Food Import Dispute with China: What Happens When Goods Fail to Meet Contract Specifications

Tribunal	CIETAC (China International Economic and Trade Arbitration Commission)
Date of Award	1993-10-26
Docket No.	CISG/1993/12
Parties	Chinese Seller (Respondent) v. United States ( Buyer (Claimant)
Goods/Sector	Frozen beef
Key Issues	Fundamental breach; Avoidance; Damages; Profits, loss of; Cover transactions; Interest
CISG Articles	Art. 25, 64, 74, 75, 76, 78, 81

Facts

China's International Trade and Economic Arbitration Commission, [hereafter, the Arbitration Commission] accepted the present case about a sales agreement for 200 tons of frozen beef according to: - The arbitration clause in Contract No. QFM92LS-01 signed by Claimant [Seller], Qingdao __ Import and Export Company, and Respondent [Buyer], American __ __ Company; and - The written arbitration application submitted by [Seller] on 18 November 1992.

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.

• 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.

• Is the injured party entitled to interest on sums in arrears? Under CISG Art. 78, a party who fails to pay the price or any other sum in arrears is liable for interest, without prejudice to any claim for damages.

Practical Takeaways for International Businesses

1. Define breach thresholds in your contract. CIETAC applies the Art. 25 "fundamental breach" test strictly. Explicit remedies and termination triggers reduce ambiguity and protect both parties.

2. Avoidance requires proper notice. Under CISG Art. 26, a declaration of avoidance must be communicated to the other party. Failing to give timely notice can forfeit your right to terminate, even if the breach is fundamental.