Current Practice of the Chinese Court in the Use of the CISG and

Current Practice of the
Chinese Court in the Use
of the CISG and Main
Interpretative Trends
John Shijian Mo
Chair Professor and Dean of Faculty of Law, University of
April 2015
I. Overview
China does not have any formal case reporting system. It is
impossible to know officially how many CISG cases have
been tried in China since 1988 when China became a
member of CISG. Cases or case summaries can be found on
many governmental and commercial database.
The author has selected 98 cases randomly through several
websites of courts and commercial data providers. The case
samples cover a period between 1988 and 2014, both
Out of the 98 cases, 81 cases are reported with actual names
of the parties, and 17 cases are reported without disclosing
the true identities of the parties.
II Increasing use of the CISG
as a tendency
Cases determined between 1988 and 1999: 8
Cases determined between 2000 and 2010: 42
Cases determined between 2011 and 2014: 48
These cases are selected randomly, but the increasing
tendency to use the CISG by the parties and court to
resolve international sales dispute is clearly shown.
III. Geographical distribution of
Name of
cases and implications
of cases
IV. Distribution of foreign
parties and implications
Name of country
United States
Republic of Korea
Taiwan (China)
Hong Kong (China)
Number of
V. Identity of plaintiff and
In the 98 cases:
 Chinese parties act as plaintiffs in 50 cases,
including one defendant from Taiwan.
 Foreign parties act as plaintiffs in 48 cases,
including one case where a Chinese national
carrying on business in EU, but suing Chinese
defendants in his own name, and a case where a
Hong Kong seller is plaintiff.
These cases suggest that foreign parties consider
Chinese court is a viable forum to resolve their
disputes with Chinese parties.
VI. Statistics concerning trial
by default
There are 24 cases where default judgments are
Of them, 19 cases involve default by foreign
defendants and 5 cases involve default by Chinese
defendants. It is necessary to note that in one of the
cases involving default by foreign defendant, the
court actually finds in favor of the defendant by
dismissing the plaintiff’s claim for lack of evidence.
Most cases here are small claims under RMB 100,000.
But there are a couple of cases involving considerable
sum of money, such as several hundred thousands in
VII. Grounds for determining
the application of the CISG
Art 1 of the CISG states the grounds for the operation of the CISG
(1) This Convention applies to contracts of sale of goods between parties whose
places of business are in different States:
(a) when the States are Contracting States; or
(b) when the rules of private international law lead to the application of the law
of a Contracting State.
In the 20 cases, the courts apply the CISG directly on the ground that both
parties are from contracting states.
In 75 cases, the courts first refer to conflicts rules/private international law
rules of China, and then find the CISG applicable either because parties have
chosen the CISG or because parties are from CISG member countries. In such
cases, the courts often state that the CISG has not been excluded by the
There are 3 cases where the courts apply the CISG without explaining why.
In most of the cases, the courts state that for issues not regulated by the
CISG, the Chinese law should apply. But in one case, the National Supreme
Court of China at appeal states that the law of New York should be
supplementary law because parties have chosen this law.
VIII. Improvement on
reasoning of the judgment
China is mainly based on Civil law tradition. Under such
tradition, court judgments are generally brief without
In one early case, the court decides the case by referring
to the international convention (implicitly the CISG) and
commercial customs.
In 41 cases, the courts refer to provisions of the CISG
without actual or meaningful discussion of the provisions.
In the rest of the cases, the courts discuss the relevant
provisions and facts of the cases to varying extents before
delivering their judgments. Better reasoning is seen in
recent cases in comparison with early cases.
IX Analysis of representative case
Thyssen Krupp Metallurgical Products GmbH v Sinochem International(Overseas)
Pte Ltd, decided on 30 June 2014, National Supreme Court of China, (2013) Min Si
Zhong Final No 35 (Civil Division 4, Final. No 35)
Facts: Thyssen Krupp Metallurgical Products GmbH, a Germen company, is the
Appellant and Defendant at trial. Sinochem International(Overseas)Pte Ltd,
Singaporean company owned by Chinese, is the Respondent and Plaintiff at trial.
The Germen company sold to the Singaporean company 25000 tons of petroleum
coke in 2008. The parties agreed that the HGI index of the petroleum coke should
be between 36 to 46, but the HGI index of the product provided by the seller was
only at 32 in August 2008, when the product was examined at the port of departure.
Even though the LC expressly required the index to be between 36 to 46, the seller
still received most of the payment under the LC in Sept 2008, and in the same
month the buyer paid the full price. In Sept 2008 the product arrived at Nanjing,
and in Nov 2008 the index was found to be 32 by a Chinese inspection company.
Between Oct and Dec 2008 the domestic market price of the petroleum coke in
China dropped to less than half of the value of the product paid by the buyer. The
buyer eventually sold the product at about half of the purchase price.
The buyer claimed fundamental breach, but the seller defended that the product
was acceptable because buyer had accepted the goods and paid the full price.
Decision of the trial court:
The Jiangsu Provincial Supreme Court first observed that both parties
are from contracting states of the CISG. It stated that although the
contract of sale chosen the law of New York to be the governing law,
but both had accepted the application of the CISG at trial, and thus
the CISG applied. The court admitted partially the evidence given by
three foreign experts on the relationship between quality of petroleum
coke and HGI index, and found the product to be unusual low quality,
which made the product to be difficult to sell in China. Such difficulty
made the expected purpose of the buyer to be impossible to achieve,
and thus amounting to fundamental breach under art 25 of the CISG.
The court held that under art 40 of the CISG the seller is not allowed
to rely on the notice requirement under art 39, because it is
impossible for the seller not to know the low quality of the product but
failed to tell the buyer. In addition, the court held that the seller is
held liable under art 40 for fundamental breach. Further the court
found that the buyer gave notice of non-compliance to the seller one
month after the arrival of the goods. The court eventually ordered the
seller to return the price of the goods with interest and a sum of
compensation for the loss of the buyer, totaling more than US$ 3 m.
Decision of the appellant court:
Governing law: Both are foreign parties. Under the relevant
Chinese rules, they are allowed to choose governing law and in
the absence of choice, the law with the closest connection applies.
The parties have chosen the law of New York to be the governing
law and the choice should be held valid. They are all from
contracting states of the CISG and both accepted the application
of the CISG at trial. They have not excluded the CISG by
agreement and thus the CISG should apply.
Fundamental breach: (1) GHI index of the product did not comply
with the contract, but other indicators complied. Although the
product is inconsistent with contract requirement, it has some
market use. (2) the buyer has sold the product at a reasonable
market price. (3) according to judicial practices of other countries,
there is no fundamental breach under art 25 if the goods can be
used or resold without unreasonable difficulties. Based on these
reasons, the trial court is wrong to found the existence of
fundamental breach.
The seller was ordered to pay the difference in price with interest
and reasonable storage cost, totaling about US$ 1.7 m.
X. Concluding observations
Uncertainty in the application of the CISG:
In a number of cases, the judgments do not clearly indicate the place
of business of the parties, making it difficult to assess the ground on
which the court find the CISG applicable.
In one case, a US citizen purchases furniture in China when he is in
China. The court applies the CISG. Both place of the buyer and nature
of the contract (consumer sale?) become question.
In one case (2013), a Basic Court in Guangdong refers to 1987 NSC
Notice on the application of the CISG to determine US is a member of
the CISG, demonstrating a lack of uniform rule on determining
membership of the CISG, given that the notice was issued in 1987 more
than 20 years ago.
2. Application of foreign law: the Chinese court has applied foreign law
under Chinese private international law rules/conflicts rules to
supplement the CISG, eg, law of New York, and Russian law in default of
Russian party.
3. Application of the CISG at appeal:
there two cases where the court of appeal set aside the
decision of the trial court on applicable law and found
the CISG to be the law applicable.
In contrast, there is one case, where the appellant court
changes the decision of the trial court without referring
to the CISG, probably because it is arguable whether the
foreign party is a “foreign contracting party” for the
purpose of the CISG.
There is also one case, where the trial court did not
apply the CISG, and the appellant court apply the CISG
confirming the decision of the trial court.
4. Evidence of foreign law and other claims: burden of proof is
on the party claiming the application of foreign law or something
In one case, the court even looks into the evidence of CISG to
its satisfaction that the text of the CISG is reliable (referring
the text published by the Chinese Government).
In certain cases, the court refer to the information on
UNCITRAL website to establish membership of the CISG.
The evidence of foreign experts or other witnesses is
admissible on case by case basis. For example, the court may
find the evidence of foreign experts to be relevant to
determine the quality of goods concerned but irrelevant to
determine whether the goods confirm to the contract.
In one case where the Chinese Plaintiff failed for its failure to
prove the loss claimed even though the foreign party did not
appear at trial.
In one case the court holds that the Australian plaintiff
appointed a private inspection company to prove that the
quality of the goods do not confirm to international standards
applicable in Australia is not admitted for lack of contractual
agreement on such inspection.
5. Lenient interpretation of art 25 (fundamental breach):
In one case (2014), the NSC of China observes that according to
judicial practices of other countries, there is no fundamental breach if
the goods possess quality of some use or certain degree of
In another case (2013) a Basic Court in Hangzhou holds that the
existence of some defect in the goods does not necessarily constitute
fundamental breach under art 25 (the parties disagree on whether the
Chinese standards, ie, the seller’s standards, or international
standards, ie, the buyer’s standards, should apply).
In a case decided in 2007 by the Zhejiang Provincial Supreme Court,
the court holds that in the absence of express agreement on the
quality of the printed design in the product of plastic plates, there is
no fundamental breach under art 25 even though the printed design is
not of high quality.
In contrast, in a case decided in 2006 by a Shanghai Intermediate
Court, the court finds fundamental breach when the foreign seller
provides a wine which is different from the contract description.
6. Application of general legal principles and commercial
In one case decided by the First Intermediate Court of
Shanghai in 2011, the court decided in favor of the
Chinese plaintiff under art 7(2) of the CISG, which states
“(2) Questions concerning matters governed by this
Convention which are not expressly settled in it are to be
settled in conformity with the general principles on which
it is based or, in the absence of such principles, in
conformity with the law applicable by virtue of the rules
of private international law.” The case involves some
distribution arrangement and sales contract, and the
foreign seller’s decision to give exclusive right of
distribution to another Chinese company makes the sale of
remaining machines by the plaintiff impossible.
7. Competing foreign judgment:
In one case decided by an Intermediate Court in Jiangsu
Province in 2014, the court observes that the existence of
an Italian judgment in favor of the foreign defendant does
not affect the court’s decision in favor of the Chinese
plaintiff, because the said foreign judgment has not been
recognized and enforced in China.