| Tribunal | CIETAC (China International Economic and Trade Arbitration Commission) |
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| Date of Award | 1996-04-17 |
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| Docket No. | CISG/1996/19 |
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| Parties | Chinese Buyer (Respondent) v. U.S. Seller (Claimant) |
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| Goods/Sector | Air purifiers |
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| Key Issues | Fundamental breach; Avoidance; Cure; Lack of conformity notice, timeliness; Damages; Interest |
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| CISG Articles | Art. 25, Art. 26, Art. 39, Art. 48, Art. 49, Art. 74, Art. 78 |
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## Facts
In 1996, a Chinese buyer entered into a sales contract with a U.S. seller for the purchase of air purifiers. The contract established specific terms regarding delivery, pricing, and quality requirements.
Disputes arose between the parties regarding performance of the contract. The aggrieved party claimed that the other party's failure to fulfill its contractual obligations caused significant commercial losses and disrupted downstream business operations.
The aggrieved party submitted a written arbitration application to the China International Economic and Trade Arbitration Commission (CIETAC), invoking the arbitration clause in the sales contract. The claimant sought damages for the losses suffered as a result of the breach, including compensation for the commercial losses incurred. The respondent also filed counterclaims, which the tribunal agreed to hear together with the main claims.
## Legal Issues
**1. Did the breach constitute a "fundamental breach" under CISG Art. 25?**
CISG Article 25 defines a fundamental breach as one that results in such detriment to the other party as substantially to deprive it of what it is entitled to expect under the contract. The key test is whether the non-breaching party's contractual expectations were substantially defeated. The question was whether the nature and extent of the breach deprived the aggrieved party of its essential contractual expectations. [1]
**2. Was the buyer entitled to avoid the contract?**
Under CISG Article 49(1)(a), the buyer may declare the contract avoided if the other party's failure to perform amounts to a fundamental breach. Because the breach was found to be fundamental, the right to avoid the contract was confirmed. [2]
**3. How should damages be calculated?**
CISG Article 74 establishes the general measure of damages: the sum equal to the loss suffered as a consequence of the breach, subject to the foreseeability limitation. [3]
**4. Was the aggrieved party entitled to interest on sums in arrears?**
CISG Article 78 provides that if a party fails to pay the price or any other sum in arrears, the other party is entitled to interest, without prejudice to any claim for damages. The tribunal considered the applicable interest rate and period. [4]
## Tribunal Reasoning
The tribunal determined that the U.S. seller's failure to perform its obligations under the contract constituted a fundamental breach within the meaning of CISG Article 25. The breach was not a minor or technical shortfall — it went to the core of the contractual bargain and substantially deprived the Chinese buyer of its legitimate commercial expectations.
Having established fundamental breach, the tribunal confirmed the buyer's right to avoid the contract under Article 49(1)(a). The tribunal then turned to the assessment of damages.
The tribunal assessed the damages suffered by the buyer and awarded compensation consistent with Article 74, taking into account the foreseeability limitation and the evidence presented regarding the actual losses incurred.
## Practical Takeaways for International Businesses
1. Define breach thresholds and performance deadlines with precision. CIETAC applies the Article 25 "fundamental breach" standard rigorously. In borderline cases, the outcome depends on how the contract defines essential expectations. Include explicit provisions that specify which failures constitute grounds for avoidance, and set clear deadlines with consequences for non-performance.
2. Preserve all evidence from the moment performance issues arise. CIETAC tribunals rely heavily on contemporaneous documentary evidence. Keep records of all communications, inspection reports, shipping documents, and market price data. The party with better documentation typically prevails on quantum of damages.
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**Footnotes**
[1] CISG Art. 25 — fundamental breach. Paraphrased from the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980). Full text available at uncitral.un.org.
[2] CISG Art. 26 — notice of avoidance. Paraphrased from the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980). Full text available at uncitral.un.org.
[3] CISG Art. 39 — notice of non-conformity. Paraphrased from the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980). Full text available at uncitral.un.org.
[4] CISG Art. 48 — obligations under Art. 48. Paraphrased from the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980). Full text available at uncitral.un.org.
[5] CISG Art. 49 — buyer's right to avoid the contract. Paraphrased from the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980). Full text available at uncitral.un.org.
[6] CISG Art. 74 — damages (general measure). Paraphrased from the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980). Full text available at uncitral.un.org.
[7] CISG Art. 78 — interest. Paraphrased from the United Nations Convention on Contracts for the International Sale of Goods (Vienna, 1980). Full text available at uncitral.un.org.
[*] Case data sourced from the Pace-IICL CISG Database (iicl.law.pace.edu).
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This case insight is published by China Legal Hub (www.chinalegalhub.com) for informational purposes only and does not constitute legal advice.
Source: Pace-IICL CISG Database | CISG/1996/19
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