Hot-Rolled Steel Coil Dispute with China: How Foreign…

Tribunal	CIETAC (China International Economic and Trade Arbitration Commission)
Date of Award	1999-12-31
Docket No.
Parties	Chinese Seller (Respondent) v. Switzerland ( Buyer (Claimant)
Goods/Sector	Hot rolled steel sheets in coil
Key Issues	Intent; Usages and practices; Letters of credit; Fundamental breach; Damages; Foreseeability of damages; Profits, loss of; Mitigation of loss; Interest
CISG Articles	Art. 8, 9, 25, 59, 74, 77, 78

Facts

Claimant [Seller] and Respondent [Buyer] entered into an international sales contract for prime hot rolled steel sheets in coil. Disputes arose between the parties. [Seller] claimed damages for loss of profit, loss for withdrawing the order, loss for other expenses and interest. The Arbitration Tribunal decided that, since the obligations of performance under the contract were never cancelled by agreement between the parties, [Buyer] should compensate [Seller] for the loss of profit, loss for...

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.

• 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.

• 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.

• 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. Document your losses from day one. CIETAC's ability to award appropriate damages depends on the quality of evidence. Maintain contemporaneous records of all communications, market prices, and cover transactions.

2. Foreseeability limits your recovery. Under CISG Art. 74, you can only recover losses that were foreseeable at the time of contracting. Make sure your contract clearly allocates risk for consequential damages.