Agricultural Goods Dispute with China: How to Claim Damages When Quality Falls Short

Tribunal	CIETAC (China International Economic and Trade Arbitration Commission)
Date of Award	1996-01-30
Docket No.	CISG/1996/05
Parties	Chinese Buyer (Claimant) v. Australia ( Seller (Respondent)
Goods/Sector	Compound fertilizer
Key Issues	Intent; Fundamental breach; avoidance; Damages; Profits, loss of; Mitigation of loss; Exemptions or impediments
CISG Articles	Art. 8, 25, 26, 49(1), 51(2), 72, 74, 76, 77

Facts

Compound fertilizer case (30 January 1996) China's International Trade and Economic Arbitration Commission (hereafter, "the Arbitration Commission") accepts the present case according to the arbitration clause in Contract No. 94 ITTD 003 F signed by Claimant Xiamen XX Trust (Group) Stock Corporation [Buyer] and Respondent Australia XX International Ltd. [Seller] on 24 March 1994 and the written arbitration application submitted by [Buyer] on 25 October 1994.

Legal Issues

This case raised the following questions under the CISG:

• Did the breach constitute a "fundamental breach" under CISG Art. 25? The tribunal assessed whether the non-performance substantially deprived the injured party of its contractual expectations — the threshold for invoking avoidance remedies.

• How should damages be calculated? The tribunal considered the concrete method (Art. 75, based on cover transactions) and the abstract method (Art. 76, based on current market price) to determine the appropriate measure of compensation.

• Can the injured party recover lost profits? CISG Art. 74 expressly includes loss of profit in recoverable damages, subject to the foreseeability limitation.

• Did the injured party fulfill its duty to mitigate? Under CISG Art. 77, the injured party must take reasonable measures to reduce its losses. Failure to mitigate can reduce the damage award.

Practical Takeaways for International Businesses

1. Take active steps to mitigate immediately. CIETAC expects injured parties to act reasonably to reduce their losses under Art. 77. Inaction after a breach can significantly reduce your damage award.

2. Understand your CISG remedies. If both your country and China are CISG signatories, the CISG may automatically apply. Know your rights to avoidance, damages, and specific performance before a dispute arises.