Pharmaceutical Goods Dispute with Chinese Supplier…

Tribunal	CIETAC (China International Economic and Trade Arbitration Commission)
Date of Award	1997-08-18
Docket No.	CISG/1997/26
Parties	Chinese Seller (Respondent) v. Germany ( Buyer (Claimant)
Goods/Sector	Vitamin C
Key Issues	Fundamental breach; Damages; Foreseeability of damages; Cover transactions; Substitute goods; Mitigation of loss; Interest
CISG Articles	Art. 25, 26, 74, 75, 76, 77, 78, 31, 45(1), 49(1), 67(2)

Facts

On 26 July 1996, Claimant [Buyer] of Germany and Respondent [Seller] of the People's Republic of China concluded a contract for [Buyer] to purchase 30 tons of Vitamin C from [Seller]. The unit price was US $5.15 per kilogram CIF Hamburg; the total contract price was US $154,500. The shipping date was August 1996. The shipping harbor was Dalian harbor of the People's Republic of China, and the destination harbor was Hamburg, Germany. On 12 August and 20 August 1996, [Buyer] reminded [Seller] t...

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.

• 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. 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.