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Copyright © International Chamber of Commerce (ICC). All rights reserved. ( Source of the document: ICC Digital Library )
2016 LC CASE SUMMARIES Civil Judgment (2014) Min Er Zhong Zi No.00056
Abstracted by JIN Saibo and ZHAO Yingfu
Prior History: China Machinery Engineering International Trade Ltd. v. China National Aviation Fuel (Shanghai) Ltd. Civil Judgment (2009) Min Chu Zi No.2417, Beijing High People’s Court [China]
Topics: Underlying Contract Fraud; Burden of Evidence; Standard of Proof
Type of Lawsuit: Seller sues Buyer for payment of goods under underlying contract.
Parties: Appellant/Defendant – China National Aviation Fuel (Shanghai) Ltd.
Appellee/Plaintiff – China Machinery Engineering International Trade Ltd.
Third Party – Hebei Dagang Petroleum Ltd.
Third Party – Beijing Sanxing Jiateng Petroleum Ltd.
Underlying Contract: Sale of fuel oil.
LC: Deferred LC at 90 days for USD 22,142,200.
Decision: Min LIU, judge of Supreme People’s Court, upheld the judgment of Beijing High People’s Court ordering the Appellant/Defendant to pay the goods value under the underlying contract.
Rationale: The Framework Contract entered into by the plaintiff and the defendant was valid in formality, which was admitted by both parties. Defendant’s claim that the Framework Contract was “with documents, receipt but without goods” had no legal basis. The relationship between the seller and the buyer cannot be denied only because the buyer did not actually pick up the goods (i.e. the contract was “without goods”).
Furthermore, even if the Framework Contract was “without goods”, the contents of which did not violate the mandatory laws and regulations of China. Defendant should bear the burden of proof to show that the Framework Contract was void in essence. Since it failed to do so, the contract was of the true intent of both parties and was therefore valid.
Pursuant to the terms of the Framework Contract, the plaintiff had delivered the goods but the defendant did not pay the consideration. The trial court ruled against the defendant, ordering it to pay the goods values as prescribed in the Framework Contract with interest occurred. The appellate court upheld the ruling of trial court.
Article
Factual Summary: On or about 29 September 2009, the plaintiff and the defendant entered a Framework Contract, covenanting that the latter agreed to buy fuel oil from the former and it shall pay the consideration in full amount within three months after it picked up the fuel oil. The Framework Contract also provided that if the defendant delayed its payment, it shall indemnify the plaintiff by paying 0.06% per day of the contract price.
On or about 7 October 2008, the plaintiff delivered the fuel oil and the defendant issued receipt, confirming that it received the goods.
The defendant did not pay the consideration until after three months since it received the goods, so the plaintiff sued the defendant for payment of goods value with interest occurred.
The defendant alleged that after it signed the Framework Contract with the plaintiff, it entered a Purchase Agreement with the third party Dagang Petroleum in which the defendant agreed to sell fuel oil to Dagang Petroleum. The defendant argued that the Framework Contract was designed for increasing production value and the contract was “with documents, receipt but without goods”. Also, the defendant claimed that neither the plaintiff had goods (fuel oil) available nor the parties in the Framework Contract and the Purchase Agreement actually needed the goods, because the transactions are fraudulent and all parties only cared about the documents. In conclusion, the defendant argued that the Framework Contract was valid in formality but void in essence, and that the plaintiff’s claim was fraudulent.
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The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of the ICC or Coastline Solutions.