Case M
On April 11, 2008, Sinochem International (Overseas) Pte. Ltd. (hereinafter “Sinochem International”) signed a procurement contract of petroleum coke with ThyssenKrupp Metallurgical Products Gmbh (hereinafter “ThyssenKrupp”), stipulating that the conclusion, jurisdiction, and interpretation of the contract should be under the effective laws of New York, USA at the time. Sinochem International paid the full payment under the contract, but the HGI index of the petroleum coke ThyssenKrupp delivered was only 32, inconsistent with the typical HGI index agreed in the contract of between 36 and 46. Sinochem International believed that ThyssenKrupp constituted a fundamental breach and requested a decree to terminate the contract, and required ThyssenKrupp to return the payment and compensate for the losses.
The Court of First Instance ruled that the procurement contract was invalid, and ThyssenKrupp should return all the payment from Sinochem International and pay the corresponding interest and compensate for the corresponding losses.
After ThyssenKrupp refused to accept the first instance judgment and appealed the case, the Supreme People’s Court revoked the judgment of the first instance rendering the procurement contract invalid, judged that ThyssenKrupp had not reached a fundamental breach and reduced the amount of compensation for goods damage and other losses.
Review
The validity of the procurement contract
This case is a dispute over the international goods sales contract, and both parties are foreign companies, and the case has foreign factors. The procurement contract was signed on April 11,2008, before the implementation of the Law of the People’s Republic of China on Choice of Law for Foreign-related Civil Relationships, and according to the article 145 of the General Principles of the Civil Law of the People’s Republic of China effective when the parties signed the procurement contract, the parties in this case agreed that the Contract’s conclusion, jurisdiction, and interpretation should be under the laws of New York, USA in force at the time, the agreement does not violate the provisions of law, and should be deemed valid.
Since Singapore and Germany, where the litigants to the case are operated, are the parties to the United Nations Convention on Contracts for the International Sale of Goods (CISG) and the United States is also the party to the CISG, and during the first instance, the parties unanimously chose the application of the CISG as the basis for determining their rights and obligations, and did not exclude the application of the CISG. It was correct for the Court of First Instance to apply the CISG to hear this case. Concerning the issues not stipulated in the CISG, the law of New York, USA chosen by the parties shall apply. The compilation of case law abstracts of the CISG is not a constituent part of the CISG, and it cannot be used as the legal basis for hearing this case. However, it can be used as an appropriate reference on how to accurately understand the relevant provisions of the CISG.
Whether there is a fundamental breach?
The typical value of petroleum coke HGI index agreed by both parties in the Procurement Contract is between 36 and 46, while the actual HGI index of petroleum coke delivered by ThyssenKrupp is 32, which is lower than the minimum value of HGI index agreed by both parties and does not conform to the Contract. The Court of First Instance is correct in finding that ThyssenKrupp constituted a breach.
Whether the above breach of ThyssenKrupp constitutes a fundamental breach? First of all, the parties had agreed on seven aspects of petroleum coke about chemical and physical characteristic specifications, including the moisture rate, sulfur content, gray content, volatile content, size, thermal value and hardness (HGI value) etc. From the facts, Sinochem International only believes that the HGI index of petroleum coke delivered by ThyssenKrupp does not conform to the Contract, while Sinochem International did not dispute the other six indicators. The instructions submitted by the scientific research institute of Sinochem International also do not deny that the petroleum coke with a HGI index of 32 can be used for limited purposes. Therefore, it can be determined that although the petroleum coke HGI index involved in the case is not consistent with the contract, the petroleum coke still has use value.
In order to reduce losses, Sinochem International made active efforts to resell the coke, and its letter to ThyssenKrupp clearly stated that the price of the coke was “not lower than the reasonable market price”. This fact shows that the petroleum coke involved could be sold at a reasonable price.
In combination with the fundamental breach provisions of the CISG, if the buyer can use goods or resell goods after reasonable efforts, or even offer some discounts, the quality inconsistency should not constitute a fundamental breach. Therefore, ThyssenKrupp’s delivery did not constitute a fundamental breach. In the international contract of the sale of goods, although the goods delivered by the seller are defective, as long as the buyer can make reasonable efforts to use or resell the goods, it shall not be deemed to constitute a fundamental breach under the CISG. Therefore, the corresponding liability for compensation and breach of contract borne by the defaulting party shall be determined in proportion according to the actual situation.
(Source: CCPIT / chinatradenews.com.cn)
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