Case Of Contracts Dispute On International Sale of Goods

Preface: On behalf of Merigo Company S.P.A, Kevin attorney, senior partner of Shandong Win & Win Law Firm win this case in the courts of first instance and second instance. Client received all advance payment and compensation. From this case, we can see that the importance of evidences in litigation, such as contract, and emails, inspection etc. between seller and buyer.

Case Of Contracts Dispute On International Sale of Goods Between Appellant Liaocheng Weiye Steel Pipe Co., Ltd And Appellee Merigo Company S.P.A. And Plaintiff Zhongdian East China Import And Export Corporation

　 Date of submission: 2011-11-23 11:04:51

 Appellant (original defendant): Liaocheng Weiye Steel Pipe Co., Ltd. resides in Jiangguantun Town, Liaocheng Development Zone, Shandong Province, People’s Republic of China.
 Li Yuping: legal representative, chairman of the company.
 Appellee (original plaintiff) Merigo Company S.P.A., resides in Via Don MAESTRINI, FLERO (BS), Italy, 63/65 CAP 25020.
 Antonio Merigo Company: legal representative, the chairman of the company.
 Defendant at original trial, Zhongdian East China Import And Export Corporation, resides on the 4th floor, No. 2-10 Lancun Road, Pudong New Area, Shanghai, People’s Republic of China.
 Pan Xiangsheng: legal representative, general manager of the company.

Appellant Liaocheng Weiye Steel Pipe Co., Ltd. (hereinafter referred to as Liaocheng Weiye) refused to accept (2009)Liaocheng No.5 Civil Court First judgement of Liaocheng Intermediate People’s Court of Shandong Province on May 6, 2010 in the case of disputes over contracts for international sales of goods with the appellee Merigo Company S.P.A. (hereinafter referred to as Merigo Company) and the plaintiff defendant Zhongdian East China Import And Export Corporation (hereinafter referred to as Zhongdian East China). After the acceptance of the Court, a judicial tribunal was formed according to law, and the trial was held in public. Chen Xijun, the principal agent of the appellant Liaocheng Weiye. Liu Kai, the principal agent of the appellee Merigo Company. Wang Qun, the principal agent of Zhongdian East China Import And Export Corporation, plaintiff at first trial attended to the court. The case is now closed.

The court of first trial found out that Liaocheng Weiye was engaged in the wholesale and retail of seamless steel pipes and steels. In an email to Merigo Company on May 10, 2008, Liaocheng Weiye claimed to be the agent of CHENGDU SEAMLESS STEEL PIPES MANUFACTURER CO., LTD. After contacting by telephone and e-mail, Merigo Company signed a sales contract No. 20080520A(hereinafter referred to as the 20080520A contract) with Liaocheng Weiye on May 20, 2008. The contract of 20080520A stipulates that Liaocheng Weiye will supply the 16Mn seamless steel pipe originating in China to Merigo Company in accordance with the national standard of GB8163-1999. The steel pipe manufacturer shall be CHENGDU SEAMLESS STEEL PIPES MANUFACTURER CO., LTD. Merigo Company advocates that the manufacturer is Chengdu Seamless Steel Pipes Co., Ltd. and Liaocheng Weiye advocates that the manufacturer is Chengdu Seamless Steel Pipes Manufacturer Co., Ltd. In the original trial, Liaocheng Weiye said that after the contract of 20080520A was concluded, it was found that the seamless steel pipe manufacturer had not registered for Industry and commerce, according to principle of fair Credit, the company prepared the steel pipe originated in China with the national standard GB8163-1999. Merigo Company said that it signed the contract with Liaocheng Weiye because it clearly declared on its website that it was an agent of CHENGDU SEAMLESS STEEL PIPES MANUFACTURER CO., LTD, which is one of the drafting units of national standards for seamless steel pipes, a well-known enterprise producing steel pipes. Article 6 of the 20080520A contract stipulates in English that Merigo Company shall remit 20% advance payment (46 270.00 euros) within 7 days after signing the contract and receipt of the formal invoice. After receiving the fax copy of the commercial invoice, the balance of the payment shall be paid when preparing for shipment at the loading port. At the same time, it is stipulated in Chinese that “20% of the goods will be paid in advance, 80% of the balance will be paid in full, and all the goods will be sent to Qingdao Port after the payment is made to the seller’s designated account.” The contract of 20080520A also stipulates that the buyer has the right to appoint an independent inspection company (SGS) to carry out ultrasonic testing in accordance with SEP1921 at the seller’s warehouse or at the seller’s port of shipment at the buyer’s expense; the test results must be within C/C level.

Zhongdian East China, which is engaged in the business of import and export, has an agreement with Liaocheng Weiye. Zhongdian East China is the export agent of Liaocheng Weiye, responsible for customs declaration, export and other work. On May 20, 2008, Liaocheng Weiye issued a letter of authorization to Merigo Company, authorizing Zhongdian East China as the export agent of Liaocheng Weiye to handle the export formalities under the contract of 20080520A and collect foreign exchange on behalf of Liaocheng Weiye. On May 21, 2008, Zhongdian East China issued a formal invoice to Merigo Company and received a prepayment of (46208.74 euros) from Merigo Company on June 4, 2008. Merigo Company also pays a bank fee of (61.26 euros) for wire transfers. On June 6, 2008, Zhongdian East remitted the above advance payment (RMB 493934.46) to Weiye’s bank account in Liaocheng.

From August 6 to 12, 2008, SGS carried out ultrasonic inspection of steel pipes at Weiye Warehouse in Liaocheng. Inspectors Tan Jiekai and Lu Yinbo issued the inspection result sheet “subject to buyer’s evaluation” of steel pipe quality to Liaocheng Weiye. The inspection detailed that 97 steel pipes were over 3000mm in length, of which three were defective and did not meet SEP1921 class C/C standard, one had nine defects and the other two had one defect. The inspection result sheet also states that “this result sheet is not a clean report or inspection certificate and does not exempt the exporter from performance obligations”. On August 29,2008, Merigo Company informed Liaocheng Weiye that it was not satisfied with the SGS inspection results received. It asked Liaocheng Weiye to ship different types of steel pipes to Italy in a 20/22 ton container for Merigo Company to inspect the internal condition of steel pipes. At the same time, Merigo Company has doubts about whether the steel pipe is manufactured by the agreed manufacturer. It asks Liaocheng Weiye to provide the quality assurance of the goods manufacturer and clarify the situation of the steel pipe manufacturer. On September 1, 2008, Merigo Company informed Liaocheng Weiye that it had confirmed that the factory quality assurance certificate issued by Liaocheng Weiye was forged, and again requested the shipment of a 25-ton container to Italy for inspection. On September 3, 2008, Liaocheng Weiye stated to Merigo Company that it guaranteed that the products under the contract of 20080520A were produced by Chengdu according to the national standard stipulated in the contract, and had passed the SGS inspection. The factory quality assurance certificate was true and legal. Merigo Company should pay the balance of the goods before September 8, 2008. Thereafter, Merigo Company and Liaocheng Weiye could not reach an agreement on the conditions for inspection of steel pipes shipped to Italy, whether and when the balance of payment should be paid. On March 16, 2009, Merigo Company notified Liaocheng Weiye and Zhongdian East China to cancel the contract by lawyer’s letter, demanding that Liaocheng Weiye and Zhongdian East China return the advance payment and compensate for the loss.

It was also found that in 2002, Chengdu Seamless Steel Pipes Manufacturer Co, Ltd. was jointly reorganized with Chengdu Iron and Steel Works as Chengdu Iron and Steel Co., Ltd. of Panzhihua Iron and Steel Group.

The court of original trial held that the case was a dispute over contracts for the international sale of goods. The residence of Liaocheng Weiye was in Liaocheng, Shandong Province of the People’s Republic of China. The Intermediate People’s Court of Liaocheng, Shandong Province of the People’s Republic of China, had jurisdiction over the case according to law. Both parties agree to apply the Chinese Contract Law and related laws to the case. Therefore, Chinese law should be the applicable law in this case.

The contract of 20080520A signed by Merigo Company and Liaocheng Weiye was legally established. Liaocheng Weiye has recognized that the steel pipe manufacturer (CHENGDU SEAMLESS STEEL PIPES MANUFACTURER CO., Ltd.) stipulated in the contract of 20080520A does not exist, so Liaocheng Weiye cannot provide the steel pipe that meets the contract agreement, the contract of 20080520A cannot be fulfilled from the beginning, and the purpose of the contract cannot be realized. Merigo Company and Liaocheng Weiye also failed to reach agreement on the performance of contract changes. Therefore, Merigo Company’s request for rescission of the contract should be supported. The advance payment received by Liaocheng Weiye belongs to unjust enrichment and should be returned. Merigo Company paid an advance of 46 270 euros, but Liaocheng Weiye actually received 46208.74 euros, Liaocheng Weiye’s advance payment should be limited to 46208.74 euros. Regarding the loss caused by the failure of performance to Merigo Company, from the point of view of the reasons for the failure of performance, Liaocheng Weiye, as a seller, is a special steel pipe seller, who claims to be the agent of a non-existent manufacturer in the process of contracting with Merigo Company, and has not clearly informed the other party of the fact in the course of contract performance. Liaocheng Weiye has obvious fault and should bear the responsibility for the failure of performance and losses to Merigo Company. Interest on advance payment of 46,208.74 euros and bank charges of 61.26 euros belong to the loss of Merigo Company. Merigo Company claims that the loss of interest shall be calculated until July 20, 2009, when the suit is filed. Therefore, Liaocheng Weiye shall compensate for the interest on advance payment and bank charges of 61.26 euros from the date of receipt of the advance payment by Zhongdian East China on June 4, 2008 to July 20, 2009.

Zhongdian East China is only the export agent of the goods involved. Although it accepted the advance payment from Merigo Company, it has transferred this item to Liaocheng Weiye. Zhongdian East China has no breach of contract and should not bear civil liability. The Court of First Instance refused to support the request of Merigo Company for Zhongdian East China to bear civil liability.

In summary, according to Article 145 of the General Principles of the Civil Law of the People’s Republic of China, Article 32 of the Contract Law of the People’s Republic of China, Article 42 (2) and (3), Article 94 (4), Article 97 and Article 126 of the Civil Procedure Law of the People’s Republic of China, Article 24, Article 64, Paragraph 1 and Article 26 of the Civil Procedure Law of the People’s Republic of China, Article 120, paragraph 1, Article 128, Article 237, Article 249, Article 2 of the Provisions of the Supreme People’s Court on Evidence in Civil Procedure, after discussion and decision by the trial committee of the original trial court, the judgment was made as follows: 1. Release of the 2008 520A contract between Merigo Company and Liaocheng Weiye; 2. Return of Liaocheng Weiye to Merigo Company. The advance payment received is 46208.74 euros (converted into RMB according to the exchange rate of Euro and RMB on June 4, 2008). 3. The fee for Liaocheng Weiye to pay the advance payment to Merigo Company is 61.26 euros (46270 euros-46208.74 euros) (converted into RMB according to the exchange rate of Euro and RMB on June 4, 2008). 4. Liaocheng Weiye pays 46,208.74 euros to Merigo Company in accordance with the exchange rate of Euro and RMB on June 4, 2008. The exchange rate of Euro and RMB was converted into the interest rate of RMB (calculated from June 4, 2008 to July 20, 2009 according to the loan rate of the People’s Bank of China for the same period); 5. Rejected other lawsuit requests of Merigo Company. The fees for the first instance cases are 11641 yuan, 7939 yuan for Liaocheng Weiye and 3702 yuan for Merigo Company.

Appellant Liaocheng Weiye appealed that, first, the facts of the original judgment were not clear, and the contract of 20080520A was not unable to perform from the beginning. The steel pipe manufacturer agreed in the contract of 20080520A is Chengdu Seamless Steel Pipe Co., Ltd. After signing the contract, Liaocheng Weiye prepared the goods in accordance with the principle of principle of fair credit and with the consent of Merigo Company, on the premise of guaranteeing that the steel pipe originated in China and the product quality met the requirements of Merigo Company, because it found that the manufacturer had not registered for Industry and commerce. The consignment was appraised as substandard by Merigo Company except three steel pipes, the other steel pipes met the agreed quality standards. Liaocheng Weiye handled the relevant export formalities in time after the Merigo Company approved the inspection results, and made necessary and sufficient preparations for the implementation of the contract. Merigo Company can achieve its contractual objectives. Second, Liaocheng Weiye should not return advance payment, compensation fee and corresponding interest to Merigo Company. Merigo Company ‘s misrepresentation of the manufacturer led to the failure of Liaocheng Weiye to supply steel pipes as contracted; Liaocheng Weiye had ready goods, and in the case of Merigo Company’s failure to pay the remaining payment and delay in payment, Liaocheng Weiye could not deliver the goods, and Merigo Company should pay liquidated damages. Therefore, even if the contract is terminated, Liaocheng Weiye should not return the advance payment, compensation fees and interest. Third, the original trial judgment was incorrectly applied and the contract of 20080520A could not be terminated. Liaocheng Weiye has not provided quality assurance letter to Merigo Company, and Merigo Company has not asked Liaocheng Weiye to provide quality assurance letter. It is impossible for Liaocheng Weiye to forge quality assurance letter. This fact has been confirmed in the original trial. The goods provided by Liaocheng Weiye have been checked and accepted except for three unqualified ones after being entrusted by Merigo Company and inspected by its instructors. Now Merigo Company requests the termination of the contract, violating the principle of fair credit, which is extremely unfair to Liaocheng Weiye. If the contract is terminated, Liaocheng Weiye will inevitably suffer huge economic losses due to the decline in steel pipe prices, so the contract should continue to be fulfilled. To sum up, the court of second instance is requested to revoke the original judgment, the litigation fee in this case is borne by Merigo Company.

The appellee, Merigo Company, argued that the court should reject the appeal of Liaocheng Weiye for the following reasons: 1. The fact that Liaocheng Weiye could not provide brand steel pipes according to the agreement because of its own fault is the basic fact of the case. Liaocheng Weiye is a domestic wholesale and retail enterprise specializing in seamless steel pipe and steel products. In the process of contracting, it claims to be the agent of the contractual manufacturer. Therefore, it should be clear about the contractual manufacturer. After the signing of the contract, Liaocheng Weiye failed to supply the steel pipe of the manufacturer, which was obviously at fault. Merigo Company has never agreed to replace steel pipes of the contracted manufacturer with other fake steel pipes. The original judgment also held that the two parties had not reached an agreement on the modification and performance of the contract 20080520A. 2. The quality of fake steel pipes provided by Liaocheng Weiye is not up to standard. 1. The inspection results of SGS for steel pipe quality are as follows: “It must be evaluated by the buyer”. There are three defects in 97 steel pipes. Because the inspection result sheet is not a clean report or inspection certificate, Liaocheng Weiye is not exempted from the obligation to perform the contract. Therefore, this result sheet cannot prove that the quality of steel pipe meets the requirements of the contract. 2. Merigo Company did not approve the test results. From the quality problems detected by SGS, Merigo Company learned that Liaocheng Weiye did not provide branded steel pipes as contracted, so it asked Liaocheng Weiye to load a container of different types of steel pipes to Italy in order to test the internal situation of steel pipes. Third, the court of first instance ruled that the contract of 20080520A was terminated and the applicable law was correct. Liaocheng Weiye replaced the brand steel pipe agreed upon in the contract with fake steel pipe with serious defect in quality, which made the purpose of the contract impossible to achieve, and the contract of 20080520A should be terminated.

The original plaintiff Zhongdian East Company stated that the main body of the contract 20080520A is Liaocheng Weiye and Merigo Company, and Zhongdian East Company is not a party to the contract. According to the contract relationship, Zhongdian East Company is required to assume responsibility in accordance with the law. The first trial judgement confirmed that the facts were correct.
The facts of the case ascertained by the court are the same as those ascertained by the court of first instance.

The Court believes that this case is a contract dispute concerning the sale of foreign goods. All parties agree to apply the Chinese Contract Law and related laws. Therefore, the Chinese law should be applied to settle the disputes involved in this case.

The focus of the dispute of the parties in this case is three: First, whether the contract of 20080520A should be terminated; Second, if the contract of 20080520A is terminated, whether Liaocheng Weiye should return the advance payment, handling fee and interest of Merigo Company; Third, whether the law applied by the court of first instance is correct.

Regarding the first focal point, the contract of 20080520A clearly stipulates that the seamless steel pipe sold by Liaocheng Weiye to Merigo Company shall be produced by CHENGDU SEAMLESS STEEL PIPES MANUFACTURE CO., LTD. The manufacturer stipulated in the contract does not exist. Liaocheng Weiye cannot fulfill the contract after signing the contract, so the contract of 20080520A cannot be fulfilled. The goods prepared by Liaocheng Weiye are not in conformity with the agreed delivery target, and it has not provided evidence to prove that it has reached an agreement with Merigo Company on the performance of the contract. Therefore, the anticipated purpose of Merigo Company at the time of concluding the contract cannot be achieved, and the contract of 20080520A cannot be continued to perform, and should be terminated.

Regarding the second focal point, Liaocheng Weiye, as a seller of seamless steel tubes, should truthfully state its business capability in the process of contracting. During the contracting process, Liaocheng Weiye claimed to be CHENGDU SEAMLESS STEEL PIPES MANUFACTURE CO., an agent and seller of LTD, and Merigo Company signed a contract with him on the basis of the statement. However, the fact that the manufacturer does not exist leads to the failure of the purpose of the contract and the contract should be terminated. Liaocheng Weiye has a complete fault in rescission of the contract. It should bear the losses caused by rescission of the contract to Merigo Company and return the price paid by Merigo Company in fulfilling the contract.

As for the third focus, because the contract of 20080520A cannot be continued and the purpose of the contract cannot be realized, it should be cancelled according to the provisions of Article 94(4) of the Contract Law of the People’s Republic of China. Meanwhile, according to Article 97 of the Contract Law of the People’s Republic of China, Liaocheng Weiye should return the advance payment paid by Merigo Company and compensate Merigo Company. The court of first instance is correct in applying the law to the handling fees and corresponding interest of the company’s losses.

To sum up, the appellant’s appeal from Liaocheng Weiye has no factual and legal basis. The facts of the original judgment are clear and the applicable law is correct, which should be maintained. According to the provisions of paragraph 1 (1) of Article 153 of the Civil Procedure Law of the People’s Republic of China, the judgment is as follows:

Reject the appeal and uphold the original verdict.
The fee of accepting the second instance case is 11641 yuan, which is borne by Liaocheng Weiye Steel Pipe Co., Ltd.
This judgment is final.

Chief Justice： Fu Benchao
Acting Judge: Dong Bing
Acting Judge: Feng Yuhan