SSRN id3759108CISG

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The Interpretation and Application of the 'Sphere of application of CISG',

Formation and Modiﬁcation of CISG Contracts, and Fundamental Breach of
Obligations of CISG Parties and t...
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DOI: 10.2139/ssrn.3759108
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The Interpretation and Application of the “Sphere of application of CISG”,
Formation and Modification of CISG Contracts, and Fundamental Breach of
Obligations of CISG Parties and their Remedies: Some Evidence from China
Dessie Tilahun Ayalew
LL.B in law from the Jimma University of Ethiopia, LL.M in International Economic
Law from the University of South Africa, LL.D candidate in University of
International Business and Economics (UIBE), Beijing, China. I would like to thank
Associate Professor Liu Tong for his dedicated guidance and support in International
Sales law and Internationalization of Commercial transactions.
dessieanrsla95@gmail.com
Abstract
The United Nations Convention for International Sale of Goods (CISG) was
entered into force on 1 January 1988 and its impact in internationalizing
commercial law and business transactions is pivotal. The People‟s Republic of
China adopted CISG on 11 December 1986 almost after a decade of the entry into
force of CISG. More importantly, when the People‟s Republic of China adopted
its domestic contract law following the country‟s legal reform in 1999, its new
contract law is highly influenced by CISG. This paper after analyzing the judicial
and arbitral practice of three decades of the application of CISG in the People‟s
Republic of China concludes that the practice is also „CISG-friendly‟.
Key Words
CISG; Sphere of Application; CISG contract; Formation and modification;

Fundamental breach; the People‟s Republic of China.
1
Electronic copy available at: https://ssrn.com/abstract=3759108
Table of Contents
1. INTRODUCTION ................................................................................................................................ 3
2. The Sphere of Application of CISG and China .................................................................................... 4
2.1. Article 1(1) (a) of CISG: Direct Application ..................................................................................... 5
2.2. Article 1(1) (b) of CISG: Indirect Application during a choice of law clause .............................. 5
2.3. Exclusion of CISG Application under Article 6: party autonomy ................................................ 8
2.4. CISG‟s Application Between mainland China and Special Administrative Regions (SARs): The
case of Hong Kong, Macau, and Taiwan .................................................................................................. 8
2.5. Chinese Courts and Arbitral Tribunals practice on CISG‟s Sphere of Application: Some
Discussions ............................................................................................................................................. 10
2.5.1. Chinese Courts Attitude and Practice on the Sphere of Application of CISG: Some
Evidence.............................................................................................................................................. 10
2.5.2. Chinese Arbitral Tribunals Practice on the Sphere of Application of CISG: Some
Evidence.............................................................................................................................................. 12
2.6. Lessons from Chinese Courts and Arbitration Tribunals as to the Sphere of Application of
CISG… ................................................................................................................................................... 13
3. Formation and Modification of CISG contracts ................................................................................. 14
3.1. Formation and validity of CISG contracts ....................................................................................... 16
3.2. Modification of CISG contracts .................................................................................................. 17
4. Fundamental Breach of Obligations of CISG parties and their Remedies .......................................... 18
4.1. Seller‟s obligation as to quality: Article 35 of CISG .................................................................. 19
4.1.1. The Mussels Case as CISG‟s Best jurisprudence: Article 35 and Article 7 of CISG .......... 20
4.1.2. Xi‟an Yun Chang Trade Ltd. v. An Tai International (USA)............................................... 21
4.2. Buyer‟s Obligation of Examining the Goods and Give Notice for Lack of Conformity: Articles
38-40 & Articles 43-44 ........................................................................................................................... 23
4.3. Buyer‟s Obligation of Examining the Goods and Give Notice for Lack of Conformity: Articles
38-40 & Articles 43-44 ........................................................................................................................... 25
4.3.1. The “breach” element of Article 25 of CISG ...................................................................... 26
4.3.2. The “fundamental” element of Article 25 of CISG ............................................................ 26
4.4. Remedies for CISG‟s Contractual Breach .................................................................................. 27
4.4.1. Specific performance and CISG ......................................................................................... 27
5. Concluding Remarks ........................................................................................................................... 29
2
1. INTRODUCTION
The United Nations Convention on Contracts for the International Sale of Goods (hereinafter
called “CISG”) is one important foundation for one branch of private international law that
highly influenced “the domestically dominated system of contract law” and successfully tried
unification and internationalization of trade law.1 CISG is the first successful multilateral treaty
dealing with the international sale of goods and is significant for the harmonization of
international commercial law that entered into force on 1 January 1988.2 The People‟s Republic
of China (PRC or China) approved CISG on 11 December 1986 with two declarations under
Article 95 and Article 96 and CISG came into force in China as of 1 January 1988.3 The drafting
process as well as the promulgation of the new Chinese Contract Law of 19994 was also
influenced and shaped by CISG. Therefore, the Chinese Contract Law in essence “shares the
core spirit embodied in the CISG” in the interpretation of contracts.5
The creation of uniform law for the international sale of Goods by CISG and the mere adoption
or ratification of CISG by different states on its own is not enough to guarantee the CISG‟s
uniform application. Thus, one of the warranties of the uniform application lies in the practical
application of CISG before the courts and or arbitral institutions of member states. Besides, a
clear understanding of CISG is crucial for the interpretation and application of the uniform law
of international sale of goods. Therefore this paper tried to see the interpretation and application
of CISG by taking China as evidence. In doing so, the paper is composed of three main parts.
The first part focuses on the sphere of application of CISG and China. The second part of the
paper focuses on issues related to the formation and modification of CISG contracts in China.
The third part of this paper focuses on the fundamental breach of obligations of CISG parties and
their remedies in china as evidence. The relevant practice of China‟s courts and arbitration
1
Bruno Zeller, CISG and the Unification of International Trade Law, Routledge.Cavendish, 2007 at 3-4.
2
John Felemegas, An International Approach to the Interpretation of the United Nations Convention on Contracts
for the International Sale of Goods (1980) as Uniform Sales Law, Cambridge University Press, 2007 at 3.
3
Weidi Long, “The Reach of the CISG in China: Declarations and Applicability to Hong Kong and Macao”, Social
Sciences Research Network, 2010 at 84. Electronic copy available at: http://ssrn.com/abstract=1956356 .
4
Contract Law of the PRC 1999, adopted at the Second Session of the Ninth National People‟s Congress on March
15, 1999 and promulgated by Order No. 15 of the President of the People‟s Republic of China on March 15, 1999
(here in after called “The Contract Law of China”).
5
Bruno Zeller, Damages under the Convention on Contracts for the International Sale of Goods, Oceana
Publications, Inc., 2005 at 12.
3
tribunals on each major issue is presented to see the attitude of the institutions as well as the
practical application of CISG in China. The paper ends up with precise concluding remarks and
some observations.
2. The Sphere of Application of CISG and China
What are the approaches of China‟s courts and arbitration tribunals towards the application of
CISG to international commercial disputes? The response for such type of issues depends on the
interpretation and application of Articles on general provisions of CISG, Articles 1-6 of CISG.
Besides, for the right judgment on the application of CISG, the presence of declaration as to the
exclusion of the application of CISG according to Article 95 of the CISG has to be considered.
The autonomy of the parties to exclude the application of CISG according to Article 6 of CISG
has paramount importance.
The first concrete element for the application of CISG in China is the fact that CISG is part of
the law of China since 1 January 1988 upon ratification. During the ratification of CISG, China
entered reservations for Articles 95 and 96 of the CISG Convention. But the PRC governments
withdraw its Article 96 reservation to Article 11 of CISG in 2013. Thus the interpretation and
application of the reservation of CISG in the context of China are to mean the reservation on
Article 95 of the CISG. On the other hand, the sphere of application CISG is to mean the
territorial application of CISG in China. Article 95 of CISG provides:
“Any state may declare at the time of the deposit of its instrument of ratification, acceptance, and
approval or accession that it will not be bound by subparagraph (1) (b) of Article 1 of [the CISG]
convention.”
This reservation provision of CISG directly leads us to see Article 1 of the CISG Convention and
will focus on what is the meaning of the above exclusion according to Article 1(1) (b) of the
CISG Convention and its conformity to Article 142 of the General Principles of Civil Law
(GPCL) of the PRC.6
6
General Principles of Civil Law (GPCL) of the People‟s Republic of China adopted on April 12, 1986, at the
Fourth Session of the Sixth National People‟s Congress that take effect on January 1, 1987.
4
2.1. Article 1(1) (a) of CISG: Direct Application
From the two ways of the territorial application of CISG, the first one is the direct application of
CISG that where the contracts of sale are entered into between parties whose places of business
are in different contracting states. Article 1(1) (a) of the CISG Convention reads:
(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.
Therefore, unless and otherwise the application of CISG is excluded by the free choice or
autonomy of the parties, CISG applies to the international sale of goods in which one of the
places of business is in China in most of the cases and some cases the place of business for both
of the parties might be outside China.7 This sphere of application is otherwise known as the
“autonomous applicability” of CISG without the need to resort to the rules of private
international law by the contracting parties‟ mutual agreement upon its application.8
2.2. Article 1(1) (b) of CISG: Indirect Application during a choice of law clause
The indirect application of CISG under Article 1(1) (b) presupposes at least two pre-conditions.
The first one is unable to fulfill the precondition set under Article 1(1) (a) of the CISG that the
parties do not have their place of business in different contracting states and the other is when the
conflict of laws rules lead to the application of the law of contracting parties. Article 1(1) (b) of
the CISG Convention reads:
(1). This convention applies to contracts of sale of goods between parties;
(b). when the rules of private international law lead to the application of the law of a
contracting state.
The motive of Article 1(1) (b) of the CISG Convention seems to widen the sphere of application
of CISG. But the applicability of Article 1(1) (b) is excluded from applicability in China owing
to the declaration on reservation made against Article 95 of the CISG Convention. In other
7
Xiao Yongping and Long Weidi, “Selected Topics on the Application of the CISG in China” 20 Pace Int‟l L. Rev.
61 (2008) at 65, available at: http://digitalcommons.pace.edu/pilr/vol20/iss1/4 .
8
UNCITRAL, Digest of Case Law on the United Nations Conventions on Contracts for the International Sale of
Goods, 2016 at 5.
5
words, Article 1(1) (b) of the CISG Convention has no binding effect in China. Two important
concerns are here worth discussion. The first is what are the expected justifications for the
reservation? The second issue is the interpretation of the reservation of Article 95 of the CISG
convention in conformity with Article 142 of GPCL of the People‟s Republic of China.
Xiao Yongping and Long Weidi pointed out some justifications for the reservation of China
against Article 95 of the CISG Convention. The first justification mentioned by these two
authors is “…to protect the immature of the domestic market and to buffer the impact of the
rapid reform and opening up that China‟s issuance of separate legislations in 1985 that
specifically govern foreign business.”9 The second justification mentioned by the same authors is
“[C]hina‟s reservation may have also been influenced by the fact that the United States had made
its own Article 95 reservation to protect U.S. traders from being deprived of the use of their
familiar domestic law without the countervailing gain of supplanting the foreign law trading
partners in non-contracting states.”10 Though there are some other counter-arguments submitted
by other commentators, in effect the reservation against Article 95 of the CISG Convention
excludes the applicability of Article 1(1) (b) of the CISG Convention. Besides, at face value at
least reservations aimed at protecting national interests, Xiao Yongping and Long Weidi still
proposed their concerns to justify a need for withdrawal from the reservation. They submitted
four reasons for concerns and need for withdrawal:11 First, being replacing (moving) from a
piece of contract law legislation to an international convention of CISG is owing to the rapid
economic development of China since its opening up in the 1980s, the reservation‟s intent to
protect traders in China through domestic legislation had little effect due to the very similarity
between the Chinese contract law and CISG other than in effect undermining the extended
application of CISG. Second, where the law of a contracting state other than China is referred to
by conflict rules, withdrawal of the reservation will enable the application of CISG, which would
not only relieve Chinese Courts from proof of foreign laws but would also protect Chinese
parties from foreign laws with a body of neutral international law. Third, with 84 states having
adopted the CISG12 including most major trading partners, the effect of the reservation has been
9
Xiao Yongping and Long Weidi supra note 7 above at 66.
10
Id at 66-67.
11
Id at 67-68.
12
See UNCITRAL Status 1980- United Nations Convention on Contracts for the International Sale of Goods,
http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980_status.html . Accessed on 2 January, 2020.
6
and will continue to be minimal in any effect. Fourth, withdrawal of the reservations will not
only eliminate confusion as to the effect of the reservation but will also contribute to uniformity
in the outcome of trade disputes by retaining the indirect application of the CISG.13
Concerning China‟s reservation of some of the Articles of the CISG, in addition to the above
recommendations, the practice by China itself that withdraw its reservation against Article 96 of
CISG in 2013 is encouraging. Besides, CISG Advisory Council tried to clarify the conceptions,
practice, and the way forward on reservations on Articles 95 and 96 of CISG and encourages
withdrawal of the reservations.14 Academics' criticisms and encouragement to withdraw the
reservation of Article 95 of CISG is still sustained.15 Therefore, China is now continuing of
becoming a global economy. Taking the advice that enables China to be a global leader will be
important in areas of fulfilling international commitments even in areas of international
commercial regime.
The second issue concerning Article 1(1) (b) of CISG is how the interpretation would look like
for its compatibility with Article 142 of GPCL of China. In China, the application of CISG is
regulated by Article 142 of GPCL that provides the general rules on the application of
international treaties that reads:
“If any international treaty concluded or acceded to by the PRC contains provisions
differing from those in the civil laws of PRC, the provisions of the former shall apply
unless the PRC has announced reservations to these provisions.”
What is the direct intent of the above legal provision when we read in conjunction with the
Chinese government reservation on Article 95 of CISG and the non-binding effect of Article 1(1)
(b) of CISG? The provision of Article 142 of GPCL seems clear that unless and otherwise there
is a reservation on an international treaty, in times of inconsistency the provision of an
international treaty will take primacy over Chinese municipal laws. What if there is a reservation
like Article 95 of CISG? In other words, does it possible to apply CISG indirectly territorially in
13
Xiao Yongping and Long Weidi supra note 7 above at 68.
14
CISG-AC Opinion No. 15, Reservations under Articles 95 and 96 CISG, Rapporteur: Professor Doctor Ulrich G.
Schroeter, University of Mannheim, Germany. Adopted by the CISG Advisory Council following its 18th meeting,
in Beijing, China on 21 and 22 October 2013. Accessed on 2 January, 2020.
15
Among others see, Pan Zhen, “China‟s Withdrawal of Article 96 of the CISG: A Roadmap for the United States
and China to Re-consider Withdrawing to Article 95 Reservation” 25 U. Miami Bus. L. Rev. 141(2016). Available
at http://repository.law.miami.edu/umblr/vol25/iss1/6 .
7
China or it warrants the exclusion of CISG from the application? The response is not in the
affirmative. But the court practice in this regard seems different. Some lower courts in China
sometimes interpret Article 142 of GPCL in the application of CISG as “CISG applies only when
its provisions conflict with the Chinese law.”16 Rather the application of Article 142 of GPCL is
in the sense that CISG prevails over the domestic Chinese law unless the subject matter does not
fall within the scope of CISG.
2.3. Exclusion of CISG Application under Article 6: party autonomy

The other critical point that has to be considered in the discussion of the sphere of the application
of CISG is the exclusion of CISG from the application. What does it mean? The exclusion of
CISG from the application is governed by Article 6 of CISG. Article 6 of CISG reads:
“The parties may exclude the application of [the CISG] convention or, subject to
article12, derogate from or vary the effect of any of its provisions.”
This exclusion of CISG provision is can be said to be the extension of parties‟ autonomy in the
law of contract. In the objective theory of contract, the maxim “contract is a consensual
endeavor”, “contract is a meeting of minds”, “contract is a meeting of intent”.17 Therefore,
parties to a contract of international sale of goods are free to opt-out or exclude the application of
CISG expressly. Exclusion in this regard should be express exclusion otherwise it is impossible
to exclude the application of CISG impliedly.
2.4. CISG’s Application Between mainland China and Special Administrative Regions
(SARs): The case of Hong Kong, Macau, and Taiwan
It is already said that China adopted CISG on 1 January 1988. What is the effect of the adoption
of CISG by mainland China to its SARs including Taiwan? Is the CISG automatically applied as
the SARs are regarded as part of China? What are the basic facts about SARs that will help in
deciding whether CISG applies to SARs or not? Here below are the significant basic facts as
premises.
16
Xiao Yongping and Long Weidi supra note 7 at 71.
17
Wayne Barnes, “The Objective Theory of Contracts”, 76 U. Cin. L. Rev. 1119 (2008) at 1129, available at
https://scholarship.law.tamu.edu/facscholar/302 .
8
Hong Kong was returned to China on 1 July 1997 and Macau followed on 20 December 1999.18
Thus during the adoption of the CISG by China in 1988, the present SARs were not existent in
the meaning Article of 93 OF CISG. Thus is there any conduct of declaration by China after the
SARs are part of China? On June 20, 1997, the Permanent Representatives of the PRC to the
Secretary-General of the UN sent a note regarding multi-lateral treaties applicable to Hong Kong
SARs but the note did not expressly list CISG.19 But for multi-lateral treaties that were not
expressly listed under the note, the note includes the following paragraph about Hong Kong:20
“[Concerning] any other treaty not listed in the annexes to this note, to which the People‟s
Republic of China is or will be a party if it is decided to apply such treaty to the Hong Kong
Special Administrative Region, the Government of the People‟s Republic of China will carry out
separately the formalities for such application. For the avoidance of doubt, no special formalities
will need to be carried out by the Government of the People‟s Republic of China [concerning]
treaties which will fall within the category of foreign affairs or defense which, owing to their
nature and provisions, must apply to the entire territory of a state.”
Thus the status of Hong Kong SARs as the application of CISG with the above premises should
be read in line with Article 93 of CISG. Article 93 of CISG reads:
(1). If a contracting state has two or more territorial units in which, according to its constitution,
different systems of law are applicable concerning the matters dealt with this convention, it may,
at the time of signature, ratification, acceptance, approval, or accession, declare that this
convention is to extend to all its territorial units or only to one or more of them, and may amend
its declaration by submitting another declaration at any time.
(2). These declarations are to be notified to the depositary and are to state expressly the
territorial units to which the Convention extends.
(3). If under a declaration under this article, this convention extends to one or more but not all of
the territorial units of a contracting state, and if the place of business of a party is located in the
state, this place of business, to the purpose of this convention, is considered not to be in a
contracting state, unless it is in a territorial unit to which the Convention extends.
18
Weidi Long Supra note 3 above at 100.
19
Id at 111.
20
Id at 111-112.
9
(4). If a contracting state makes no declaration under paragraph (1) of this article, the
convention is to extend to all territorial units of that state.
Therefore, it is possible to conclude that the application of CISG to Hong Kong SARs should be
interpreted in line with Article 93(2) of the CISG Convention. The same situation works for
Macau that the Permanent Representative of PRC‟s in the UN General Secretary sent a similar
note as to the treaty obligations of Macau that CISG is also applicable in Macau according to
Article 93(2) of the CISG Convention. Though the case of Taiwan has somehow seemed a
different scenario, we will see and discuss precisely the Chinese judicial as well as the trends of
arbitral tribunals.
2.5. Chinese Courts and Arbitral Tribunals practice on CISG’s Sphere of Application:
Some Discussions
2.5.1. Chinese Courts Attitude and Practice on the Sphere of Application of CISG: Some
Evidence
A. Beijing Nuosi Trading Co., Ltd v. GINO Co., Ltd21

This is a case between a Chinese company of Beijing Nuosi Trading and the Japanese company
of GINO before the Beijing High Court of China. In this case, among other issues, the
applicability of CISG was at issue. The Beijing High Court while denying the applicability of
CISG according to Article 1(1) (a) of CISG reasoned out that “…the application of CISG was
denied because Japan was not a member state of CISG when the contract was concluded between
the two companies.”22 In this final decision, “… the court seems to have considered the time of
conclusion of the contract as a decisive point of time to determine whether parties are from
different member states.”23
B. Canada Watersports Co., Ltd v. Donghui Plastics Co., Ltd24

This is a case between a Canadian company of Watersports Co., Ltd and a Chinese (Shanghai)
company of Donghui Plastics Co., Ltd before the Shanghai High Court of China. In this case,
among other issues, the applicability of CISG was at issue. The Shanghai High Court while
21
Beijing Nuosi Trading Co., Ltd v. GINO Co., Ltd, Beijing High Court (Final Appeal), Gaominzhong No. 1851
(2011). The case is retrieved from Sophia Juan Yang, “Application of CISG in PRC Court Practice: Tips and Pitfalls
at 2, available at https://www.nysba.org/workarea/DownloadAsset.aspx?id=52712 .
22
Ibid.
23
Ibid.
24
Canada Watersports Co., Ltd v. Doughui Plastics Co., Ltd, Shanghai High Court (Final Appeal), Hugaominsi
(Shang) Zhong No.6, 2007, at 2 as cited by Sophia Juan Yang supra note 21 above.
10
excluding the CISG applicability according to Article 6 of the CISG argued that “… were one of
the parties objected to the application of CISG in the course of the proceedings, it should be
regarded as the intention of the parties to exclude the applicability of CISG.”25 But the autonomy
of the parties is to exclude the applicability of CISG during their contract, not during their
proceeding.
C. Gengqunyin v. Elborsh26
This is a case between a Chinese company of Gengqunyin and an Egyptian company of Elborsh
before the Hebei High Court for appeal in China. In this case, among other things, the
applicability of CISG was at issue. The case was decided at the Hebei First Instance Court that
the CISG is applied between a sales contract of a Chinese and Egyptian parties. But the Hebei
High Court overturned the decision of the Hebei First Instance Court and exclude the
applicability of CISG on the same reasoning mentioned above in Canada Watersports Co., Ltd v.
Donghui Plastics Co., Ltd case that “… the parties disagreed on the application of CISG that
deciding to the CISG‟s application is „misapplication of law‟ and thus according to Article 6 of
CISG, disagreement amounts to the intent to exclude its application.”27
D. Yinshun Hong Kong Co., Ltd v. Zhejiang Zhongda Technology Import and Export Co.,
Ltd28
This case is a case between a Hong Kong‟s China company of Yinshun Hong Kong Co., Ltd and
a Chinese mainland company of Zhejiang Zhongda Technology Import Export Co., Ltd before
the Zhejiang High Court of China. In this case, among other things, the applicability of CISG
was at issue. The Zhejiang High Court excluded the applicability of CISG from the sales contract
between mainland China and Hong Kong parties. The court‟s reasoning was under the
declaration requirement of Article 93(1) of CISG that “CISG shall not apply to Hong Kong
because the Chinese government till today has not made a declaration under Article 93 of the
CISG.”29
25
Id at 2.
26
Gengqunyin (China) v. Elborsh (Egypt), Hebei High Court (Final Appeal), Yiminsanzhong No.59 (2010).
27
Ibid.
28
Yinshun Hong Kong Co., Ltd (Hong Kong SAR, China) v. Zhejiang Zhongda Technology Import and Export Co.,
Ltd (China), Zhejiang High Court (Final Appeal), Zheshangwaizhong No.99/2010 at 3 as cited by Sophia Juan Yang
supra note 21 above.
29
Id at 3-4.
11
E. Hongye Industry Co., Ltd v. Renshi (Zhuhai) Industry Co., Ltd30
This case is a case between a Taiwan company of Hongye Industry Co., Ltd and a Chinese
company of Renshi (Zhuhai) Industry Co., Ltd before the Zhuhai Intermediate Court of China. In
this case, among other things, the applicability of CISG was at issue. The Zhuhai Intermediate
Court affirmed the “one China” policy by taking Taiwan as a part of mainland China that
“concerning Article 1(1) (a) of CISG that since CISG only applies to contracts between parties
from different states, CISG does not apply to contracts involving the parties from the Taiwan
Region.”31
2.5.2. Chinese Arbitral Tribunals Practice on the Sphere of Application of CISG: Some
Evidence
Among the Arbitration Tribunals of China, I opt to see some cases as evidence decided by The
China International Economic and Trade Arbitration Commission (CIETAC) that was
established in 1956 in China. I prefer to see how CIETAC entertained cases of CISG concerning
party autonomy. We can find a case by case stand on the issue that might be hard to be certain on
the specific cases of party autonomy on opting in or opting it out according to Article 6 of CISG.
Here below are some cases to be discussed.
A. Caffenine (Hong Kong v. PRC), CIETAC [1996]32

This is a case between a Hong Kong buyer and as a claimant and a Chinese seller as a respondent
involving a good, caffeine presented for CIETAC arbitration. The parties, in their arbitration
agreement, agreed to apply the CISG convention as applicable law. Therefore, CIETAC in its
arbitration decision as to the applicable law, decided the CISG to be applicable owing to the
choice of the parties in their arbitration agreement that they opting in CISG‟s application.
B. AOE and PECVD machines (Hong Kong v. PRC), CIETAC [2003]33

This is a case between a Hong Kong seller as a claimant and a Chinese buyer as respondent
involving goods, AOE, and PECVD machines presented for CIETAC arbitration. The parties, in
30
Hongye Industry Co., Ltd (Taiwan, China) v. Renshi (Zhuhai) Industry Co., Ltd (Zhuhai, China), Zhuhai
Intermediate Court (Guangdong Province) (Final Appeal), Zhuzhongfaminzhong No. 10 (2013) at 4 as cited by
Sophia Juan Yang supra note 21 above.
31
Ibid.
32
Caffenine (Hong Kong v. PRC), CIETAC (1996), available at http://cisgw3.law.pace.edu/cases/960329c1.html as
cited by Xiao Yongping and Long Weidi supra note 7 above at 80.
33
AOE and PECVD Machines (Hong Kong v. PRC), CIETAC (2003), available at
http://cisgw3.law.pace.edu/cases/031218c1.html as cited by Xiao Yongping and Long Weidi supra note 7 above at
80.
12
their arbitration agreement, agreed to apply the CISG convention as applicable law. Therefore,
CIETAC in its arbitration decision as to the applicable law, decided the CISG to be applicable
owing to the choice of the parties in their arbitration agreement that they opting in CISG‟s
application.
C. Excavators Case (South Korea v. PRC), CIETAC [1999]34

This is a case between the Republic of South Korea‟s seller as a claimant and the People‟s
Republic of China‟s buyer as respondent involving goods, excavators presented for CIETAC
arbitration. The parties, in their arbitration agreement, did not decide on the application of CISG.
But during their proceeding, the buyer cited CISG as one applicable law and the seller did not
object to the applicability of CISG in their dispute. Though the Republic of South Korea did not
adopt CISG during this proceeding, the Shanghai Commission of CIETAC decided on the
applicability of CISG by taking the consensus on CISG applicability between the parties though
the parties did not stipulate the applicability of CISG in their contract and the Republic of South
Korea did not adopt CISG during the proceedings of this case.
2.6. Lessons from Chinese Courts and Arbitration Tribunals as to the Sphere of
Application of CISG
In this short analysis on the conceptual understanding of the sphere of application of CISG and
the practice before Chinese Courts and Arbitral Tribunals, it is possible to say that the cases on
the sphere of application of CISG are one of the frequent cases of international commercial
dispute entertained before the Chinese Courts as well as Arbitral Tribunals. The first lesson that
can be easily grasped from the parties is that parties including the Chinese buyers and sellers are
very willing to internationalize their sell transactions by allowing the applicability of CISG and
even the parties‟ approach of excluding the applicability of CISG by opting out clauses is very
minimal. While trying to assess the decisions of the Chinese Courts and Arbitral Tribunals, it is
difficult to conclude that a concrete uniformity is established for the last 30 years of
interpretation and application of CISG convention before Chinese Courts and Arbitration
Tribunals. Especially the interpretation and application of the reservation of China of Article 95
of CISG and the applicability or otherwise of CISG in SARs is not still clear.
34
Excavators (S. Korea v. PRC), CIETAC (1999), available at http://cisgw3.law.pace.edu/cases/990521c1.html as
cited by Xiao Yongping and Long Weidi supra note 7 above at 80.
13
Some trends of improper exclusion of CISG‟s application are also witnessed in Chinese Courts.
Among the cases presented above, the trend of the Hebei High Court‟s decision of excluding
CISG‟s applicability by the mere fact that the objection of one of the parties as to the CISG‟s
applicability during their proceedings amounts to “the intention to exclude CISG‟s application
according to Article 6 of CISG” is not acceptable. On the other hand, the interpretation and
application of Chinese reservation of Article 95 of CISG and its meaning for SARs are not clear
and there is no clear understanding between Chinese Courts and Arbitration Tribunals.
As Weidi Long already pointed out that as soon as the returning of Hong Kong and Macau to
mainland China, the note sent by the Permanent Representative of PRC to the UN General
Secretary and the essence of the message attached to it showed us that CISG is one of the
international treaties that will apply to SARs and China did not make a declaration according to
Article 95 of CISG to exclude its application to SARs. But there is no still clear understanding of
this issue and the practice is indifferent. In summary therefore China being the second global
economy of the world, internationalizing its laws and international commercial practice very
important. The differences among academics, courts, and arbitral tribunals on the conception as
well as interpretation and application of certain issues on CISG has to be narrowed with capacity
building programs as well as in judicial explanations by the People‟s Supreme Court of the
People‟s Republic of China.
3. Formation and Modification of CISG contracts
Do you remember our discussions above that China withdraw its reservation of Article 96 of
CISG in 2013? What is its implication for Article 11 of CISG? Let us see the relevant CISG
provisions and check their compatibility with the domestic law of the People‟s Republic of China
first. What the withdrawn reservation provision of Article 96 of the CISG pronounced about?
Article 96 of the CISG provision reads:
“A contracting state whose legislation requires contracts of sale to be concluded in or evidenced

by writing may at any time make a declaration [following] article 12 that any provision of article
11, article 29, or part II of this convention, that allows a contract of sale or its modification or
termination by agreement or any offer, acceptance, or other indication of an intention to be made
14
in any form other than in writing, does not apply where any party has his place of business in that
state.”
What about the other provisions of CISG that are relevant and mentioned under the above
provision of Article 96 of the CISG convention? Article 12 of CISG reads as follows:
“Any provision of article 11, article 29, or part II of this convention that allows a contract of sale
or its modification or termination by agreement or any offer, acceptance, or other indication of
an intention to be made in any form other than in writing does not apply where any party has his
place of business in a contracting state which has made a declaration under article 96 of this
convention. The parties may not derogate from or vary the effect of this article.”
What the rest provisions of CISG, such as Articles 11 and 29 of CISG as well as the relevant
domestic contract law provision of the People‟s Republic of China promulgated about? Article
11 of CISG reads:
“A contract of sale need not be concluded in or evidenced by writing and is not subject to any
other requirement as to form. It may be proved by any means, including witnesses.”
Article 29 of the CISG convention similarly reads:
“(1). A contract may be modified or terminated by the mere agreement of the parties.
(2). A contract in writing which contains a provision requiring any modification or termination
by agreement to be writing may not be otherwise modified or terminated by agreement. However,
a party may be precluded by his conduct from asserting such a provision to the extent that the
other party has relied on that conduct.”
On the other hand, The Contract Law of the People‟s Republic of China35 (“the Contract Law of
PRC 1999”) under its Article 10 and 11 promulgated as follows. Article 10 of the Contract Law
of PRC 1999 reads:
“The parties may when making a contract, use written form, verbal form, or any other form.
The written form shall be adopted if laws or administrative regulations so require. The written
form shall be adopted if the parties so agree.”
Article 11 of the Contract Law of PRC 1999 reads:
35
The Contract Law of the People‟s Republic of China, adopted at the Second Session of the Ninth National
People‟s Congress on March 15, 1999 and promulgated by Order No.15 of the President of the People‟s Republic of
China on March 15, 1999.
15
“[Written form] as used herein means any form which renders the information contained in a
contract capable of being reproduced in a tangible form such as a written agreement, a letter, or
electronic text (including telegram, telex, facsimile, electronic data interchange, and e-mail.”
Concerning modification of contracts, the Contract Law of PRC 1999 under Articles 77 and 78
provides as follows. Article 77 of the Contract Law of PRC 1999 reads:
“The parties may modify the contract upon consensus through consultation.
Where provisions of laws and administrative regulations require the modification of a contract to
go through approval and registration procedures, such provisions shall govern.”
On the hand, Article 78 of the Contract Law of PRC 1999 reads:
“A contract shall be assumed as not having been modified if the content of the modification of the
contract is not agreed upon by the parties.”
Therefore, what is the implication of these bundles of Chinese domestic law as well as CISG
convention provisions as to formation as well as modification of CISG contracts? What the trend
of Chinese Courts and Arbitration Tribunals looks like by taking some cases as evidence?
3.1. Formation and validity of CISG contracts
China‟s withdrawal of Article 96 of CISG‟s reservation in 2013 affected that the formality and
validity requirement of contracts be almost similar between the Contract Law of PRC 1999 and
CISG provisions. What does it mean? Unless and otherwise, the parties agreed to make their
contract to be in writing, the formality of a contract to be in writing is not mandatory in CISG
contracts. This understanding was even in existence before the Chinese Government‟s
withdrawal of its Article 95 of CISG‟s reservation that “… the Chinese Courts generally will not
frustrate the formation of a non-written CISG contract in as much as it could be proved by a
serious of evidence for existence and/or performance of such an agreement.”36 It is possible to
support this proposition by case evidence.
The judgment delivered by the Guangdong Superior People‟s Court for instance in Zhuhai
Zhongyue New Communication Technology Ltd. et al. v. Theater Light Electronic Control &
Audio System Ltd.37, in 2004 recognized that “… contracts in any form - can take effect” and
36
Sophia Juan Yang supra note 21 at 4.
37
Zhuhai Zhongyue New Communication Technology Ltd. et al. v. Theater Light Electronic Control & Audio
System Ltd., Yuegaofaminsithongzi 274 (2004) as cited by Xiao Yongping and Long Weidi supra note 7 at 85.
16
“… a non-written contract was valid …”.38 The Shanghai First Intermediate Court in 2012 in its
Final Appeal in Company A (Gabon) v. Company B (China)39 decided by giving effect for a non-
written CISG contract decided that “… the existence of evidence such as receipts of orders,
invoices, packing lists, letters of credits, bill of lading, the transmission of documents, enquires
on the status of goods, customs declarations, payment vouchers, etc. … can be taken as
evidence.”40
Therefore, as to formality and validity of contracts that involve the international sale of goods,
China‟s move of withdrawing the Article 96 CISG reservations in effect creates the compatibility
of the Contract Law of PRC 1999 with the CISG formation of contract requirement. China as a
nation no longer is a writing requirement country in the sales contract that fits with the freedom
of parties and autonomy as pronounced in the objective theory of contracts.
3.2. Modification of CISG contracts
According to Articles 77 & 78 of the Contract Law of PRC 1999, no special formality is required
for modification of contracts under the Chinese domestic contract law. Likewise, unless the
CISG contracting parties agreed to make modifications of their contract in writing, under Article
29 of CISG modifying contracts is not mandatory. Therefore, for modification of CISG contract
as to its formality, the consent of the parties is a very critical situation. But, does it mean that a
non-written CISG contract can impliedly be modified with subsequent conducts that can be taken
as evidence for the existence of a contract, such as invoices and other similar conducts? The
practice shows that modifications in most of the cases are expressive and difficult to show
indirectly. As Sophia Juan Yang pointed out in CHOIWON v. Xuchun Case41, the Dalian
Intermediate Court rejected implied conducts as evidence for modification of contracts.42
38
Xiao Youngping and Long Weidi supra note 7 at 85.
39
Company A (Gabon) v. Company B (China), Shanghai First Intermediate Court (Final Appeal),
Huyizhongminsizhong No.1400 (2012) as cited by Sophia Juan Yang supra note 21 at 4.
40
Sophia Juan Yang supra note 21 above at 4.
41
CHOIWON (Korea) v. Xuchun (China) (First Instance), Dalian Intermediate Court (First Instance), daminsichu
No.111 (2013) as cited by Sophia Juan Yang Supra note 21 at 5.
42
Ibid.
17
4. Fundamental Breach of Obligations of CISG parties and their Remedies
What are the obligations of the buyer and the seller under the CISG convention? Which
obligations of the CISG parties amount to a fundamental breach during non-performance? What
remedies are available for the parties during non-performance or breach? The general provisions
that put the obligations of the seller and the buyer are mainly Articles 30 and 53 of the CISG
convention respectively. Article 30 of the CISG Convention provides: “[T]he seller must deliver
the goods, hand over any documents relating to them and transfer the property in the goods, as
required by the contract and this convention.” On the other hand, Article 53 of the CISG
Convention provides: “[T]he buyer must pay the price for the goods and take delivery of them as
required by the contract and this convention.” Therefore, from the above provisions of the
convention, one can easily be deduced that under the CISG contract the seller is obliged to
deliver goods and the buyer is obliged to take delivery and pay the price for the goods. What is
the nexus of these obligations of the CISG parties with the general provision of “fundamental
breach of contract” stipulated under Article 25 of CISG during a breach of obligations? Article
25 of the CISG convention provides and reads:
“A breach of contract committed by one of the parties is fundamental if it results in such

determinant to the other party as substantially to deprive him of what he is entitled to expect
under the contract unless the party in breach did not foresee and a reasonable person of the same
kind in the same circumstances would not have foreseen such a result.”
Professor Shiyuan Han tried to show two differences between the Chinese Contract law and
CISG provisions as to fundamental breach of contracts.43 The author identified the first
difference that there is no provision in Chinese contract law under Article 94 unlike Article 25 of
CISG that dictates, “… unless the party in breach did not foresee and a reasonable person of the
same kind in the same circumstances would not have foreseen such a result.”44 The second
difference identified by the author is that “… as to the contractual duty not being performed, the
CISG has no further requirement. It only requires the result. As a contrast, both Articles 94(2) &
94(3) of the Contract Law of PRC 1999 require what not being performed is „a main
43
Shiyuan Han, “The CISG and the Modernization of Chinese Contract Law” International Trade/ADR in the South
Pacific, 2008 at 75.
44
Ibid.
18
obligation‟.”45 Concerning the obligation of the buyer and the seller of CISG parties, breach of
contract, and remedies, time is not allowed to discuss the whole points. Thus it is better to be
selective to see critical conceptual legal points as well as the judicial as well as the arbitral
practice of China. Therefore, I opt to see the seller‟s obligation as to “quantity, quality and
description” under CISG provisions, the buyer‟s obligation to examine the goods gives notice of
lack of conformity under CISG provisions, fundamental breach under CISG provision, and
remedies for breach under CISG provisions.
4.1. Seller’s obligation as to quality: Article 35 of CISG

Under Article 35(1) of the CISG convention, the basic rule is that the goods must conform to the
requirements of the contract and the parties agreement defines the seller‟s obligations concerning
the quality, quantity, and packing of the goods that are to be delivered according to the contract.
Here the quality, quantity, and packing of the goods are decided by the free will and autonomy of
the parties. Article 35(2) of the CISG convention, still by keeping the autonomy of the parties as
a priority, listed down the situations non-conformity of the goods as to the quality, quantity, and
packing of goods provided as follows:
“(2). Except where the parties have agreed otherwise, the goods do not conform with the contract
unless they:
(a). are fit for the purposes for which goods of the same description would ordinarily be
used;
(b). are fit for any particular purpose expressly or impliedly made known to the seller at
the time of the conclusion of the contract, except where the circumstances show that the
buyer did not rely on, or that it was unreasonable for him to rely, on the seller‟s skills
and judgment;
(c). possess the qualities of goods which the seller has held out to the buyer as sample or
model;
(d). are contained or packaged in the manner usual for such goods or, where there is no
such manner, in a manner adequate to preserve and protect the goods.
Therefore, unless the parties agreed otherwise, Article 35(2) of CISG put requirements as
implied obligations such as, “be fit for the purpose for which goods of the same description
would ordinarily be used”; “be fit for particular purposes expressly or impliedly made known to
45
Ibid.
19
the seller at the time of the conclusion of the contract”; “have the same qualities as any sample or
model”; and “be contained or packaged in the manner usual for such goods, where there is no
such manner, in a manner adequate to preserve and protect the goods.” Professor Harry M.
Flechtner tried to explain the time and the situations whereby these implied obligations are
alleged.46 For instance, the implied obligations under Articles 35(2) (b) and 35(2) (c) of CISG,
that is, the goods be fit for particular purposes disclosed by the buyer to the seller by the time the
contract was concluded, and that the goods conform to any sample or model that the seller had
held out to the buyer, do not arise automatically in every sale, they are triggered only if one of
the parties has taken specified actions.47 In other words, Article 35(2) is only implicated if the
buyer informs the seller, at or before the time of contract conclusion that it intends to use the
goods for a particular purpose.48 On the other hand, the obligations in Article 35(2) (a) & (d), in
contrast, arise in every contract for sale governed by the CISG convention, unless the parties
agree otherwise.49 How the practice looks like in interpreting and applying the seller‟s obligation
of delivering goods in conformity to its expected quality? Let us see one most cited German case
in CISG jurisprudence, the “Mussels Case”50 before the highest German Court with jurisdiction
in CISG cases – the Bundesgerichtshof (“BGH”) that is most relevant in this discussion as initial
precedent.
4.1.1. The Mussels Case as CISG’s Best jurisprudence: Article 35 and Article 7 of CISG51
The Mussels Case was a case between a Swiss seller and a German buyer of a contract for a sale
of mussels. The seller is obliged to deliver mussels from New Zealand to the German buyer‟s
storage facility in Germany. The buyer inspected the cadmium levels of the mussels during
delivery. The inspection of the Mussels cadmium level revealed that the Mussels contained a
cadmium level exceeding those recommended (but not mandated) in German health regulations.
The buyer refused to pay and asked the seller for the mussels back after notifying the seller about
46
Harry M. Flechtner, “Funky Muscles, A Stolen Car, and Decrepit Used Shoes: Non-conforming Goods and Notice
Thereof under the United Nations Sales Convention (“CISG”), 26 Boston University International Law Journal,
1(2008), 1-28.
47
Id at 6.
48
Ibid.
49
Ibid.
50
Bundesgerichtshof [BGH] [Federal Court of Justice] March 8, 1995 (F.R.G.), available at
http://cisgw3.law.pace.edu/cases/950308g3.html as cited by Harry M. Flechtner supra note 46 above at 7.
51
The facts of the case, issues and the decision of the CISG court of Germany is developed from Professor Harry M.
Flechtner‟s work supra note 46 above.
20
the cadmium problem of the mussels that in effect, the buyer attempted to avoid the contract.52
The case was then presented to BGH on appeal. The issue before the case was, “was the
excessive cadmium levels in the mussels meant that the seller failed to meet its obligations under
Article 35(2) (a) to deliver goods „fit for the purposes for which goods of the same description
would ordinarily be used‟ as well as its Article 35 (2) (b) obligation to deliver goods „fit for any
particular purposes expressly or impliedly made known to the seller at the time of the conclusion
of the contract”?
The BGH, however, held that Article 35(2) did not, on the facts of this case, require the seller to
deliver goods that complied with the “specialized” public regulations of the buyer‟s jurisdiction
that the buyer had failed to show that the seller had breached at all.53 BGH reasoned that “… the
seller cannot normally be expected to be familiar with those requirements (and thus should not
be liable for failure to meet those standards) unless one of the three exceptions applied: (1). If the
seller‟s jurisdiction imposed the same standards; (2). If the buyer had pointed out the regulations
to the seller; or (3). If the seller knew or should have been aware of the standards because of
“special circumstances” – i.e., the seller maintained a branch in the buyer‟s jurisdiction, had a
long term business relationship with the buyer, or regularly exported to or promoted its products
in the buyer‟s jurisdiction. Therefore, being none of these exceptions were applicable, the court
affirmed the lower court‟s ruling that the seller was entitled to collect the price of the mussels.”54
The BGH‟s opinion has confirmed and followed in its latter decisions and outside Germany as
best CISG‟s jurisprudence. What the practice looks like in China?
4.1.2. Xi’an Yun Chang Trade Ltd. v. An Tai International (USA)55
This was a case between a Chinese seller as a claimant and a United States buyer as a defendant
before the New Pudong District People‟s Court (District Court) of Shanghai, a dispute
concerning the international sale of goods involving Wine bottles and the issue was regarding the
conformity of the goods contract as to the quality, quantity, and description required by the
contract according to Article 35 of the CISG Convention.
52
Ibid.
53
Id at 7-8.
54
Id at 8.
55
Xi‟an Yun Chang Trade Ltd. v. An Tai International (USA) (2005), New Pudong District People‟s Court [District
Court] of Shanghai, available at http://cisgw3.law.pace.edu/cases/050923c1.html .
21
The facts of the case were precisely here presented. The Seller and the Buyer signed the sales
contract to export 2100 large wine bottles to the buyer. The transportation method was by the
ocean and the goods should be delivered at Tianjin Port. After signing this contract, the Seller
arranged production; the Buyer sent its employee to the Seller's factory to examine the goods on-
site, and agreed to ship the goods after its examination; the Buyer requested a change in the
transportation method for 300 bottles, from by ocean to by air. After receiving the goods, the
Buyer alleged that 260 bottles were not qualified, and requested the Seller to replace these 260
bottles. Considering the parties' business relationship, the Seller decided to ship another 260
bottles by air. Before shipping these 260 bottles, the Seller asked the Buyer to examine the
goods, advising whether they could be shipped after the examination, and determining whether
they were qualified. However, the Buyer claimed that none of the 260 bottles were qualified.
Regarding the remaining 1,800 bottles, the Buyer sent its employee to the factory again to
conduct the examination and signed the release of qualified goods after finding that the goods
were qualified, and agreed to have the goods shipped. On 21 July 2004, when the goods arrived
at Tianjin Port, the shipping company issued a clean bill of lading. However, after accepting the
goods, the Buyer claimed the goods were not qualified and refused to make the payment.
The court after the hearing and submission of the evidence on both sides of the parties framed
the issue that whether the goods conformed to the contract. Thus the court delivered a ruling that
the non-conformity claim by the buyer was not acceptable. The reasoning of the court follows.
The second installment by air was shipped to replace the unqualified bottles in the first
installment as the Buyer alleged; however, the destinations of the two installments were Chicago
and Los Angles, which are far apart from one other, so the Buyer's allegation could not be
proved. According to the notes made by the Buyer in the inspection report dated 10 July 2004 and
the fact that the Buyer paid the freight for the second installment, it could be concluded that the
goods in the second installments were "acceptable," and the above facts proved that the goods in
the second installment complied with the Buyer's requirements. Even if the Buyer's customers
held that the goods were unqualified, this was an issue on the stipulation of quality between the
Buyer and its customers; according to the principle of privity of contracts, this did not constitute
proof that the goods which the Seller delivered were not in compliance with the contract between
the Seller and the Buyer.
22
As to the 1,800 bottles, which were shipped by the ocean on 21 July 2004, the carrier issued
clean bills of lading. The Buyer alleged that the packages of goods were broken at the destination
port but it did not claim damages from the carrier. According to the price term FOB stipulated in
the contract between the Buyer and the Seller, the Buyer should bear the risk of goods during the
ocean transportation, so the damages of the 56 broken bottles alleged by the Buyer should be
borne by the Buyer itself.
The Buyer did not entrust a qualified commodities inspection agency to inspect the goods, all of
the bottles in dispute, in this case, had been disposed of, and the Buyer could not provide
samples. Besides, the Seller's three deliveries to the Buyer, totaling 2,358 bottles, far exceeded
the stipulated quantity of 2,100 bottles stipulated in the contract. Therefore, the photos submitted
by the Buyer could not prove that the goods delivered by the Seller were not in compliance with
the contract. Thus, this Court sustained the Seller's claim for the contract price of 2,100 bottles.
Therefore, the interpretation, as well as the application of Article 35 of the CISG convention,
was dealt with Chinese Courts as well as Arbitral Tribunals in such a way that by keeping the
party autonomy as a priority, and in the above case the objection to non-conformity was
presented after the acceptance of the quality of the goods by prior-examination, and thus not
acceptable and which is fair and makes a sound.
4.2. Buyer’s Obligation of Examining the Goods and Give Notice for Lack of
Conformity: Articles 38-40 & Articles 43-44
The obligations of the buyer of examining the goods and give notice within a reasonable period
if a non-conformity exists are one of the most frequent litigated CISG provision and Professor
Harry M. Flechtner by citing the CISG‟s website of Pace University Institute for International
Commercial Law lists, “decisions that cite Articles 38 and 39 of the CISG Convention is very
popular.”56 Article 38(1) of CISG provides: “[T]he buyer must examine the goods, or cause them
to be examined, within as short a period as is practicable in the circumstances.” If the contract
involves carriage of goods, Article 38(2) of CISG provides: “[I]f the contract involves carriage
of goods, the examination may be deferred until after the goods have arrived at their
destination.” Here the critical issue is how the phrase “within a short period as is practicable in
the circumstances” is interpreted?
56
Harry M. Flechtner supra note 46 above at 15.
23
As clearly analyzed by Sophia Juan Yang that, Chinese Courts accepted both immediate
examination and late examination scenarios, upon cases by cases approach.57 For instance, in
2011, the Fujian Intermediate Court (First Instance) in Fengshan Stone Materials Co., Ltd v.
Fujian Nanan City Lianfengmei Stone Materials Co., Ltd Case58, the court decided that
“examination should be made as soon as the employees of the buyer acknowledge receipt of the
goods.”59 On the other hand, the Guangzhou Intermediate Court in its final appeal in 2011, in
Trade ways S.A (Italy) v. Xuchang City International Trading Co., Ltd (China) Case60, the court
concluded, “in a CIF Contract, though the examinations were not made in time, the buyer should
not be compensated for the loss incurred by the late examinations, which amounted to the
transportation and storage fees as of the time the goods left the port of destination.”61 In other
words, late examination reports may be admitted by Chinese Courts depending upon the cases
and situations.
Article 39 of CISG is about giving a proper and timely notice upon the discovery of non-
conformity in order not to lose the benefits attached to it. Article 39 of the CISG Convention
provides:
“(1). The buyer loses the right to rely on a lack of conformity of the goods if he does not give
notice to the seller specifying the nature of the lack of conformity within a reasonable time after
he has discovered it or ought to have discovered it.
(2). In any event, the buyer loses the right to rely on a lack of conformity of the goods if he does
not give the seller notice thereof at the latest within two years from the date on which the goods
were handed over to the buyer unless this time limit is inconsistent with a contractual period of
guarantee.
Still here the contested legal phrase is what amounts to “a reasonable time?” that is mostly left
for the discretion of the courts. As again rightly analyzed by Sophia Juan Yang, there is one
relevant decision from the Wenzhou Intermediate Court in its First Instance decision on
57
58
Fengshan Stone Materials Co., Ltd (China) v. Fujian Nanan City Lianfengmei Stone Materials Co., Ltd (China) &
Others (Korea), Fujian Intermediate Court (First Instance), Xianincha No.179 (2011) as cited by Sophia Juan Yang
supra note 21 at 6.
59
Ibid.
60
Trade Ways S.A. (Italy) v. Xuchang City International Trading Co., Ltd. (China), Guangzhou Intermediate Court
(Final Appeal), Huizhongminsizhong No.71 (2011) as cited by Sophia Juan Yang supra note 21 at 6.
61
Ibid.
24
Hangzhou Qiandaolake Tianfu Textile Co., Ltd v. US Huatai Group Case62 that “in this case
where the buyer for the first time raised the issue of non-conformity of the goods in its defense
against the seller during the trial, which was almost two years after the delivery of the goods, the
court rejected the buyer‟s defense following Article 39 of the CISG Convention.”63
4.3. Buyer’s Obligation of Examining the Goods and Give Notice for Lack of
Conformity: Articles 38-40 & Articles 43-44
In our initial discussion of the fundamental breach above, the Contract Law of PRC 1999
accepted the idea of fundamental breach, and its effect is also stipulated under Article 94(4) of
the same law. Article 94(4) of the Contract Law of PRC 1999 reads:
“The party may terminate the contract when the other party delays in performance or in other
breaches of the contract which makes it impossible to achieve the purpose of the contract.”
Therefore, termination of the contract is one of the effects of a fundamental breach of a contract
which is a similar outcome to Article 25 of the CISG Convention. Thus what is the concept of
fundamental breach in the sense of Article 25 of the CISG convention? What is the relevance of
Article 7(1) of CISG for international usage and interpretative approach of the convention? What
are the remedies attached to it? I order to clarify the concept vividly here; quoting Article 25 of
the CISG convention is very important. Article 25 of CISG defines “fundamental Breach” as:
“A breach of contract committed by one of the parties is fundamental if it results in such

determinant to the other party as substantially to deprive him of what he is entitled to expect
under the contract unless the party in breach did not foresee and a reasonable person of the same
kind in the same circumstances would not have foreseen such a result.”
The legal concept fundamental breach is a combination of legal terms such as, “breach”,
“fundamental”, and the definitional part of the above CISG convention attached very important
concepts like “substantial detriment”, and “foreseeability”. Therefore, defining the legal concept
of “fundamental breach” means, clarifying the interpretation of the combination of these legal
concepts in light of their international usage as required by Article 7(1) of the CISG Convention.
Let us see the concepts precisely one by one.
62
Hangzhou Qiandaolake Tiantu Textile Co., Ltd (China) v. US Huatai Group (USA), Wenzhou Intermediate Court
(First Instance), Zhewenshangwaichu No.73 (2011) as cited by Sophia Juan Yang supra note 21 at 7.
63
Ibid.
25
4.3.1. The “breach” element of Article 25 of CISG
Breach of a CISG contract here entails any violations or any failure in the performance of any
obligations of any party, either the seller or the buyer or both in a CISG contract. The effect of
the failure whether excusing it or not is immaterial for the existence of a breach.
4.3.2. The “fundamental” element of Article 25 of CISG

The core element of a fundamental breach is “determinant to the other party as substantially to
deprive him of what he is entitled to expect under the contract.”64 The determination of the
“substantial detriment” would be based on express or implied contractual terms that like civil law
countries in classifying the importance of an obligation under the contract, is to decide whether
the obligation is a main or an ancillary one.65 Therefore, detriment refers to the economic loss of
a party given that a detriment is established, it must be as substantial to deprive the other party of
her what she is „entitled to expect.‟ In other words, the party‟s special interest in receiving
performance is a key element for establishing whether a breach is substantial.
The second issue is how contractual expectation is determined? We can see two scenarios by
which a contractual expectation can be determined. The first one is from the parties express
terms in their contract that they defined what is „fundamental‟ and what is not. Thus, if the
express fundamental term is breached, then it equates to a fundamental breach. The second
scenario is in situations where the parties though never expressly stated what is fundamental, and
then the breach will be determined according to the nature and the extent of the defect.
The existence of a fundamental breach in CISG contract can lead to different remedies such as
the substitution of non-conformity of goods by the seller [Article 46(2) of CISG], avoidance of
the contract on the ground of non-performance by the other party [Articles 49(1) (a), 64(1) (a),
and 73 of CISG], avoidance of the contract for potential delivery [Article 51 of CISG], and
transfer of risk [Article 70 of CISG]. Though the CISG convention provides remedies for
fundamental breach, the termination of a contract could be used as a “last-resort” remedy. What
the practice of Chinese courts looks like in this regard?
64
Graffi L, “Case Law on the concept of „Fundamental Breach‟ in the Vienna Sales Convention”, 3 International
Business Law Journal, 2003 at 339.
65
Ibid.
26
Concerning the approach adopted by Chinese Courts in remedying a fundamental breach, Sophia
Juan Yang showed that “Chinese Courts adopted a different approach by exclusively focusing on
the seller‟s opportunity to cure that is there is no fundamental breach, if there is the possibility
that the seller may cure the defects of the goods or in other means remedy the breach of the
contract.”66 For instance, the Shanghai High Court in its Final Appeal in 2011 in the case Comac
Co., Ltd v. Shanghai Xunwei Equipment Co., Ltd Case67 in which “the Buyer was previously
authorized by the Seller as its exclusive distributor in China whereas the seller later on withdraw
such authority without giving a prior notice to the Buyer, the Buyer was no longer able to re-sell
the goods without such authority, it requested the seller to take back all the goods in the stock
and return the payments”, the court decided in favor of the Buyer for the reason that “the contract
in such situations could not be saved by other means of remedies such as, substitutive delivery,
repair or reduction of the price and more interestingly, the seller actually had the contractual
right to terminate the authority, the decision on the fundamental breach of the seller was
essentially based on the breach of the principle of good faith.”68
4.4. Remedies for CISG’s Contractual Breach

Remedies for breach of contract in the international sale of goods under the CISG convention is a
very broad concept by itself. The main remedies known to the CISG convention are avoidance of
a contract, damages, and specific performance. Therefore, owing to a shortage of time and scope
of this essay, I will deal only with specific performance. Let us see its conception and some cases
to show the practice precisely.
4.4.1. Specific performance and CISG

According to Articles 46 and 62 of the CISG convention, both the seller and the buyer have a
remedy of requiring the performance of the contract when either party is in breach. Article 46(1)
of the CISG Convention provides: “[T]he buyer may require performance by the seller of his
obligations unless the buyer has resorted to a remedy which is inconsistent with this
requirement.” Here remedies such as damages, price reduction, and avoidance of a contract are
inconsistent with specific performance. Articles 46(2) & (3) of the CISG convention stipulated
some circumstances for specific performance as follows:
66
67
Comac Co., Ltd (unknown) v. Shanghai Xunwei Equipment Co., Ltd (China), Shanghai High Court (Final Appeal),
hugaominer (shang) No.18 (2011) as cited by Sophia Juan Yang supra note 66 above.
68
Ibid.
27
“(2). If the goods do not conform with the contract, the buyer may require delivery of substitute
goods only if the lack of conformity constitutes a fundamental breach of a contract and a request
for substitute of goods is made either in conjunction with notice given under Article 39 or within
a reasonable time thereafter.
(3). If the goods do not conform to the contract, the buyer may require the seller to remedy the
lack of conformity by repair, unless this is unreasonable having regard to all the circumstances.
A repair request must be made either in conjunction with notice given under Article 39 or with a
reasonable time thereafter.”
Besides, Article 62 of the CISG convention stipulates the seller‟s remedy of requiring the
buyer‟s specific performance and the pre-condition for the seller‟s claim as: “[T]he seller may
require the buyer to pay the price, take delivery or perform his other obligations unless the seller has
resorted to a remedy which is inconsistent with this requirement.”
In specific performances, what will happen where the seller fails to deliver the goods, can the
buyer require the delivery of the goods from the seller where the goods are not ascertained or
specific? In Roll aluminum and aluminum Parts Case of CIETAC‟s Arbitration Proceeding of
199169 that:
A Chinese buyer concluded two contracts No. 072 and No. 069 with an American seller to buy
rolled aluminum C & F. In the contracts, the buyer agreed to open the LC by 22 nd October 1990.
The seller agreed to deliver the Rolled Aluminum under contract No. 72 and deliver the
associated aluminum parts under contract No. 069 within seven weeks of notification of the
opening of the LC. The buyer opened the LC by the agreed date. The delivery of rolled aluminum
was found to have serious defects. The specification of the aluminum agreed in contract No.072
was [0.0125+/-0.0001] inches thick whilst that of the delivered goods was [0.0118]. Also, the
seller refused to deliver the aluminum parts under contract No. 069. The buyer sourced the rolled
aluminum elsewhere to substitute for contract No. 072 and to mitigate his loss suffered from the
seller‟s breach. The buyer claimed damages for the price difference between the substitute
purchase and the contract price but required the seller to deliver the aluminum parts as agreed
under contract No.069.70
69
Roll aluminum and Aluminum Parts Case, China 30 October 1991 CIETAC Arbitration proceeding, available at
http://cisgw3.law.pace.edu/cases/911030c1.html .
70
Yan Li, “Remedies for Breach of Contract in the International Sale of Goods: A Comparative Study between the
CISG, Chinese Law and English Law with Reference to Chinese Cases”, University of Southampton, a PhD Thesis,
2010 at 201-202, available at http://eprints.soton.ac.uk .
28
The Chinese arbitrators held the seller‟s delivery of defective goods as a fundamental breach of
contract No.072. The buyer was held to be entitled to return the defective goods to the seller
receive a refund of the original purchase price and recover the damages for the price difference
together with other actual expenses. Also, the Chinese tribunal supported the buyer‟s claim of
specific performance, i.e, by requiring the seller to deliver the aluminum parts under contract No.
069. It should be noticed that the goods, which the seller failed to deliver against contract No
0.69, were not specific or ascertained, and nor were they unique. The goods could be easily
purchased elsewhere in the market.71
5. Concluding Remarks
More than three decades were passed after the Convention for International Sale of Goods
(CISG) was adopted by the People‟s Republic of China. The domestic contract law of the PRC
was entered into effect some eleven years after the adoption of CISG. Therefore, the domestic
contract law of China of 1999 was highly influenced by the CISG provisions and thus it adopted
international usages and principles of international commercial law. When looking at the practice
of interpreting and applying CISG in China of the last 30 years, the overwhelming trend seems
“CISG-friendly” and the extent of CISG‟s opting out trend is very minimal. There are so many
CISG cases entertained by Chinese Courts as well as arbitral tribunals. This has to be more
strengthened in the coming days. But still, there is some confusion as to the interpretation and
application of the Chinese reservation to Article 95 of the CISG. Especially the applicability of
CISG to SARs is also more problematic. Thus, judicial and arbitral organs capacity building,
some judicial explanations by the People‟s Supreme Court of China, and re-considering the
Article 95 reservations of CISG conventions might be some of the considerations that I would
like to suggest in my little understand in this essay.
71
Ibid.
29
30
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The Interpretation and Application of the 'Sphere of application of CISG',

Article in SSRN Electronic Journal · January 2020

Dessie Tilahun Ayalew

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Dessie Tilahun Ayalew

CISG; Sphere of Application; CISG contract; Formation and modification;

2. The Sphere of Application of CISG and China

(a). when the states are contracting states.

(1). This convention applies to contracts of sale of goods between parties;

2.3. Exclusion of CISG Application under Article 6: party autonomy

A. Beijing Nuosi Trading Co., Ltd v. GINO Co., Ltd21

B. Canada Watersports Co., Ltd v. Donghui Plastics Co., Ltd24

A. Caffenine (Hong Kong v. PRC), CIETAC [1996]32

B. AOE and PECVD machines (Hong Kong v. PRC), CIETAC [2003]33

C. Excavators Case (South Korea v. PRC), CIETAC [1999]34

3. Formation and Modification of CISG contracts

“A contracting state whose legislation requires contracts of sale to be concluded in or evidenced

Article 29 of the CISG convention similarly reads:

3.1. Formation and validity of CISG contracts

3.2. Modification of CISG contracts

“A breach of contract committed by one of the parties is fundamental if it results in such

4.1. Seller’s obligation as to quality: Article 35 of CISG

4.1.2. Xi’an Yun Chang Trade Ltd. v. An Tai International (USA)55

“A breach of contract committed by one of the parties is fundamental if it results in such

4.3.2. The “fundamental” element of Article 25 of CISG

4.4. Remedies for CISG’s Contractual Breach

4.4.1. Specific performance and CISG

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