Cases

Xiamen Intermediate People’s Court

Dec. 12, 1996

Sanzhong Japan
v.
Fujian Jiuzhou

Claim for shortage in weight
Of international contract of purchase-and-sale

Note: This is an edited English translation of one case from Selected Cases of People’s Court (No.38 of Volume 22), including a true introduction to the facts and trial.

Facts:

Plaintiff: Sanzhong Company, Ltd., Tokyo, Japan (“Sanzhong”)

Defendant: Fujian Jiuzhou (Group) Joint-stock Limited Company, Xiamen, Fujian, China (“Jiuzhou”)

On Mar. 31 and Sep. 6, 1994, Sanzhong (demander) and Jiuzhou (supplier) concluded 5 pieces of S/Cs No. JM9404, JM9405, JM9406, JM9407 and JM9408 of purchase-and-sale of frozen octopus whereby it was provided that:

quantity was respectively 4, 4, 1.5, 8 and 10 metric tons in different specifications, the exact quantity for every specification was allowed to be 8% more or less;

time of shipment was respectively July, Aug. 10, end of Sep., Dec. 15 of 1994 and June 15,1995;

loading ports were all Xiamen;

discharging ports were all Yokohama;

payment were all to be made by confirmed, irrevocable, transferable and divisible L/C at sight in favour of Jiuzhou applied by Sanzhong;

prices were all CNF Yokohama but with different unit price for different specification of cargo: US Dollars 3,900 and 4,300 per M/T for 4 grams-pieces; USD Dollars 3,000 per M/T for 2 grams-pieces; USD Dollars 3,700 per M/T for 3 grams-pieces; USD Dollars 4,200 per M/T for 2.5 and 3.2 grams-pieces;

quality, quantity and weight were to be subject to the testimonial issued by China Commodity Inspection Bureau (“CCIB”) or by the Seller Jiuzhou.

After the conclusion of the S/Cs, Sanzhong opened 5 pieces of L/Cs during the period from July 21 to Aug. 30, 1994. All cargo under the 5 pieces of S/C were all dispatched in the time of shipment, for which the inspection certificates were issued by CCIB Xiamen and the clean sea B/Ls were issued by carriers.

In Oct. 1994 and Apr. 1995, Sanzhong respectively received the cargo. But shortage in weight was found after reinvestigation according to the shortweight testimonial issed by two Japanese inspection agencies. From on Apr. 19, 1995 Sanzhong claimed against Jiuzhou for the losses of shortweight, but no agreement was concluded by both parties. Then Sanzhong filed an action in Kaiyuan District People’s Court, Xiamen and allege that (1) the total value of the cargo of shortage under the S/C No. JM9404, JM9405 and JM9407 amounted to US Dollars 44,199; (2) the bank charges for our opening and amendment amounted to US Dollars 2,233.60 due to Jiuzhou’s non-performance of the S/C No. JM9406 and JM9408; (3) our travel and communication expenses respectively amounted to US Dollars 11,342 and US Dollars 1,143.58. Sanzhong requested Jiuzhou to compensate for the above losses.

Jiuzhou defended itself and alleged that:

Because of the problems of funds and tax reimbursement, Jiuzhou, after obtaining the consent by Sanzhong, had respectively transferred 5 pieces of S/C as follows: S/C No. JM9404 (L/C No. 0174/400527) to Longtai Trade and Development Co., Xiamen(“Longtai”); S/C No. JM9405 (L/C No. 0174/400608), S/C No. JM9406 (L/C No. 030/61200111) and S/C No. JM9407 (L/C No. 219/510/19894) to Fujian Machinery and Equipment I&E Corp. Xiamen Company (“FME Xizmen”); and S/C No. JM9408 (L/C No. 030/61200112) to China Foreign Commercial Trade Company(“CFCTC”). Meantime the procedures for transferring L/Cs by endorsement were carried out. Jiuzhou had nothing to do with the shortage in weight because that the cargo under S/C No JM9404 was supplied by Longtai, the cargo under S/C No. JM 9405 and JM9407 were supplied by FME Xiamen. The liabilities for non-performance of the S/C No. JM9406 and JM9408 should be respectively undertaken by FME Xiamen and CFCTC but Jiuzhou. Thus, Jiuzhou requested to reject the claim by Sanzhong.

Trial:

Kaiyuan District People’s Court after hearing held:

The S/Cs concluded by both the plaintiff and defendant should be confirmed valid. Sanzhong was entitled to investigation after receipt of the cargo. Jiuzhou should be liable for the shortage in weight because (1) the transfer of S/Cs was null and void owing to that the consent to the transfer by Sanzhong was not obtained; and (2) Jiuzhou was the beneficiary of the L/Cs. The amount claimed by Sanzhong should be determined according the facts due to wrong calculation. Supported should not be the claim against Jiuzhou by Sanzhong for the losses of the bank charges for opening and amendment, travel and communication expenses because no evidences were supplied.

In accordance with the provisions of Paragraph 1 of Article 29, Article 31, and Article 32 of Economic Law of the People’s Republic of China, Kauyuan District People’s Court gave on July 22, 1996 a judgment as follows:

(1) Jiuzhou was to repay Sanzhong US Dollars 43,563.50 for shortage in weight and US Dollars 1,306.10 as liquidated damages within 10 days counting from the date on which the judgement took effect; and

(2) To be rejected was the claim by Sanzhong for bank charges for opening and amendment and travel and communication expenses.

The defendant Jiuzhou refused to accept the judgment, brought an appeal in Xiamen Intermediate People’s Court and alleged that:

Not only completely incorrect but also insufficient was the foundation on which the shortage in weight was confirmed in the first instance. There was no legal basis on which Sanzhong was held to be entitled to reinvestigation in the first instance according to the price terms agreed by both Sanzhong and Jiuzhou.

Sanzhong defended itself and alleged that the judgment in the first instance was correct. Sanzhong requested to reject the appeal by Jiuzhou.

Xiamen Intermediate People’s Court further found that:

The shortweight testimonial, issued by two Japanese inspection agencies and then supplied by Sanzhong, had neither been proved by the competent authority nor been authenticated by the embassy and consulate of the People’s Republic of China to Japan. Though Jiuzhou alleged that the S/Cs and L/Cs had been transferred, Jiuzhou still send notice to and kept contact with Sanzhong.

Xiamen Intermediate People’s Court held that:

The S/Cs concluded by appealer Jiuzhou and respondent Sanzhong accorded with the declaration of will of both parties, therefore they should be valid. Whereas the governing law was not chose by the both parties in the S/Cs, the laws of the People’s Republic of China should be applied according to the principle of proximate connection. In accordance with the ICC Incoterms 1980, Jiuzhou had supplied the cargo as per the price terms agreed by both parties and had rendered the inspection certificates issued by CCIB and clean sea B/Ls, thus Sanzhong should bear and Jiuzhou should not bear the risks of the cargo including the risk of shortage in weight from the time when they effectively passed the ship’s rail at the port of shipment. Incorrect was the application, by the court of original trial, of Economic Law of the People’s Republic of China.

In accordance with the provisions of Paragraph 1, Paragraph 3 of Article 5, Article 16 of Foreign Economic Law of PRC, Item (2) (3) of Paragraph 1 of Article 153 of Civil Procedure Law of PRC, and with reference to relevant international trade practice, Xiamen Intermediate People’s Court gave a judgment on Mar. 23,1998 as follows:

(1) The first-instance judgment was to be abrogated;
(2) The claims by Sanzhong were to be rejected.

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