China Metal Supply Contract Dispute: How Foreign Buyers Recover Losses Under International Sales Law

Tribunal	CIETAC (China International Economic and Trade Arbitration Commission)
Date of Award	1997-04-30
Docket No.	CISG/1997/10
Parties	Chinese Seller (Respondent) v. Switzerland ( Buyer (Claimant)
Goods/Sector	Molybdenum alloy
Key Issues	Avoidance; Fundamental breach; Damages; Cover transactions; Mitigation of loss; Interest
CISG Articles	Art. 60, 64, 74, 75, 77, 78

Facts

The China International Trade and Economic Arbitration Commission, Shanghai Commission [hereafter, Shanghai Commission] accepted this case on 23 January 1997 according to: - The arbitration clause in Sales Confirmation No. ZJC96-WF1001 signed by Claimant [Seller], Zhenjiang ___ Trading Company, and Respondent [Buyer], Swiss ___ Corporation, on 4 October 1996; and - The written arbitration application submitted by [Seller] to the Arbitration Commission. Because the subject matter is less than ...

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.

• 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.

• 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.