The High Tensile Steel Bar Case: CIETAC on Fundamental Breach and Damages

Tribunal	CIETAC (China International Economic and Trade Arbitration Commission)
Date of Award	1994-10-25
Docket No.	CISG/1994/13
Parties	Chinese Buyer (Claimant) v. U.S. Seller (Respondent)
Goods/Sector	High tensile steel bars
Key Issues	Fundamental breach; Avoidance; Damages; Foreseeability of damages; Profits, loss of
CISG Articles	Art. 25, 49, 74, 23, 76

Facts

High tensile steel bar case (25 October 1994) China's International Trade and Economic Arbitration Commission (hereafter, "the Arbitration Commission") accepts the present case according to the arbitration clause in Contract No. 930331 executed by Claimant XX Import and Export Company, China [Buyer], and Respondent XX Company, US [Seller], and the written arbitration application submitted by [Buyer] on 20 August 1993.

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.

• Were the claimed losses foreseeable at the time of contracting? Under CISG Art. 74, damages are limited to losses that the breaching party foresaw or ought to have foreseen as a possible consequence of the breach.

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

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.