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CISG CASE PRESENTATION

Russia 10 February 2000 Arbitration proceeding 340/1999 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000210r1.html]

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

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Case identification

DATE OF DECISION: 20000210 (10 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: 340/1999

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Pakistan (claimant)

BUYER'S COUNTRY: Russian Federation (respondent)

GOODS INVOLVED: Goods


Case abstract

Article 88 aspect of case. "[T]he seller sought recovery of the price for the goods. This claim was denied on the ground that the seller had not complied with Article 88(2). The Tribunal held that the seller neither had provided evidence that it had taken measures to sell the goods, nor its inability to make such a sale. As a result of the seller's failure to sell the goods, a significant part of the goods deteriorated and the rest was given to charity organizations. Thus the Tribunal held that the seller was not entitled to recover the price for these goods." Djakhongir Saidov, 7 Vindobona Journal of International Commercial Law and Arbitration (1/2003) 1-62 at p. 59.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 77 ; 78 ; 85 ; 88(2) [Also cited: Articles 54 ; 60 ]

Classification of issues using UNCITRAL classification code numbers:

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

78B [Rate of interest];

85B1 [Seller in possession or controlling disposition of goods: must take reasonable steps to preserve goods];

88B Party obliged to preserve goods may sell them: circumstances in which there may be a duty to sell]

Descriptors: Mitigation of loss ; Preservation of goods ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=876&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. 45 [222-227]

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 nn.160, 231, 262; Liu Chengwei, Recovery of interest (November 2003) n.202; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at nn. 532, 814; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at pp. 559, 609

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 340/1999
of 10 February 2000

Translation [*] by Mykhaylo Danylko [**]

1. SUMMARY OF RULING

     1.1 Whereas the parties have agreed to apply the law of the Russian Federation to their relations under the contract of international sale of goods, it is recognized that the contract is governed by the Vienna Convention of 1980 [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG] and by subsidiary application of the provisions of Russian law.

     1.2 Whereas the [buyer] did not exercise the right provided by the contract to suspend performance of the contract upon discovering a significant quantity of defective products in the first lot of delivered goods, therefore [buyer] is obliged to take delivery of and make payment for the second lot of the goods prepared for shipment by the [seller]. The buyer did not take any measures to increase the amount of the letter of credit; therefore, [buyer] is liable for failure to perform contractual obligations.

     1.3 The [seller] failed to ship the goods and instead left them stored in his warehouse, although under the CISG [seller] should have taken such measures as are reasonable in the circumstances to mitigate the loss resulting from [buyer]'s breach of contract.

     1.4 The Tribunal of International Commercial Arbitration at the Chamber of Commerce & Industry of the Russian Federation (hereinafter Tribunal) ruled that [seller] has not taken such reasonable measures to mitigate his loss and thus the Tribunal decided to essentially reduce the amount of compensation recoverable from the [buyer] for the price of the goods and expenses for warehousing of these goods.

     1.5 The Tribunal denied the [seller]'s claim as to compensation for the purchase of the initial raw materials for manufacturing the next lot of goods, inter alia, because the seller did not prove an inability to sell the raw materials at either domestic or international market.

2. FACTS AND PLEADINGS

This action was brought by [seller], a Pakistani company, against [buyer], a Russian company, in connection with failure to take delivery of the second lot of goods prepared for shipment under the contract concluded between the parties on 22 March 1995.

     2.1 [Seller's position]

The [seller]'s claims included:

     2.2 [Buyer's position]

The [buyer] objected to the claims upon which of the [seller] based its assertions, inter alia, on [buyer]'s breach of the contract conditions.

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 and is not disputed by the parties.

     3.2 [Applicable law]

Clause 10 of the contract stipulates the agreement between the parties on application of Russian Federation law for settlement of the disputes arising from the contract. Based on this and also paying attention to the fact that the dispute herein arose from the sales contract, the CISG should be applied to settle this dispute because pursuant to Article 15 of the Russian Federation Constitution the CISG constitutes part of the Russian Federation legal system. Questions which are not governed by the CISG should be settled by subsidiary application of the rules of domestic Russian law, inter alia, the rules of Part 1 of the Russian Federation Civil Code which were effective at the date of conclusion of the contract of 22 March 1995.

     3.3 [The merits of the case]

3.3.1 [Recovery of the price for unshipped goods and costs for warehouse storage]

While hearing the [seller]'s claim as to recovery from the [buyer] of the price of the goods manufactured under the contract for shipment to Russia, the Tribunal proceeded from the following.

The [buyer] explained its refusal to increase the amount in the letter of credit for the specified price of the goods based on the fact that the [seller] did not notify [buyer] about the readiness of goods for shipment, as was required by clause 8.3 of the contract, i.e., the [buyer] on the merits explained the lack of credit on the particular readiness of the goods for shipment. However, this argument of the [buyer] is negated by the case materials.

The [buyer]'s representative by fax of 28 September 1995, subsequent to the [buyer]'s order, has informed the [buyer] of the results of examination in the factory of the manufacturer of goods notifying of the [seller]'s ability to ship the lot of goods to the [buyer] on time in October 1995 (the copy of the fax is in the case materials). Also, during the hearings on 10 February 2000, the [seller] presented before the Tribunal a copy of written notification of 2 October 1995 of readiness of the lot of goods for shipment.

The Tribunal could not accept the assertion of the [buyer] that this notification was not addressed directly to the [buyer] but to a company not party to the contract, and, moreover, that it was not transmitted by telex as was required by the contract, but was sent by fax. Firstly, as it was revealed during the Tribunal hearings, the correspondence about performance of the contract was conducted between the parties directly and through the mentioned third party as well. Secondly, the circumstance that some of [seller]'s notifications, including the one mentioned above, were transmitted not by telex but by fax, simply does not affect the validity of the correspondence. The contract does not provide that the correspondence between the parties has to be conducted by means of telex only, thus, does not exclude correspondence between them by other means.

Regarding the [buyer]'s assertion that it, as the buyer, did not have possession of the agreed samples of the goods and that this could have provided the basis for [buyer] to refuse the delivery in case the delivery had been made, [the Tribunal found] that as it followed from the correspondence documents provided to the Tribunal by the [seller], the [buyer] had received the samples and the parties were in the process of negotiations on matching [of the samples]. Besides this, the [buyer]'s representative essentially confirmed in its fax of 28 September 1995, mentioned above, the results of the pre-shipment examination of the goods at the factory of manufacturer, that the second lot of goods was ready for shipment. Therefore, no proof was found during the hearings of [buyer]'s assertion that parties had not agreed on the goods which had to be shipped by the [seller].

In connection with the aforesaid, the [buyer]'s arguments mentioned above are not sufficient to prove that the goods were not ready for shipment and cannot affect the legal validity of the [seller]'s notification of 2 October 1995 on the readiness of goods for shipment.

It should be noted that the [buyer], when receiving more than 10% of defective products in the first lot of goods, on the basis of clause 11 of the contract was entitled to refuse to take any further delivery of goods or performance of the contract prior to notifying the [seller]. However, the [buyer] has admitted during the hearings that she had not exercised those rights. Under such circumstances, the buyer pursuant to Article 60 CISG should have taken the delivery, including acceptance of the goods, and pursuant to Article 54 CISG, the buyer should have paid the price for the goods as required by the contract.

The [buyer] has admitted during the hearings that it had not refused to take the delivery of the second lot of the goods, but in the letter of 11 September 1995 [buyer] had even confirmed its obligation stipulated in clause 3 of the contract to increase automatically the amount of letter of credit upon shipment of each successive lot of goods by the [seller]. Upon receiving this confirmation, the [seller] by fax of 2 October 1995 had notified the [buyer] of the readiness of manufactured goods for shipment to the [buyer]. However, in fact, the [buyer] had not performed its obligation and had not increased the amount of the letter of credit for the price of the goods which had to be shipped. The [seller], in turn, based on [buyer]'s failure to perform contract provisions, had not shipped the second lot of the goods to the [buyer] and instead left them in his warehouse.

In connection with this it has to be mentioned that in accordance with Article 77 CISG, the [seller], as the party relying on a breach of contract, should have taken such measures as are reasonable in the circumstances to mitigate the loss resulting from the breach. Pursuant to Article 88 CISG, if the goods are subject to rapid deterioration or their preservation would involve unreasonable expenses, the party who is bound to preserve the goods (the [seller] in this case) must take reasonable measures to sell them. However, the [seller] has not provided any evidence of any measures taken to sell the goods or inability to make such a sale, and admitted during the hearings that due to long preservation a significant part of goods was spoiled and the rest was given without payment to charity organizations. Resulting from this, the price of the goods manufactured by the [seller] cannot be imposed fully on the [buyer]. It should be also considered that from the price of the goods should be deducted expenses for insurance and transportation costs, which are components of the price of the goods to be shipped under the contract on the term "C.I.F. Russian port (St. Petersburg)".

Considering the aforesaid and taking into account that both parties had breached both the contractual provisions and the rules of applicable law, the claims of the [seller] as to recovery of the contract price of this lot of goods have to be granted in the amount proportional to 25% of the price.

3.3.2 [Recovery of the price of raw materials]

Concerning the [seller]'s claims as to recovery from the [buyer] of the price of raw materials for manufacturing the goods specified in the contract, the Tribunal found the following.

There are documents in the case materials evidencing the purchase of the raw materials by the [seller] for manufacturing the goods. However, the subject of the contract between the parties is ready-products to be bought by [buyer], not the raw materials for manufacturing them. Besides this, it must be considered that under these circumstances the Claimant, as [seller] of the ready products, in order to avoid or mitigate the loss resulting from the purchase and preservation of the raw materials in accordance with Article 88(2) CISG mentioned above, should have taken reasonable measures to sell the raw materials to either domestic or international markets. The [seller] did not present any evidence of inability to sell the raw materials, explaining at the hearings that the raw materials were for manufacturing of the next lot of goods for shipment to the [buyer]. Taking into account the information of the [buyer]'s representative which it sent to the [buyer] by fax of 28 September 1995 notifying of [seller]'s difficulties with purchasing the raw materials, it cannot be excluded that raw materials or at least part of them had been used for manufacturing the goods in order to ship them to the [buyer] or to other buyers [or consumers]. With attention to the aforesaid, this claim of the [seller] cannot be granted.

3.3.3 [Recovery of annual interest]

[Seller]'s claim as to recovery of annual interest is based on Article 78 CISG, according to which the seller is entitled to recover interest on the sum that is in arrears, which the [buyer] had failed to pay. Considering that the CISG does not provide the rate of interest, the amount of interest should be calculated in accordance with the rules of subsidiary applicable Russian law. Under Article 395(1) of the Russian Federation Civil Code, the amount of interest for failure to perform a monetary obligation is calculated according to the actual credit rate of interest offered by banking institutions at the place of location of the creditor. From the calculation provided by [seller], it follows that he had calculated the interest in the amount of 22% per annum based on the reports of three banks. The Tribunal has granted the seller's claim as to recovery of the interest in the mentioned amount on the sums granted by the Tribunal in favor of the [seller] for the relevant periods of time.

3.3.4 [Arbitration fees and expenses]

The [buyer] has to reimburse the [seller] for expenses of arbitration fees proportionally to the amount of granted claims.


FOOTNOTES

* This is a translation of data on the award in Proceeding 340/1999, dated 10 February 1999, 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. 45 [222-227]. For purposes of this translation, Claimant of Pakistan is referred to as [seller]; Respondent of the Russian Federation 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 February 16, 2007
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