foreign interests shall be as provided for in these Rules. When there are differences between the provisions of the laws of the People's Republic of China and the provisions of the international treaties concluded by or acceded to by the People's Republic of China, the provisions of the international treaties shall apply with the exception of clauses on which the People's Republic of China has stated that it has reservations.' These provisions confirm the status of international treaties concluded by or acceded to by China in the laws of China. These international treaties form an integral part of Chinese law and prevail over Chinese law.

The lawyer representing the seller misunderstood the implications of the provisions of the contract and treated the choice of Chinese law as the governing law of the contract as exclusive of the applicability of relevant international treaties. The binding force of international treaties generally takes two forms according to the different provisions of these treaties:

1. mandatory rules, which must apply to the parties concerned; and

2. optional rules, which can be applied (are partly applicable), are inapplicable or are partly inapplicable to the parties concerned as agreed between them.

The Convention is an optional rule; Article 6 of the Convention provides that, …The parties may opt for inapplicability of the Conv ention or may reduce the scope or change the effect of any of the provisions of the Convention subject to Article 12 hereof?, and the parties may specify in the contract that the Convention is either not applicable or is partly applicable. Parties to a contract should specify exclusion of the applicability of the Convention to the contract, either by providing that all or part of the Convention is not applicable, or by choosing to apply the laws of a third country which is not a party to the Convention. If the parties choose to use the laws of a country which is a party to the Convention as the governing law of the contract or, even if they do not specify the applicability of the laws of any country, the parties have not explicitly excluded the applicability of the Convention, the Convention shall automatically apply. This is also a provision under the Convention. Article 1 of Chapter 1 of the Convention stipulates, …(1) The Convention is applicable to sale of goods contracts concluded by parties conducting business in different countries, (a) if these countries are parties to the Convention; or (b) if private international law leads to the applicability of the laws of a country which is a party to the Convention.?Finally, the lawyer representing the seller misinterpreted Article 6 of the Foreign Economic Contract Law as a rule of conflict of laws. Conflict of laws is a special realm of private international law which, `specifies which laws of which country are applicable to a particular civil case involving foreign interests." The lawyer representing the seller based its arguments on the Judicial Explanation and considered that Article 6 of the Foreign Economic Contract Law was not applicable to this case and as a consequence neither was the Convention. The Judicial Explanation comes from the Questions and Answers on the Application of the Foreign Economic Contract Law of the Supreme People's Court of China (the Questions and Answers) The purpose of the Questions and Answers is to establish certain principles concerning the applicability of laws to foreign economic contracts. The lawyer representing the seller probably based his arguments on Article (5) of Section 2 of the Questions and Answers, which states, …The laws agreed to by the parties or determined by the People's Court in accordance with the principle of closest relationship as the laws applicable to the handling of disputes arising from a contract should be substantive laws and do not include conflict of laws and procedural law.? The lawyer represent ing the seller considered that the Judicial Explanation proved that the laws of China applied to the contract, but that the applicable laws in question did not include the provision of Article 6 of the Foreign Economic Contract Law because it concerns only the rules of conflict of laws. To come to such a conclusion, the lawyer representing the seller must have treated the international treaties to which China is a party as foreign laws, and thus misinterpreted the provisions in his consideration of them in this dispute. In short, Article 6 of the Foreign Economic Contract Law establishes the principle of the priority of international conventions acceded to by China and is not concerned with conflict of laws issues. The Questions and Answers relied upon by the lawyer representing the seller also supports this in Article (8) of Section 2 which provides that, …Where there is a difference between the international treaties concluded by or acceded to by China and the Foreign Economic Contract Law or other laws of

China related to economic contracts that involve foreign interests, the provisions of the international treaties shall apply with the exception of provisions on which China has stated its reservations.? This is basically a reiteration of Article 6 of the F oreign Economic Contract Law.

The above analysis covers the dispute on the applicability of laws to contracts involving foreign interests. Even if the countries of origin of the parties to the contract were not parties to the Convention, or the Convention did not apply for other reasons, and only the laws of China were applicable in this case, the buyer's right to claim compensation based on the difference between the price of the goods under the contract and the market price of the goods should not be denied. Although there is no provision in the laws of China for compensation on this basis, Chinese law does not exclude compensation based on the market price of goods in its principles. When the seller does not make delivery of the goods, the buyer suffers losses even if replacement goods are sourced. If the buyer does not source replacement goods pursuant to the contract, the seller still has the responsibility to compensate the buyer for the losses it suffered by reason of the seller's breach of contract, which would include losses due to price difference of the goods.

In its application for arbitration, the buyer raised five items of actual losses incurred. However, only claims on the L/C charges, transportation costs and arbitration expenses were granted by the arbitration tribunal. The other claims were dismissed. The two types of claims dismissed included the losses suffered by the buyer's business partner in the performance of a related contract, and expected profits. The arbitration tribunal considered that the partner of the buyer was not a party to the contract. In addition, the claimed partnership to buy and sell ferrosilicon was not evidenced by written proof and could not be proved to have been known by the seller. The losses suffered by its partner could not, therefore, be claimed.

Under normal circumstances, as an importer, the buyer would conclude a resale contract with its client. When the seller breaches the contract, the damages payable under the resale contract would become part of the claim for compensation. Under FOB terms, the buyer has the obligation to hire a vessel to ship the goods. If the

non-delivery on the part of the seller results in losses in the hiring of shipping space, these losses may also form part of the compensation claimed. However, the buyer had not entered into a resale contract with its client and had not signed a contract to hire shipping space. According to the buyer, these were the responsibility of its partner. This is not a common practice in international trade: The arbitration tribunal did not com ment on this but concluded from its analysis of the evidence of the …partnership? that this evidence was not convincing because the `partnership' was only an oral agreement, the contents of which could not be proved to have been known by the seller.

One of the principles established in the Foreign Economic Contract Law is the determination of the scope of compensation. According to this principle the losses in this case should have been anticipated by one of the parties at the time of concluding the contract. The Convention contains a similar provision. Article 74 of the Convention stipulates that, …The damages payable by the party that breaches the contract shall be equal to the amount of the losses suffered by the other party as a result of this breach, including the loss of profit. This amount shall not exceed the

amount that was or that should have been anticipated by the party breaching the contract at the time of concluding the contract from the facts and circumstances that it knew of or should have k nown of at that time.? The buyer's claim failed because its transaction with its partner was not known by the seller and it was difficult for the seller to know of this …partnership?. Moreover, the `partnership' claimed by the buyer was only an oral agreement which was not convincing. Although the resale was effected through a partner, a rare practice in trading transactions, as long as it could be proved that the seller should have known of the existence of this partnership, and that the performance of the contract between the buyer and the seller was a condition of the conclusion of the resale contract by the partner of the buyer, the losses suffered by the partner in being unable to deliver the goods to its client under the resale contract as a result of the breach of the first contract can be converted to losses of the buyer in accordance with the provisions of the partnership agreement. It would, of course, be much more difficult to determine losses in this case on this basis than it would had the goods been resold directly.

The arbitration tribunal also dismissed the buyer's claim for loss of profits. No analysis was made, however. The buyer had not signed any resale contract, and it was equally doubtful as to whether the resale profit of its partner could comprise part of its losses. Also, as the arbitration tribunal agreed to grant the buyer compensation based on the market price of the goods, the buyer could only choose to receive compensation either on that basis or for loss of profits.

The arbitration tribunal supported the buyer's claim for the difference between the contract price and the market price of the goods at the time the contract was declared void. However, the arbitration tribunal did not accept the evidence of the market price produced by the buyer as a reasonable basis for the calculation of this difference for two reasons. First, the buyer incorrectly determined the time when the contract was declared void, and second, the source of the buyer's market price and its supporting documents did not reflect the terms of the contract.

The issue of the time of the contract was void was a matter of corroboration by evidence. The arbitration tribunal required a more accurate determination of this date. This was particularly important, it having occurred at a time when the price of goods was volatile. A contract is declared void by the seller when the seller informs the buyer that it cannot deliver the goods pursuant to the contract; it is declared void by the buyer when the buyer informs the seller that it is rejecting the goods or cancelling the contract. The declaration of the voidance of the contract does not have to be in written form, but it must be clearly understood by the other party. When one party is aware that the other party cannot perform the contract, it has the right and the obligation to take remedial action to mitigate its losses. Therefore, the date the contract is declared void is the date at which losses can be determined.

The arbitration tribunal did not agree to the use of the information in …Metals Weekly? as the basis for assessment of the market price of the goods. It determined that the true price should be a price determined under similar terms of delivery, whereas the price disclosed in `Metals Weekly' was the average price of ferrosilicon in the US market over a certain period of time. In the end, the arbitration tribunal took as the basis for determining the market price the price in an offer provided by the buyer submitted by a Chinese client under similar terms of delivery.

The question is, what can be considered a reasonable place for determining the source of the benchmark market price? Generally speaking, damages payable under an FOB contract should be the difference between the contract price and the market price of the goods at the place of delivery at the time the contract is declared void. This is because when the buyer learns that the seller cannot deliver the goods, it can source goods from other suppliers on the market at the place of delivery in order to mitigate further losses. Moreover, using the place of delivery as the basis for this determination makes it possible to assess the price according to conditions similar to those of the original FOB contract price and provides a basis for comparison. However, if there is no market at the place of delivery, can the market price at the destination be used as the basis for assessing damages? The buyer's claim using the market price in the US, the destination, as the basis for assessing the losses cannot, strictly, be denied. When there is no market price at the place of delivery, ie, when the buyer cannot reasonably secure a new contract at the port of loading, no fundamental error is committed by using the difference between the market price at the port of destination and the contract price of the goods as the basis on which to assess damages. This is because the seller should reasonably know that the buyer is buying the goods for use or disposal at the designated port of destination. In performing the calculation, however, freight and other necessary charges payable by the buyer under FOB terms should be deducted.

As the arbitration tribunal had evidence of the buyer's opportunity to obtain anew contract under the same delivery terms, the determination of the market price at the place of delivery was indisputable. In some circumstances, however, it is difficult to determine the market price at the place of delivery, especially when the price is highly volatile and it is difficult to obtain goods in the spot market, and the buyer should not be required to assess damages on the basis of the market price at the place of delivery.

BASED ON THE QUALITY OF THE GOODS

The issue of dispute in this case concerns the right of the buyer under a sale of goods contract to claim compensation out of a dispute regarding the quality of the goods.

After taking delivery, the claimant (the buyer) finds that there are problems with the quality of the goods. It obtains a certificate of quality from the commodities inspection authority and claims compensation from the seller. However, the respondent (the seller) argues that the goods agree with the sample provided by the subsequent buyer of the goods, which effectively means that the respondent argues that the terms of the contract regarding the quality of the goods have been changed. The goods supplied by the seller conform to the sample and the buyer does not have the right to make a claim. The buyer, on the other hand, considers that the conclusion and performance of the contract are a matter between the buyer and the seller without involving the rights and obligations of the subsequent buyer of the goods. The seller and the subsequent buyer do not have the right to change the terms of the contract

regarding the quality of the goods.

THE ARBITRATION DECISION

I. Facts of the Case

On 21 December 1984 and 28 December 1984, the claimant and the respondent signed two contracts, No. 84TZ19A001 and No. 84TZ19A002, in the county of Wuchuan in Guangdong Province for the sale and purchase of parts for calculators. It was stipulated in the contract that the respondent would supply to the claimant

200,000 sets of brand new parts for EL calculators on CIF terms, and the claimant was to issue through the Zhanjiang Branch of the Bank of China an irrevocable L/C in the amount of US$558,000 in favour of the respondent. After conclusion of the contract, the parties, agreed that the delivery period would be from 30 April 1985 to 7 May 1985. The respondent delivered the goods within the period specified on the L/C and a obtained the entire amount of the price of the goods under the contract at the negotiating bank. Following unloading of the goods, the claimant tested and installed the goods with the assistance of the respondent's technician.

During testing and installation, the claimant noticed that the name, specification and label of the goods were different from the description in the contract. The parts were incomplete, the design was faulty and the quality was very poor. It immediately arranged for reinspection of the goods by the Guangdong Province Commodities Inspection Bureau in accordance with clause 15 of the contract. On 3 July 1985; it sent a cable to the respondent informing it that, …Problems have been found with the quality of the goods. The goods are under inspection. We reserve the r ight to claim.? On 24 July 1985, the Guangdong Province Commodities Inspection Bureau issued a certificate of inspection which stated that:

1. The IC boards were in fact model EL727 whereas the case, the packing and the manual showed the words …SHARP?, …EL-838? and …Made in Japan?. There were no provisions for this in the contract.

2. Among the 490 EL727 circuit boards that were sampled and tested, 65 were faulty, which was the equivalent of 1

3.3 per cent of the total goods.

3. After 200 sets of brand new parts for EL calculators were randomly sampled and assembled, it was found that the mark on the case was different from that on the manual. The model number of the circuit boards was also different from that shown on the case. In some assembled goods, the case and the battery and the case and the printed circuit were also incompatible.

The certificate of inspection concluded that ‘the above brand new EL calculator parts are not properly designed and produced but are makeshift products of poor quality.? On 27 July 1985, the claimant sent a letter to the respondent to formally claim damages. It hoped that the parties could settle the dispute through negotiations on a friendly basis.

In several replies, the respondent submitted that:

1. The delivery of the goods fulfilled the terms of the L/C. The list of goods had been sent to the claimant.

2. The purchase of those parts for calculators was made in accordance with the sample provided by the subsequent buyers, a trading corporation and a trading company in Wuchuan County. The goods conformed to the sample.

3. The problems that it found with the goods and that it specified in the certificate of inspection probably arose due to poor weather, damage in transit and the claimant's lack of skill in assembly. The respondent was willing to repair the goods. However, the 90-day period stipulated in the contract had already expired by the time the respondent received the certificate of inspection. The claim for damages submitted by the claimant was therefore not reasonably made. To show its goodwill, the respondent submitted the case to the arbitration tribunal.

In its reply, the claimant stated that the two sale and purchase contracts for calculator parts were signed between the claimant and the respondent. The actions of the trading corporation and the trading company of Wuchuan County could not represent the claimant and the claimant would not be responsible for them. The original contracts did not require that the wording, …SHARP EL-838? and …Made in Japan? be shown on the calculator parts; nor was it required that the goods were to conform to a sample. The claimant did not recognise the communication between the respondent and the trading corporation and trading company of Wuchuan County on this matter.

During the months of June to October 1985, there were several exchanges of cables and letters between the parties, but no agreement was reached on the issue of compensation. Thereafter, the respondent no longer replied to the claimant and did not send anyone to negotiate the matter. On 5 March 1986, the claimant submitted the case for arbitration. It requested in the application for arbitration that:

1. the respondent take back all 200,000 sets of calculator parts and refund to the claimant the amount of US$558,000 paid on the goods;

2. the respondent refund to the claimant the interest on the payment for the goods in accordance with the contract;

3. the respondent compensate the claimant for its payment of customs duty of Rmb980,000;

4.the respondent bear the arbitration fees for the claimant;

5. the legal matters incidental to the award be handled by the arbitration tribunal.

On 22 August 1986, the claimant submitted to the Shenzhen Branch of the Commission an application to amend its requests as follows:

1. The claimant has the right to claim.

2. The claimant has the right to dispose of the goods at the market price for the goods.

3. The respondent compensate the claimant for the losses suffered by reason of the breach of contract by the respondent.

II. Views of the Arbitration Tribunal

After examining the written claim and information submitted by the claimant and listening to the claims of the claimant at the hearing, the arbitration tribunal formed the following opinion:

1. The contracts No. 84TZ19A001 and No. 84TZ19A002, were signed between the claimant and the respondent and did not involve the rights and obligations of a third party. The communication between the respondent and the trading corporation and trading company of Wuchuan County and their actions were not confirmed by the claimant and were not binding on the claimant.

2. The claimant and the respondent had never reached any agreement on the inspection of the goods against a sample. The respondent had no grounds for claiming that the goods were to be inspected against a sample.

3. It was stipulated in the contracts that the buyer was entitled to arrange for reinspection of the goods by the commodities inspection bureau and to claim against the seller with the support of the certificate issued by the commodities inspection bureau. During the period of claim stipulated in the contract, the claimant claimed against the respondent with the support of the certificate issued by the commodities inspection bureau. It was reasonable in its claims. The respondent should be responsible for compensating the claimant regarding the quality problem of the goods. III. The Decision

Based on the above facts, analysis and judgment, the arbitration tribunal decided as follows:

1. As the quality of the goods did not conform to requirements for the goods under the contract and resulted in a loss of US$408,000 on the part of the claimant in disposing of the goods, the respondent shall compensate the claimant for its losses.

2. The inspection fees of Rmb3,404 paid by the claimant shall be borne by the respondent.

3. The respondent shall compensate the claimant for the expenses of

Rmb4,800 paid by the claimant in handling this case.

4. The arbitration and handling fees of the case shall be borne by the respondent.

This decision shall be final.

DISCUSSION

The dispute in this case arose from the claim for compensation of the buyer (the claimant) regarding the quality of the goods. The buyer's basis for claim was that it was proved upon inspection that the quality of the goods did not conform to the requirements for the goods under the contract.

The seller (the respondent) had three reasons for refusing to pay compensation. That the goods conformed to the terms of the L/C and that the certificate of inspection was received after the 90-day period of claim stipulated in the contract expired were only excuses and these could not hold. That the seller had delivered goods which conformed to the sample provided by the subsequent buyer of the goods is, however, worth examining.

As in the case of many import transactions, the buyer in this case was an intermediary party. It purchased the goods under the contract not for its own use but for resale and had signed a contract with the subsequent buyer for the resale of the goods. The seller knew who the subsequent buyer was and had direct contact with it. Under these circumstances, is the communication between the seller and the subsequent buyer of the goods binding on the performance of the contract between the buyer and the seller

In this case, the provisions in the contract on the quality of the goods were based on written descriptions, ie, descriptions of the model number of the goods. It was not required that the goods should conform to a sample. During the performance of the