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CISG CASE PRESENTATION

Russia 1 March 2000 Arbitration Court [Appellate Court] for the Northwestern Region [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000301r1.html]

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

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Case identification

DATE OF DECISION: 20000301 (1 March 2000)

JURISDICTION: Russian Federation

TRIBUNAL: Federal Arbitration Court for the Northwestern Region

JUDGE(S): Elt L.T. (chairman); Bukhartsev S.N, Vetoshkina O.V. (judges)

CASE NUMBER/DOCKET NUMBER: A56-30792/99

CASE NAME: Honkavaaraqn Maastorakennus Oy [buyer] v. Northwestern Regional Center of the Federal Currency and Export Control Service of the Russian Federation

CASE HISTORY: 1st instance Arbitration Court for the City of St. Petersburg 27 December 1999 [reversing]

SELLER'S COUNTRY: [-]

BUYER'S COUNTRY: [-]

GOODS INVOLVED: [-]


Classification of issues present

APPLICATION OF CISG: At issue was a currency control dispute involving a contract governed by the CISG

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 30

Classification of issues using UNCITRAL classification code numbers:

30A [Obligation of seller to deliver goods and hand over any documents related to them]

Descriptors: Delivery

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Russian): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Federal Arbitration Court for Northwestern Region of Russian Federation
Case No. A56-30792/99 of 1 March 2000

Translation [*] by Yelena Kalika [**]

The Federal Arbitration Court for the Northwestern Region (Chairman Elt L.T., judges Bukhartsev S.N., Vetoshkina O.V.) has reviewed the cassational motion of the Northwestern Regional Center of the Federal Currency and Export Control Service of the Russian Federation on the decision of the Arbitration Court for the City of St. Petersburg and Leningrad region held on 27 December 1999 (Case No. A56-30792/99) (judges Demina I.E., Nikitusheva M.G., Zvonareva U.N.). The parties to the present action are the Northwestern Regional Center of the Federal Currency and Export Control Service of the Russian Federation (Babichenko V.L., power of attorney No. 002/1293 of 21 February 1999) and JSC "Honkavaaran Maastorakennus" (power of attorney No. 270 of 12 December 1999).

The court has found:

The private joint stock company "Honkavaaran Maastorakennus Oy" (JSC "Honkavaaran Maastorakennus") brought an action with the Arbitration Court for the City of St. Petersburg and Leningrad region. The plaintiff claimed that the decision No. 20301237 issued by the Northwestern Regional Center of the Federal Currency and Export Control Service of the Russian Federation (the Center) on 29 September 1999 ordering the plaintiff to pay Fmk [Finnish markka] 183,843.48 to the state budget should be held void. (Fmk 183,843.48 had been received from unlawful transactions).

On 27 December 1999 the trial court held for the plaintiff.

The case was not appealed.

In its cassational motion, the Center requests the court to deny the plaintiff's claim on the ground that the trial court's holding was against Articles 1(9), 1(10)(e) and 6(2) of the Law of the Russian Federation on currency regulation and control. The petitioner claims that a currency transaction made by the plaintiff in order to transfer foreign currency abroad was related to the movement of funds because the marketing services paid for by the plaintiff had not been provided in the Russian Federation and therefore could not be imported.

In a court's hearing an attorney for the Center agreed with the arguments made in the motion. An attorney for JSC "Honkavaaran Maastorakennus" objected to the motion on the ground that the holding of the trial court was reasonable and lawful.

The trial court's holding has been reviewed on cassation.

It is the opinion of the court that the petitioner's motion shall be sustained.

As follows from the materials of the case, the Center randomly inspected the documents on plaintiff's compliance with the currency regulation. As a result the certificate No. 64 of 23 July 1999 and the contested decision No. 20301237 of 29 September 1999 were issued. According to the above mentioned decision, JSC "Honkavaaran Maastorakennus" was found liable pursuant to Articles 14(1)(a) and 14(4) of the Law of the Russian Federation on currency control and regulation and was required to transfer all the profits received from the unlawful transactions to the budget of the State. Plaintiff's transferring Fmk 183,843 from the Russian Federation to "Honkavaaran Maastorakennus Oy" (Finland) -- under a contract for the marketing services concluded by the plaintiff and the above mentioned company on 31 October 1996 -- served as a ground for the contested decision. The Center claims that since the services under the contract were provided by "Honkavaaran Maastorakennus Oy" outside of the Russian Federation, such services could not be imported.

Pursuant to Article 6(1) and (2) of the Law of the Russian Federation on currency control and regulation (in the edition which was applicable at the time when the currency transactions were made), the residents could make any current currency transactions without limitations. Any currency transactions made with regards to the movement of funds could be made by residents in accordance with the rules established by the Central bank of the Russian Federation. In accordance with Chapter II (4) of the General provisions of the regulation of currency transactions in the Russian Federation (No. 352 of 24 May 1991), all the currency transactions in connection with the movement of funds shall be licensed by the Central Bank of the Russian Federation.

Pursuant to Article 1(9) of the Law of the Russian Federation on currency control and regulation the current currency transactions are any transfers of payments for the goods, work, services (both imported and exported) as well as any crediting of export-import transactions for a period not longer than 180 days made in foreign currency. Such transfers of foreign currency can be made either to or from the Russian Federation. The currency transactions not included in the exhaustive list of the current currency transactions are the currency transactions in connection with the movement of funds (Article 1(10) of the above law).

When holding for the plaintiff, the trial court concluded that the marketing services under the contract of 31 October 1996 were directly related to the contract No. 3-96 concluded by the same parties on 3 January 1996 for the sale of goods which were to be imported into the Russian Federation. The court also found that the fact that the services were provided by a foreign partner outside of the Russian Federation - confirmed by the documents - was sufficient to include the services provided into a category of imported services.

However, the court did not take into consideration the following circumstances.

Pursuant to Article 2 of the Federal law on the State control of activities in relation with the international sale of goods the term "import" means delivery of goods, work, services, intellectual property (including any exclusive rights to it) to the customs territory of the Russian Federation from a place outside of the Russian Federation made without an obligation to re-export the same goods, work, services, and intellectual property. The fact of import takes place at the moment when the goods, work, services, or intellectual property cross the customs border of the Russian Federation. As to a service as an activity with an intangible result, any import of services into the Russian Federation is possible when the service is being provided outside of the Russian Federation, but the benefit from it is received in the Russian Federation. When a service is provided outside of the Russian Federation in order to be used abroad, as well as when a service is provided and used in the Russian Federation, no import of such a service into the Russian Federation takes place.

According to a contract of 31 May 1996 for the marketing services, a non-resident promised to provide the plaintiff with the marketing services including the work performed by the supplier's staff in order to conclude contracts with subcontractors and to make advance payments for the materials ordered by the buyer and equipment for the subcontractors, the work performed in order to procure all the necessary technical documentation required in order to use the imported materials and equipment in the Russian Federation, as well as forwarding and transportation services in Finland.

According to Article 2 of the Federal law on the State control of activities related to the international sale of goods, the listed services cannot be included into the category of the imported services. Activities of a non-resident in relation with concluding contracts for deliveries and making payments to subcontractors are not the services provided by a non-resident to a Russian buyer, since they relate to the commercial activities carried out by "Honkavaaran Maastorakennus Oy" in order to conclude contracts for delivery with subcontractors. Those activities were not related to the contract No. 3-96 of 3 January 1996. The mentioned activities resulted in "Honkavaaran Maastorakennus Oy"s entering the contracts with the non-resident subcontractors. That result was used outside of the Russian Federation.

Making a transfer of funds abroad in order to pay for the procurement of technical documentation for the imported goods and to pay for the forwarding and transportation services in Finland cannot be recognized as a current currency transaction in connection with the import of goods. In accordance with provision 8 of the contract of 3 January 1996 and Article 30 of the Vienna Convention on Contracts for the International Sale of Goods 1980 (CISG), the seller must deliver the goods and hand over any documents relating to them. Consequently, the activities carried out by "Honkavaaran Maastorakennus Oy" in connection with its procurement of the technical documentation for the goods were a part of the contract No. 3-96 of 3 January 1996 and were paid for in the price of goods. In addition, the terms of the said contract (Provision 4) setting forth the DDU St. Petersburg terms of delivery had included the cost of transportation of goods in Finland in the price of the imported goods paid to the supplier (pursuant to Incoterms-1990).

Moreover, the certificate of acceptance of the services provided (dated 26 March 1996) cannot serve as proof that the marketing services have been indeed provided in accordance with the contract of 31 October 1996.

Therefore, the materials of the case do not prove the fact of import of the marketing services into the Russian Federation (set forth in the contract of 31 October 1996). Consequently, the payments in foreign currency made under this contract are not the current currency transactions.

In the circumstances mentioned above, the Center correctly found that the plaintiff had breached the currency regulation and, therefore, was liable under Article 14 of the Law of the Russian federation on currency control and regulation. The decision of the trial court shall be reversed and the claim shall be denied.

On the grounds mentioned above and pursuant to Articles 174 and 175(2) of the Arbitration Procedural Code of the Russian Federation, the Federal Arbitration Court for the Northwestern Region holds:

The decision of the Arbitration Court for the City of St. Petersburg of 27 December 1999 on case No. A56-30792/99 is reversed.

The claim is denied.

JSC "Honkavaaran Maastorakennus" shall pay RuR 834.90 (State fee for the claim) and RuR 417.45 (for the cassational motion) to the State budget.

Chairman
Judges
 
Elt L.T.
Bukhartsev S.N.
Vetoshkina O.V.


FOOTNOTES

* Monetary amounts in the currency of Finland (Finnish markka) are indicated as [Fmk]; amounts in Russian currency (rubles) are indicated as [RuR]. All translations should be verified by cross-checking against the original text.

** Yelena Kalika, a law student at the Pace University School of Law, has studied at the Moscow State Law Academy, interned with a Moscow law firm, and is a Research Assistant at the Pace Institute of International Commercial Law.

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