In a major international cargo sales dispute that underwent two levels of trial at a high people’s court and the Supreme People’s Court, HongQiao ZhengHan fought tenaciously for the client and successfully secured millions of US dollars in damages for the client even when the second-instance court adopted a different finding on the core legal issue.
Basic Facts of the Case
HongQiao ZhengHan represented a large Singaporean trading company (the “Buyer”) in purchasing petroleum coke worth nearly eight million US dollars from a renowned German industrial group (the “Seller”). The contract stipulated a “typical value” range for the Hardgrove Grindability Index (HGI), a key quality indicator of petroleum coke. However, inspection of the goods delivered by the Seller revealed that the HGI was far below the minimum value agreed in the contract, making it difficult for the Buyer to sell the goods normally in the Chinese market and suffering huge losses. The Buyer filed a lawsuit with a high people’s court, claiming that the Seller constituted a fundamental breach of contract, requesting the rescission of the contract, the return of the purchase price, and compensation for all losses.
Key Points and Difficulties
Finding of Fundamental Breach of Contract
The core controversy in this case was whether the non-conformity of the goods delivered by the Seller constituted a “fundamental breach” as defined in Article 25 of the United Nations Convention on Contracts for the International Sale of Goods (CISG). The first-instance court upheld the claim of fundamental breach, but the Supreme People’s Court held a different view. How to respond to this change in the core legal opinion in the second instance was the greatest difficulty in the case.
Application of International Conventions
The parties to this case were from Singapore and Germany respectively, and the contract stipulated the application of the law of the State of New York, the United States, but all parties agreed to the application of the CISG in the first instance. How to accurately apply the CISG at the level of the Supreme People’s Court to maximize the client’s interests imposed extremely high requirements on the professional capabilities of the acting lawyers.
Calculation of Complex Losses
On the basis that the breach of contract was established, how to clearly define and calculate the losses of price difference, storage fees and corresponding interest caused by the quality problems of the goods was directly related to the client’s vital interests.
Highlights of Representation
Complete Victory in the First Instance
In the first-instance stage, HongQiao ZhengHan, relying on solid evidence and sufficient legal arguments, successfully persuaded the high people’s court to find that the Seller’s conduct constituted a fundamental breach of contract, declared the contract invalid and upheld all the client’s main claims, laying a solid foundation for the success of the case.
Adjustment of Strategy in the Second Instance
During the second-instance trial at the Supreme People’s Court, faced with the situation that the collegial panel might adopt a stricter standard for finding “fundamental breach”, HongQiao ZhengHan responded calmly and adjusted its representation strategy in a timely manner. While insisting on the nature of the Seller’s breach of contract, it focused the argument on the actual losses suffered by the client due to the breach, ensuring that even in the case of a change in legal characterization, the client’s substantive rights and interests could be protected to the maximum extent.
Securing Core Interests
Although the Supreme People’s Court ultimately did not find that the Seller’s conduct constituted a fundamental breach of contract, it fully recognized the fact of the breach. Through strong representation work, HongQiao ZhengHan successfully proved the key losses suffered by the client, such as the price difference of the goods and storage fees, and finally helped the client obtain compensation of millions of US dollars, realizing the core commercial demands.
Key Adjudication Points
The High People’s Court (First Instance) Held:
The HGI of the goods delivered by the Seller was far below the contractual stipulation, making the goods difficult to sell in the Chinese market and frustrating the Buyer’s expected purpose of concluding the contract, thus constituting a fundamental breach of contract.
The Supreme People’s Court (Final Instance) Held:
The core standard for finding a “fundamental breach” is whether the breach “in fact deprives the party of what he is entitled to expect under the contract”. In this case, although the goods had quality defects, they still had use value, and the Buyer had successfully resold them without completely losing the expected benefits under the contract, so it did not constitute a fundamental breach. However, the Seller’s conduct undoubtedly constituted a breach of contract and shall be liable for compensation for the Buyer’s losses of price difference, storage fees and interest caused thereby.
Case Implications
The final judgment of this case was rendered by the Supreme People’s Court, which clearly stated that where goods have quality defects but can still be used or resold in a reasonable manner, it is generally not appropriate to easily find a fundamental breach of contract. This is of great significance for the application of the CISG in China’s judicial practice, especially for the definition of “fundamental breach”. This case was selected as a “Typical Case of People’s Courts Providing Judicial Services and Guarantees for the Construction of the ‘Belt and Road Initiative’” issued by the Supreme People’s Court and included as “Guiding Case No. 107”, which has guiding significance nationwide.
