Sellers beware of your contractual obligations

The claimant (a Chinese company) and the respondent (an English company) entered into a purchase order on 20 March 2018, agreeing that the claimant would purchase 42 tons of methyl methacrylate from the respondent for US$88,200 (21 tons of 86-88% purity and 21 tons of 96-98.5% purity). The parties also agreed in the purchase order that:

(1) the price was CIF Shanghai (the sum of cost, insurance and freight destined for a port in Shanghai);

(2) the cargo was shipped from India;

(3) the buyer paid 30% of the purchase price in advance and the remaining amount was paid upon seeing the bill of lading;

(4) the seller was insured at 110% of the invoice price; and

(5) the governing law was Chinese law.

After the purchase order was signed, the claimant made an advance payment of 30% of the purchase price (USD 26,460) on 27 March 2018. The respondent then ordered the shipper, an Indian company, to ship the goods by two shipments, and the claimant paid US$30,097 on 12 April 2018 and US$28,880 on 17 April 2018, after receiving the bill of lading.

However, the claimant did not receive the cargo with 96-98.5% purity. It was told by the shipper that the cargo had leaked during shipment to Shanghai, and was unloaded in Hong Kong. The claimant then requested compensation from the insurance company in accordance with the terms of the purchase order, but the insurance company refused to make any compensation as it found that the risk of leakage of the goods was not covered by the insurance policy.

Since the respondent declined to replace the goods, and the parties reached no subsequent agreement, the claimant filed a request for arbitration to Shanghai International Arbitration Centre (SHIAC), requesting the respondent to pay 110% of the value of the goods for its damages.

Shen Bin is the head of No.2 Case Management Department and Zou Rui is a senior case manager at Shanghai International Arbitration Centre