Industrial Parts Dispute with Chinese Manufacturer…

Tribunal	CIETAC (China International Economic and Trade Arbitration Commission)
Date of Award	1999-03-30
Docket No.	CISG/1999/16
Parties	Chinese Seller (Respondent) v. United States ( Buyer (Claimant)
Goods/Sector	Flanges
Key Issues	Scope of Convention; Fraud; Usages and practices; Avoidance; Conformity of goods; Guarantees; Examination of goods; Lack of conformity notice, timeliness; Lack of conformity known to seller; Damages; Profits, loss of; Mitigation of loss
CISG Articles	Art. 4, 9, 29, 35, 36, 38, 39, 40, 49, 74, 77, 60, 80

Facts

China International Economic & Trade Arbitration Commission (previously CCPIT Foreign Trade Arbitration Commission, name later changed to CIETAC, hereafter referred to as the "Arbitration Commission") accepted this arbitration case in accordance with: - The arbitration clause in the sales contracts for flanges signed on 24 January 1987, 25 July 1988 and 20 October 1989 between Claimant, US ×× Valve Company {hereinafter referred to as "[Buyer]") and Respondent (in the very begi

Legal Issues

This case raised the following questions under the CISG:

• Was the injured party entitled to avoid the contract? Under CISG Art. 49/64, avoidance requires both a fundamental breach and proper notice under Art. 26. The tribunal examined whether these preconditions were met.

• 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.

• What role did trade usages play? Under CISG Art. 9, the tribunal considered applicable trade usages and established practices between the parties.

• Did the goods conform to the contract? The tribunal examined whether the delivered goods met the contractual specifications, quality standards, and fitness requirements under CISG Art. 35.

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.