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Can CISG Apply to Cross-Border E-Commerce Disputes?

Sun, 05 Sep 2021
Categories: Insights
Contributors: Meng Yu 余萌

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Key takeaways:

  • Yang v. Yucheng Huayu Machinery Manufacturing Co., Ltd. (2021) may be the only reported case by far in which Chinese courts have addressed the interpretation of Article 2(a) of the CISG.
  • The case shows room to apply the CISG to cross-border e-commerce transactions. When the transaction is for business purposes, even if the party is an individual instead of a company, Chinese courts may still determine to apply the CISG.

According to Chinese courts, if the transaction is for business purposes rather than for consumption purposes, the United Nations Convention on Contracts for the International Sale of Goods (CISG) is applicable.

On 25 Apr. 2021, the Dezhou Intermediate People's Court of Shandong Province in China rendered its final judgment in a case, holding that the CISG could apply to the contract for a Canadian farmer to buy equipment from a Chinese supplier for business purposes, which did not constitute "sales of goods bought for personal, family or household use" and thus fell within the scope of the CISG. (See Yang Jianbing v. Yucheng Huayu Machinery Manufacturing Co., Ltd. (2021) Lu 14 Min Zhong No. 1052 ((2021)鲁14民终1052号))

I. Case background

In March 2019, the plaintiff Yang Jianbing, who runs a farm in Canada, contacted the sales staff of the defendant Yucheng Huayu Machinery Manufacturing Co., Ltd.(禹城华禹机械制造有限公司) located in Shandong Province of China via an instant messaging tool. The plaintiff then bought agricultural equipment from the sales staff and required the defendant to export the goods to Canada. The delivery method verbally negotiated between the parties was "door to door", that is, the goods should be delivered to the plaintiff's address.

The plaintiff paid the defendant the price of the goods and the freight charges for transportation from the defendant's place to Qingdao Port of China. The customs declaration for the export of the goods indicated that the transactions were concluded on FOB terms.

On 15 Apr. 2019, the goods arrived at Toronto Port of Canada from Qingdao Port of China, and Yang Jianbing paid the freight charges to the freight forwarding company.

However, the customs clearance could not be completed because hay was found in the goods during customs quarantine.

The plaintiff, the defendant, and the freight forwarding company failed to reach an agreement on who shall bear the subsequent expenses that occurred. The goods could not be cleared at the customs due to the default of payment of such expenses. Finally, the goods were shipped back to Hongkong for auction.

On 10 Oct. 2020, the plaintiff filed a lawsuit before the court of the first instance in China, requesting the termination of the sales contract with the defendant and the return of the payment of CNY 170,156 for goods.

The defendant denied the plaintiff's claims, arguing that since the transaction method agreed upon by both parties was FOB, the subsequent transportation and goods risks should be handled by the plaintiff and the freight forwarder entrusted by the plaintiff. Moreover, the goods had satisfied the export conditions, since it was successfully cleared at Qingdao customs. Therefore, the defendant had performed the obligation of delivering qualified goods.

II. Court views

The court of the first instance agreed that since the plaintiff and the defendant had their places of business in different countries, there should be an international contract of sale of goods; the CISG took precedence over domestic laws in this case; considering FOB was shown in the declaration form, according to the trading rules of FOB, the risks of goods were transferred to the plaintiff when the defendant delivered the goods to the first carrier, and the plaintiff should pay the sea freight and bear the risks of the goods that failed to be cleared at the customs.

Thus, the first-instance court held that the defendant was not liable for the inability to clear the goods and that the plaintiff had no reasonable grounds for terminating the contract.

Accordingly, the first-instance court rejected the plaintiff's claims.

The plaintiff appealed, alleging that his delivery address was a home address, and he bought the goods for household use. According to Article 2 (a) of CISG, the Convention does not apply to "sales of goods bought for personal, family or household use". Consequently, the CISG and FOB did not apply to the transactions.

The court of the second instance held that the plaintiff's purchase of the agricultural equipment in bulk was not only to meet personal and household needs, but also for the production and operation of his farm, which was clearly for commercial purpose, and therefore did not comply with Article 2(a) of the CISG.

Accordingly, the second-instance court decided that the CISG should apply in this case. Similarly, the FOB terms should apply to the transactions.

Under the FOB terms, the defendant had fulfilled the obligations, without any breach of contract. As a result, the second-instance court upheld the judgment made by the trial court.

III. Our comments  

Chen Yongcan (陈永灿), a lawyer in Xiamen City of China, commented on this case in an article on the Chinese social media page "All Laws Available"(万邦法律).

He expressed that this case may be the only reported case by far in which Chinese courts have addressed the interpretation of Article 2(a) of the CISG. The judgment of this case suggests that the exclusion clause of the CISG’s application targets the purchase of goods for consumption purposes. Where the purchase of goods is for household business, with business purposes, the CISG should still apply.

According to Mr. Chen, this case shows room to apply the CISG to cross-border e-commerce transactions. When the transaction is for business purposes, even if the party is an individual instead of a company, Chinese courts may still determine to apply the CISG.

 

 

Photo by Nikita rud on Unsplash

Contributors: Meng Yu 余萌

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