Key Point:

Properly identify the reasons behind abnormal performance and equally protect the legitimate rights and interests of both Chinese and foreign parties.

Basic Case Fact:

Korean AA Company, as the agent, provides intermediary services for the aluminum foil transaction between Hangzhou BB Company and Iran CC Company. The agreed commission standard is $200 per metric ton, which is determined based on the actual shipment volume. Hangzhou BB Company guarantees to pay the final confirmed commission to Korean AA Company upon receipt of the full invoice amount. In the first transaction, Hangzhou BB Company supplied 99.9198 tons of aluminum foil to Iran CC Company, with an amount of 312449.21 euros. Iran CC Company applied for the issuance of an irrevocable documentary letter of credit. However, due to economic sanctions imposed on Iran, the payment under the letter of credit was delayed by multiple efforts for one year, resulting in the payment of 304355.71 euros. There was still an outstanding payment of 8093.5 euros. Later, Hangzhou BB Company and Iran CC Company agreed on a second transaction, where Iran CC Company paid a prepayment of $115289. Due to Iran CC Company's failure to pay the remaining payment as agreed, the transaction was terminated and the prepayment was not refunded. South Korean AA Company sued and demanded that Hangzhou BB Company pay a commission of $19984 and a penalty of $25061 according to the agreed standards. Hangzhou BB Company believes that the commission payment terms agreed upon by both parties are to receive the full payment for the goods. Currently, there is still 8093.5 euros of unpaid payment for the first transaction, and the commission payment terms have not been met, so it should not pay the commission.

Case Result:

The Yuhang Court held that although the second transaction advance payment received by Hangzhou BB Company from Iran CC Company should be refunded, Hangzhou BB Company has the right to exercise the right of set-off to recover the remaining payment in accordance with legal provisions, provided that Iran CC Company still owes Hangzhou BB Company the payment. Hangzhou BB Company is negligent in exercising its right of set-off, and the corresponding consequences should be borne by itself. Therefore, the commission payment conditions stipulated in the contract have been met, and Hangzhou BB Company should pay commission to South Korea AA Company. However, the claim for liquidated damages lacks contractual basis and is not supported. After the verdict was pronounced, both parties were satisfied with the verdict, and Hangzhou BB Company voluntarily fulfilled the verdict.

Typical significance:

This case is a dispute caused by the impact of economic sanctions on Iran, which resulted in insufficient bank foreign exchange reserves and the inability to timely honor letters of credit. Hangzhou BB Company is dissatisfied with its agent, South Korean AA Company, and is unwilling to pay commissions. South Korean AA Company has also made various efforts to recover the payment in a timely manner, spending a large amount of costs. The court considered that the transaction risks caused by the changes in the international situation mentioned above were not foreseeable or controlled by all parties, and the losses suffered by each party were not caused by the other party's breach of contract. In the end, it was determined that Hangzhou BB Company paid commissions to South Korea AA Company, but did not bear any liquidated damages, which equally protected the legitimate interests of both Chinese and foreign parties and provided judicial protection for creating a legal international business environment in China.