The claimant in this case is a Chinese company making beverages and related food products in the field of biotechnology, while the respondent is a Vietnamese company that produces and sells food raw materials. In May 2018, the claimant entered into a sales contract with the respondent, which agreed to supply honey aloe vera fruit capsules in accordance with the sample standards confirmed in writing by both parties.

The parties had clearly agreed on the subject matter, price, quality, performance period, packaging and acceptance standards of the goods in the contract and its annexes, with a clause providing that all disputes arising from or connected to the contract be referred to the Shanghai International Arbitration Centre (SHIAC).It is worth noting that article 11 of the contract provides that if the seller does not reply within 15 days of the buyer’s objection on quality, it is deemed to have accepted all of the buyer’s complaints and requests for remedy.

After the contract was concluded, the claimant fulfilled its duty to pay for all the goods agreed on in two instalments. However, the fruit capsules did not meet the standards agreed on in the contract and the packaging was rusty. The claimant then sent a “receipt report” and an “inspection report” on the goods to the respondent via e-mail, in September 2018. The receipt report records details made on-site such as the quantity and packaging of the received goods.

During the on-site inspection, the claimant found the outer packaging and spray code of the goods supplied by the respondent did not meet the agreed standards of the contract. In addition, after the examination of goods, the inspection report recorded that the soluble solids, PH value, total acid and pulp content of the goods did not meet the agreed standards of the contract.

Since the respondent did not reply to the reports sent, the claimant followed up with a lawyer’s letter to the respondent in October 2018, explaining that the packaging and quality of the goods failed to conform with the contract, and making claims for compensation. Although the delivery record showed that the respondent had signed for the lawyer’s letter, the claimant did not receive any response. In view of this, the claimant filed an application for arbitration to the SHIAC, demanding the respondent refund the purchase price and compensate for the loss.

The tribunal’s view

The arbitral tribunal concluded the issues of the case as follows: Whether the goods delivered by the respondent were not of the quality required by the contract; whether the claimant’s quality objection and claims had legal and contractual basis; and how the claimant’s loss should be identified.

The tribunal first clarified the applicable law. Since both China and Vietnam have ratified the 1980 UN Convention on Contracts for the International Sale of Goods (CISG), the tribunal decided to apply it as the governing law of the case in accordance with the provisions of article 1 of the accord.

Considering that the goods were delivered to China and the claimant’s place of business was also in China, the arbitral tribunal determined that Chinese law, as the most closely connected law with the contract, should apply to matters that were out of the scope of the convention.

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Xu Zhihe is the deputy head of the Department of Research and Information, and Li Tingwei is a senior case manager at SHIAC

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