CISG CASE PRESENTATION

The China International Economic and Trade Arbitration Commission (hereafter, the "Arbitration Commission") accepted the case (Case no. G...) according to:

Because the disputed amount in this case does not exceed renminbi [RMB] 500,000, the summary procedure stipulated in the Arbitration Rules of the Arbitration Commission [hereafter, the Arbitration Rules], which took effect on 1 October, 2000, applies to this case.

On 18 March 2002, the Secretariat of the Arbitration Tribunal by express mail sent the Arbitration Notice and Appendix to the parties.

Because the parties did not jointly appoint a sole arbitrator within the stipulated period, on 10 May 2002, according to Article 65 of the Arbitration Rules, the Chairman of the Arbitration Commission appointed Wang __ as the sole arbitrator forming the Arbitration Tribunal to hear this case.

On 16 May 2002, after discussing with the Secretariat of the Arbitration Commission, the Arbitration Tribunal decided to hold a court session in Beijing on 10 June 2002. The Secretariat by express mail sent to the parties the Notice of Formation of the Arbitration Tribunal and the Notice of Court Session. On 10 June 2002, the Arbitration Tribunal held the court session in Beijing. Both parties sent representatives to attend. The parties made statements, and answered the Arbitration Tribunal's questions. After the court session, both parties submitted supplementary opinions.

Because this case is complicated, at the Arbitration Tribunal's request, the General Secretary of the Arbitration Commission, according to Article 52 of the Arbitration Rules, extended the period to hand down the award for an additional one month, i.e., the deadline for the award was extended to 10 August 2002.

This case is completed. According to the written material and the situation in the court session, the Arbitration Tribunal handed down the award.

The following are the facts, the Arbitration Tribunal's opinion and the award.

On 15 May 2001, the [Buyer] and the [Seller] signed Contract No. NCO1Y-28 for the sale of yellow phosphorus. The Contract stipulates that the [Seller] shall sell 844.8 MT to the [Buyer]. The unit price is US $900/MT FOB Huangpu, and the total contract price is US $760,320. The [Seller] delivered installments of 211.2 MT each in June, July, August and September 2001, respectively. A dispute arose during the performance of the Contract. The parties failed to reach agreement through negotiation. The [Buyer] filed the arbitration application with the Arbitration Commission.

[Buyer]'s position

The [Buyer] alleged:

After the Contract was signed, the [Seller] only delivered 105.6 tons of goods in July 2001 and severely breached the Contract. Regarding the remaining part of goods, although the [Buyer] urged many times, the [Seller] unreasonably postponed and refused to deliver. Because of the [Seller]'s breach, the [Buyer] suffered severe economic loss. In order to perform resale contracts with its customers, the [Buyer] had to purchase 105.6 MT yellow phosphorus at the unit price of US $935/MT and 211.2 MT at the unit price of US $930MT, respectively; the prices were higher than that stipulated in the Contract. The [Buyer] suffered a loss of US $10,032 because of the price difference. In addition, because the [Seller] did not timely deliver the goods in accordance to the Contract, the [Buyer] could not deliver the goods at the freight rate which Guangdong Jie Da International Transportation Ltd. originally provided, and had to transport the goods by another shipping company at a rate US $380/FCLS higher and suffered the loss of US $4,560 thereof.

In addition to the above direct loss, because of the [Seller]'s breach, the [Buyer] could not deliver the goods to its customers in accord with the contracts and suffered reputation damage; in addition, the [Buyer] could not realized anticipated profits from Contract No. NCO1Y-28.

The above indirect loss is a large amount. Considering the litigation cost, the [Buyer] requests the [Seller] to compensate for US $10,000.

The [Buyer] filed the following arbitration claims:

(1)	The [Seller] should compensate the [Buyer] for the direct loss of US $14,592 caused by the [Seller]'s breach;
(2)	The [Seller] should compensate the [Buyer] for the indirect loss of US $10,000 caused by the [Seller]'s breach;
(3)	The [Seller] should bear the arbitration fee and other expenses;
(4)	The [Seller] should compensate the [Buyer] for the reasonable expenses, US $3,000, incurred for this case.

[Seller]'s response

Regarding the [Buyer]' arbitration claims, the [Seller] made the following response:

First, the [Buyer] fundamentally breached the Contract, so it should be held legally liable due to the following reasons.

1. The [Buyer] delayed issuing the L/C

      (1) In Contract No. NC01Y-28, the parties stipulated that the [Buyer] should guarantee that the [Seller] receives the L/C for the entire Contract before 31 May 2001 so that the [Seller] could timely finance and prepare the goods. However, the [Buyer] did not issue the first L/C (No. IDLC 2223729997) corresponding to the 211.2 MT yellow phosphorus until 5 June 2001, which was six (6) days later, so the [Buyer] first breached the Contract. The [Seller] did not receive the L/C until 12 June 2001; after receiving the L/C, the [Seller] immediately notified the [Buyer] of modification of the L/C. On 18 June 2001, the [Buyer] revised the L/C, and deleted the stipulation that Reimbursement commission should be paid by the [Seller]; at that time, it was eighteen (18) days' delay.

      (2) The [Buyer issued the second L/C (No. IDLC 2323721768) on June 24 (Should be "July": Note by the Arbitration Tribunal), fifty-four days later than the time stipulated in the Contract, with the result that [Seller] was unable to timely obtain financing from banks, and did not have time to prepare the goods. In addiction, the [Buyer] did not issue the L/C to Communication Bank Kunming Branch as the [Seller] instructed in the fax on 15 May 2001, but to the Bank of China, Yunnan Branch. Because the Bank of China, Yunnan Branch, had no business relationship with the [Seller], the [Seller] did not receive the L/C until 3 August 2001. After receiving the L/C, the [Seller] expressly refused it; at that time, the shipping period (no later than 30 July 2001) had expired, and the [Seller] could not deliver the goods in accordance with the L/C. When the [Buyer] did not issue a new L/C, the [Seller] could not deliver the goods.

2. The terms and conditions stipulated in the [Buyer]'s L/C violated the Contract and trade practice

      (1) Some of the terms and conditions in the first L/C No. IDLC 2223729997 issued by the [Buyer] did not comply with the Contract and trade practice and to modify the L/C delayed the performance of the Contract.

      First, the Contract stipulates that the first installment of the goods shall be delivered in June 2001, but the [Buyer], ignoring the stipulation in the Contract, and unilaterally shortened the shipping period to before 20 June 2001 in the L/C IDLC 2223729997.

      Second, in L/C No. IDLC 2223729997, the [Buyer] unilaterally stipulated that the [Seller] should bear the reimbursement commission to banks; the [Seller] could not accept this.

      Third, the amount in the L/C IDLC 2223729997 was not US $760,320 as stipulated in the Contract, but only US $190,080; the quantity was not 844.8 MT as the Contract stipulates, but only 211.2 MT.

Although the [Buyer] revised L/C No. IDLC 2223729997 on 18 June 2001 as per the [Seller]'s request, the [Buyer]'s aforesaid breach caused the [Seller] to be unable to timely prepare the goods.

      (2) On 24 June 2001 (Should be July: Note by the Arbitration Tribunal), the [Buyer] issued the second L/C (No. IDLC 2323721768); the amount in this L/C fundamentally changed the Contract, so the [Seller] was entitled to reject it. According to the amount, US $186,278.40, and the quantity, 211.2 MT, in L/C No. IDLC 2323721768, the unit price of the goods under the L/C was only US $882/MT, which was US $18 less than US $900/MT stipulated in the Contract. This was a fundamental change of the Contract by the [Buyer] and directly affected the parties' rights and duties under the Contract. In addition, the L/C still stipulated that the [Seller] should bear the reimbursement commission.

Because of the [Buyer]'s above breach, the [Seller] could not realized the purpose of the Contract, so the [Buyer] fundamentally breached the Contract.

Second, because of the force majeure, the [Seller] could not supply the goods to the [Buyer] in accordance with the Contract. The [Buyer]'s fault during the performance had causal relationship with the force majeure.

The Contract could not be performed because of the [Buyer]'s above fault and the force majeure. The [Buyer]'s fault caused the delay of performance, and coincidentally the force majeure occurred. Therefore, the [Buyer]'s fault and the force majeure had causal relationship, so the [Buyer] should bear legal liability by itself.

As described above, the [Buyer] was obligated to see to it that the [Seller] received the L/C before 31 May 2001.... so that the [Seller] would have sufficient time to prepare the goods. However, the [Buyer] did not make the L/C take effect until 18 June 2001, which caused the [Seller] to delay preparing the goods and miss the time of preparation. At that time, the following two force majeure events occurred on the [Seller]'s side:

      (1) On 19 June 2001, at the [Seller]'s yellow phosphorus production base, Luoping County Yunnan Province, the power transformer of the Luping County Electricity Bureau, which distributed electricity to the [Seller]'s production base, was struck by lightening, which caused the electricity in the production basis was cut off. The Electricity Bureau did not borrow a power transformer and partially distribute electricity until 7 July 2001; the electricity was only sufficient for one production furnace. The power transformer was not fixed and could not distribute electricity normally until 15 November 2001. From 19 June to 15 November 2001, the [Seller] could not conduct normal production, so it could not supply the goods to the [Buyer]. However, after the electricity was cut off, the [Seller] still actively delivered 105.6 MT to the [Buyer].

      (2) When the [Seller] could not conduct normal production, the [Seller] still actively prepared the goods in storage at the end of June and the beginning of July 2001 in order to deliver to the [Buyer]. However, at that time it was the rainy season in the south of China. Because of typhoon and flooding, Nan Kun railroad, which the carrier, Yunnan Foreign Transportation, would use, was destroyed, and the transportation was suspended. The transportation did not resume until 3 July 2001. Because of a large amount of goods stored during the suspension of transportation, the [Seller] could not transport the goods from Yunnan from 13 to 20 July 2001.

The [Seller] timely notified the [Buyer] of the above force majeure events via fax and also repeatedly made explanations, and meanwhile, proposed to deliver 105.6 MT first. The [Buyer] knew the [Seller]'s situation caused by the force majeure, and accepted the [Seller]'s proposal to deliver 105.6 MT first. However, the [Buyer] did not consider the [Seller]'s situation at all, but request tough conditions to revise L/C No. IDLC 2323721768. However, the [Seller] proposed to fasten delivery of the goods from September 2001, but the [Buyer] rejected and announced to avoid the Contract. These facts prove that the force majeure event in this case actually occurred, and were caused by the [Buyer]'s fault during the performance; eventually the Contract could not be performed. However, ignoring the force majeure events which the [Seller] faced, the [Buyer] repeatedly took measures that damaged the parties' cooperation, and unilaterally modified the main terms in the Contract, and refused to revise, and unilaterally revoked the Contract, etc; the [Buyer]'s conduct damaged the basis of the parties' cooperation, so there is no need for the parties to perform the Contract.

The [Seller] had no fault when performing the Contract; the [Seller] could not deliver the goods in accord with the Contract because of the [Buyer]'s fundamental breach and the force majeure which the [Seller] could not control. The [Buyer] did not issue the L/C on time, and unilaterally revised the main terms of the Contract; therefore, the [Buyer] breached the Contract and should bear legal liability by itself. Because of the [Buyer]'s repeated breach, the parties did not continue to perform Contract No. NC01Y-28; the validity of the Contract was factually suspended.

[Buyer]'s response

After the court session, the [Buyer] submitted the following supplementary opinions regarding the facts:

1. The [Seller] refused to perform the Contract, which constituted a fundamental breach. The [Seller]'s allegation that its liability for breach should be exempted because of the force majeure should not be sustained.

The faxes exchanged between the parties show that in the earliest fax, which the [Seller] sent to the [Buyer] on 29 June 2001, the [Seller] only stated that it could deliver part of the goods (only 105.6MT), but did not mention the force majeure at all, and alleged that the partial delivery was caused by "abnormal production of our plants"; in the fax sent on 11 July 2001, for the first time the [Seller] mentioned, "a thunder damaged local electric transmitting station that led to a halt of production of our Luoping plant."

The [Buyer] alleged that the force majeure which the [Seller] alleged did not exist at all and was made up by the [Seller]; moreover, even if the force majeure existed, the [Seller] did not notify the [Buyer] until 11 July, so it did not fulfill its duty of timely notice. In addition, the [Seller] did not submit any proof of the force majeure issued by a relevant agency. Furthermore, according to common knowledge, the power transformer could be fixed in a rather short period of time, otherwise, it would severely affect the local residents' life and business entities' production; thus, it was impossible to cause the [Seller] to be unable to deliver any goods in June. In the court session, the [Seller] submitted the situation statement issued by Luoping Electricity Distribution Ltd., based on which it requested exemption of the liability. The [Seller]'s request should not be sustained. __ Chemical Industry Ltd. is not a party of the Contract; the Contract does not stipulate that the goods are special goods produced by __ Chemical Industry Ltd; the goods are general yellow phosphorus. The source of the goods was not limited to __ Chemical Industry Ltd. In addition, in the court session the [Seller] admitted Yuanan is the province which produces yellow phosphorus in large quantities, and even if the problem of electricity occurred, the [Seller] could purchase the goods from other suppliers to deliver to the [Buyer].

The [Seller]'s allegation that the typhoon and flooding caused the railroad to be broken, and therefore the [Seller] could not perform the Contract, should not be sustained. Even if the force majeure, which the [Seller] alleged, really existed, according to the newspaper submitted by the [Seller], Nan Kun railroad was really suspended (only from 3 to 13 July), but trains to Guangzhou ran via Gui Kun railroad and were not suspended. Therefore, the suspension of Nan Kun railroad did not mean that the [Seller] could not perform the Contract, so the force majeure alleged by the [Seller] did not exist. When the [Buyer] continued requesting the [Seller] to perform the Contract, the [Seller] rejected with a variety of reasons, but the actual reason is that market price of yellow phosphorus was increasing, and the [Seller] breached the Contract in order to gain higher profits.

2. The [Seller]'s defense that the [Buyer] delayed issuing the L/C, and the terms and conditions in the L/C were not in compliance with the Contract and trade practice, should not be sustained.

      (1) During the performance of Contract No. NC01Y-28 and before the court session, the [Seller] had neither alleged that its delayed performance and non-performance were caused by the [Buyer]'s breach, nor requested to revoke the Contract due to the [Buyer]'s breach or fundamental breach. During the performance of the Contract, the [Seller] continued alleging that it could not fully perform the Contract because of the force majeure. In the fax sent to the [Buyer] on 21 September 2001, the [Seller] stated:

The above statement clearly shows that the [Seller] admitted that it did not completely perform the Contract because of the force majeure, so the L/C had nothing to do with the [Seller]'s incomplete performance.

      (2) In an international sale of goods transaction, it is the seller's fundamental duty to prepare and deliver the goods; buyer's issuing an L/C is the precondition for seller to deliver the goods, but not the necessary condition for seller to prepare the goods. Once the contract is signed, the seller has the duty to obtain the ownership of the goods at its own expense, and prepare the goods before the shipping period stipulated in the contract. In the [Seller]'s response, the allegation that because the [Buyer] delayed issuing the L/C, the [Seller] could neither obtain financing from banks, nor have sufficient time to prepare the goods, is ridiculous. After signing the Contract, the [Seller] did not prepare the goods in June, July, August and September 2001 according to the Contract; after the [Buyer] urged many times, the [Seller] still failed to prepare the goods, so it fundamentally breached the Contract.

Regarding the [Seller]'s allegation that the [Buyer] did not issue the L/C timely in accord with the Contract, even if the [Buyer] issued the first L/C No. L/CNO.IDLC2223729997 a few days later than the time stipulated in the Contract, the [Seller] did not raise any objection to this during the performance of the Contract. In addition, it is the [Seller] who request revision of the L/C, so the [Seller] should bear the expenses duly incurred. Regarding the reimbursement commission to banks which the [Seller] alleged, the parties did not stipulate who should bear this commission; according to common business customs, the payee should bear such commission; in addition, this is a small amount, so usually the parties do not care. The [Buyer] revised the L/C as per the [Seller]'s request. Thus, the [Buyer] is not liable for the delay caused by modifying the L/C. Most importantly, the delay of issuing the L/C had no relationship with the [Seller]'s non-delivery of the goods. On 29 June 2001, the [Seller] alleged that because of the abnormal production in its factory it could not deliver any goods in June, and could only deliver 105.6 MT in July, but the [Seller] had already received the L/C issued by the [Buyer].

Regarding the amount in the L/C which the [Seller] alleged, although Article 8 Clause 3 of the Contract stipulates that the [Buyer] should issue the L/C before the end of May 2001, it does not stipulate the amount for the entire contract price or for the price of 211.2 MT delivered in June only. The Contract stipulates that the goods shall be delivered by installments; however, it does not specify that at the end of May the [Buyer] shall issue the L/C for the goods which should be delivered in June. The parties' course of performance shows that the parties' true expression is that the [Buyer] shall issue the L/C for each installment one month before this installment should be delivered. The [Buyer] performed accordingly, and the [Seller] confirmed it and did not raise any objection. Thus, the [Seller]'s allegation that the [Buyer] breached the Contract due to this reason should not be sustained.

Regarding the second L/C (L/C NO.IDLC2323721768) issued by the [Buyer] on 24 July 2001, the [Seller] did not deliver any yellow phosphorus in June and delivered only 105.6 MT in July because of its own reason. The second L/C was issued for the goods which should be delivered in August. Although the [Buyer] urged the [Seller] to perform the Contract many times, the [Seller] still failed to give any definite response. On 31 July 2001, the [Seller] sent a fax to the [Buyer] alleging, "By today not enough cargo is in port warehouse for the shipment of 211.6MT." Thus, even if the L/Cs issued by the [Buyer] had completely complied with the [Seller]'s request, the [Seller] could not have been able to deliver the goods. Under the above circumstances, in order to mitigate the loss, the [Buyer] had to purchase 316.8 MT goods in the market (these 316.8 MT should have been delivered by the [Seller] in June and July 2001).

The [Seller]'s defense regarding the problem of the L/C should not be sustained. This L/C was issued for the goods which should be delivered in August, and the [Buyer] did not delay issuing it. In addition, the Contract stipulates that this L/C is negotiable with any bank in China, but does not specify that the L/C should be issued to Communication Bank Kun Ming Branch. In fact, this L/C could be negotiated with any bank in China, so the [Seller] had no problem with negotiating the L/C. Regarding the amount of US $3,801.60 deducted in the L/C, the [Buyer] is allowed to execute its legal right and to take reasonable measures when the [Seller] refused the [Buyer]'s repeated requests to compensate for damages; that is not improper.

      (3) The [Seller] had never announced the revocation of the Contract due to the [Buyer]'s fundamental breach. In the fax which was sent to the [Buyer] on 6 September 2001, the [Seller] still alleged that it would fasten delivery of the goods from September; however, the [Seller] did not keep its promise, which disappointed the [Buyer].

3. The [Seller] should compensate the [Buyer] for the loss of price difference and freight rate difference due to the [Seller]'s breach.

Because of the [Seller]'s breach, Contract No. NCO1Y-28 could not be completely performed. In order not to affect the contract between the [Buyer] and its customer, Themphos International B.V, the [Buyer] had to purchased yellow phosphorus, which should have been delivered by the [Seller], at higher prices than that stipulated in Contract No. NCO1Y-28. The [Buyer] purchased 105 MT at the price of US $935/MT and 105.6 MT at the price of US $930/MT from Hong Kong Cheng Yin Group Ltd. On 10 July and 8 August 2001, respectively, and purchased 105.6 MT at the price of US $930 from Yunnan Raw Products Import and Export Company on 7 August; the total loss of price difference is US $10,032. Accordingly, the [Seller] should compensate the [Buyer] for the above loss, US $10,032, according to the relevant law.

In addition, because the [Seller] did not deliver the goods in accordance with the Contract, the [Buyer] could not transport the goods at the freight rate of US $1,100/20' which was originally quoted by Guangdong Jie Da International Transportation Ltd in August. The [Buyer] had to transport the goods at a freight rate, which was US $380/20' higher than the original freight rate, by Guangzhou Run Tong International Transportation Ltd. Accordingly, the [Buyer] suffered the loss of US $4,560, which the [Seller] should compensate for according to the relevant law.

4. The [Seller] should compensate the [Buyer] for the loss of profits because of the [Seller]'s breach, totaling US $10,000.

Because the [Seller] did not fully perform the Contract, the [Buyer] lost the business opportunity of the 422.4 MT yellow phosphorus. Because the [Buyer] could not obtain the goods at the unit price of US $900/MT from the [Seller], after reviewing the market price of US $930/MT, the [Buyer] had to add US $30/MT, and quote the price of US $1,080/MT (the original price was US $1,050/MT) to its customer, Themphos. However, Themphos rejected the increased price, so the parties did not reach a transaction agreement. With reference to the price, US $1,050, at which the [Buyer] would sell to Themphos, after the freight charges and other expenses were deducted, and when the [Buyer] purchased the goods from the [Seller] at the price of US $900/MT, the [Buyer] should have made a profit of US $55.01/MT. This profit rate is only 5.5%, which is a normal and reasonable profit rate in international trade. Accordingly, because the [Seller] did not deliver the 422.4 MT yellow phosphorus, the [Buyer] suffered the loss of profit, totaling US $23,236.22 (422.4×55.01 = 23,236.22). The [Seller] should compensate the [Buyer] for the above loss. Considering litigation cost, the [Buyer] only requests the [Seller] to compensate for US $10,000.

5. The [Seller] should compensate the [Buyer] for the reasonable expenses, US $3,000, incurred due to this case.

The [Buyer]'s attorneys' fee for this case is RMB 20,0000, and traveling expenses and other expenses are RMB 2,913.00. According to Article 59 of the Arbitration Rules, the [Seller] should compensate the [Buyer] for the above expenses.

[Seller]'s further response

The [Seller] expressed the following points in response to the [Buyer]'s allegations:

1. Construction of terms in Contract No. NC01Y-28 and relevant documents

      (1) "L/C 30 days from date of Cargo Receipt" stipulated in Article 8 "Terms of Payment", by reference to Item 3, shall be construed as, "the valid period of the L/C is within 30 days after the goods are received," but not as, "the L/C shall be issued within 30 days after the goods are received," as the [Buyer] alleged. Because in the international sales of goods, a buyer bears the first duty to issue the L/C to a seller, the seller can finance, prepare and deliver the goods to obtain the receipt of the goods only after the buyer issues the L/C. In addition, after receiving the L/C, the seller reviews the terms and conditions in the L/C, and only when no non-conformity is found, will the seller deliver the goods; if any non-conformity is found, the seller bears the duty to revise the L/C. According to the [Buyer]'s understanding, the goods should be delivered before the L/C was issued; however, according to international customs the L/C should be issued before the goods are delivered. The [Buyer]'s understanding is legally and logically incorrect. Article 20 of the unrevised L/C submitted by the [Buyer] states that the issuing date is 5 June 2001, and Article 31 C stipulates that the expiration time is 2 July 2001; Article 30 of the revised L/C states that the revising date is 18 June 2001; Article 31E states that the new expiration date is 18 July 2001. There are 30 days between the revising date and the new expiration date, which proves the [Seller]'s allegation.

      (2) Article 8 Item 3 of the Contract states: "The L/C shall be received by the Buyer before the end of May 2001 and negotiable with any bank in China and valid in China for at least 15 days after date of Cargo Receipt issued by Buyer"(emphasis added); "received by the Buyer" should be "received by the Seller"; it is a typo. Because, according to international customs, it is the buyer who applies to a bank to issue a L/C to the seller, it is impossible for the [Seller] to issue the L/C to the [Buyer]. The correct understanding of this term shall be that the [Seller] shall receive the L/C from the [Buyer] at the end of May, and this term specifies that the time for the [Seller] to receive the L/C is at the end of May. In other words, the [Buyer] had the duty to guarantee that the [Seller] would receive the L/C before the end of May. Because this term does not permit the L/C to be issued separately, the [Buyer] should have issued one L/C for the quantity and price stipulated in the Contract.

In addition, "any bank in China" described in this term shall not be construed as meaning that the [Buyer] could issue the L/C to any bank in China, because there are a large number of banks in China, and it is impossible to issue the L/C to any bank. In actual practice, the parties to a L/C usually specify a notifying bank. In fact, the [Seller] had specified the notifying bank, i.e., Communication Bank Kun Ming Branch.

      (3) The understanding of Article 10 of the Contract. The [Seller]'s understanding is:

            (a) When a force majeure occurs, the party that had the duty should be exempted;

            (b) When the force majeure occurs, the party that is affected should notify the other party immediately; however, the parties did not specify the period of "immediately," but according to international customs, the notice shall be made within a "reasonable time."

            (c) The [Seller] should send the relevant proof by registered mail to the [Buyer] as per the [Buyer]'s request.

      (4) Contract No. "T6184/6" was shown in the packing lists, receipts and invoices. This number is the [Buyer]'s reference number, not the number for the Contract in this case. Regarding this fact, the parties reached an agreement in the court session. This contract number does not substantially affect the facts and the parties' rights and duties in this case, so it should not be considered.

2. The facts of the [Buyer]'s breach

The [Buyer] first breached the Contract, as follows:

      (1) Non-complying issuance of the L/C. The [Buyer] did not issue one L/C for the quantity and amount stipulated in the Contract, but issued the L/Cs separately by its unilateral decision. Regarding this issue, the [Buyer] explained that it was hard to issue the B/L if the L/C was not issued separately. In fact, the Contract does not specify that the L/C could be issued separately. According to international customs, when the L/C is issued at one time, the B/Ls can still be issued by installments. It is the [Seller]'s position that to issue the L/C at one time does not conflict with the [Seller]'s delivery by installments.

      (2) The delayed issuance of the L/C. According to the Contract, the [Buyer] should guarantee that the [Seller] receives the L/C by the end of May, i.e., before 31 May. However, the [Buyer] issued the first L/C (L/C No. IDLC 2223729997) on 5 June 2001. In addition, this L/C includes the term which imposed an additional duty on the [Seller], so the [Seller] has the right to request the [Buyer] to revise the L/C. The revised L/C took effect on 18 June 2001, eighteen days later than the time stipulated in the Contract. According to the Contract, the [Buyer] should have issued the second L/C (L/C No. IDLC 2323721768) before the end of May; even if the [Buyer] should issue the L/C corresponding to the date when the [Seller] should delivered the goods as the [Buyer] alleged, the L/C should have been issued in June 2001; however, the [Buyer] issued the L/C on 24 July 2001, much later than the stipulated time.

Because the [Buyer] severely delayed issuing the L/C, the [Seller] could not obtain financing and prepare the goods, and this delay directly caused the [Seller] to be unable to perform the Contract after encountering the force majeure events.

      (3) The L/C substantially changed the contents stipulated in the Contract.

In L/C No. IDLC2323721768, the [Buyer] substantially changed the terms in the Contract, so that it fundamentally breached the Contract and caused the [Seller]'s purpose to be unable to be realized. The quantity and amount under L/C No. IDLC2323721768 is 211.2 MT and US $186,278.40, respectively. According to the quantity and amount under L/C No. IDLC 2323721768, the unit price under this L/C was only US $882/MT, which is US $18 less than US $900/MT stipulated in the Contract. This is a substantial change of the Contract by the [Buyer] unilaterally, and directly affected the parties' rights and duties under the Contract.

      (4) The [Buyer] did not issue the L/C to the stipulated notifying bank, which caused the [Seller] to receive the L/C later. Because of the [Buyer]'s fault, L/C No. IDLC 2323721768 was not issued to Communication Bank Kunming Branch, which the [Seller] specified, but to Bank of China Yunnan Branch. Because the [Seller] had no business with Bank of China Yunnan Branch, the [Seller] did not receive the L/C until 3 August 2001, which was later than the shipping period, i.e., later than 30 July 2001. Because the [Buyer] refused to revise this L/C, this L/C was invalid; during the performance of the Contract, the [Buyer] only issued one valid L/C, i.e., L/C No. IDLC 2223729997, which neither was issued in accordance with the Contract, nor could be fully performed because of the force majeure. When the [Buyer] did not issue the L/C in accordance with the Contract, the [Seller] could not obtain financing and prepare and deliver the goods.

3. The issue of force majeure

The [Seller] submitted the situation statement issued by Luping Electricity Distribution Company and four issues of Chun Cheng Night Daily published on different dates, which sufficiently prove that the force majeure events existed. Because of the strike by lightening and the suspension of transportation caused by the flooding, the [Seller] could not resume the production and transportation of the goods; the two events had the characters of force majeure, so they should be categorized as force majeure events.

Regarding the notice and proof of the force majeure, after the force majeure events occurred, the [Seller] notified the [Buyer] on 29 June 2001, which was within a reasonable time. In the fax sent to the [Seller] on 12 July 2001, the [Buyer] alleged, "T __ understands your situation," and "you are the largest domestic yellow phosphorus manufacturer and supplier, so you are capable of resolving the problems," so the [Buyer] admitted the fact that the [Seller] encountered the force majeure events. However, the [Buyer] ignored this fact, and requested the [Seller] to deliver the goods as a precondition to revising L/C No. IDLC 2323721768, which the [Seller] could not accept and satisfy. According to Article 10 of the Contract, the [Seller] has the duty to send the proof only when the [Buyer] requests; this is a duty with a condition. However, the [Buyer] did not make such request, so the condition for the [Seller] to bear this duty is not satisfied, and the duty is not binding on the [Seller].

Regarding exemption of liability due to force majeure events, Article 10 of the Contract definitely stipulates:

This provision was specially drafted for exemption of liability regarding to the [Seller]'s delivery of the goods. Accordingly, when the force majeure occurred, the [Seller]'s liability should be exempted if it failed to deliver the goods within the period stipulated in the Contract. In this case, during the performance of the Contract, the [Seller] encountered the force majeure, i.e., the strike by lightening and flooding, so it could not deliver the goods within the stipulated period. The situation complies with the stipulation in Article 10 of the Contract, so the [Seller]'s liability should be exempted.

4. The substitution of performance

The [Buyer] alleged yellow phosphorous is general goods, but regarding the performance of the Contract, the [Seller] had no right or duty to purchase yellow phosphorous to sell to the [Buyer] due to the following reasons:

      (1) According to Article 9 of the Contract, "Quantity and quality are subject to certificate issued by manufacturer," and the purpose of the parties in signing the Contract, the goods which the [Buyer] purchased should be produced by the [Seller], and it was not expected that the [Seller] would purchase from a third party; in other words, the [Seller] is the manufacturer and seller of the yellow phosphorus, but not a purchaser and seller in the market.

      (2) Other yellow phosphorus manufacturers are the [Seller]'s competitors; they have common business purpose to share the overseas market, so it was impossible for the [Seller] to purchase yellow phosphorus from its competitors in order to perform the Contract; especially when the [Seller] faced difficulty, other manufacturers rarely supplied it with goods.

      (3) The quality of yellow phosphorus produced by other manufacturers is different. The competitiveness based on the quality of goods is different; the goods with different quality and competitiveness are not interchangeable.

      (4) Yellow phosphorus manufacturers must follow strict production procedure, and generally produce yellow phosphorus according to orders, and rarely have a large amount in store, so unlike rice, coal, etc., it is impossible to purchase in the market anytime.

In sum, the subject under the Contract cannot be substituted. Therefore, the [Seller] has the right to delay delivering the goods and is entitled to exemption of liabilities, when it could not produce and transport the goods.

5. Regarding the [Buyer]'s allegations

      (1) In the court session, the [Buyer] stated that the [Seller] only alleged force majeure, but had never mentioned the [Buyer]'s breach, so the [Buyer] did not breach at all. The [Buyer]'s allegation is incorrect, because whether the [Buyer] breached the Contract shall be determined by evidence rather than whether the [Seller] had alleged or not. The [Seller] did not allege the [Buyer]'s breach at that time, because it wanted to avoid damaging the parties' business cooperation. In addition, the law of the PRC does not stipulate that the [Seller] gave up the right if it did not allege the [Buyer]'s breach under such circumstances.

      (2) The [Buyer] alleged that the first delivery was delayed, and the [Seller] did not deliver until the middle of July. This allegation is incorrect, because after issuing the L/C No. IDLC 2223729997, the [Buyer] revised it and the delivery date was revised as 3 July 2001. This is a valid modification of delivery date by the parties' express act after negotiation and agreement, and is the parties' true expression. The evidence including packing lists, invoices, etc. submitted by the [Seller] shows that the [Seller] delivered the goods on 3 July 2001, so the first delivery was not delayed.

      (3) The [Buyer] alleged that the [Seller] should be liable for the loss of transportation. The [Seller] alleged that it should not be liable for the [Buyer]'s so-called loss, because the [Seller] had definitely notified the [Buyer] that due to force majeure it could not deliver the goods on time, and the [Buyer] should not have booked for transportation; because the [Buyer] ignored the [Seller]'s notice and booked for transportation of other goods, the [Buyer] should be liable for its own loss.

      (4) The [Buyer] alleged that when the force majeure occurred, the [Seller] neither timely notified the [Buyer] nor submitted proof; in addition, the entity described in the proof issued by Luoping Electricity Distribution Company is not the [Seller], so force majeure did not exist.

The [Seller] alleged when the force majeure occurred, it notified the [Buyer] at the earliest time, and the [Buyer] acknowledged the [Seller]'s situation caused by force majeure. Regarding the proof, according to the Contract, the [Seller] should mail proof issued by the relevant agency to the [Buyer] only when the [Buyer] requests this.

In conclusion, the [Seller] alleges that it had no fault, and it is the [Buyer] who was the cause that the Contract could not be performed. Accordingly, the [Seller] requests that the Arbitration Tribunal dismiss the [Buyer]'s claims.

1. The applicable law

The Contract does not stipulate the applicable law. Because both parties' places of business are in Contracting States of the United Nations Convention on Contracts for International Sales of Goods (CISG), and in the court session and the material submitted, both parties alleged or agreed that the laws of the People's Republic of China and CISG should apply to this case, so the Arbitration Tribunal holds that the laws of the PRC and CISG apply to this case.

2. The issues and liability

The Arbitration Tribunal notes that the [Buyer] alleged that the Contract stipulates the [Seller] should deliver to the [Buyer] 211.2MT yellow phosphorus each month in June, July, August and September 2001, but the [Seller] only delivered 105.6MT in July. The [Seller] alleged that it did not deliver the goods in accordance with the Contract, because the [Buyer] did not issue the L/C in accordance with the Contract, and also because the force majeure existed. The [Buyer] objected to the [Seller]'s allegation.

Accordingly, the focus of this case is whether the [Buyer] issued the L/C in accordance with the Contract and whether the force majeure which the [Seller] alleged existed.

The Arbitration Tribunal confirmed the following facts:

      (1) Regarding "Terms of Payment", the Contract stipulates:

The [Seller] alleged that the term "Buyer" in "3) The L/C shall be received by the Buyer ..." was a typo, and should be "Seller." The [Buyer] did not object. Considering the facts in this case, the Arbitration Tribunal sustains the [Seller]'s allegation.

      (2) Regarding the first delivery, i.e., the supply in June, the Arbitration Tribunal found that the [Buyer] issued L/C No. IDLC2223729997 in 5 June 2001 for the amount of US $190,080, which was the price for 211.2 MT yellow phosphorus.

-	On 12 June, the [Seller] sent a fax to the [Buyer] requesting to revise the expiration date and the latest shipping date in the L/C and agreeing to bear the revising fee. However, the [Seller] neither requested the [Buyer] to issue a L/C for all goods under the Contract, nor raised any objection to the [Buyer]'s delay in issuing the L/C.
-	On 18 June, the [Buyer] revised the L/C; the expiration date was revised as until 18 July, and the latest shipping date was revised as 3 July. According to the revised L/C, the [Seller] delivered 105.6 MT yellow phosphorus to the [Buyer] on 3 July, and the remaining 105.6 MT was not delivered. In the following faxes between the parties, the [Seller] explained why it could not deliver the remaining goods.
-	On 29 June 2001, the [Seller] sent a fax to the [Buyer] alleging that because of the abnormal production of its plant in the past few weeks, the [Seller] could only deliver 105.6 MT yellow phosphorus next week, and proposing to ship the goods in store in order to mitigate the affects to the [Buyer] and its customer due to delayed delivery.
-	On the same day, the [Buyer] sent a fax to the [Seller] alleging that in order to mitigate the affects to its customer, the [Buyer] agreed to ship 105.6MT in store, and requesting the [Seller] to try its best to deliver the remaining 105.6 MT on 13 July, and also alleging that the [Buyer] was arranging the transportation for the goods which would be delivered in July and shipped on 27 July, and the [Seller] should not delay delivery any more.
-	On 11 July, the [Seller] sent a fax to the [Buyer] alleging that because the power transformer was struck by lightening, the plant in Luoping had been suspended for a few weeks, and the [Seller] could not deliver sufficient goods for June, and also alleging that because the railroad was broken due to flooding, the [Seller] could not arrange transportation before the end of July.
-	On 12 July, the [Buyer] faxed to the [Seller] alleging that its customer had already claimed a huge amount of damages with the [Buyer], and the [Buyer] had to sign a contract with another company to purchase 105.6 MT, which would be shipped on 20 July, and requesting the [Seller] to pay at least the loss of US $3,696 stipulated in the Contract, and this amount should be deducted from L/C, and the [Buyer] would issue a L/C for the goods shipped at the end of July, and requesting the [Seller] to try its best to perform the Contract.

      (3) Regarding the deliveries in July, August and September, the Arbitration Tribunal notes that following the above faxes on 29 June, and 11 and 12 July, the [Buyer] issued the second L/C No. IDLC2323721768 on 24 July 2001, which stipulated that the valid time was until 13 August 2001, and the latest shipping time was 30 July.

On 31 July the [Seller] sent a fax to the [Buyer] alleging that it did not receive the L/C, and emphasizing the difficulty of transporting the goods, and also alleging, "By today, not enough cargo is in port warehouse for the ship of 211.6MT."

On 6 August the [Seller] sent a fax to the [Buyer] alleging that it received the L/C from Bank of China on 3 August, and raised objections to related terms.

On 7 August, the [Buyer] sent a fax to the [Seller] stating:

On the same day, the [Buyer] sent a fax to the [Seller] stating:

On 8 August, the [Seller] sent a fax to the [Buyer] alleging that it would not bear the additional expenses incurred for the [Buyer] to purchase substitute goods, and emphasizing that the delayed delivered was caused by force majeure, i.e., the broken power transformer and the suspension of railroad. In the fax sent on 6 September, the [Seller] stated:

In the replying fax sent to the [Seller] on 17 September, the [Buyer] alleged that if the [Seller] compensated for the loss according to the amount recorded in the invoice, the [Buyer] wanted to resume the cooperation with the [Seller]. Because the [Seller] did not deliver the goods in accordance with the Contract, the [Buyer] deemed the Contract had been revoked. In order to avoid the legal measures which the [Buyer]'s customer might take, the [Buyer] had to purchase goods from other companies, which also avoided higher damages which the [Buyer] might claim from the [Seller]. In the fax sent to the [Buyer] on 21 September 2001, the [Seller] replied:

Regarding the issuance of L/C, the Arbitration Tribunal notes that the [Buyer] alleged that, because the Contract should be performed by installments, issuance of L/C means the L/C for each installment was to be issued one month before this installment was shipped; the [Seller] did not agree, and alleged that the [Buyer] should issue one L/C for the entire quantity and amount under the Contract. The Arbitration Tribunal holds that the Contract does not stipulate whether the [Buyer] should issue one L/C for the Contract or an L/C for each installment, and only stipulates that the [Buyer] should issue and the [Seller] should receive the L/C before the end of May. During the performance of the Contract, when the [Buyer] issued the L/C for each installment, the [Seller] neither requested the [Buyer] to issue one L/C nor raised any objection, so it should be deemed that the [Seller] confirmed the [Buyer]'s issuance of L/Cs by installments.

In this arbitration, the [Seller] alleged that the [Buyer] breached the Contract, and alleged this as the reason for non-delivery of the goods. The Arbitration Tribunal does not sustain the [Seller]'s allegation. The above faxes between the parties show that the Contract was not fully performed primarily because the [Seller] did not deliver the goods.

-	The Arbitration Tribunal holds that the [Seller]'s fax on 12 June, the [Buyer]'s revising the L/C on 18 June, and the [Seller]'s delivery on 3 July, was a rearrangement of issuance of the L/C and delivery of the goods which should be delivered in June. According to the new stipulation, the [Seller] should deliver the first 211.2 MT yellow phosphorus before 3 July, but it only delivered 105.6 MT.
-	The [Buyer] issued the L/C for the second installment later than the stipulation in the Contract, because the [Seller] did not deliver the first installment in accord to the Contract. The Arbitration Tribunal holds that it is normal for the parties to revise the L/C in transactions.
-	Regarding the [Seller]'s objection to the terms of L/C, the [Buyer] promised to revise when the [Seller] promised to deliver the goods, but the [Seller] failed to make such a promise; deduction of amount in the L/C was caused by the fact the [Seller] failed to deliver sufficient goods for the first installment, and the [Buyer] had to purchase substitute goods. Therefore, the Arbitration Tribunal holds that whether the [Buyer] issued the L/C on time, and whether the terms of the L/C had any defects are not the real reasons for the Contract not to be fully performed. The Arbitration Tribunal holds that the [Buyer]'s issuance of the L/C was the precondition for the [Seller] to deliver the goods, but not the necessary condition for the [Seller] to prepare the goods.
-	During the performance, the [Seller] repeatedly alleged that it could not fully perform the Contract because the production in the plant stopped due to the broken power transformer and the railroad was suspended due to force majeure, i.e., typhoon and flooding, etc.. The Arbitration Tribunal holds that yellow phosphorus is general goods, and the Contract does not specify the manufacturer of yellow phosphorus, so the [Seller]'s allegation that the yellow phosphorus under the Contract could not be substituted lacks basis, and the Arbitration Tribunal does not sustain this allegation.
-	Therefore, the power transformer was struck by lightening, and the production in Luoping plant stopped, which caused the [Seller] could not deliver sufficient goods for June's delivery and the deliveries for other months; the events are not force majeure, and the [Seller] shall not be exempted of liability.
-	Regarding the suspension of railroad service due to typhoon and flooding, after reviewing the relevant evidence (reports in the newspaper) submitted by the [Seller], the Arbitration Tribunal notes that Nan Kun Railroad was suspended from 3 to 13 July, so the suspension of railroad due to typhoon and flooding had only affect on the performance of the Contract for a limited period, and the [Seller] should timely perform the duty of delivery after the transportation resumed or by other means. Accordingly, the Arbitration Tribunal holds that the [Seller] shall not be exempted of the duty to deliver the goods within reasonable time after the transportation resumed.

The Arbitration Tribunal holds that according to the above faxes between the parties, the [Seller] could not deliver the goods because, as it alleged, the power transformer was struck by lightening and the production stopped in its Luping plant. However, even if it is true, the [Seller] still had the duty to purchase substitute goods from others, and deliver the goods timely after the transportation resumed. Therefore, the Arbitration Tribunal holds that the broken power transformer and the suspension of railroad due to typhoon and flooding do not constitute the condition of force majeure to exempt the [Seller]'s liability, so the [Seller] shall not be exempted of liability.

The Contract was the true expression of the parties, and the formality and contents comply with the laws of the PRC and CISG, so it is valid and binding on both parties; therefore, the parties should perform the Contract in accord to the Contract. The Contract was not fully performed because the [Seller] could not deliver the goods in full compliance with the Contract; thus, the [Seller] shall be primarily liable for its breach.

In addition, the Arbitration Tribunal holds that when issuing the L/C, the [Buyer] did not perform its duty in strict compliance with the Contract; although it is normal to revise a L/C after negotiation and agreement in transactions, it still brought some inconvenience for performance of the Contract. Furthermore, the parties had disputes on the force majeure, because they had different understandings of execution of the force majeure term stipulated in the Contract, which also affected the performance of the Contract, and the [Buyer] is also liable. Thus, the [Buyer] shall bear part of the liability for non-full performance of the Contract.

3. The arbitration claims

The [Buyer] requests the [Seller] to compensate for its direct loss of US $14,592. The direct loss which the [Buyer] alleged refers to the loss of price difference, i.e., US $10,032, when the [Buyer] purchased the substitute goods in order to perform the contract with its customer, and the loss of freight rate difference, i.e., US $4,560. The Arbitration Tribunal holds that the [Buyer] purchased the substitute goods in order to perform the contract with its customers, and it is a measure to avoid enlarging the loss when the [Seller] could not deliver the goods. In addition, in the fax (on 29 June and 12 July), the [Buyer] timely notified the [Seller] and requested the [Seller] to try its best to perform its delivery duty for the remaining installments, but the [Seller] failed to deliver the goods. The [Buyer] submitted considerable evidence to prove the performance of the contract with its customer, and the [Seller] did not provide sufficient evidence to prove that the [Buyer]'s purchasing price was unreasonable. Based on the above analysis, the Arbitration Tribunal holds that the [Seller] shall compensate the [Buyer] for the loss of price difference for the three purchases from others, and 70% of the loss of freight rate difference because the [Seller] could not deliver the goods on time, i.e., US $10,214.40, and the [Buyer] shall bear 30% by itself.

Because the [Buyer] bears some liability for the non-fully-performance of the Contract, and the [Buyer]'s evidence is not sufficient to prove its indirect loss, the Arbitration Tribunal does not sustain the [Buyer]'s claim for direct loss, i.e., US $10,000. The Arbitration Tribunal holds that the [Seller] shall compensate the [Buyer] for its reasonable expenses for this case, i.e., RMB 10,000. Regarding the arbitration fee, the [Buyer] shall bear 30% and the [Seller] shall bear 70%.

The Arbitration Tribunal handed down the following award:

(1)	The [Seller] shall compensate the [Buyer] for its direct loss caused by the [Seller]'s breach, i.e., US $10,214.40;
(2)	The [Seller] shall compensate the [Buyer] for its reasonable expenses for this case, i.e., RMB 10,000;
(3)	The [Buyer]'s other claims are dismissed;
(4)	The arbitration fee is RMB 20,003, of which the [Buyer] shall bear 30%, i.e., RMB 6,000.90, and the [Seller] shall bear 70%, i.e., RMB 14,002.10.

The [Buyer] had prepaid the above arbitration fee to the Arbitration Commission, so the [Seller] shall pay the [Buyer] RMB 14,002.10 in order to compensate for the arbitration fee paid in advance.

The [Seller] shall pay the [Buyer] the above amount within 30 days of the date of this award; otherwise, interest shall be added at the annual rate of 5%.

This is the final award.

FOOTNOTES