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CISG CASE PRESENTATION

Russia 2 February 2000 Arbitration proceeding 71/1999 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000202r1.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20000202 (2 February 2000)

JURISDICTION: Arbitration ; Russian Federation

TRIBUNAL: Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 71/1999

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Italy (respondent)

GOODS INVOLVED: Goods


Case abstract

RUSSIAN FEDERATION: Award in Case No. 71/1999 of 2 February 2000 of the
Arbitration Tribunal of Russian Federation Chamber of Commerce and Industry

Case law on UNCITRAL texts (CLOUT) abstract no. 475

Reproduced with permission of UNCITRAL

Abstract prepared by Alexander Komarov, National Correspondent

The seller, a Russian company, sued the buyer, an Italian firm, in connection with the balance due for goods supplied under a contract concluded between the parties on 18 November 1997 and additional expenses incurred by the seller. Under the contract, the delivery was to have been under f.o.b. stowed conditions at a named port of destination, payment for the goods being made by a letter of credit opened by the buyer. The buyer justified its partial payment for the goods on the grounds that it had paid the demurrage for the vessel’s prolonged stay in the loading port, which should have been borne by the seller. The seller disagreed, claiming that the buyer had been very late in supplying the vessel, which had caused loading difficulties. Three quarters of the consignment had been loaded, while the rest had remained onshore and been sold to third parties, which had caused additional expenses for the seller.

The tribunal determined that, under the contract, payment for goods supplied was effected by a letter of credit and that the goods had been transferred to the buyer. The tribunal noted that a letter of credit did not entitle a payer/buyer to withhold part of the payment for goods supplied in order to meet its counterclaims against the seller, and that the withholding of payment was unlawful. The tribunal, therefore, upheld the claim of the seller concerning the unjustified withholding of payment. Given that the f.o.b. stowed condition had not been formulated fully or clearly enough in the contract, the tribunal decided to apportion losses caused by the incomplete loading in equal parts between the two parties, citing article 77 CISG.

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Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 77

Classification of issues using UNCITRAL classification code numbers:

77A [Obligation to take reasonable measures to mitigate damages]

Descriptors: Mitigation of loss

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=877&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (Russian): Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy [Practice of the International Commercial Arbitration Court: Scientific - Practical Comments] Moscow (1999-2000) No. 42 [204-206]

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Djakhongir Saidov, 7 Vindobona Journal of International Commercial Law and Arbitration (1/2003) 1-62 at n.218

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 71/1999 of 2 February 2000

Translation [*] by Mykhaylo Danylko [**]

1. SUMMARY OF RULING

     1.1 Whereas the parties are located in countries (Russia and Italy) that are Contracting States to the UN Vienna Convention on Contracts for the International Sale of Goods of 1980 [hereinafter CISG] - and the parties have not agreed otherwise, therefore their relations under the contract are governed by the CISG.

     1.2 The method of payment stipulated in the contract (by letter of credit) eliminates the [buyer]'s possibility to withhold any sums of money on account of [buyer]s counterclaims. This does not deprive the [buyer] of the right to bring a separate claim against the seller beyond the payment for the goods under the contract.

     1.3 The delivery term "F.O.B. stowed", which means seller's duty to pay for the loading of goods onboard the carrier vessel, does not provide which party (buyer or seller) shall bear the risk for any unfavorable consequences resulting from the loading. Absence of such terms in the contract provided the basis upon which the Tribunal of International Commercial Arbitration at the Chamber of Commerce & Industry of the Russian Federation (hereinafter Tribunal), also paying attention to Article 77 CISG, ruled to impose on the parties in equal parts the losses suffered by [seller].

2. FACTS AND PLEADINGS

This action was brought by [seller], a Russian company, against [buyer], an Italian company, in connection with partial non-payment for the goods shipped under the contract concluded between the parties on 18 November 1997, and additional losses suffered by the seller. Pursuant to the contract "F.O.B. stowed; particular Russian port" with payment by letter of credit to be issued by the buyer, the seller made the delivery of the goods to the port at the end of November 1997, about which the buyer was notified. The buyer provided the vessel for loading on 9 February 1998, i.e., after more than two months. About three-quarters of the lot of goods was loaded onto the vessel. The remaining part of the goods, which the buyer later refused, was left at the port and sold to third parties with the seller suffering additional losses.

     2.1 [Buyer's position]

The [buyer] explained the partial non-payment for the goods shipped on the grounds that [buyer] had paid the demurrage for the vessel being idle in the port of loading, which under the "F.O.B. stowed" term should be have been paid by the seller.

     2.2 [Seller's position]

The [seller] disputed the assertion of the [buyer] and referred to the fact that the [buyer] had provided the vessel behind time, which caused the difficulties with loading due to adverse weather conditions.

     2.3 [Buyer's response]

The [buyer] asserted that there [buyer] bore no responsibility for the loading of the goods. [Buyer] pointed out that the [seller] could not have been unaware of the adverse weather conditions and also that [seller] was informed of the technical specifications of the vessel chartered, however, the [seller] had not produced any claims as to this matter.

3. TRIBUNAL'S REASONING

The ruling of the Tribunal contained the following main points.

     3.1 [Jurisdiction competence of the Tribunal]

The competence of the Tribunal to arbitrate the dispute herein is stipulated in the arbitration clause of the contract concluded between the parties.

     3.2 [Applicable law]

The CISG is applicable to this dispute because the contract out of which the dispute arose was concluded between legal entities of the Russian Federation and Italy, both of which are Contracting States to the CISG. The law of the Russian Federation has to be applied as subsidiary law, as law of the country of [seller].

     3.3 [The merits of the case]

On the merits of the case, the Tribunal found that under the contract between the parties the payment for the delivered goods was made by issuing a letter of credit by the [buyer]. The goods were surrendered into the possession of the buyer. The letter of credit as the method of payment chosen by the parties does not make provision for the payer-[buyer] to withhold part of the payment for the delivered goods on account of compensation of [buyer]'s counterclaims against the [seller]. Withholding of money by the [buyer] in this case was wrong. Therefore, the Tribunal found it fair to grant [seller]'s claim as to the recovery of the money unreasonably withheld by the [buyer]. The [buyer] is entitled to bring its counterclaims against the [seller] in separate legal action.

According to the contract the delivery of goods was to be made on the term "F.O.B. stowed". In international trade practice, this term is to be understood as imposing on the seller all the obligations to pay for the loading of the goods. However, such term does not provide the answer to the question which of the parties shall bear the risk for any unfavorable consequences resulting from the loading and what the parties should have agreed at the time of concluding of the contract (see Prof. Jan Ramberg, Comments to Incoterms 1990 published by the Chamber of Commerce, Moscow, 1995, page 39).

As it follows from the charter of 19 January 1998, the vessel provided by buyer for loading had the capacity to take onboard the full lot of goods prepared for shipment (clause 12 of the charter). Partial loading is explained in the statements of facts as due to incorrect stacking and also due to the care for safety of the ship's company. Other factors, inter alia, the adverse weather conditions in the port of loading that affected the partial loading of the vessel also cannot be excluded from the case materials. The parties did not provide sufficient evidence as to this matter and the [buyer] did not dispute the amount of losses suffered by [seller].

Under these circumstances and considering that the parties had not fully and clearly explained the term "F.O.B. stowed" in their contract, the Tribunal found it fair to impose on both parties in equal parts the losses suffered in connection with the adverse conditions that affected partial loading and caused part of goods to be left at the port and be resold to third parties.

This decision is based on the rule in Article 77 CISG, which provides that the party claiming damages for breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss resulting from the breach. Thus, the Tribunal found it reasonable to impose on the [buyer] half of the losses suffered by [seller] in the sale of the part of the goods not loaded.

     3.4 [Arbitration fees and expenses]

Pursuant to § 6 of the Rules of the Tribunal on Arbitration Expenses and Fees (Annex to the Rules of Tribunal), the Tribunal found reasonable to impose arbitration and registration fees on the buyer proportionally to the amount of the claim granted.


FOOTNOTES

* This is a translation of data on the award in Proceeding 71/1999, dated 2 February 2000, of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, reported in: Rozenberg ed., Arb. Praktika 1999-2000, No. 42 [204-206]. For purposes of this translation, Claimant of the Russian Federation is referred to as [seller]; Respondent of Italy is referred to as [buyer].

** Mykhaylo Danylko is a Partner with the law firm Danylko, Kushnir, Soltys & Yakymyak, Attorneys & Counselors at Law, Kiev, Ukraine <http://www.dksylaw.com>. He holds a Masters of Laws (European Studies Program) from the Law School of International Science and Technology University, Kiev, Ukraine (July 2000); a Master of Management in Business of the Business School of International Science and Technology University (June 2002); and has received his LL.M. in International and Comparative Law at the Pace University School of Law. The second-iteration redaction of this translation was by Dr. John Felemegas of Australia.

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Pace Law School Institute of International Commercial Law - Last updated July 30, 2004
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