Guangdong Higher People's Court [10 October 2004]

Transcription

1 [PROCEEDINGS] Guangdong Higher People's Court [10 October 2004] Translation [*] by Meihua Xu [**] PARTIES AND COUNSEL. Plaintiff (Appellant, Defendant of counterclaims, hereafter, [Seller]): Inland Sea Incorporated, Address: 1005 Grandview Drive, Brigham City, Utah Legal Representative: Keith C. Tilley. Attorney: Chen, Huanzhong, attorney of Beijing Global Law Firm. Defendant (Appellant, Plaintiff of counterclaims, hereafter [Buyer] A): Jiedong County Haifu Fishery, Address: Jiedong County Economic Zone, Guangdong Province. Legal Representative: Liu, Jixing, CEO. Attorney: He, Jieqing, attorney of Guangdong Nuochen Law Firm. Attorney: He, Qiang, assistant attorney of Guangdong Nuochen Law Firm; Defendant (Appellee, hereafter, [Buyer] B): Jiedong County Yuequn Fishery, Address: Yuxin Road, Paotai Town, Jiedong County, Guangdong Province. Legal Representative: Hong, Yuequn, CEO. Attorney: He, Jieqing, attorney of Guangdong Nuochen Law Firm. Attorney: He, Qiang, assistant attorney of Guangdong Nuochen Law Firm; Defendant (Appellee): Hong, Yuequn, Male, born on 3 December Chinese. Address: Fenxi Village, Paotai Town, Jiedong County, Guangdong Province. Attorney: He, Jieqing, attorney of Guangdong Nuochen Law Firm. Attorney: He, Qiang, assistant attorney of Guangdong Nuochen Law Firm. [Buyer] A and [Seller] take objection to the decision made by the Jieyang City Intermediate People's Court of Guangdong Province on the dispute between [Buyer] A, [Buyer] B, Hong, Yuequn, and the [Seller], and appealed to this court. This court formed the collegiate bench to hear this case, and this case has been concluded. [POSITION OF THE PARTIES] [Seller]'s position From August 1996 to May 1997, Hong, Yuequn ordered ten times for a total of 12,100 cases of "Luhai" brand artemia cysts for US $1,012,565 in his own name and in [Buyer] A's name and [Buyer] B's name. The delivery places were Jiedong County and Hong Kong. [Buyer] A, [Buyer] B, and Hong, Yuequn have delayed for two years in making payment to the [Seller] for the price for the goods of US $337,083. From August 1996 to May 1997, Hong, Yuequn was the legal representative of [Buyer] A and [Buyer] B. He signed the entire business documents, including the purchase order and acceptance document. The [Seller] asks the court to rule that: 1. [Buyer] B shall make payment in arrears for US $337,083 and the interest on it; 2. [Buyer] A, [Buyer] B, and Hong, Yuequn shall bear joint liability; 3. [Buyer] B shall bear the litigation fee. The [Seller] submitted the following evidence during the first trial: 1. Exclusive Agent Contract; 2. Two purchase orders (copy of fax) sent on 8 December 1996 and 4 March 1997, respectively; 3. Four letters (copy of fax) sent by Hong, Yuequn to the [Seller] on 3 April 1997, 30 April 1997, and 12 June 1997, respectively; 4. Two signed original B/Ls and three copies of B/Ls; 5. Five air shipping B/Ls (copies); 6. Business invoice (copy); 7. A fax (copy) sent by Wang, Qing to the [Seller] on 30 September 1997;

2 8. Six letters sent by Wang, Qing to the [Seller] on 21 November 1996, 14 December 1996, 20 December 1996, 27 December 1996, 28 April 1997, and 6 July 1997, respectively; 9. Bank record (copy); 10. Lower court decision: (2000) Lu Jing Zhong Zi No. 574 decision (copy) made by Shandong Higher People's Court. On 13 November 2002, the [Seller] had submitted Wang, Qing's written testimony to the Court of First Instance. [Buyer] B's position [Buyer] B defended that the [Seller] filed the lawsuit based on the exclusive agent agreement signed by the [Seller] and [Buyer] A, and that [Buyer] B had neither signed a sales contract nor an agency contract with the [Seller], nor had it received any goods. [Buyer] B and [Buyer] A were independent legal entities. The [Seller]'s asking [Buyer] B to bear the responsibility for [Buyer] A's debt has no legal or factual basis. Therefore, [Buyer] B asked the Court of First Instance to dismiss the [Seller]'s claims against it. [Buyer] B submitted the following evidence during the first trail: 1. Account confirmation sent by the [Seller] to Hong, Yuequn; 2. Chinese version of the account confirmation translated by Pan, Shaoda (copy of fax); 3. A letter sent by Robert E. Tilley to Hong, Yuequn on 11 March 1997 (copy of fax); 4. A letter sent by Wang, Qing to the [Seller] on 6 July 1997 (copy); 5. A notary issued by Jieyang City Notary Office. Hong, Yuequn's position Hong, Yuequn defends that: He signed the exclusive agent agreement with the [Seller] as the legal representative of [Buyer] A, and that he signed that agreement on behalf of [Buyer] A but not for himself. Therefore, Hong, Yuequn asked the Court of First Instance to dismiss the [Seller]'s claims against him. [Buyer] A's position [Buyer] A defended that: 1. [Buyer] A had never received 12,100 cases of artemia cysts. The [Seller] alleged that it had delivered 12,100 cases of artemia cysts, for which [Seller] should bear the responsibility to provide evidence of this; 2. [Buyer] A had made the entire payment in accordance with the contract. The [Seller]'s allegation that [Buyer] A delayed in making payment has neither legal nor factual basis; 3. The [Seller] violated the exclusive agent agreement by selling the goods to Qingdao arbitrarily, with the result that [Buyer] A suffered economic losses;

3 4. Even if the [Seller] had been entitled to file a lawsuit, the litigation period had lapsed. Therefore, [Buyer] A had asked the Court of First Instance to dismiss the [Seller]'s claims. Counterclaims [Buyer] A counterclaimed that: [Buyer] A and the [Seller] signed an exclusive agent agreement, by which [Buyer] A was authorized to sell artemia cysts in China from 2 September 1996 to 1 September 1997 as an exclusive agent of the [Seller]. During the performance of the agreement, the [Seller] violated the agreement by selling 40 tons of artemia cysts to Qingdao, with the result, that [Buyer] A's business reputation was damaged and [Buyer] A suffered a loss of profit of renminbi [RMB] 3,200,000. By using the aforesaid reason, some clients of [Buyer] A refused to make payment to [Buyer] A for a total of RMB 1,500,000. After [Buyer] A raised objection to the [Seller], the [Seller] sent a written apology to [Buyer] A on 11 March 1997, admitting its contract violation. In addition, the quantity and quality of the goods provided by the [Seller] were not conforming, for which [Buyer] A had asked for compensation. However, the [Seller] had never made any compensation. Therefore, [Buyer] A asked the court to rule that the [Seller] should compensate [Buyer] A the sum of RMB 4,700,000 and bear the counterclaim fee. [Buyer] A submitted the following evidence during the first trail: 1. The sales contract entered into by the [Seller] and Qingdao Xinsheng Trade Company (copy); 2. The sales contract entered into by the [Seller] and Hong Kong Jiafeng Trade Company (copy); 3. Exclusive Agent Agreement. [Seller]'s defense The [Seller] submitted the following defense to [Buyer] A's counterclaim: [Buyer] A did not sell goods in Qingdao, therefore, the [Seller]'s signing a contract that was beyond [Buyer] A's business scope cannot cause any damage to [Buyer] A. As to quality problems, [Buyer] A, [Buyer] B, and Hong, Yuequn would ask for the return of nonconforming goods prior to each delivery. However, this time, they have resold the entire goods without returning any goods. FINDINGS OF THE COURT OF FIRST INSTANCE The Court of First Instance found the following: - On 2 September 1996, representing the [Seller], Robert Tilley signed an exclusive agent agreement with Hong, Yuequn, the legal representative of [Buyer] A, by which the [Seller] agreed to provide the goods, and [Buyer] A agreed to sell at least 40 tons of goods within the agreement period and to make the entire payment;

4 - The [Seller] authorized [Buyer] A to be its exclusive agent in China; - [Buyer] A agreed to pay one-third of the payment prior to shipment and to pay the remaining two-third of the payment within 60 days after receiving the goods; if the two parties agree, [Buyer] A may make payment before the 60 days period; - The two parties shall determine the price for the goods prior to each shipment based on the market price; - The [Seller] guarantees the quality of the goods, and within 90 days after loading, the quality of the goods should remain the same quality as that prior to shipment under the condition that they are properly stored; - The agreement is effective for one year, from 2 September 1996 to 1 September After the agreement period expires, if the two parties fulfill their obligations and if the two parties agree, the agreement can be extended for another two years. After the conclusion of the agreement, Hong, Yuequn had been contacting the [Seller] via fax to place orders and discuss other business issues. In those faxes, Hong, Yuequn used both [Buyer] A's and [Buyer] B's stationeries with his signature. From 21 November 1996 to 28 April 1997, Wang, Qing was sending faxes to Robert Tilley (some were written on [Buyer] A's stationery and some on [Buyer] B's) with the following content: - Open artemia cysts' Chinese market; - Asking B/L from the [Seller]; - Asking the [Seller] to deliver the goods directly to China East Express Delivery Company to decrease double payment. On 11 March 1997, Robert Tilley sent a letter to Hong, Yuequn of [Buyer] A, stating that: "We are willing to continue business cooperation with [Buyer] A to open the Chinese market. As to the payment in arrears, we could make adjustment based on [Buyer] A's request. As far as we know, [Buyer] A was going to pay the remaining US $151,100 and one-third of the deposit for the containers in Hong Kong, i.e., US $42,290. The aforesaid payment has been discussed by [Buyer] A, Mr. Tilley and Pan, Shaoda. If you agree on this amount, please send the payment to Hong Kong, If, however, we made mistakes on these numbers, please notify us, and we will make adjustment. As long as you send the payment to Hong Kong, the B/Ls in Hong Kong would be sent to you immediately. We have sold goods to Qingdao twice, and the clients were found by Mr. Tilley and Pan, Shaoda when they visited Shandong last time. The goods were packed in 8kg plastic bucket. We have also sold the goods to Hong Kong: 1,200 cases of 70%, 500 cases of 80%, and 500 cases of 90% Luhai brand artemia cysts." On 12 June 1997, Hong, Yuequn sent a letter to Mr. Tilley, stating that:

5 1. The goods in the recent two deliveries had poor quality. Mr. Tilley took 10 buckets of No. 28 goods and two buckets of No. 30 goods without informing us of the inspection result. Please notify us of the inspection result and give your opinions. 2. [Seller] should make compensation to [Buyer] A. On 6 July 1997, Wang, Qing sent a letter to Keith Tilley and Robert Tilley with the following content: "We have received your fax sent on 2 July, but Hong, Yuequn has not told me how to reply to your fax yet. Based on our agreement (my payment is US $7,500 on the condition that I need to sell five tons of goods; if I sell more than five tons, then I can receive a 3% commission). From August 1996 to March 1997, Hong, Yuequn had purchased 12,100 cases of goods (61.71 tons), totaling US $949,175, and my commission is about US $26,186, plus salary, totaling US $33,668. I have received US $6,000. Therefore, the [Seller] should pay me about US $29,668." On 18 July the same year, the [Seller] faxed the account confirmation to Pan, Shaoda, who translated and sent it to [Buyer] A on 27 August. The following are the contents of the account confirmation: From 9 August 1996 to 1 May 1997, thirteen deliveries, totaling 11,200 cases of goods had been delivered, item numbers: 80% and 90%; The total price was US $1,012,565; The [Seller] agreed to adjust the price, deduct US $63,390, plus US $10,000; remainder: US $949,175; From 30 August to 9 May 1997, a total of US $622, had been paid; The payment in arrears was US $337, (949,175 minus 622,091.55); [Buyer] A asked a reduction of US $117,000 due to quality problems; thereby, the remaining payment would be US $220,000. Wang, Qing faxed the aforesaid account confirmation to Robert Tilley. On 13 November 2002, the [Seller] submitted the aforesaid account confirmation to the Court of First Instance as evidence for payment in arrears. The business invoices provided by the [Seller] issued from 9 August 1996 to 1 May 1997 indicated that [Buyer] A was the purchaser and the air shipping B/L also identified [Buyer] A as the notifier. In addition, it was ascertained that the [Seller] was registered in Utah, U.S. with a record number of C and an address of 1005 Grandview Drive. Keith Tilley, the CEO, and Robert Tilley, the president, and Tilley, the vice president, had the authority to sign the contract. [Buyer] B is a limited liability company, which has a business license with a registration number of (1-1), and its legal representative is Hong, Yuequn. On 16 May 1997, [Buyer] A was changed into a foreign funded enterprise (Taiwan) with a registration number of Qi Du Yue Jie Zong Zi No The legal representative is Liu, Jixing, who replaced the former representative, Hong, Yuequn.

6 On 12 November 1996, the [Seller] signed a sales contract with Qingdao Xinsheng Trade Company. The [Seller] admitted that in December 1996, it delivered 8.80 tons of artemia cysts (worth US $198,440) to Qingdao port and submitted the (2000) Lu Jing Zhong Zi No. 574 decision handed down by Shandong Higher People's Court as supporting evidence. On 3 March 1997, the [Seller] signed a sales contract with Hong Kong Jiafeng Trade Company. On 13 November 2002, the [Seller] asked the Court of First Instance to have Wang, Qing as a witness, submitting Wang, Qing's written testimony. Wang, Qing testified that he acted as a middleman of the [Seller], who introduced the [Seller]'s products into the Chinese market. From June 1996 to June 1997, as requested by Hong, Yuequn, Wang, Qing sent purchase orders to the [Seller] and translated the corresponding letters and faxes, meanwhile, Mr. Pan, Shaoda was also in charge of some matters. Because the [Seller] sold goods to Qingdao, it reached an agreement with Hong, Yuequn, by which the [Seller] shall apologize to Hong, Yuequn and Hong, Yuequn shall pay the delayed payment. Based on this, on 21 March 1997, the [Seller] sent a letter to Hong, Yuequn to apologize. However, the [Seller] did not receive any payment. Wang, Qing testified that the payment in arrears was US $337,083. [Buyer] B, [Buyer] A, and Hong, Yuequn denied Wang, Qing's testimony, alleging that Wang, Qing was the [Seller]'s employee, and that from June 1996 to June 1997, Wang, Qing stayed at [Buyer] B, [Buyer] A and Hong, Yuequn's places. They provided service to Wang, Qing, however, Wang, Qing's performance did not represent them. [HOLDING OF THE COURT OF FIRST INSTANCE] The Court of First Instance held that this case involves a dispute for a delayed payment under an agency sales contract. The [Seller] and [Buyer] A failed to stipulate the applicable law at the time of the conclusion of the contract or after the dispute arose. Based on the proximate connection principle, Chinese law shall be applied. On 2 September 1996, based on equality and mutual agreement, Robert Tilley of the [Seller] and Hong, Yuequn, the legal representative of [Buyer] A, signed an exclusive agent agreement, which reflected the true minds of the two parties. The agreement has been established based on Chinese law and it is legal and effective. The focus of the dispute in this case is whether [Buyer] A has received the goods and whether [Buyer] A has delayed in making payment. The [Seller] provided an account confirmation as the main evidence to support its allegation of payment in arrears, and [Buyer] B submitted the same evidence showing that it has nothing to do with the delayed payment. [Buyer] B admitted that the [Seller] had faxed the account confirmation to Pan, Shaoda, who then translated it and faxed it to Hong, Yuequn of [Buyer] A. [Buyer] B also submitted a letter sent by Wang, Qing to the [Seller] on 6 July 1997, stating that from August 1996 to March 1997, Hong, Yuequn purchased 12,100 cases of artemia cysts, totaling US $949,175. The letters Wang, Qing sent to the [Seller] all mentioned the purchase of artemia cysts. Wang, Qing's performance gave sufficient reason for the [Seller] to reasonably believe that Wang, Qing was representing [Buyer] A and that Wang, Qing and [Buyer] A had an apparent agency relationship. Therefore, the corresponding letters sent by Wang, Qing for the performance of

7 the contract between the [Seller] and [Buyer] A and his testimony can be the basis for this case. The evidence provided by the aforesaid parties and the corresponding letters sent by the two parties during the performance of the contract can prove each other. Therefore, the account confirmation can be the basis to rule that [Buyer] A owed the [Seller] the price for the goods. The [Seller] alleged in its account confirmation that [Buyer] A owed the [Seller] US $337, minus US $117,000, which was a deduction requested by [Buyer] A due to the quality defect. The payment in arrears is thus US $220,000. After receiving [Buyer] A's account confirmation, the [Seller] raised no objection, nor did [Seller] provided evidence showing its objection to the amount of payment in arrears, i.e., US $220,000. Therefore, the court confirmed that [Buyer] A owed the [Seller] US $220,000. The two parties did not stipulate the time for making the payment in arrears. The [Seller] may ask [Buyer] A to perform its obligation of making payment at any time. [Buyer] A owes the [Seller] US $220,000; therefore, it should make payment based on law. The [Seller]'s asking for interest is legal and acceptable. However, the interest should be calculated from the starting date of the delay, i.e., 18 July 1997, based on the bank loan interest rate of Bank of China at that time. [Buyer] A's allegations that that it has made the entire payment, that there is no payment in arrears, and that the payment claim was raised beyond the time limitation cannot be established and should not be accepted. The [Seller] delivered the goods based on the exclusive agent agreement entered into by the [Seller] and [Buyer] A and the subjects of this agreement were the [Seller] and [Buyer] A. During the performance of the agreement, Hong, Yuequn was acting as both [Buyer] A's and [Buyer] B's legal representative. He used both [Buyer] A's and [Buyer] B's stationery for purchase orders and letters sent to the [Seller] with its signature. Based on Chinese law, Hong, Yuequn's performance represented the company. In addition, the business invoices and air shipping delivery list indicated that [Buyer] A was the purchaser and that [Buyer] A should be notified. Therefore, [Buyer] A should be deemed the buyer in this case. Hong, Yuequn's performance represented [Buyer] A. Therefore, based on the principle that the legal entity shall bear civil liability independently, [Buyer] A should be responsible for its debt. The reason that the [Seller] asked [Buyer] B and Hong, Yuequn to bear the responsibility cannot be established. The claim against them should be dismissed. [Buyer] B and Hong, Yuequn's defense that they were not relevant to this case and that they are not liable can be established and should be accepted by this court. There was no stipulation on contract violation liability in the exclusive agent agreement. [Buyer] A alleges that it has suffered losses of expectation profit of RMB 3,200,000 and that a payment of RMB 1,500,000 was refused by its client. However, there is no evidence to support this. [Buyer] A's counterclaim lacks factual basis; it cannot be established and should be dismissed.

8 Based on the above, the Court of First Instance handed down the following award citing articles 106 and 108 of the Civil Law of the PRC and article 23 of the then effective Law of the PRC on Economic Contract Involving Foreign Interest: 1. [Buyer] A shall pay the [Seller] the price in arrears of US $220,000 and the interest on it (calculated from 18 July 1997 to the day of payment which was determined in the award, based on bank loan interest rate of Bank of China at the same time), within 10 days of the effective date of the award; 2. [Seller]'s other claims are dismissed; 3. [Buyer] A's counterclaim is dismissed; the case procedure fee for the first trial is RMB 23,983; the other litigation fee for the first trial is RMB 2,398; the counterclaim fee for the first trial is RMB 36,861, totaling RMB 63,242, for which the [Seller] shall bear RMB 9, and [Buyer] A shall bear RMB 54, [Buyer] A took objection to the decision of the Court of First Instance, appealing to this court and asking the Court of Appeal to rule as follows: 1. Dismiss item 1 and 3 of the award handed down by the Court of First Instance; 2. Dismiss the [Seller]'s claims; 3. Direct the [Seller] to compensate [Buyer] A the sum of RMB 4,700,000; and 4. Rule that[seller] shall bear the litigation fee for the following reasons: (1) The Court of First Instance violated legal procedure - First, the indictment does not have the seal or signature of the [Seller]. It cannot represent the true mind of the [Seller]. - Second, the entrustment letter issued to Chen, Huanzhong, has not been notarized. - Third, the Court of First Instance failed to clarify the parties' status, and the attorney of the [Seller] acted as a translator during the investigation. - Fourth, the Court of First Instance violated legal procedure by adding [Buyer] A as a defendant. - Fifth, Wang, Qing's written testimony has not been verified at the court. When the witness was being investigated, the Court of First Instance failed to notify [Buyer] A to make verification at court. The Court of First Instance also failed to verify the written testimonies provided by Wang, Qing and Pan, Shaoda. When the Court of First Instance was investigating Wang, Qing, it failed to verify his identity, or to inform him of his obligation to provide testimony and the legal liability he shall bear when making false testimony. The Court of First Instance adopted a leading method and examined Wang, Qing only in the presence of the [Seller] and used his written testimony as the basis to make its decision in this case. (2) Wang, Qing was the [Seller]'s employee: The Court of First Instance erred in regarding him as the agent of [Buyer] A

9 a. Based on trade usages of the two parties, Hong, Yuequn, the former legal representative of [Buyer] A, signed the entire business documents involving purchase order, quality and payment. Wang, Qing's name has never been mentioned in those documents, and [Buyer] A has never entrusted Wang, Qing to perform the aforesaid business. Therefore, there is no basis for an allegation that [Buyer] A was trying to cause the [Seller] to believe that Wang, Qing was its agent. b. Wang, Qing was an employee of the [Seller] who received salary from the [Seller]. The documents sent from Wang, Qing to the [Seller] have no binding effect on [Buyer] A. Even though [Buyer] A had entrusted Wang, Qing, that entrustment was void due to the fact that Wang, Qing was the [Seller]'s agent. (3) [Buyer] A and the [Seller] have a dispute over contract violation and the quality of the goods; however, [Buyer] A has made the entire payment See the bank money transfer record and the receipt which the [Seller] issued to [Buyer] A. Even though the account confirmation does not fully reflect the payment made by [Buyer] A, it indicated that [Buyer] A made the payment in accordance with the agreement of the two parties. Pan, Shaoda was the middleman who was entrusted by [Buyer] A to make payment to the [Seller]. [Buyer] A petitioned the Court of First Instance to allow Pan, Shaoda to testify at the court. However, the Court of First Instance put down his testimony without verifying or accepting it. (4) The [Seller] failed to prove that [Buyer] A delayed in making payment The [Seller] uses the account confirmation which was made by itself, the letter sent from Robert Tilley to Hong, Yuequn of [Buyer] B on 11 March 1997, the letters sent by Wang, Qing, to Keith Tilley and Rober Tilley, and the letters sent by Hong, Yuequn of [Buyer] B to the [Seller], as evidence to support its allegation that [Buyer] A owes the price for the goods to the [Seller]. However, this is not sufficient; a) The account confirmation was issued by the [Seller] unilaterally. It has no binding effect on [Buyer] A. b) In the letter issued by Robert Tilley to Hong, Yuequn of [Buyer] B on 11 March 1997, the [Seller] apologized to [Buyer] A for its contract violation, admitting that it had delivered goods to Hong Kong and that the goods had been redirected from Hong Kong to Shanghai for resale. In this letter, the [Seller] mentioned the amount [Buyer] A owed to the [Seller]. However, it was only the [Seller]'s unilateral statement, which was not confirmed by [Buyer] A. c) As to the letters sent by Wang, Qing to Keith Tilley and Robert Tilley, they were sent to report his work and ask for salary and commission. Since Wang, Qing was neither [Buyer] A's employee nor agent, his performance does not represent and has nothing to do with [Buyer] A.

10 d) For the letter sent by Hong, Yuequn of [Buyer] A to the [Seller] on 29 March 1997, it only indicated that at that time, [Buyer] A should pay US $138, to the [Seller]. However, [Buyer] A had paid the entire amount afterwards. e) On 30 April 1997 and 12 June 1997, respectively, Hong, Yuequn sent two letters to the [Seller], giving [Buyer] A's opinions on the parties' business and disputes, which could only prove that [Buyer] A and the [Seller] had business transactions without confirming payment in arrears or the amount of payment in arrears. (5) The [Seller] violated the exclusive agent agreement by selling 40 tons of artemia cysts to its client in Qingdao, with the result, that [Buyer] A suffered an economic loss of RMB 4,700,000. [Seller]'s counter argument The [Seller] counter argues that the decision made by the Court of First Instance that Wang, Qing's performance constituted an apparent agent relationship was correct. [Buyer] A has no reason to appeal. The [Seller] asks the court to dismiss [Buyer] A's appeal. [Buyer] A and Hong, Yuequn did not make defense. The [Seller] took objection to the decision made by the Court of First Instance and appealed to this court, asking the court to rule that: 1. [Buyer] A shall pay the [Seller] the payment in arrears of US $337,083 and the interest on it; 2. [Buyer] B, [Buyer] A, and Hong, Yuequn shall bear joint liability; 3. [Buyer] B shall bear the litigation fee for the following reasons: 1. The decision made by the Court of First Instance to deduct US $117,000 has no basis, and [Buyer] A's compensation claim has no basis either; 2. In March 1997, Hong, Yuequn sent a fax to the [Seller] in [Buyer] B's name, stating that the parties to this sales contract were [Buyer] B and the [Seller]. After Hong, Yuequn resigned as legal representative of [Buyer] A, he ordered the goods and made payment to the [Seller] in [Buyer] B's name, and the parties making payment were [Buyer] B and Hong, Yuequn. Therefore, the decision made by the Court of First Instance that [Buyer] B had nothing to do with this case because the consignee of the B/L was not [Buyer] B, lacks basis. [Buyer] B defends that: [Buyer] B has no legal relationship with the [Seller], and there is no legal basis for having [Buyer] B bear joint liability. [Buyer] B therefore asks the court to dismiss the [Seller]'s claims. [Buyer] A counterclaims that: The decision made by the Court of First Instance that Hong, Yuequn and [Buyer] B shall not bear joint liability is correct. The [Seller]'s deducting the price without providing evidence

11 showing that [Buyer] A had delayed in making payment has no meaning at all. Even though the two parties had a dispute on the quality of the goods, [Buyer] A has paid the entire price for the goods. Therefore, the [Seller] has no reason to appeal. Its claims should be dismissed. Hong, Yuequn counter argues that: Hong, Yuequn was the legal representative of [Buyer] A. [Buyer] A should bear any legal consequence caused by Hong, Yuequn. [FACTS ASCERTAINED BY THE COURT OF APPEAL] After investigation, it was ascertained by this court that: The Court of First Instance's deducting US $117,000 due to [Buyer] A's claim on quality problems with the goods lacks basis. Based on the facts ascertained by this court, there were two account confirmations issued on 18 July 1997: one is the English version faxed by the [Seller] to Pan, Shaoda and the other is faxed by Wang, Qing to Hong, Yuequn after being translated by Pan, Shaoda. In the aforesaid two account confirmations, there were no indications that the 12,100 cases of goods were the goods under the contract in this case, nor were there Hong, Yuequn's signatures. Therefore, the Court of First Instance's confirming the aforesaid facts was erroneous and should be corrected. This court affirms the other facts ascertained by the Court of First Instance. This court also ascertains: 1. The formation of the sales contract On 2 September 1996, [Buyer] A and the [Seller] signed an exclusive agent agreement with the following terms: The period of this agreement was one year, from 2 September 1996 to 1 September After the agreement period expires, if the two parties fulfill their obligations and if the two parties agree, the agreement can be extended for another two years; [Buyer] A had the [Seller]'s sales market, and shall make payment for at least 40 tons of goods during the agreement period; [Seller] authorized [Buyer] A to be its sole agent in China; [Buyer] A agreed to pay one-third of the price for the goods prior to shipment and pay the remaining two-third of the goods within 60 days after the receipt of the goods. With the two parties' agreement, the payment period could be adjusted within 60 days. The two parties shall determine the price for the goods prior to each shipment based on the market price; the [Seller] guarantees the quality of the goods, and that for 90 days after loading, the quality of the goods should remain the same quality as that prior to shipment under the condition that they are properly stored. On 8 December 1996, Hong, Yuequn sent a purchase order to the [Seller] in [Buyer] A's name, ordering 4,400 cases of Luhai brand artemia cysts (the prices were US $148,200 and US $24,200, respectively).

12 On 4 March 1997, Hong, Yuequn sent a purchase order to the [Seller] in [Buyer] B's name, ordering 2,200 cases of Luhai brand artemia cysts (the price was US $187,000); On 30 April 1997, Hong, Yuequn sent a letter to the [Seller], asking it to airship 400 cases of goods on time. The [Seller] submitted five copies of sea shipment B/Ls issued on 26 November 1996, 3 December 1996, 17 December 1996, 25 February 1997, and 1 April 1997, respectively (there were three B/L duplicates and two original B/Ls) with the following content: Consignor: The [Seller]; Consignee: China Jieyang Import & Export Trade Company; Ports: Loading port was Long Beach, California, U.S.; destination port was Jieyang, China; Goods: Luhai Brand artemia cysts; Quantity: 220 cases, one container, 2,200 cases, 2,200 cases, and 2,200 cases, respectively; Weight (net weight): 34,880 lbs, 17,440 kgs, 24,750 kgs, 14,724 kgs, and 14,969 kgs, respectively. The [Seller] submitted five copies of air shipment B/Ls issued on 9 August 1996, 17 September 1996, 12 December 1996, 8 April 1997, and 1 May 1997, respectively, with the following content: Consignor: The [Seller]; Consignee: China East Express Hong Kong Company; Ports: Loading port was Salt Lake City, U.S.; destination port was Hong Kong; Goods: Luhai brand artemia cysts; Quantity: 400 cases, 500 cases, 500 case, 400 cases, and 400 cases, respectively; Weight (net weight): 2,903 kgs, 3, kgs, 3,516 kgs, 1,435 kgs, and 1,435 kgs, respectively. 2. Other facts Wang, Qing was the sales representative of the [Seller], and Pan, Shaoda was the agent of [Buyer] A. On 24 August 1999 and 19 September 2001, respectively, the Court of First Instance held two court sessions. On 13 November 2002, the aforesaid court interrogated Wang, Qing without arranging related parties to verify the written testimony provided by him. Chen, Huanzhong's entrustment letter has been notarized and has been certified by the Chinese Embassy in the U.S. [HOLDING OF THE APPELLATE COURT] This court holds that: 1. Case procedure

13 Even though the indictment does not have the [Seller]'s seal or signature, there was a seal of the Xinda Law Firm, which was entrusted by the [Seller]. Keith Tilley, the legal representative of the [Seller] presented at the court session and had no objection to the [Seller]'s prosecution. Therefore, [Buyer] A's allegation that the indictment could not represent the true intention of the [Seller] has no basis. It is not accepted by this court. Chen, Huanzhong's entrustment letter has been notarized and has been certified by the Chinese Embassy in the U.S. Therefore, [Buyer] A's allegation that Chen, Huanzhong's entrustment letter has not been notarized has no basis and is not accepted. Article 25 of the "stipulations on general procedures applicable to cases involving economic dispute in first trial" issued by the Supreme Court of the PRC stipulates that: "Any individual or party who knows the facts of the case has the obligation to make testimony at the court. The court shall check the witness' identity when he makes testimony at the court and shall inform him of his obligation to testify and the legal consequence he shall bear by bearing false witness. After the witness testifies, the court shall ask the parties' opinions on the testimony, and after being approved by the court, the parties and their agents may question the witness. If the witness has difficulty in presenting at the court, his written testimony shall be read at the court. For testimony obtained via the party's own investigation, the party shall submit it to the court after reading out, and the opposite party may ask questions on it; testimonies obtained by the People's Court through its own investigation shall be read out by the clerk, and the two parties may ask questions on it." The Court of First Instance failed to inform the witness of his obligation to give testimony and the legal consequence he shall bear by giving false testimony, or have the party read out the testimony and let the opposite party to ask questions. The aforesaid court ascertained the facts based on Wang, Qing's written testimony, which has violated legal procedure. Therefore, this written testimony cannot be the basis to determine the facts. 2. Substance (1) Nature of this case This case involves a dispute arising from a contract for the international sale of goods. A sales contract means the seller is going to transfer the ownership of the goods to the buyer and the buyer is going to pay the price under the contract. An entrustment contract is an agreement between the consignor and the consignee, by which the consignee will deal with matters on behalf of the consignor. Exclusive agency means that within the period of the agent agreement and area, the client, i.e., the consignor, should not sell the goods by itself or through other agents. Article 1 of (1996) Fa Fu No. 16, Reply on how to determine jurisdiction when there is an inconsistency between the name and the content of an economic contract, stipulates that: "Even though the economic contract signed by the parties has a definite and formal name, if the rights and obligations determined in the contract are inconsistent with the name of the contract, the nature of the contract shall be determined based on the rights and obligations stipulated in the contract..."

14 In the instant case, [Buyer] A and the [Seller] signed an exclusive agent contract. However, the rights and obligations stipulated in the contract do not have the characteristics as an exclusive agent contract, which was inconsistent with the name of the contract. Therefore, the nature of the contract shall be determined based on the rights and obligations stipulated in the contract. The stipulations in the contract conform to the characteristics of a sales contract. Therefore, the nature of the contract is a sales contract. Article 13 of the Civil Procedure Law of the PRC states that: "Parties are entitled to civil rights and litigation rights within the scope stipulated by law." Therefore, in the first trial, the [Seller] had the right to determine the object of the litigation, i.e., the object of the lawsuit. The [Seller] alleges that it has a sales contract relationship with [Buyer] A, [Buyer] B, and Hong, Yuequn and asks the court to rule that the aforesaid three parties shall bear joint liability to pay US $337,083 and the interest on it. Therefore, the object of the litigation in this case is a sales contract relationship. The Court of First Instance was in error in improperly determining that this case involved a dispute over an agency contract. (2) Jurisdiction and applicable law The Court of First Instance had jurisdiction over this case, and the parties in this case had no objections to the jurisdiction of the Court of First Instance. Therefore, this court accepts its jurisdiction. Article 142(2) of the Civil Law of the PRC states that: "If any international treaty concluded or acceded to by the People's Republic of China contains provisions differing from those in the civil laws of the People's Republic of China, the provisions of the international treaty shall apply, unless the provisions are ones on which the People's Republic of China has announced reservations." Article 1(1) of the CISG stipulates that: "(1) this Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States..." China and the U.S. are Contracting States of the CISG, and [Buyer] A and [Buyer] B's places of business are in China and the [Seller]'s in the U.S., therefore, the CISG shall apply to the sales contract between the parties. Based on article 145(2) of the Civil Law of the PRC, the Court of First Instance determined that Chinese law shall be applied, which was the wrong application of law and should be corrected. (3) Disputes and judgment The focus of the dispute in the second trial is whether the [Seller] and [Buyer] B, and Hong, Yuequn have a sales relationship; whether the [Seller] has provided 12,100 cases of Luhai brand artemia cysts to [Buyer] A, [Buyer] B, and Hong, Yuequn; and whether [Buyer] A shall bear entrustment responsibility for Wang, Qing's performance. 1. Whether [Seller] and [Buyer] B, and Hong, Yuequn have a sales relationship

15 Article 5 of the stipulations on evidence for civil prosecution issued by the Supreme Court states that: "For cases involving contract disputes, the party alleging that the contract has been established and effective shall bear the responsibility to provide evidence to support its allegation..." In the instant case, the [Seller] alleges that it has a sales relationship with [Buyer] B and Hong, Yuequn, therefore, the [Seller] shall bear the responsibility to provide evidence proving the facts that the contract has been established and effective. Article 23 of the CISG stipulates that: "A contract is concluded at the moment when an acceptance of an offer becomes effective in accordance with the provisions of this Convention." The purchase orders issued by [Buyer] B and Hong, Yuequn that were provided by the [Seller] are just offers. The [Seller] failed to prove that [Buyer] B and Hong, Yuequn have declared or by other action expressed that they had agreed on the price. Therefore, the [Seller]'s allegation that it has a sales relationship with [Buyer] B and Hong, Yuequn lacks evidence and is not accepted. 2. Whether the [Seller] has provided 12,100 cases of Luhai brand artemia cysts to [Buyer] A, [Buyer] B, and Hong, Yuequn Article 2 of the stipulations on evidence for civil prosecution issued by the Supreme Court states that: "A party shall be responsible to provide evidence to prove the facts based on which it filed claims or made defense to the other party's counterclaim." Since the [Seller] alleges that it has delivered 12,100 cases of goods to [Buyer] A, it shall be responsible for providing evidence to prove this. [Buyer] A and the [Seller] have no dispute on the facts that the two parties have concluded a contract for artemia cysts, that the [Seller] has provided goods to [Buyer] A, and that [Buyer] A has made payment to the [Seller]. However, [Buyer] A has not confirmed that it has received 12,100 cases of goods. The consignees indicated in the B/L and air shipment B/L were Jieyang Import and Export Trade Company and East Express Delivery Hong Kong Company. The [Seller] failed to prove that [Buyer] B and Hong, Yuequn designated the aforesaid two parties to accept the goods. Even though the business invoices issued on 9 August 1996 and 1 May 1997 that were provided by the [Seller] indicated that [Buyer] A was the purchaser, and the air shipment B/L also indicated a notifier of [Buyer] A, however, the aforesaid evidence was issued by the [Seller] unilaterally and is beneficial to the [Seller]. Therefore, it does not have the power of evidence. Based on the above, the [Seller] has failed to prove that it has delivered 12,100 cases of goods to [Buyer] A, [Buyer] B, and Hong, Yuequn.

16 3. Whether [Buyer] A shall bear entrustment responsibility for Wang, Qing's performance Apparent agency means an agent who has no authority, but acts as if it has agency authority, which would reasonably cause other parties to believe that it has the power of an agent. It is stipulated by law that under the aforesaid situation, the agent itself shall be liable to prove its authority to protect the other party's reliance and the safety of the trade. In the instant case, Wang, Qing was the [Seller]'s sales representative, but not [Buyer] A's employee. However, in July 1997, Wang, Qing sent a letter to the [Seller], saying that there was no stipulation on apparent agency in Chinese law. However, Article 49 of the Contract Law of the PRC stipulates that: "Where a person lacking agency authority, acting beyond his agency authority, or whose agency authority was extinguished concluded a contract in the name of the principal, if it was reasonable for the other party to believe that the person performing the act had agency authority, such act of agency is valid." The aforesaid article refers to an agency act of concluding a contract in the name of the principal. Wang, Qing, did not conclude a contract with the [Seller] in the name of [Buyer] A. Therefore, [Buyer] A shall not bear the responsibility for Wang, Qing's performance. The Court of First Instance held that "Wang, Qing's performance gave sufficient reason for the [Seller] to believe", since "the letters sent by Wang, Qing to the [Seller] all mentioned the matter of purchasing artemia cysts" and held that [Buyer] A shall be liable for Wang, Qing's performance. This holding lacks legal basis. (4) Other issues On 29 March 1997, [Buyer] A admitted in the letter sent to the [Seller] that it should pay US $138, to the [Seller]. However, based on the account confirmation accepted by the [Seller], the [Seller] alleges that on 4 April, 5 April, 18 April, 28 April, and 9 May, respectively, [Buyer] A paid US $89,988, US $9,840, US $35,988, US $23,000, and US $32,000 to the [Seller], which means that the [Seller] admits that after 29 March 1997, [Buyer] A had paid US $190,816. Therefore, it shall be deemed that [Buyer] A has made the aforesaid payment in arrears of US $138, As to [Buyer] A's counterclaim, [Buyer] A failed to prove that during the period of contract performance, the [Seller] violated the contract by selling 40 tons of goods to other areas, including Qingdao. Whether its client refused to make payment has no causal relationship with the [Seller]. Therefore, [Buyer] A's claim to have the [Seller] pay its loss of profit of RMB 3,200,000 and other damage of RMB 1,500,000, lacks legal and contractual basis. It was therefore not improper that the Court of First Instance dismissed this claim of [Buyer] A. (5) Conclusion For the same debt, at the first and the second trail, the [Seller] asks [Buyer] A to pay the price for the goods of US $337,083 and the interest on it. Meanwhile, it asks the court to rule that [Buyer] A, [Buyer] B, and Hong, Yuequn shall bear joint liability. The part that the [Seller] asks [Buyer] A to bear is a duplicated claim.

17 Since [Buyer] A need not be responsible for Wang, Qing's performance, the Court of First Instance mistakenly deemed that [Buyer] A owed the [Seller] US $2,200,000 based on the fax sent by Wang, Qing to the [Seller] on 30 September 1997, and its ruling that [Buyer] A shall pay the [Seller] US $2,200,000 lacks basis and should be corrected. Based on civil theory, joint debt means that several debtors owe the same debt, and each debtor is obligated to perform the entire debt. The creditor can ask one of them, some of them, or all of the debtors to pay part of the debt or the entire debt at the same time or at different times. In the instant case, the [Seller] asked [Buyer] A, [Buyer] B, and Hong, Yuequn to pay the entire debt at the same time, which means the [Seller] was asking them to bear joint liability. Article 87 of the Civil Law of the PRC stipulates that: "... each joint creditor shall be entitled to demand that the debtor fulfill his obligations;... each joint debtor shall be obliged to perform the entire debt..." A joint debt is established when the creditor expressly declares or when there are law stipulations. The [Seller] failed to prove either that it has concluded a sales contract for 12,100 cases Luhai brand artemia cysts with [Buyer] A, [Buyer] B, and Hong, Yuequn, or that it has reached an agreement with the three parties by which each of the three parties is obligated to pay the entire debt. The law does not stipulate that a joint debt relationship has been established under this circumstance. The [Seller]'s asking [Buyer] A, [Buyer] B, and Hong, Yuequn to jointly bear the payment of US $337,083 and the interest on it has no legal and factual basis. Therefore, the Court of First Instance's dismissal of the [Seller]'s claim to have the aforesaid three parties bear joint liability is not improper. Based on the above, [Buyer] A has sufficient reason to appeal, which this court supports. However, the reason for the [Seller] to appeal cannot be established and this court does not support it. The Court of First Instance ascertained facts improperly and mistakenly applied the law, which shall be corrected. Based on article 153 1(1) and (3) of the Civil Procedure Law of the PRC, this court: Affirms item 3 of the original decision; Recalls item 1 and 2 of the original decision and the decision regarding sharing the litigation fee; and Dismisses the [Seller]'s claims. The case acceptance fee for the first trial is RMB 23,983, and the other litigation fee is RMB 2,398, which shall be borne by the [Seller]. The case acceptance fee for the counterclaim for the first trial is RMB 36,861, which shall be borne by [Buyer] A. The case acceptance fee for the second trial is RMB 60,844, for which the [Seller] shall bear RMB 23,983 and [Buyer] A shall bear RMB 36,861. Both the [Seller] and [Buyer] A have paid the case procedure fee in advance. Therefore, RMB 36,861 shall be refund to the [Seller] and RMB 23,983 shall be refunded to [Buyer] A. This is the final decision. Chief Judge: Wang, Yuyu; Agent Judge: Li, Ji; Agent Judge: Han, Haibin

18 Clerk: Su, Zhili; Clerk: Hao, Yi 10 October 2004 FOOTNOTES * All translations should be verified by cross-checking against the original text. For purposes of this translation, Plaintiff of the United States is referred to as [Seller] and Defendant of Jiedong County Haifu Fishery is referred to as [Buyer] A, Defendant of Jiedong County Yuequn Fishery is referred to as [Buyer] B. Amounts in the currency of the United States (dollars) are indicated as [US $]; amounts in the currency of the People's Republic of China (renminbi) are indicated as [RMB]. ** Meihua Xu, LL.M. University of Pittsburgh School of Law on an Alcoa Scholarship. She received her Bachelor of Law degree, with the receipt of Scholarship granted by the Ministry of Education, Japan, from Waseda University, Tokyo, Japan. Her focus is on International Business Law and International Business related case study.