Australian Equipment Fails in China: Who Pays and How to Calculate Damages Under CISG

Tribunal	CIETAC (China International Economic and Trade Arbitration Commission)
Date of Award	2002-11-06
Docket No.	CISG/2002/25
Parties	Chinese Buyer (Claimant) v. Australia ( Seller (Respondent)
Goods/Sector	PVC pipe extrusion equipment
Key Issues	Fundamental breach; Avoidance; Damages; Foreseeability of damages; Interest
CISG Articles	Art. 25, 49, 74, 78

Facts

The China International Economic and Trade Arbitration Commission (hereafter, the "Arbitration Commission") accepted the case (Case number: M_____) according to: The Arbitration Rules of the Arbitration Commission that took effect on 1 October 2000 (hereafter, the Arbitration Rules) shall apply to this case.

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.

• 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.