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Determination of the amount of compensation in disputes of international sale of goods

[Case details]
The plaintiff, a company in Pakistan, claimed that it had signed a “pro forma invoice” with the defendant, a company in Shandong, agreeing that the defendant, a company in Shandong, would supply tires to the plaintiff, a company in Pakistan, and agreed on the unit price. The plaintiff, a company in Pakistan, paid the payment according to the agreement, but the defendant only shipped one container, which means that the contract will no longer be performed, and the defendant unilaterally requested an increase in the unit price. The plaintiff suffered significant losses as a result, and requested a decree to refund the purchase price and compensate for the loss of resale profits of undelivered tires at a rate of US $3 per tire. The defendant argued that it did not sign a contract with the plaintiff, nor did it have any breach of contract.

After hearing, the court held that although the name is “pro forma invoice”, the content already includes the general terms of the contract such as the party’s name, domicile, subject matter, quantity, price, performance period, location, and method. In addition to the terms “possible” and “approximate” used in the shipping time clause, the basic content of the agreement is specific, clear, and enforceable, and can be used as sales confirmation by both parties, The fact that there is a legal relationship between the two parties in an international sales contract for goods, which is protected by Chinese law. In view of the defendant’s claim that only shipped one container, the plaintiff’s claim to refund the remaining amount should be supported. In terms of compensation for breach of contract damages, the available interest compensation claimed by the plaintiff, was the loss of resale profits. The defendant compensated the plaintiff, for the loss of resale profits for each tire, which did not violate the rule of predictability. Therefore, the claim was supported.

[Evaluation and Analysis]
The compensation for breach of contract damages stipulated in Article 113 of the Contract Law of the People’s Republic of China includes compensation for available benefits. In disputes over international contracts for the sale of goods, the following restrictive rules should be adopted with regard to the amount of compensation for the recognized benefits of goods: the first is the rule of predictability, the second is the rule of mitigation of damage, the third is the rule of offsetting profits and losses, and the fourth is the principle of offsetting negligence.

In international trade, the resale of purchased goods by the buyer does not exceed the scope foreseen by the general seller, and the seller can fully predict the use of the goods that should be delivered from the earlier occurrence of payment, receipt, and other facts. The buyer claims loss of resale profits and does not violate the rules of predictability. In order to achieve resale, if the buyer claims that the seller should bear the “replenishment” price difference losses caused by its breach of contract, it should focus on examining whether the “replenishment” price difference losses claimed by the buyer are directly and necessarily related to the buying and selling relationship between the buyer and seller, and whether they exceed the “replenishment” price difference losses that could or should have been foreseen by the buyer and seller when they established the contractual relationship. In specific cases, determining the amount of compensation for loss of available benefits generally involves the following steps: first, determining the amount of loss of available benefits for the victim; The second step is to determine which of these losses of available benefits could be foreseen by the defaulting party at the time of contracting; The third step is to determine whether the victim is at fault for the loss; The fourth step is to determine whether the aggrieved person has obtained improper profits due to breach of contract; Step 5: Determine whether the victim has taken reasonable measures to reduce the loss;



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