Arbitration case on the sales contract dispute between Hong Kong S company and German T company

Claimant: Hong Kong S company

Respondent: German T company

Arbitration institution: China International Economic and Trade Arbitration Commission

Cause of arbitration: Disputes over contracts for the international sale of goods

Attorney Carly Zhou and Senior counsel Chen jointly represented the claimant ,Hong Kong S company in the arbitration case on the sales contract dispute with German T company.

The China International Economic and Trade Arbitration Commission made the award on the end of December 2020. The claimant's request was supported by the arbitration tribunal.

In May 2021, Hong Kong S company applied to recognition and enforcement of the arbitration award in German Court. At the beginning of March 2022, the German court completed the recognition and enforcement of the award. German T company paid total amount to Hong Kong S company.

I Summary of the case

On March 8^th 2019, Hong Kong S company received purchase order from the German T company. T company required S company to supply 6608 boxes of stainless steel frying pans. Quantity is 39648 pieces . The unit price of the trade term is FOB Ningbo US$5.05/pcs, with total amount is US$200222.40.  S company issued proforma invoice, which agreed that supply 39648 pieces stainless steel frying pans to T company. Unit price FOB Ningbo US$5.05/pcs, the total amount is US $200222.40. The payment term is 30% deposit in advance by T / T, the balance 70% payment shall be paid within 60 days with the copy of the bill of lading. The dispute resolution clause in proforma invoice stipulates that in case of any dispute, both parties shall negotiate friendly. If the negotiation fails, the dispute shall be submitted to the China International Economic and Trade Arbitration Commission for arbitration in accordance with its arbitration rules. The award is the final award and binding on both parties. On April 9^th 2019, T company paid 30% deposit of US $60130.35 to S company. S company completed production in the following three months. On August 3^rd 2019, T company arranged third-party T Ü V Shanghai company to inspect the goods quality in the factory. After the inspection, T Ü V Shanghai company issued the quality certificate to prove the qualified goods.

T company informed S company that the goods would no longer be transported to Hamburg by sea. Three containers would be transported to Hamburg through China Europe train express by railway, and designated Shanghai TW freight forwarding Co., Ltd and its Xi'an Branch as the carrier. On August 5^th 2019, the goods were loaded into three containers in Ningbo according to the packing requirements of the carrier, and three drivers were arranged to transport three containers to Xi'an by truck and deliver them to Xi'an railway station. Shanghai TW freight forwarding Co., Ltd Xi'an Branch is responsible for carrying this batch of goods and arranging three containers to be transported from Xi'an to Hamburg. On August 13^th 2019, the goods were declared and arranged to deliver to China Railway multimodal transport Co., Ltd.

China Railway multimodal transport Co., Ltd issued Railway Bill number 11425491, 11425521 and 11425522 respectively for three containers. On August 14^th 2019, Shanghai TW freight forwarding Co., Ltd issued Receipt of Cargo in Xi'an. On August 27th, 2019, the goods arrived at Hamburg railway station. On September 24^th 2019, S company received e-mail notification from the carrier that the goods had been stored in the warehouse of the T company. T company is both the consignee and the freight forwarder at the destination and  responsible for picking up the goods, and has obtained the ownership of the goods.

    After received the goods, S company repeatedly urged T company to pay the balance  70% payment of USD140092.05. On September 27^th 2019, T company informed S company  by email enclosed payment slip with amount of USD 32529. After identification and confirmation with the receiving bank, the payment slip was forged and fake, S company suffered fraud and has not received the balance 70% payment. According to the statement of S company, during several years for cooperation between them, T company has sent three fake payment slips. Every time it was found to be forged. On January 16^th, 2020, S company entrusted Carly to send the letter to T company to urge to pay ASAP. But T company has no reply. The case was submitted to CIETAC for arbitration.

II Claimant's Request

1. The respondent paid $140092.05 in arrears.

2. The respondent shall pay interest, with USD 140092.05 as the base, from October 13^th 2019, the interest shall be calculated by 5% of the 2019 USD loan interest rate published by HSBC Bank (China) Co., Ltd until the date of actual payment when the award takes effect.

3. The respondent shall pay attorneys' fees RMB 80000 Yuan.

4. the respondent shall bear the arbitration fee RMB 53378 Yuan.

III Applicable law

As for the applicable law to the disputes, both parties have not agreed in the contract. The United Nations Convention on Contracts for the international sale of goods (Hereinafter referred to as CISG) does not apply to the Hong Kong Special Administrative Region. S company established in accordance with the laws of Hong Kong with its business address in the Hong Kong. T company established in accordance with the laws of Germany with its business address in Germany. The arbitration institution selected by both parties is CIETAC, which is located in China.

S company claims that according to Article 18 of the law of the people's Republic of China on the application of law on foreign related civil relations, "the parties may choose the law applicable to the arbitration agreement by agreed. If the parties have not chosen, the law of the place where the arbitration institution is located shall apply". Therefore, the law of the place where the arbitration institution is located, that is the Chinese law will be applied. CISG which China has acceded to, is a part of Chinese law and will be applied preferentially.

In the application for arbitration, S company repeatedly cited the provisions of CISG, the contract law of the people's Republic of China and the provisions of the interpretation of the Supreme People's Court on the application of law in the trial of sales contract disputes.

The arbitration tribunal held that the actual place of performance of the contract related to the production, inspection and transportation of the goods involved in the case was in the mainland of China, and the arbitration institution selected by both parties was also in the mainland of China. According to the principle of the closest relationship applicable to private international law, the dispute settlement in the case should be governed by the laws of PRC.

IV Opinion of the arbitration tribunal

The arbitration tribunal legally notified T company several times in accordance with the arbitration rules of CIETAC. T company refused to participate in the arbitration, and the arbitration tribunal continued to hear the case. The arbitration tribunal ascertained the facts of the case based on the 22 pieces of evidence submitted by S company and accepted the 22 pieces of evidence and relevance to the case.

The arbitration tribunal, in accordance with the provisions of Articles 32 and 44 of the contract law of PRC, found that the contract in this case was legal and valid and legally binding on both parties, which should be used as the basis for determining the rights and obligations of both parties. As for the performance of the contract, S company has fulfilled the obligation of delivery under the sales contract, and the evidence submitted by the applicant proves that the delivered goods are qualified as for quality. In accordance with articles 159 and 161 of the contract law of PRC, the arbitration tribunal held that the basic obligation of the Buyer under the sales contract in the contract was to receive the goods and pay money as agreed in the contract, and T company failure to pay the balance 70% of the goods as agreed clearly constituted breach of contract. The arbitration tribunal supported S company’s request, and T company should pay the remaining 70% of the goods, and bear corresponding liabilities for breach of contract.

V Award

1. The respondent paid $140092.05 in arrears.

2. The respondent shall pay interest to S company on the basis of USD 140092.05. The interest shall be calculated by referring to the LIBOR (London Interbank Offered Rate) in October, 2019. The one-year annual interest rate of USD shall be increased by 2%, and the interest shall be calculated at the annual interest rate of 4%. The interest shall be calculated from October 13, 2019 to the date of actual payment when the award takes effect.

3.The respondent shall pay attorneys' fees RMB 50000 Yuan.

4. the respondent shall bear the arbitration fee RMB 53378 Yuan.

Vi Comment

This case is one of the rare cases in which CISG is not applicable. The arbitration tribunal did not quote the provisions of CISG but directly quoted article of the contract law of PRC to make the award. Cited the principle of the closest relationship in accordance with private international law. The arbitration tribunal supported all the claimant's claims for arbitration.

T company has paid 30% of the deposit to the USD account of HSBC Bank in Hong Kong to S company. S company has submitted the statutory USD interest published by the Hong Kong High Court. It is reasonable to calculate at 5% per month. The arbitration tribunal adopted the London Interbank Offered Rate (LIBOR) of 4% for one year to calculate the US dollar interest, but did not give sufficient reasons for further explanation in the award.

It is worth noting that CISG has no specific provisions on the legal basis for calculating the interest rate of disputes over contracts for the international sale of goods, but relies on the domestic laws of various countries.

Remarks:

Before Hong Kong's return to China, Hong Kong had not acceded to CISG. Hong Kong's legal system has always been influenced by the British legal system, so the reason why Hong Kong has not acceded to the Convention may be related to the United Kingdom. Because UK was not a contracting party to CISG. CISG is a mixture of civil law and common law. It is the product of mutual compromise between the two legal traditions.

In the case of a sales contract dispute between a Hong Kong company and a foreign company, CISG shall not automatically prevail unless both parties have previously agreed in the contract that CISG shall apply.

With regard to the relationship between Hong Kong and CISG, in this May 2022, greater progress was made in the application of CISG in Hong Kong. China deposited a declaration with the Secretary General of the United Nations to extend the territorial use of CISG to Hong Kong Special Administrative Region. In accordance with Article 97 (3) of the CISG, the CISG will apply to Hong Kong without reservation from December 1^st 2022. In addition, the application of CISG will be excluded in the case of sales contracts between companies in Hong Kong and Mainland China.