Basic facts:
The vehicle model purchased by a Chinese auto manufacture (“the Opposite Party”) has always been adapted and supplied by a European gearbox company. In order to meet the launch time of new vehicle model in China, the Opposite Party decided to engage our client to import such gearboxes from Europe. The cooperation between both parties was smooth. Before the initial contract was completed, a new supply agreement was signed. However, because of the adjustment of vehicle model and purchase plan of the Opposite Party, the new contract has not been fulfilled and the purchase order has not been released to our client. Moreover, the Opposite Party required to cancel the transaction and to terminate the contract by reason that the purchase plan and vehicle model were changed and the supply contact was an open contract. As suggested by our legal team, our client made rapid and clear response, “we do not agree to terminate the contract” and asked them to assume the obligation. Both parties have attempted to negotiate the compensation, but they failed to reach agreement because the amount of compensation gap was too large and the judgments of both parties on “compensation for expected return” were inconsistent. Finally, the arbitration was filed in 2011 according to the contract.
Article 113 of the Contract Law of the People’s Republic of China has stipulated the compensation for expected return that “Where a party failed to perform or rendered non-conforming performance, thereby causing loss to the other party, the amount of damages payable shall be equivalent to the other party's loss resulting from the breach, including any benefit that may be accrued from performance of the contract, provided that the amount shall not exceed the likely loss resulting from the breach which was foreseen or should have been foreseen by the breaching party at the time of conclusion of the contract.” Article 113 has provided legal support, but it was not easy to obtain compensation for expected return in practice, because it is usually hard to satisfy the conditions stipulated in this article. In many cases, the party is unable to prove that the defaulting party realized the return that can be obtained by the observant party after the contract were fulfilled at the time of signing; therefore, its claims could not be supported. In this case, we successfully proved the existence of the expected return.
In this case, the expected return was proved and supported by the back-to-back supply agreement. As for the specific amount of loss, our legal team answered this question from various angles. Firstly, according to the pricing of the back-to-back supply agreement, the return was calculated after deducting all related transportation fee, insurance fee, customs fee and taxes, etc. Secondly, the profit margin of gearbox enterprises was calculated according to the released data of automotive industry. Thirdly, the profit margin of gearbox enterprises was estimated according to the annual reports of public companies. Fourthly, we have visited experts and professional associations of the automotive industry, asking them to provide data to explain the situation. Finally, we have engaged professional accountants to make calculation and analysis of the data collected.
In short, through cooperating with other professionals, our legal team has collected the evidences that are favorable to us in a solid and meticulous manner, thus provided solid foundation and a strong reference for the arbitral tribunal to reach the final decision.
Lawyers’ remarks:
Beside arbitration experience, the specific, solid, serious and meticulous evidence collection and analysis, as well as the close cooperation with other professionals are also the significant factors for the winning of a case.