GOLDENGATE’S CASE SELECTED AS A TYPICAL CROSS-BORDER CIVIL AND COMMERCIAL CASE BY THE SUPREME PEOPLE’S COURT
GOLDENGATE’S CASE SELECTED AS A TYPICAL CROSS-BORDER CIVIL AND COMMERCIAL CASE BY THE SUPREME PEOPLE’S COURT
Recently, the Supreme People’s Court held a press conference and released the “Explanations of the Supreme People’s Court on Several Issues Concerning the Application of International Treaties and International Practices in the Trial of cross-border Civil and Commercial Affairs”, along with typical cases applying international treaties and international practices in cross-border civil and commercial affairs. The case handled by GoldenGate Lawyers involving an international goods sales contract dispute between Shaphar Group LLC and Baiqi Holdings (China) Co., Ltd. has been selected as one of these typical cases.
Case two:
Clarifying the Priority Application of International Treaties and Accurately Determining the Effective Time Point of Declarations Declaring Contracts Avoidance - International Goods Sale Contract Dispute Case between Shaphar Group LLC and Baiqi Holdings (China) Co., Ltd.
[Basic Facts of the Case]
On April 3, 2020, Shaphar Group LLC (hereinafter referred to as “Shaphar”) entered into a glove purchase contract with Baiqi Holdings (China) Co., Ltd. (hereinafter referred to as “Baiqi”), agreeing that Shaphar would purchase gloves from Baiqi. Subsequently, Shaphar alleged that Baiqi had breached the contract through defective performance and delayed delivery, and filed a lawsuit requesting that the contract be declared avoidance, seeking the return of the goods payment and interest, and compensation for losses caused by Baiqi’s breach of contract.
[Judgment]
The Beijing No. 4 Intermediate People’s Court ruled that since both China and the United States, the countries where the parties have their places of business, are contracting states to the United Nations Convention on Contracts for the International Sale of Goods (CISG), and there are no circumstances under which the CISG does not apply, and neither party has excluded its application, the CISG (excluding provisions to which China has made reservations) shall apply to this case. More than half of the goods delivered by Baiqi do not meet the agreed quality standards and are completely unsuitable for the typical use intended for medical gloves of the same specification. Baiqi has yet to deliver some of the goods, which is significantly beyond the delivery time stipulated in the contract. The contract was executed during the COVID-19 pandemic, and Shaphar’s purchase of gloves from China to resell to its domestic clients represented a business opportunity. However, Baiqi’s breach of contract was sufficient to frustrate Shaphar’s purpose of earning profits through this contract, constituting a fundamental breach. Shaphar sent a legal notice to Baiqi on May 20, 2021, notifying Baiqi of the avoidance of the Gloves Purchase Contract. Although Baiqi actually received the legal notice on May 22, 2021, under the provisions of the CISG, the effectiveness of such notification shall follow the “effectiveness upon dispatch principle” rather than “effectiveness upon receipt principle”. Therefore, the Gloves Purchase Contract became avoidance on the date the notification was dispatched. Based on the above, the court ruled that the Gloves Purchase Contract was declared avoidance as of May 20, 2021, Baiqi must refund Shaphar the purchase amount of $945,000 USD plus interest, and Baiqi must compensate Shaphar for actual losses amounting to $18,882.12 USD.
[Typical Significance]
The avoidance of a contract can nullify its effectiveness, break the existing transaction order, and have a significant impact on the rights and obligations of both parties. Therefore, when the CISG stipulates the system of declaring the contract avoidance, it also makes corresponding provisions on the exercise requirements and time. The CISG, in Part II (Formation of the Contract) and Part III (Sale of Goods), adopts different principles for the effectiveness of notifications. The principles of “effectiveness upon receipt” apply to the effectiveness, withdrawal, and revocation of offers and acceptances, which means that they only take effect when they are received by the other party. However, Article 27 of the CISG, concerning the notification of the declaration of avoidance of the contract, specifies that a declaration of avoidance becomes effective upon being made “in a manner appropriate to the circumstances”, and the risk during the transmission process is not borne by the party exercising the right to terminate the contract. This approach differs from the “effectiveness upon receipt” principle stipulated in Article 565 of the Civil Code of the People’s Republic of China. This case accurately applied the CISG, giving precedence to the provisions of international treaties over domestic law in cases of discrepancies. This case demonstrates the comprehensive and precise approach taken by Chinese courts in applying international treaties and serves as a significant reference for similar cases, particularly those involving the interpretation and application of international treaties in cross-border transactions.
