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The case of Japan XX Company v. China XX Company on Dispute over Payment of Bearing Purchase Contract Jurisdiction: Arbitration; CIETAC Date of Decision: October 19, 2001 1.Case Brief

On July 4, 1997, the claimant (the seller) and the respondent (the buyer) concluded No.97WEMEB-025JP sales contract (hereinafter referred to as 025 contract), which stipulated that the claimant should deliver the accessories of power plant to the respondent and the total value of the payment was USD 92,416. The time of shipment was November 28, 1997; the delivery port should be Hong Kong and the payment terms should be T/T a week before the shipment.

On September 11, 1997, the claimant (the seller) and the respondent (the buyer) also concluded No.97WEMEB-032JP sales contract (hereinafter referred to as 032 contract), which stipulated that the claimant should provide the accessories of power plant to the respondent and the price of the contract should be JPY 401,7680. The time of shipment should be no later than October 20, 1997, the objective port should be Hong Kong Airport and the payment term should be T/T a week before the shipment.

Afterwards, the claimant and the respondent had dispute during the performance of the two contracts aforementioned. Not solved by negotiation, the dispute was submitted to the arbitration commission by the claimant on October 25, 2000 for arbitration.

The claimant stated as follows:

In respect of 025 contract: after the conclusion of the 025 contract, the claimant delivered the goods on December 16, 1997 and January 31, 1998 respectively. Before the shipment of the second batch of goods, the manufacturer found flaw in one bearing when checking up the goods that will be delivered finally, which was informed to the respondent by the claimant. Then the claimant suggested to replace the bearing later, but the respondent requested to take out a group of bearings. The payment for goods of 025 contract was reduced to USD 90,061 from the original USD 92,416. However, the respondent breached the contract that it failed to pay the claimant in accordance with the date stipulated by the contract.

In respect of 032 contract: After the conclusion of the 032 contract, the claimant delivered the goods on October 22, 1997 in accordance with the contract. However, the respondent still failed to pay as agreed.

The claimant urged the respondent repeatedly to make the payment according to the contract before and after the shipment of the goods. On February 6, 1998, the respondent entrusted a Hong Kong company to pay the claimant for payment of USD 42,766, and on February 8, 1999, it consigned Shantou XX Company to deliver RMB 614,605 to Beijing Office of the claimant for the payment, but still owed USD 9815.32, which the claimant had asked for many times. The failure of the respondent to pay for the goods up till now constituted severe breach of contract and the respondent should assume the liabilities for breach of contract accordingly.

025 contract and 032 contract were concluded in China, pursuant to the conditions brought forward by the respondent and applying the format contract provided by the respondent. Therefore, pursuant to Item one, Paragraph 6 of Article 2 of Supreme People's Court's interpretations of issues concerning application of Law of The People's Republic of China on Economic Contracts involving Foreign Interest, issued on October 19, 1987, the applicable law for the case should be Chinese law. These two contracts were concluded on July 4, 1997 and November 28, 1997, therefore Law of The People's Republic of China on Economic Contracts involving Foreign Interest should be applicable (Note: This law had been abolished by Contract Law of the People's Republic of China, thus no longer applicable since October 1st, 1999) as the basis of the determination of the rights and obligations between the parties. According to Article 16 in this law, the claimant requested the arbitration tribunal to award:

(1)The respondent should pay the owed payment of USD 9815.32 prescribed in 025 contract and 032 contract;

(2)The respondent should pay the interests losses of USD 11,414.77 to the claimant caused by its breach of contract;

(3)The respondent should assume the arbitration fee in the case;

(4)The respondent should bear the retaining fee RMB 21,000.

The respondent defended against the claimant's claims and made the counter-claim as follows:

(1) The factual process of conclusion and performance of the 4 ordering contracts

Concerning 025 contract and 032 contract: after the conclusion of 025 contract and 032 contract between the claimant and the respondent, they made additional oral agreement on procedure of delivery and payment that the claimant should deliver the goods under 025 contract and 032 contract to the Hong Kong company, which then should transfer the goods to Jiangmen XX Company (hereinafter referred to as Jiangmen Company).After receiving the goods, on the one hand, Jiangmen Company should pay the Hong Kong company, which then made the payment to the claimant, while on the other hand, Jiangmen Company should transfer the goods to the XX Electricity Factory appointed by the claimant, of which the acceptance of goods should be deemed as that of the claimant, then the respondent would pay Jiangmen Company.

Concerning 025 contract and 032 contract: in order to fulfill the obligation in the delivery and payment procedure stipulated in oral agreement above, the respondent concluded the ordering contracts for the accessories of power plant, the number of which were 97WEMEB-0225(hereinafter referred to as 97-025 contract) and 97WEMEB-032(hereinafter referred to as 97-032 contract), on September 12, 1997 and September 20, 1997 respectively. These two contracts stipulated respectively that Jiangmen Company should provide to the respondent all the accessories, pursuant to the 025 contract and 032 contract concluded by the claimant and the respondent, of which the total value of 97-025 contract was RMB 936,610.05, including an increase of about RMB 160,000 on the basis of the value of 025 contract for the compensation for Jiangmen Company's funds advanced, while the total value of 97-032 contract was RMB 385562.46, including an increase of about RMB 85,000 for the compensation for Jiangmen Company's funds advanced.

After the conclusion of the 4 contracts above, the claimant laded the goods under 025 contract at XX port in Japan on December 16, 1997 and January 31, 1998 respectively and delivered them to the Hong Kong port. XX Electricity Factory, as appointed by the respondent, received the first batch of control valve transferred by Jiangmen Company in December 1997, valued of RMB 443,341.17, and received the second batch of bearing transferred by Jiangmen Company in February 1998, valued of RMB 493268.88,. Therefore, the respondent made the remittance of RMB 500,000 to Jiangmen Company on April 6, 1998 and RMB 436,610.05 on April 9, 1998, the total payment of which was RMB 936,610.05. Thus, the respondent had paid off the payment to Jiangmen Company under 025 contract.

On October 27, 1997, the claimant delivered the goods of 032 contract from Japan XX airport to Hong Kong airport. XX Electricity Factory appointed by the respondent received the aforesaid goods transferred by Jiangmen Company of RMB 385,562.46 in November 1997, then the respondent paid RMB 385,562.46 via T/T (telegraphic transfer) to Jiangmen Company on December 16, 1997. By far the respondent had paid off the payment under 032 contract completely.

However, in May 1998, the Beijing Office of the claimant notified the respondent that it did not receive any payment for the second batch of goods under 025 contract and the payment under 032 contract from Jiangmen Company. When the respondent inquired Jiangmen Company in order to assist the claimant, Jiangmen Company alleged that it was in capital tension and requested the respondent to pay off the price of another contract first, not relevant with this case, then it could make the payment to the claimant. Such contract was No.97WEMEB-014 contract for the purchase of boiler water circulation pump made in Britain that concluded between the respondent and Jiangmen Company, of which the total value was RMB 2,714,605. The respondent paid RMB 540,000 in advance on July 22, 1997 and the payment term expired. In order to help the claimant to get the payment under 025 contract and 032 contract as soon as possible, , the respondent only paid the owed part under No.97WEMEB-014 contract of RMB 1,474,065 to Jiangmen Company on May 4, 1998 and detained the payment of RMB 700,000. In January 1999, the respondent remitted RMB 614,605 out of the detained price of RMB 700,000 under No.97WEMEB-014 contract, not relevant with this case, to Shantou XX Company entrusted by the claimant as required by the claimant. The Beijing Office of the claimant provided the receipt of the payment, especially explaining that "it received the payment under No.97WEMEB-014 contract RMB 614,605 in the name of Jiangmen Company". However, in December 1999, Jiangmen Company instituted a proceeding to the people's court of XX District XX City, demanding the respondent to pay the detained payment of RMB 700000 under No.97WEMEB-014 contract. Although the respondent explained to the court the fact and reasons that the respondent remitted the payment to the claimant, after hearing the court held that the respondent should pay the balance of RMB 700,000 under No.97WEMEB-014 contract to Jiangmen Company and implemented the respondent's RMB 700,000. Moreover, the respondent assumed the legal fee RMB 12,010 for the case, resulting in serious economic losses.

(2)The defense

From the perspective of legal relationship, the provisions on payment in 025 contract and 032 contract had been altered substantially, because of the oral agreement after the conclusion of the contract and the actual performance of the two parties. The alteration confirmed the legal relationship that Jiangmen Company or the Hong Kong company should pay the claimant, while the respondent should pay the Jiangmen Company. Therefore, there was no legal relationship that the respondent should make the payment to the claimant from a legal perspective. The People's court of XX District XX City recognized such legal relationship between the respondent and Jiangmen Company, thus it denied the legality of the respondent's act of detaining the payment of RMB 700,000 to pay the claimant. In view of actual performance, the claimant also admitted that it had received the payment of USD 42,766 from a Hong Kong company, while the respondent never entrusted such company nor had any business with it. Therefore, the payment the claimant received from the Hong Kong Company only could be paid by Jiangmen Company as entrusted, irrelevant with the respondent. As a matter of fact, the respondent had made all the payment to Jiangmen Company in accordance with the payment procedure stipulated in the oral agreement, thus fulfilled the contract obligation. The respondent should not make the payment to the claimant any more.

(3) The counter-claim and the reason

Firstly, according to the 025 contract, the payment should be made within 10 days after the respondent received the goods, which means Jiangmen Company should pay the claimant as an agent of the respondent in advance, then the claimant notified the respondent, who then bear the responsibility to pay Jiangmen Company. That is why the payment made by the respondent to Jiangmen Company, was higher than that stipulated in the 025 contract concluded with the claimant, i.e. RMB 160,000. However, the claimant delivered the goods before it received the payment from Jiangmen Company and failed to submit the bill of lading to the respondent after the delivery of goods, which means it did not deliver the goods to the respondent, resulting in the situation that after receiving the goods from Jiangmen Company, the respondent had to make the payment according to the contract between the respondent and Jiangmen Company and was executed such payment by the People's court of XX District. Therefore, the claimant should assume the responsibility to return the payment to the respondent and bear the loss caused by unauthorized shipments before receiving the payment from Jiangmen Company.

Secondly, since the respondent had made the payment under No.97WEMEB-014 contract to Jiangmen Company in accordance with the effective legal instruments of the People's court of XX District, the respondent requested the claimant to return the payment of RMB 614,605, accepted in the name of Jiangmen Company, as well as the interests of RMB 71,908 (calculated from January 5, 1999 to December 31, 2000). Moreover, being aware of such payment owned by Jiangmen Company rather than the claimant itself, the claimant still accepted it and kept it mistakenly for nearly 2 years, resulting in the respondent's execution of RMB 700,000 by the People's court and assuming the legal fee of RMB 12,010. Therefore, the respondent demanded the claimant to compensate for such legal fee of RMB 12,010 assumed by the respondent.

Thirdly, the claimant delivered the goods of the 025 contract in two batches without confirmation. The first batch's shipment deferred 18 days, the second 65 days, of which BEARING H247549/10FP(KOYOLTD) group, valued RMB 1,080, and BEARING HH144642/14（KOYO LTD）group, valued RMB 1,275, were withdrew by the respondent for the quality flaw. The deferred delivery of the claimant fell into serious breach of contract, thus the claimant should bear the corresponding responsibility. In accordance with Article 34, Item 5 of Article 35 of Regulations of Mineral products purchase and sales contracts, the claimant should pay the damages of USD 384.89 for the deferred delivery of the first batch of goods (calculated as 0.005% of the total value of deferred delivery), USD 1,537.09 for the deferred shipment of the second batch. When fulfilled the 032 contract, the claimant deferred the delivery for 7 days, thus should pay the damages of JPY 14,061.88 or USD 127.84.

In summary, the respondent held that:

The respondent had fulfilled all the obligations under the four relevant contracts completely that there was no payment obligation requiring the respondent to bear;

The claimant should return the payment of RMB 614,605, interest of RMB 71,908 and compensate the respondent for the legal fee RMB 12,010 assumed by the respondent.

The claimant should bear liabilities of breach of contract by the deferred delivery and pay the damages of USD 2,049.82 to the respondent;

The claimant should assume all the arbitration fees (the arbitration fee of the counter-claim included) and the retaining fee of RMB 30,000 of the respondent.

Concerning the defense and the counter-claim of the respondent, the claimant made the following comments:

(1) The legal relationship of this case had not changed ever

During the implementation of the 025 contract and 032 contract, the respondent borne the responsibility to make the payment in advance. Under the circumstances that the respondent failed to make the payment in advance and breached the contract, the claimant still fulfilled the obligation under the contract. After the claimant carried out its obligation to deliver the goods, the respondent became the only debtor of this case, of which the legal relationship was specific and clear.

In November 1999, the respondent asked the claimant for issuing a certificate and offered the draft thereof. The claimant refused such request by stating that the content of the draft differed from the contract concluded by them obviously. The respondent made repeated explanation that actually the respondent operated in accordance with the procedure stipulated in the draft. In order to deal with the finance inspection of Chinese tax authorities, the claimant should issue such certificate for the respondent's sake. Considering the long-term business transactions between the claimant and the respondent, the claimant issued such certificate finally. Two parties never discussed about the modification on the provisions of the contract before. Even they discussed orally before, as claimed by the respondent, such oral discussion had no legal effect in the absence of a written document thereafter. In accordance with Article 7 and 32 of Law of the People's Republic of China on Economic Contracts involving Foreign Interest, the conclusion, modification or the cancellation of the economic contracts involving foreign interest should be in written form. Oral modification of the contract violated the law and had no legal effect.

The claimant admitted that the certificate was the document issued by the claimant in certain conditions. If the arbitration tribunal held that the claimant should take the responsibility of such certificate, the claimant promised to assume the responsibility of such certificate since November 22, 1999. From such certificate it was clear that:

The relationship between the respondent and Jiangmen Company and Hong Kong Company was payment consignation. The subject of debt did not change as claimed by the respondent, and the respondent's legal status, debtor in this case, did not change. It was stated in the certificate that "After receiving the goods, Jiangmen Company shall pay the Hong Kong Company, which then shall pay the Japanese company (the claimant). After receiving the payment, the Japanese company (the claimant) shall inform Beijing company (the respondent), which shall pay Jiangmen Company at once.", which showed that the respondent was the debtor, and Jiangmen Company and Hong Kong Company both were the assignee entrusted by the respondent. Should the assignee fail to fulfill the obligation entrusted by the consigner, the consigner, being the debtor, undoubtedly should bear the payment obligation under the contract. The claimant had fulfilled its obligation by delivering the goods to Hong Kong Company in accordance with the 025 and 032 contracts, and it is neither necessary nor possible for the claimant to arrange Jiangmen Company and Hong Kong Company to carry out delivery and payment obligation in the name of the claimant. The respondent also stated that the claimant was not familiar with Jiangmen Company and Hong Kong Company in the two explanations of the circumstances. Therefore, the clientage between the respondent and Hong Kong Company and Jiangmen Company, arranged by the respondent alone, was in no relation with the claimant.

It is a conditional legal act that the respondent paid Jiangmen Company, which attached two conditions: one was payment qualification that only Jiangmen Company paid Hong Kong Company first, which then paid the claimant, the respondent was supposed to pay Jiangmen Company. The other was notification qualification that only under the circumstances that the claimant informed the respondent after receiving the payment, the respondent then ought to pay Jiangmen Company. In case these two conditions were not achieved, the payment of the respondent to Jiangmen Company breached the contract between the parties that the respondent should bear the legal consequences separately.

Article 26 of Law of The People's Republic of China on Economic Contracts involving Foreign Interest stipulated that: One of the parties should transfer the contractual rights and obligations of all or part of to a third party upon the consent of the other party. The respondent never mentioned that it would transfer its contractual obligation to Jiangmen Company, nor did the claimant ever approve such debt transfer. Jiangmen Company never showed that it had accepted the debt transferred by the respondent, being the debtor of the 025 contract and 032 contract concluded between the claimant and the respondent. On the assumption that the claim brought forward by the respondent did hold water, the certificate just modified the procedure of acceptance of goods and payment, rather than the substantial right between the parties. Therefore, the respondent's legal status of this case is debtor, which has never changed.

Since the claimant did not receive the payment after delivered them, it demanded the respondent to make the payment. The payment of RMB 614,605 that the respondent paid to the claimant in January 1999 testified that the respondent admitted its debtor position of this case and the statement of the respondent, that the modification in subjects of contract, delivery procedure and payment procedure according to the oral agreement reached between the two parties on November 22, 1999, was not in conformity with the fact.

(2) The claimant should not bear legal responsibility for the case as it did not breach the contract

According to 025 contract and 032 contract, the respondent should pay the claimant on November 21, 1997 and October 13, 1997, while the claimant should deliver the goods on November 28, 1997 and October 20, 1997. The failure of the respondent to pay within the prescribed time limit under the contract constituted fundamental breach. Pursuant to Article 17 of Law of The People's Republic of China on Economic Contracts involving Foreign Interest "When one of the parties has authentically evidence that the other party is not capable of performance, he can suspend his performance of the contract while he shall inform the other party at the same time.", the claimant suspended the performance of the contract, notified the respondent in time, and asked for its performance meanwhile. The respondent repeatedly expressed that it was a large state-owned company that surely had the capacity to make the payment and urged the immediate delivery, especially after the end user XX Electricity Factory reported an emergency to the claimant stating that the factory was at risk of out of operation without such goods from the claimant. Under this circumstance, the claimant delivered the goods. Thus the deferred delivery did not violate Chinese law and the claimant should not bear the legal responsibility.

The claimant did fail to deliver a group of bearing, since before the delivery, certain flaw was found in such bearing. The claimant consulted with the respondent that it would send such group of bearing later, while the respondent suggested decreasing the amount of goods. After the consultations of the claimant and the respondent, they had reached the agreement to decrease the amount of goods, which was proved by the fact that the respondent did not demur after accepted the goods, rather than the return of the goods as alleged by the respondent. Even if the claimant did breached the contract, the claim for compensation of the respondent acted against the stipulation in 025 contract and 032 contract that the valid claim term was 60 days since the goods arrived at the objective ports, which meant the respondent had lost the right to claim for compensation.

The respondent noted that the receipt, "we have received the payment of RMB 614,605 under No.97WEMEB-014 contract in the name of Jiangmen Company" issued by the claimant on January, 1999 testified the modification of the contract. The claimant considered that the receipt had no probative force, the content of which was complete according to the respondent's request and was irrelevant with this case, therefore could not be deemed as the evidence for this case.

(3)The two substantial issues for the case are as follows:

(a)The case was resulted from the respondent's action to evade law and taxation.

(b)The payment Jiangmen Company received in this trade was unjust benefit which should be returned as illegal income.

The respondent did make surplus payment, which was distributed to Jiangmen Company because it should fulfill its agent obligation to receive the goods and make the payment that it should charge agent fees rather than the payment. The respondent was aware of the unjust benefit of Jiangmen Company, which was testified by the respondent's action that it detained RMB 700,000 which should be paid to Jiangmen Company under No.97WEMEB-014 contract but paid to the claimant. However, the 025 and 032 contracts were not in the same legal relationship with No.97WEMEB-014 contract so that the respondent should return the payment under No.97WEMEB-014 contract to Jiangmen Company. With respect to the payment under 025 contract and 032 contract, the respondent should request Jiangmen Company to return the unjust benefit through legal procedure and should not require the claimant to return it.

In summary, the respondent should pay the owing payment of USD 9815.32 to the claimant, as well as the interests calculated to the day when the award was made for the deferred payment. The counter-claim of the respondent was inconsistent with the fact and had no legal basis, which should be overruled by the arbitral tribunal.

The supplementary statements of the respondent were as follows:

Objectively speaking, the facts stated in the certificate did exist and such certificate was stamped by the claimant's common seal, thus it possessed probative force, no matter what background under which such certificate was issued, or whatever the objective of the certificate was. The content of the certificate was about delivery procedure of the claimant and payment procedure of the respondent, which was further testified by the purchase and sale contract concluded by the respondent and Jiangmen Company. The legal relationship between the respondent and Jiangmen Company was sale relations, rather than agency relations.

The respondent held that the existence of the certificate actually engendered two legal consequences: one was that the right to receive the goods and the obligation to pay the goods of the respondent under 025 contract and 032 contract was transferred to Jiangmen Company; another was that the obligation of the respondent to make the payment, as stipulated in 97-025 contract and 97-032 contract concluded by the respondent and Jiangmen Company, to Jiangmen Company rather than the claimant, was engendered; the third is that the obligation of the claimant to deliver the good to the Hong Kong company and the right to get the payment from Jiangmen Company or the Hong Kong company were engendered. Therefore, the respondent no longer bore any obligation to pay anyone after carried out the obligation to pay the Jiangmen Company.

To say the least, even if the existence of the fact stated in the certificate still failed to constitute the modification of the original contract in legal form, the decision that Jiangmen Company was appointed by the claimant and the respondent together with a view of mutual benefit was made through the consultation between the respondent and the claimant, rather than unilateral commissioned by the respondent. Should Jiangmen Company be the assignee, then it should be the assignee of both parties. Under the precondition that their due respective responsibilities should be distinguished according to fault liability, the respondent had fulfilled the payment obligation completely and should not be blamed for the claimant not receiving payment, therefore should not bear the obligation to pay twice in fact and in law.

The subject matter, quantity, sum of money in the 97-025 contract and 97-032 contract concluded between the respondent and Jiangmen Company went all the way as that in 025 contract and 032 contract concluded between the claimant and the respondent, demonstrating the fact that the claimant and the respondent amended the contract. Moreover, these two contracts were concluded under the circumstance that the claimant clearly knew and fully agreed. After the conclusion of the contract between the respondent and Jiangmen Company, the respondent forwarded the copy of the contract to the claimant as one of the basis on which both parties performed the contract. At this point, the original foreign trade contract (025, 032contract) between the claimant and the respondent had been replaced by the domestic trade contract (97-025, 97-032contract) between the respondent and Jiangmen Company and the contract formed as a result of the transfer contract between Jiangmen Company and the claimant. Consequently, the right and obligation of the respondent under the original 025 contract and 032 contract concluded by the claimant and the respondent were transferred to Jiangmen Company. Therefore, the obligation of the respondent to pay the claimant no longer existed.

The claimant failed to request Jiangmen Company for the payment actively till now since it knew that Jiangmen Company failed to make the full payment, while the respondent had transferred the payment of RMB 614,605, under other contract of Jiangmen Company, to the claimant, who impropriated the payment for more than two years. Therefore, the direct responsibility for losses to both sides should be borne by the claimant alone and the respondent did not assume the responsibility to pay the same contract subject again.

The respondent neither knew nor was possible to know that how much payment the claimant received from Hong Kong Company or Jiangmen Company exactly till now, for from the very beginning, the claimant never cleared off payment directly to the respondent that all the overdue payment claimed by the claimant was put forward by the claimant unilaterally.

Moreover, the claimant alleged that the contractual claim term was 60 days since the goods arrived at the objective ports. The respondent deemed that such claim term was the agreement, reached between the two parties, on claim for compensation of preliminary inspection quality problems after the arrival of the goods. It undoubtedly could not constitute the restriction on the respondent's claim right to the claimant for its deferred delivery, batch delivery and less delivery that breached the contract.

The payment of RMB 614,605 detained by the respondent was the unjust benefit of the claimant, for which the respondent was totally justified to request for the return as well as the interests. The claimant admitted that such payment was for the goods under No.97WEMEB-014 contract in payment proof issued on January 5, 1999. The payment of the respondent was to counteract the debt Jiangmen Company owed to the claimant by repayment the debt to Jiangmen Company not relevant with this case. However, after the respondent was enforced to return the RMB 700,000 to Jiangmen Company by the court, the mutual offset relations of the debt no longer existed. The legal basis, according to which the respondent should pay the claimant did not exist any more, thus the alleged "collection right" by the claimant lost its legal basis either, and the claimant's action of detaining the payment constituted unjust benefit that should be returned to the respondent.

Hereby, the respondent requested the arbitration tribunal to overrule the arbitral requests of the claimant and supported the counter-claim brought forward by the respondent.

2.Award (1) The respondent shall pay USD 9,815.32 to the claimant as the payment for goods. (2) The respondent shall pay USD 9,947.44 to the claimant as the interest loss caused by breach of contract. (3) The other requests of the claimant and the counter-claims of the respondent shall be overruled. (4) The arbitration fees of the case shall be USD XX. The claimant shall bear 5% of the arbitration fees, i.e. USD XX. The respondent shall bear 95% of the arbitration fees, i.e. USD XX. This sum of money has been offset by the expenses prepaid by the claimant. Therefore, the respondent shall pay additionally USD XX to compensate the arbitration fee, USD XX, paid by the claimant in advance. The arbitration fees of the counter-claim shall be RMB XX, which shall be borne by the respondent alone, and was offset by the expenses RMB XX prepaid by the respondent.

The respondent shall compensate the retaining fee of RMB XX paid by the claimant for the case.

The respondent shall, within 45 days after the award is made, pay the aforesaid sum total amount of USD XX and RMB XX to the claimant. The overdue payment shall be calculated and paid at the annual interest rate of 6%.

3.Comment

The legal matters in relation to this case are mainly as follows.

(1) The applicable law for the case

The two parties of 025 contract and 032 contract did not stipulate the applicable law in the contract for the case. In the light of the repeatedly reference to the law of the People's Republic of China by the two parties in the written and oral statement during the trial for the case, the applicable law for this case should be the law of the People's Republic of China. As 025 contract was concluded on July 4, 1997 and 032 contract was concluded on September 11, 1997, Law of The People's Republic of China on Economic Contracts involving Foreign Interest, effective at that time, should be applied in this case. Considering that 025 contract and 032 contract were foreign economic contracts, Regulations of Mineral Products Purchase and Sale Contracts should not be applied here.

(2) The contracts as inquisition basis in this case

According to Article 3 of Arbitration Rules: The Arbitration Commission shall accept and hear a case according to the written application of one party and the arbitration agreement, reached before or after the dispute by indicating to submit the dispute to the arbitration commission by parties. Hereby, the arbitral tribunal only heard the contracts containing arbitration clause between the two parties. Therefore, the inquisition basis in this case could only be 025 contract and 032 contract, concluded by the claimant and the respondent, which contained the arbitration clause. The arbitration tribunal would not hear the No.97WEMEB-025, No.97WEMEB-032, No.97WEMEB-014 contract, submitted by the respondent, which concluded by the respondent and Jiangmen Company, because they were not the contracts which contained arbitration clause and concluded by the parties in this case.

(3) The disputes in the case

After examined the materials and heard submissions, the arbitration tribunal deemed that the focuses of disputes between the two parties are as follows:

(a)Can the "certificate" issued by the claimant in the name of its company on November 22, 1999 confirm whether the relevant right and obligation of delivery and payment, as well as related creditor's rights/debt relations in this case had been transferred? Does such certificate release the respondent's obligation to pay the claimant?

(b)Can it be confirmed that the payment of RMB 614,605.00 made by the respondent is not the payment of the respondent under the contract for this case according to the receipt issued by XXX of the claimant's Beijing Office to the respondent on January 5, 1999? Such issues will be analyzed in the following items (4) and (5) respectively.

(4) In respect of "certificate" issued by the claimant on November 22, 1999

The "certificate" read: "The agreed delivery procedure shall be that the Japanese company (i.e. the claimant) delivers the goods to Hong Kong XX Company (hereinafter referred to as Hong Kong company), which shall transfer the goods to Jiangmen XX company(hereinafter referred to as the Jiangmen Company), then Jiangmen Company transfers the goods to the XX Electricity Factory appointed by Beijing company (i.e. the respondent), which can be deemed as Beijing company (the respondent) has received the goods. And the agreed payment procedure shall be that: after receiving the goods, Jiangmen Company shall pay Hong Kong Company at once, which shall pay the Japanese company (the claimant), then the Japanese company shall notify Beijing company (the respondent) after receiving the payment. Beijing company (the respondent) thus shall pay the Jiangmen Company at once."

The respondent held that it's enough to testify that the contractual right and obligation, as well as related creditor's rights/debt has been transferred according to the quoted words and the actual operation of the facts.

It is universally acknowledged that during the performance of international goods trade contract, it is common for the parties of the contract to consign one or several third party to carry out certain specific affairs in the performance of the contract, such as receiving the goods and paying for the goods in this case. However, such one or several third parties just play the role of certain affair's agent, legal status of which is assignee. The relevant civil liabilities, contractual rights and obligations still lie in the parties of the contract as the consigner. The "certificate" issued by the claimant on November 22, 1999 just mentioned procedure issues, which were "delivery procedure" and "payment procedure", rather than the transfer of right and obligation of parties to the contracts in this case.

The respondent claimed that the contractual right and obligation of the parties have been transferred in this case. In accordance with General Principles of the Civil Law of the People's Republic of China and Law of The People's Republic of China on Economic Contracts involving Foreign Interest, effective at the time when the contracts were concluded and implemented for the case, the relevant parties should conclude written contract that defined the right, obligation and creditor's rights/debt relationship. The respondent just submitted No.97WEMEB-025 and No.97WEMEB-032 contracts concluded with Jiangmen Company, after reading which the arbitration tribunal found except for the sameness in the description of appellations, specification and quantity of the goods with the two contracts for the case, there was no provisions or words that can be explained as related with the two contracts of this case. Moreover, the claimant alleged that it simply did not know these two contracts, which although demurred by the respondent, neither the respondent nor the claimant offered any evidence. The arbitration tribunal holds that No.97WEMEB-025 and No.97WEMEB-032 contracts concluded by the respondent and Jiangmen Company are independent of the contracts in this case.

According to the "certificate" on November 22, 1999, Hong Kong XX Company was involved in as a third party. Except that the two contracts for the case included stipulation of Hong Kong XX Company, there was no other written agreement on the rights and obligations between the claimant, the respondent and Hong Kong XX Company. Since Hong Kong XX Company is the third party for the case, it is not involved in the relationship of right and obligation between the two parties in the case.

Hereby, the arbitration tribunal deemed that the "certificate", issued by the claimant on November 22, 1999, could not testify that the contractual creditor's rights/debts of this case have been transferred. In other words, the "certificate" on November 22, 1999 does not rescind the respondent's obligation to make the payment. Therefore, the claimant did not lose the right to claim for the payment from the respondent.

(5) As for the payment of RMB 614,605.00

The arbitration tribunal noticed that the receipt, issued by XX on January 5, 1999, indicated the words "received the payment of RMB 614,605.00 under No.97WEMEB-014 contract in the name of Jiangmen XX Company". It is acknowledged by the two parties that transaction involved in the alleged "No.97WEMEB-014 contract" was in no relation with the claimant, which was another transaction contract between the respondent and Jiangmen Company.

The arbitration tribunal also noticed that the respondent made such statement on RMB 614,605.00 in its "Application of the counter-claim (the statement of defense)" as "......in order to help the claimant, the Japanese company, to receive the payment (under the contracts in this case) from Jiangmen Company as soon as possible,.....detained the payment for goods RMB 700,000 when Beijing company (the respondent) paid (Jiangmen Company) on May 4, 1998. Hereafter the claimant, the Japanese company, still held that it did not receive the payment from Jiangmen Company. Under such circumstances, in answer to the requirement of the Beijing Office of the Japanese company to offset the payment that Jiangmen Company should pay the Japanese company, the respondent, Beijing company, remitted RMB 614,605.00 out of the payment RMB 700,000 under No.97WEMEB-014 contract, detained by the respondent that irrelevant with this case, to Shantou XX company as entrusted by the claimant, i.e. the Japanese company." Thus it could be seen that the original intention of the respondent to pay RMB 614,605.00 is to settle the payment issue under the two contracts for the case. Only for its own need, it requested the claimant to issue the receipt "in the name of Jiangmen Company".

The arbitration tribunal further noticed that in December 1999, Jiangmen Company instituted a proceeding against the respondent to the People's court of XX District XX City for such payment of RMB 700,000, to which the respondent stated as follows:"......Although Beijing company (the respondent) explained the fact and reasons that it paid the payment under No.97WEMEB-014 contract to the Japanese company to the court, after hearing the court held that the respondent should pay the balance of RMB 700,000 of No.97WEMEB-014 contract to Jiangmen Company and implement the respondent's RMB 700,000......".Thus it can be seen that the People's court of XX District XX city simply did not verify the statement of the respondent that the claimant "received the payment in the name of Jiangmen Company".

(In the quotation above, the respondent, as the counter-claimant, called itself the claimant and the claimant for the case as the respondent. To avoid confusion, all the appellations had been modified according to that of this case.--noted by the arbitration tribunal)

Hereby, the arbitration tribunal deems that RMB 614,605 aforesaid is part of the payment under 025 contract and 032 contract for this case, which was paid by the respondent to the claimant. Therefore, the counter-claim of the respondent asking for the return for such payment would not be supported.

(6) With respect to the issue of "paid the same goods twice"

The arbitration tribunal noticed that the respondent put forward the following statement and issues in its "Supplementary Statement" on May 24, 2001: "After receiving the notification that Jiangmen Company delivered the goods to XX Electricity Factory, Beijing company (the respondent) paid the payments stipulated in the 97-025 and 97-032 contracts to Jiangmen Company. Beijing company had fulfilled its obligation to pay completely, thus it should not bear the responsibility to pay the same goods twice...."

The arbitration tribunal had confirmed in the item 4 above that: the alleged 97-025 and 97-032 contracts concluded by the respondent and Jiangmen Company were not relevant with the two contracts in the case. The contractual rights and obligations between the parties had not been transferred. Therefore, whether the respondent paid Jiangmen Company and how much did it paid was just the issue between the respondent and Jiangmen Company, which was independent of this case. Concerning the issue "paid the same goods twice" alleged by the respondent, it was not within the scope of matters in this case. Even if it turned out to be the truth, the respondent should seek solutions through other legal means.

(7) In respect to the issue of damages the claimant should pay for the "deferred delivery"

The respondent deemed that during the performance of the two contracts for the case, the claimant breached the contracts in many aspects like non-delivery because of failing to submit the bill of lading to the respondent directly, by deferring the delivery of the goods, delivering the goods in batches. The respondent also alleged that the claimant delivered the goods under the circumstances that the buyer had not paid, so the claimant should bear the risk and the losses alone. While the claimant held that the failure of the respondent to pay within the time limit stipulated in the contract constituted fundamental breach of contract. Under the repeated assurance and requests of the respondent, the claimant delivered the goods. The deferred delivery of the claimant does not violate the Chinese law, thus the claimant should not bear the corresponding legal liabilities. The arbitration tribunal deemed that in accordance with the following facts:

(a)The failure of the respondent to make the payment before the delivery according to the contract constituted the earlier breach of contract. Therefore there was no issue of "deferred delivery" of the claimant.

(b) The claimant had actually delivered the goods, which were accepted and utilized by the users of the respondent.

(c)Both parties stipulated in the contract that the claimant should submit the bill of lading to Hong Kong XX Company.

Therefore, the respondent's claim that "the claimant breached the contract" could not stand.

(8) The arbitral requests of the claimant and the counter-claim of the respondent

According to the findings and the analysis of the facts in aforesaid items, the arbitration tribunal supported the claimant's request that the respondent should pay the owing payment under 025 contract and 032 contract. However, during the performance of the contract, the claimant actually delivered the goods later than the time stipulated in the contract due to the earlier breach of contract of the respondent that failed to make the payment. Therefore, the starting date of the three out of the four interest losses claimed by the claimant (USD 42,766.00, USD 37,491.51, and USD 9,815.32) should be calculated from the next day to the actual date of delivery, i.e. from December 17, 1997, rather than a week before the delivery date stipulated in the contract, which claimed by the claimant, i.e. from November 21, 1997. According to the interest rate at that time, the annual interest rate of 8%, claimed by the claimant, was reasonable. The total sum of the four interest losses is USD 9,947.44, so the respondent should pay the claimant interest loss of USD 9,947.44 caused by its breach of contract.

The counter-claim of the respondent that the claimant should return the payment of RMB 614,605.00 and interests of RMB 71,908.00 and compensate the direct economic loss of RMB 12,010 should be overruled. The counter-claim of the respondent that the claimant should bear the damages of USD 2,049.82 caused by deferred delivery should be overruled.

Awarded by CIETAC on 2001-10-19

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