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Lawyers, other representatives, expert(s), tribunal’s secretary

Arbitral Award

I. Acceptance of Arbitration Application and Arbitral Proceeding

The China International Economic and Trace Arbitration Commission (hereinafter referred to as "CIETAC") has accepted a written Request for Arbitration submitted by Handan Haixing Toys Co., Ltd. (hereinafter referred to as "Petitioner") on February 20, 2003, with respect to a toy trade dispute arising out of an economic and trade contract which the Petitioner entered into with ELKO (USA), Inc. (hereinafter referred to as "Respondent") on February 1, 2000 (hereinafter referred to as "the Contract") and pursuant to certain correspondences between Petitioner and Respondent dated respectively April 4, 2002, April 5, 2002 and April 8, 2002 in which an Arbitration Agreement was reached by both parties. This case is assigned a case number G20030056.
This Arbitration shall be subject to the Arbitration Rules of CIETAC implemented and effective as of October 1,2000 (hereinafter referred to as "Arbitration Rules").
On March 17, 2003, the Secretariat of CIETAC has sent out a Notice of Arbitration to both Petitioner and Respondent via courier service. The Notice to Respondent was sent to the address provided by Petitioner: "52-02 Grand Ave, Maspeth, NY 11378". Upon inquiry with the commissioned courier service, said notice was left at the address of the addressee due to "incorrect address and telephone number."
Upon receiving notification of foregoing situation from CIETAC, Petitioner wrote to CIETAC on April 8, 2003, further confirming that the address of Respondent is "52-02 Grand Avenue, Maspeth. NY 11378. ".
On April 14, 2003, the Secretariat of CIETAC made second attempt to deliver the above-mentioned Notice of Arbitration to the above address of Respondent via a service agent Global Law Firm. All subsequent arbitration documents and notices have been similarly delivered to Respondent via such service agent. Pursuant to Section 87 of the Arbitration Rules, which provides "If none of the respondent's domicile, habitual residence, place of business, office or the place stipulated by the respondent as the place of delivery of documents from the Petitioner or its arbitration representative can be found after making a reasonable inquiry by the Petitioner, following delivery to the respondent of the request for arbitration to the respondent's last-known domicile, habitual residence, place of business or the place of delivery by registered mail or any other means by which the attempt to deliver it can be certified shall be deemed by CIETAC as satisfactory delivery", all arbitration documents and notices of this case have been satisfactorily delivered to Respondent.
The Respondent did not appoint any arbitrator within the prescribed period provided in the Arbitration Rules, neither did it provide any written materials for defense.
On May 28, 2003 Chief Arbitrator Mr. LIU, Shaoshan appointed by CIETAC chairman in compliance with Section 24 of the Arbitration Rules, Arbitrator Ms. WEI, Qingyang appointed by the Petitioner, and Arbitrator Mr. TAO, Zhenghua appointed by the CIETAC chairman on behalf of the Respondent in compliance with the provisions of Section 26 of the Arbitration Rules jointly established an arbitral tribunal to hear this case.
Pursuant to the decision of foe Secretariat of CIETAC, the arbitral tribunal commences its hearing of the case on July 16, 2003 in the City of Beijing. The Secretariat of CIETAC sent out the Notice of Heating to Petitioner and Respondent respectively on June 4, 2003.
On July 16, 2003, the arbitral tribunal commenced its hearing of this case in accordance with foe Notice of Hearing. Petitioner’s representative and Petitioner's arbitration representative attended the hearing; Respondent was absent without any explanation. Pursuant to Section 42 of the Arbitration Rules, foe arbitral tribunal proceeded with the hearing in Respondent’s absence. Petitioner made statement of facts to the tribunal, provided explanation for all evidence submitted by Petitioner, clarified its claims and answered questions of the tribunal.
After hearing, the Secretariat of CIETAC sent correspondence to Respondent to inform it of the hearing and further notify Respondent of the following: the arbitral tribunal requested additional materials from Petitioner to be submitted prior to July 31, 2003; if Respondent desires to raise any counterclaims, answers or comments, Respondent shall submit same prior to said date.
The additional materials submitted by the Petitioner reached CIETAC via mail on August 1, 2003. Respondent did not provide any counterargument. The Secretariat of CIETAC forwarded such additional material to Respondent on August 8, 2003, requesting counterargument to be submitted prior to August 22, 2003. Respondent did not provide any response within such period.
The proceeding of this case having been concluded, based on all existing written materials and facts ascertained at foe hearing, the arbitral tribunal hereby makes the following award upon joint deliberation.
The findings, opinion of the arbitral tribunal and the arbitral award are as follows:

II. Findings

Petitioner claims:
Petitioner has been conducting business with Respondent since the end of 1998. Up to the end of 1999, Petitioner had shipped to Respondent seven (7) shipments of goods with total invoice price of USD $167,133.48. During the order fulfillment, Respondent raised questions of incorrect specifications and uncleanness of toys regarding the second shipment with an invoice price of USD $26,143.32. To express its good faith, Petitioner agreed to lower the shipment price to USD $13,650 without receiving any evidence from Respondent, granting Respondent a reduction of USD $12,493.32 from the invoice price. In addition, Respondent claimed that the fifth shipment with an invoice price of USD $20,131.68 was delayed in shipment, causing great damage to Respondent, and requested compensation in the amount of USD $22,000, which exceeded the invoice price of said shipment. Without admitting any fault, Petitioner agreed that Respondent could withhold said amount from its payment payable to Petitioner. Taking consideration of the above two payment deductions, Respondent had owed Petitioner payment in the amount of USD $132,640.16 by the end of 1999. Respondent made four installment payments, respectively on February 4, 1999, June 11, 1999, December 7, 1999 and December 30, 1999 for a total amount of USD $67,682.44, leaving a balance of USD $64,957.72 outstanding.
On February 1, 2000, Petitioner and Respondent entered into the Contract, which provides that Respondent shall make installment payments to pay off balance of approximately USD $60,000 to Petitioner between February to July, 2000. The Contact also provides that Respondent shall in principle place toy purchase orders of two (2) to four (4) containers per month from Petitioner, with a payment term within sixty (60) days of receipt of each shipment.
Based on the Contract, Petitioner continued to ship nine (9) shipments of toys to Respondent during February to November of 2000. All those nine shipments, with an invoice price of USD $182,731.72, were inspected by commercial inspection authorities before departure. At Respondent’s request, the recipient of those nine shipments was stated as DJ TOYS, Inc. in related documents.
Based on the above, Respondent owed Petitioner the total amount of USD $247,689.44, consisting of the unpaid balance of USD $64,957.72 for 1999 shipments and USD $182,731.72 for 2000 shipments. After execution of the Contract, Respondent made seven (7) installment payments with a total of USD $82,789.40 to Petitioner on the following dates: March 15, 2000, March 31, 2000, April 17, 2000, May 12, 2000, May 31, 2000, July 26, 2000 and August 21, 2000. Up to then, the outstanding balance owed by Respondent to Petitioner amounted to USD $164,900.04. Since August 21, 2000, Petitioner has made repeated requests, both in written and oral forms, to Respondent for the outstanding payment but to no avail. The failure of payment by Respondent caused severe damage to Petitioner, including but not limited to Interest loss and unredeemable export tax rebates. Therefore, Petitioner makes the following claims in its Request for Arbitration:

1. Respondent pay the outstanding debt in the amount of USD $164,900.04 along with all accumulated interests; and

2. Respondent pay for the Arbitration Fee, the legal fees and other expenses incurred by Petitioner in its pursuit for the outstanding indebtedness.

Petitioner makes the following claims in its Restated Request for Arbitration and Supplemental Hearing Statement submitted after the tribunal hearing:

A. Debt Principal in the Request for Arbitration

a. Upon audit of its books, Petitioner revealed one payment in the amount of USD $27,816.12 dated October 8, 2000, which appeared to be a payment made by Respondent to Petitioner and should be deducted from the Debt Principal stated in the Request for Arbitration. In addition, Petitioner recalled a negotiated discount of USD $1,720 for the third shipment that, although without any evidence, Petitioner agrees to be deducted from the Debt Principal listed in the Request for Arbitration. In addition, Petitioner made a minor mistake in its calculation of shipment prices for shipments in 2000, which shall amount to USD $182,732.32 instead of USD $182,731.72, so the difference of USD $0.6 shall be credited to the Debt Principal. Therefore, the total Debt Principal claimed by Petitioner for Arbitration shall be $164,900.04-$27,816.12-$1,720+$0.60 = USD $135,364.52.

b. The amount of debt claimed by Petitioner in its Request for Arbitration is different from what was claimed in previous Attorney Letter, which stated the debt as USD $155,918.44. This discrepancy is caused by repeated minor deductions made by Respondent in its payments, which totaled to USD $1,083.20 and should be credited to the Debt Principal. In addition, Respondent raised quality issue against the fifth shipment with an invoice price of USD $20,131.68 and claimed compensation of USD $22,000, but Petitioner only agreed to pay USD $19,768.80. Since there was no agreement on this claim, in order to avoid further dispute, Petitioner accepted the USD $22,000 claim in the Request for Arbitration and thereof deducted the amount from the Debt Principal. Based on the above, the calculation on Debt Principal shall be: $155,918.44 + $1,083.20 -$21,637.12=$135,364.52. This amount is consistent with the foregoing debt claimed by Petitioner. In addition, Respondent did not raise any opposition to the amount of debt except for the issue of quality with the fifth shipment.

B. Interest Calculation Formula

a. The Commencement and Ending of Interest Period

Pursuant to the terms of payment provision of the Contract which provides that payments shall be made within sixty (60) days after the shipments are received, if interest calculation is separately based on each individual shipment, the calculation would become complicated on a monthly basis for the years 1999 and 2000. In order to evidence good faith in negotiation and for convenience of calculation, Petitioner hereby agrees that the commencement of interest period is to be set on January 1, 2001 and the ending of interest period on July 1, 2003, which means the interest aggregation shall be calculated for the period of thirty (30) months (two and half [2.5] years),

b. Currency of Debt Principal and Interest Rate

If the interest calculation on Debt Principal is in U.S. Dollar and the interest applies the Foreign Exchange Loan Rate, the total interest loss to be claimed by Petitioner would be much more significant. Based on good faith, Petitioner hereby agrees that the calculation of Debt Principal shall be in RMB, for the equivalent of USD $135,364.52 based on the exchange rate published by the People’s Bank of China on July 16, 2003 (100:826.47), and the interest rate shall be the Annual Rate for "1-3 Year Long and Mid Term Loan Rate" published by the People’s Bank of China in 1999, which is 5.94%. According to the above agreements, the total debt shall be RMB ¥ 166,133.94 (135,364.52 X 8,2647 X 2.5 X 5.94%=RMB¥ 166,133.94).

C. Legal Fees and Expenses

For the purpose of pursuing payments owed by Respondent and applying for arbitration, Petitioner has incurred the following expenses:

a. Mediation fee in the amount of RMB ¥ 2,500 paid to International Chamber of Commerce, Hebei Branch to pursue the payments owed by Respondent; and

b. Attorney fees RMB ¥ 60,000 plus transportation fee RMB ¥ 2,065.80 (including transportation in Beijing, traveling and accommodation fees);

In summary, the Debt Principal claimed by Petitioner in the Request for Arbitration shall be USD$ 135,364.52, with interest of RMB¥ 166,133.94 and legal fee and other expenses in the amount of RMB¥64,565.80. In addition, the arbitration fee shall also be solely paid by Respondent.

D. Supplemental Post-hearing Opinion

A. Petitioner is a Sino-Foreign Joint Venture established by Handan Hengli Industrial Co. Ltd. and the Respondent. According to the Foreign-Invested Enterprise Approval Certificate of Petitioner, the foreign investor of Petitioner, namely Respondent, is ELKO (USA), INC.

B. According to the Joint Venture Contract, Respondent is responsible for the 100% exportation of Petitioner's products as the sole buyer. In fact, all toys manufactured by Petitioner were supplied to Respondent for sales overseas. It was Respondent’s request to use the name "DJ Toys, Inc." as the recipient on some Bills of Lading in order to simplify the customs clearance, and the de facto recipient of shipments was Respondent, This business relationship could be evidenced by other correspondence between Petitioner and Respondent. Petitioner used to forward the original Bills of Lading to Respondent via bank or mail. In addition, during the course of meditation when the Legal Department of International Chamber of Commerce, Hebei Branch asked Respondent to pay the debt owed to Petitioner, Respondent made a written reply on April 8, 2002, which did not deny the acceptance of the shipments from Petitioner. Therefore, Petitioner hereby claims that since Petitioner had completed the loading of shipments and had mailed the original Bill of Lading to Respondent, Petitioner had fulfilled its obligations under the Contract. Therefore the Respondent was obliged to make full payment to Petitioner within sixty (60) days after receiving each shipment.

Respondent did not raise any opposition or disagreement to the requests and statement of facts made by Petitioner in connection with this case.

III. Arbitral Tribunal Opinion

After deliberation, this Tribunal now renders the following opinions:

1. Petitioner and Respondent have agreed in Section 5 of the Contract in question: "Party A and Party B shall cooperate in good faith. In the event of any dispute in the course of trade, both parties shall settle through (a) negotiation and consultation; (b) arbitration by arbitral authorities in the People's Republic of China", After the execution of the Contract, a dispute arose between the parties; and during the negotiation ensued, Attorney SUN, Baoguo of the Legal Department of International Chamber of Commerce, Hebei Branch, wrote to Respondent on behalf of Petitioner on April 4,2002, stating that "The dispute can be settled with good faith by the following two methods: A. both parties may make compromises and reach an effective Settlement Agreement,...; B. according to the arbitration clause in the Contract, the dispute may be arbitrated by the China International Economic and Trade Arbitration Commission", Respondent responded to Attorney SUN, Baoguo on April 8,2002, stating that: "...I am in receipt of your fax. As to this dispute, I have no desire to prolong it, instead I plan to settle it in the following way; 1) list the losses suffered on our side...; 2) accept the suggestion made by Attorney SUN that we continue to negotiate, if the negotiation fails, turn the matter to lawyers." Based on the above, it is clear that both parties have reached an agreement which clearly states the intent on both to request arbitration, the subject matter to be arbitrated and the arbitration body to be chosen for such proceeding. Therefore, it is in accordance with Section 16 of the Arbitration Law of the People’s Republic of China, which provides "An arbitration agreement shall have the following contents: (1) an expressed intent to request arbitration; (2) items for arbitration; and (3) the chosen arbitration commission", therefore it constitutes a complete arbitration agreement and CIETAC, which was lawfully chosen by both parties to settle the dispute, shall form an arbitral tribunal to conduct hearing and provide award on the case at bar.

2. Petitioner claims that Respondent failed to pay Petitioner USD$64,957.72 for business transactions conducted during the end of 1998 to the end of 1999, and provided certain evidences including the Contract in question and earlier correspondences between the two parties and the letter sent by the Legal Department of China International Chamber of Commerce, Hebei Branch for the purpose of requesting payment. After reviewing the Contract submitted, this tribunal noted in the Contract tire following clause:

"Up to the end of 1999, Party B ("Petitioner of this Arbitration - note by this tribunal") had been conducting business with Party A ("Respondent of this Arbitration - note by this tribunal"), and had owed Party A payments in the amount of approximately $60,000. In order to secure its cash flow and provide necessary cash supply for its future manufacturing, Party B promises that the outstanding payments shall be fully paid to Party A via installments during the period from February to July 2000."

This tribunal also noted that Respondent did not raise any opposition to the claim of debt by Petitioner in its exchange of correspondence during the entire course of negotiation as well as during the proceeding of this arbitration. Based on the above, this tribunal accepts as true the statement made by Petitioner of Respondent owning Petitioner shipment payments in the amount of $64,957.72 from the end of 1998 to the end of 1999.

3.Petitioner claims that after execution of the Contract, Petitioner continued to ship nine (9) shipments of toys, with an invoice amount of USD $182,732.32, between February 2000 to November 2000 to DJ TOYS, Inc. at the request of Respondent, Petitioner further provided correspondences with Respondent, Bills of Lading, Customs Registration Forms and Exchange Certificates of Export Commodity to evidence its fulfillment of all obligations under the Contract, It is this tribunal’s view that Petitioner has provided adequate evidence to prove that Petitioner did ship nine (9) shipments to the recipient designated by Respondent during the period of February 2002 to July 2002. It is also noted by this tribunal that Respondent did not raise any opposition to Petitioner’s claim of Respondent’s receiving the nine (9) shipments during the course of negotiation and the proceeding of the arbitration, despite of the fact that Respondent complained about the delay of shipment, defect in quality and damage caused to Respondent thereof in its correspondence with Petitioner. Given the fact that Respondent did not submit any formal answer or counterclaims during the proceeding of this arbitration, neither did Respondent provide any evidence therefor, this tribunal will not make examination or award on those claims. Based on existing written material, this tribunal determines that by making nine (9) shipments to the recipient designated by Respondent, Petitioner had completed delivery of such shipments to Respondent. Since Petitioner had fulfilled its obligation under the Contract, Respondent shall be obliged to make payments to Petitioner for the nine (9) shipments as provided in the Contract with a total of USD $182,372.32.

4. Petitioner acknowledges that after execution of the Contract, Respondent had made eight payments to Petitioner with a total of USD $110,605.52, for which Petitioner also provided evidence. This tribunal hereby determines that Petitioner’s statement of the above payments made by Respondent has been established to be true.

Respondent was obliged to pay Petitioner a total amount of USD $247,690.04, out of which the Respondent had paid USD $110,605.52. Taking into consideration of the discount in the amount of USD $1,720 agreed by Petitioner, Respondent still owes Petitioner USD$ 135,364.52.

5. Based on foregoing, this tribunal supports Petitioner’s request for an outstanding debt in the amount of USD$ 135,364.52 to be paid by Respondent. This tribunal also ¿supports Petitioner’s reasonable request for interest at the rate of 5.95% per annum starting from January 1,2001 to July 1,2003, after having the USD$ 135,364.52 converted into the currency of RMB at the rate of 100:826.47. Respondent did not raise opposition to this claim for interest hereof. This tribunal supports Petitioner’s claim for interest loss in the amount of RMB ¥166,133.94.

As to the request of Petitioner to have Respondent pay for the mediation fee of ¥2,500, this tribunal rejects this request for lack of evidence.

The Petitioner also requests to have Respondent pay for the legal fees and transportation expense in connection with this arbitration, which sum up to RMB ¥ 62,065.80. Pursuant to Section 59 of the Arbitration Rules "The arbitration tribunal has the power to rule in the arbitral award that the losing party shall pay the winning party as compensation a portion of the expenses reasonably incurred by the winning party in dealing with the case. The amount of such compensation shall not in any case exceed 10% of the total amount awarded to the winning party", this tribunal supports the request of Petitioner hereof.

6. The arbitration fee shall be solely borne by Respondent.

IV. Conclusion

Based on the foregoing, this tribunal hereby renders an arbitral award as follows:

1. Respondent shall pay Petitioner the outstanding payment in the amount of USD$135,364.52 and the incurred interest of this debt converted into RMB at the exchange rate of 100:826.47 compounded at the annual rate of 5.94% for the period of January 1, 2001 to July 1,2003, which totals to the amount of RMB¥ 166,133.94;

2. Respondent shall pay Petitioner legal fees and transportation expenses in the amount of RMB ¥62,065.80;

3. The request of Petitioner for reimbursement by Respondent for its mediation fee in the amount of RMB¥2,500 is rejected;

4. Respondent shall solely bear the arbitration fee in the amount of RMB ¥54,217. Given the fact that Petitioner has paid in full the arbitration fee to CIETAC, Respondent shall reimburse Petitioner RMB¥54,217 for the prepaid arbitration fee.

5. The above payments payable by Respondent to Petitioner shall be made within thirty (30) days after the issuance of this arbitral award.

This award is final and shall become effective on the date hereof.
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