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CISG CASE PRESENTATION

Russia 21 June 2000 Arbitration Court [Appellate Court] for the Moscow Region [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000621r1.html]

Primary source(s) of information for case presentation: Journal of Law and Commerce

Case Table of Contents


Case identification

DATE OF DECISION: 20000621 (21 June 2000)

JURISDICTION: Russian Federation

TRIBUNAL: Federal Arbitration Court for the Moscow Region [Cassation Instance]

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: KG-A40/2396-00

CASE NAME: Gorpischecombinat "Livensky" v. SECOMITA di Pier Georgio Pavan

CASE HISTORY: 1st instance Arbitration Court for the City of Moscow (A 40-39073/99-40-395) 28 February 2000; 2d instance Appellate Division of the Arbitration Court for the City of Moscow (A 40-39073/99-40-395) 21 April 2000 [affirmed]

SELLER'S COUNTRY: Italy (defendant)

BUYER'S COUNTRY: Russian Federation (plaintiff)

GOODS INVOLVED: Equipment for manufacture of baked goods


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 7(2) ; 35 ; 74

Classification of issues using UNCITRAL classification code numbers:

7C [Gap-filling];

35A [Conformity of goods: quality, quantity and description required by contract];

74A [General rules for measuring damages: loss suffered as consequence of breach]

Descriptors: Gap-filling ; Conformity of goods ; Damages

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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): 21 Journal of Law and Commerce (2001) 76-79 (text presented below)

CITATIONS TO COMMENTS ON DECISION

English: Nurzad, 21 Journal of Law and Commerce (2001) 65-67, 79-90 (text presented below)

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Case texts (English translation) and case commentaries

Reproduced with the permission of the Journal of Law and Commerce (Fall 2001) 65-90

Translations of and commentaries to the decision of the
Arbitration Court of the City of Moscow dated February 28, 2000,
the opinion of the Appellate Level of the Arbitration Court of the
City of Moscow dated April 21, 2000, and the opinion of the Federal
Arbitration Court for the Moscow Circuit dated June 21, 2000
[*]

Irnyna Nurzad [**]

INTRODUCTION [1]

The following is a translation of three different opinions rendered in one piece of litigation in Russia. The first opinion was rendered by the lower (trial) court, while the second and the third opinions were rendered by courts of the appellate and cassation levels, respectively.

Prior to reading the opinions, it is important to note the following. First, the concept of arbitration courts in the Russian Federation is different from the concept of arbitration courts accepted in the United States. Unlike the United States, Russian arbitration courts are standing institutions governed by the rules of arbitration procedure set forth in the Code of Arbitration Procedure of the Russian Federation ("CPA").[1] When parties submit a dispute to arbitration or agree to an arbitration clause under which disputes arising from their agreement will be settled by a certain Russian arbitration court, the parties abandon the right to set procedural rules, appoint judges and choose [page 65] the applicable law. Generally speaking, the system of arbitration courts in Russia can be analogized to a system of commercial courts.

Second, the Russian arbitration system consists of three levels: the trial/lowest level, the appellate level and the cassation level. The first two levels (the trial and the appellate levels) are state-level courts, while the third (the cassation level) is the federal-level court. Interestingly, the first and the second levels exist in one and the same court, such as the Arbitration Court of the City of Moscow in the following case. This means that the case itself and the appeal from the decision of the arbitration court on the case are considered by one and the same court. The differences, however, between the lower and the appellate levels lie in their respective scope of authority and their varying procedural rules. The most significant difference between these two levels is that the same judge cannot preside at both levels in the same case. On the other hand, the third (i.e., cassation) level is completely separate from the first two. The cassation courts may review only matters of law, while the appellate court, unlike the appellate courts in the United States, may reconsider both the factual and the legal aspects of a case.

The arbitration system of Russia also has a fourth level represented by the High Arbitration Court of the Russian Federation. This Court has the power to review all decisions and opinions of arbitration courts of all levels. In practice, however, the percentage of cases reviewed by the High Arbitration Court is very low. One of the main reasons for this limited review is the restricted access of dissenting parties to the Court. In fact, a party may not directly appeal to this level. It may only file a petition to the chief justice or his/her deputy requesting review of a certain decision or opinion, and only the chief justice or his/her deputy may initiate the review of the case.

Procedurally, cases at the lowest level can be heard either by the judge individually or jointly by the chief judge and associate judges. Whether the case will be considered on an individual or a collegiate basis is determined by the chief judge of a particular court.[2] A case at the appellate or cassation levels, however, is always considered by a panel of judges. The total number of judges is always odd. Decisions are taken on the basis of a simple majority and none of the judges may refrain from voting.[3]

Finally, the arbitration courts of the lowest level render "decisions," while all other levels render "opinions." The major distinction between the two is the time when the decisions or opinions enter into effect. A decision enters [page 66] into effect one month after it is rendered, while an opinion becomes effective immediately after rendering. Both decisions and opinions are analogous to opinions rendered by U.S. courts in that they state the facts of the case, the procedural history, the reasoning, and the holding. However, the format in which the facts, the reasoning, and the holding are stated in a Russian court opinion is different from the one generally accepted in the United States. For instance, the fact pattern in a Russian court decision is usually given in an incomplete form; opinions are published in the abbreviated versions and provide a rather brief reasoning of the court; the titles and subheadings are phrased in a different manner. These differences make it difficult for a person trained in a completely different system to read the opinions. Therefore, to the extent possible, the author adjusted the translations of the Russian court opinions to coincide with the U.S. format.


CASE TEXTS (ENGLISH TRANSLATION)

Arbitration Court of the City of Moscow
In the name of the Russian Federation

February 28, 2000
Case # A 40-39073/99-40-395

Arbitration Court of the City of Moscow. Composed of: Chief Judge L. V. Busarova Associate Judges [names omitted]. With participation of: O. A. Kaichev, Z. N. Semina, E. V. Davydov for the plaintiff; D. V. Fitina, A. N. Vorobyov, L. V. Vorobyov for the defendant

Claim considered

The case is based on the claim brought by the limited liability company "Gorpischecombinat 'Livensky'"[4] against "SECOM ITA di Pier Giorgio Pavan" for recovery of $ 134,316 U.S.[5] [page 67]

Findings

The claim is brought for the recovery of damages in the amount of $ 134,316 U.S. incurred by the plaintiff as the result of low-quality equipment delivered by the defendant.

The counsel for the defendant entered a motion to dismiss the claim on the grounds that the arbitration clause provided for (1) the submission of the dispute(s) to the arbitration tribunal [6] in the City of Zurich, Switzerland [instead of the Arbitration Court of the City of Moscow]. . . .

The court considered the motion and issued a determination [7] on February 28, 2000, denying the motion to dismiss the claim.

Reasoning

Given that the parties are located in different states,[8] [this] Court must consider the issue of the applicable law. [The Court reasoned that] the Russian Federation is a party to the U.N. Convention on Contracts for the International Sale of Goods (CISG).[9] Therefore, in applying Russian law to settle this dispute, the court is governed, in the first place, by provisions of the CISG.[10] [page 68]

The counsel for the defendant made a statement in the court session that because the Court began to consider the merits of the case, all attorneys for the defendant decided to leave the Court.

The hearing of the case proceeded in default of the attorneys for the defendant.

Having considered the case materials and arguments of counsel for the plaintiff, the Court determined that on April 9, 1999, the parties had entered into Contract # 380/00358782/00005 for the delivery and assembly of equipment for the manufacture of baked goods. Under the terms of the contract (section 3.1.), the delivery was to be made within 90 calendar days after the first advance payment. The first advance payment was to be made in the amount of 30% of the total contract price; the second advance payment (60% of the total contract price) was to be made after notifying the plaintiff that the equipment was ready for shipment. The final payment (10% of the total contract price) was to be made within 15 banking days after the equipment was in operation.

The plaintiff completely fulfilled its obligations under the contract by transferring the full price in the amount of $ 445,644 U.S. These transfers were evidenced by relevant payment orders dated April 13, 1999, July 5, 1999, and July 7, 1999.

Upon accepting the equipment delivered by the defendant it was determined that the equipment did not conform with the terms and conditions of Contract # 380/00358782/00005 of April 9, 1999, namely: (1) instead of equipment with a particular round component the defendant delivered equipment with a rectangular component; (2) 39 carts were delivered instead of the agreed upon 40; (3) instead of the "Imoforni," a furnace 12 meters long with a two-zone gas burner, a 19 meter furnace with one-zone gas burner and no markings was delivered; (4) there were virtually no spare parts provided. In witness thereof, the plaintiff presented the packing lists, a claim for replacement dated July 19, 1999, a description of the equipment and the conclusion of the Orlov Chamber of Commerce and Industry # 69 of July 22, 1999.[11]

The circumstances stated above confirm that the defendant, by having delivered the non-conforming equipment, violated the provision of Article 35 [page 69] of the CISG, which states that the seller must deliver goods, which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.

The defendant was notified of the breach of the delivery terms by fax, the notifications of which are attached to the case materials. The materials of the case also contain the responses sent by the defendant from the fax-machine of the defendant's representative-translator, which certifies that the defendant was notified of the fact that the equipment did not conform with the requirements of Attachment 1 to the contract. Because the defendant did not provide substitutes for the non-conforming equipment, the plaintiff shipped back the said equipment, in witness whereof he presented documents of title for the re-export of the furnace and the equipment, customs declarations for the re-export, and documents certifying that the re-export would be carried out by two vehicles.

Hence, by delivering non-conforming equipment, the defendant caused damage to the plaintiff, which amounts to the cost of the returned equipment, namely the cost of: a furnace ($ 129,300 U.S.), equipment ($ 200 U.S.), a missing cart ($ 441 U.S.), and assembly of the equipment in accordance with Attachment 1 to the contract and the cost of returning the equipment to the defendant ($ 45,000 U.S.).

The plaintiff filed a motion to amend the claim to increase the amount of the claim to $ 217,478 U.S. The court considered the motion and issued a protocol of determination on the basis of Articles 37 [12] and 123 [13] of CAP granting the motion in the amount of $ 174,816 U.S.

In accordance with Article 74 of the CISG, damages for breach of contract by one party consist of a sum equal to the loss suffered by the other party as a consequence of the breach. [page 70]

Hence, according to Article 393 [14] of the Civil Code of the Russian Federation (hereinafter CC), the debtor must compensate the creditor for its damages, including the cost of shipping the equipment back to the defendant, incurred due to non-performance or improper performance by the debtor of his obligations.

Considering the above and applying Articles 35 and 74 of CISG, Articles 15 [15] and 393 of the CC, Articles 95 [16] and 124-128 [17] of the CAP, the Court Decides:

-   To order "SECOM ITA de Pier Giorgio Pavan" to pay the Limited Liability Company "Gorpischecombinat 'Livensky'" damages in the amount of $ 174,816 U.S. as well as litigation fees of 28,745.44 rubles.
- To collect from "SECOM ITA de Pier Giorgio Pavan" a state duty in the amount of 7,490.56 rubles payable to the federal budget.
Judge L. V. Busarova [page 71]


Arbitration Court of the City of Moscow opinion [18] of the Appellate
Instance on the legality and validity of the decision rendered by the
Arbitration Court, which is not yet effective
[19]

Case # A 40-39073/99-40-395
April 21, 2000

Arbitration Court of the City of Moscow. Composed of: Chief Judge B. N. Zhukov; Judges I.A. Elizaryeva, M. V. Osipova. With participation of: O. A. Kaichev acting by proxy [20] dated February 21, 2000; O. A. Tsvetkova acting by proxy dated April 14, 2000; E. V. Davydov acting by proxy dated February 14, 2000; and Z. N. Semina acting by proxy dated February 21, 2000 for the plaintiff; D. V. Fitina acting by proxy dated September 16, 1999; and A. N. Vorobyov acting by proxy dated September 16, 1999 for the defendant.

Claim considered

The appeal of "SECOM ITA di Pier Giorgio Pavan" (the name of the appellant) from the decision of the Arbitration Court of the City of Moscow dated February 28, 2000, rendered in the case # A 40-39073/99-40-395 by Chief Judge L. V. Busarova and Judges (names of the Judges omitted). [page72]

Findings

The limited liability company "Gorpischecombinat 'Livensky'" brought a claim against "SECOM ITA di Pier Giorgio Pavan" for the recovery of $ 134,316.00 U.S. incurred by the plaintiff as the result of low-quality equipment delivered by the defendant.

The counsel for the defendant entered a motion to dismiss the claim on the grounds that the arbitration clause provided for (1) the dispute(s) to be referred to the arbitration tribunal of the city of Zurich, Switzerland [instead of the Arbitration Court of the City of Moscow]. . . .

The Arbitration Court of the City of Moscow considered the motion and issued a determination on February 28, 2000, denying the motion to dismiss the claim.

By its decision of February 28, 2000, the Arbitration Court of the City of Moscow granted the plaintiff recovery of damages in the amount of $ 174,816 U.S. and a litigation fee in the amount of 28,745.44 rubles.

A state duty in the amount of 7,490.56 rubles payable by the defendant to the federal budget was also levied.

Having disagreed with the decision, the defendant appealed. In its appeal the defendant asks the court to reverse the decision and to dismiss plaintiff's claim, arguing that the procedural rules were misapplied and the circumstances that were relevant to the case were not completely determined.

The plaintiff, in its response to the appeal, argues that, by going to the Arbitration Court of the City of Moscow to settle the dispute it took the proper legal action with due regard for the rules of jurisdiction. The plaintiff thus argues that the appeal is not subject to redress.

Having verified the legality and validity of the decision, the Court of Appeals finds no grounds for its reversal.

Reasoning

The Arbitration Court of the City of Moscow determined that on April 9, 1999, the parties entered into Contract # 380/00358782/00005 for the delivery and assembly of equipment for the manufacture of baked goods. Under section 3.1. of the contract, the delivery was to be made within 90 calendar days after the first advance payment. The first advance payment was to be made in the amount of 30% of the total contract price; the second advance payment of 60% of the total contract price was to be made after notifying the plaintiff that the equipment was ready for shipment. The final payment of [page 73] 10% of the total contract price was to be made within 15 banking days after the equipment was in operation.

The plaintiff completely fulfilled his obligations under the contract by transferring the full price in the amount of $ 445,644 U.S. These transfers were evidenced by relevant payment orders dated April 13, 1999, July 5, 1999, and July 7, 1999.

Upon accepting the equipment delivered by the defendant it was determined that the equipment did not conform with the terms and conditions of Contract # 380/00358782/00005 of April 9, 1999, namely: (1) instead of equipment with a particular round component the defendant delivered equipment with a rectangular component; (2) 39 carts were delivered instead of the agreed upon 40; (3) instead of the "Imoforni," a furnace 12 meters long with a two-zone gas burner, a 19 meter furnace with one-zone gas burner and no markings was delivered; (4) there were virtually no spare parts provided. In witness thereof, the plaintiff presented the packing lists, a claim for replacement dated July 19, 1999, a description of the equipment and the conclusion of the Orlov Chamber of Commerce and Industry # 69 of July 22, 1999.

In view of the circumstances stated above, the court of the first instance correctly concluded that the defendant violated the provision of Article 35 of the CISG, which states that the seller must deliver goods, which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract.

The defendant was notified of the breach of the delivery terms by fax, the notifications of which are attached to the case materials. The materials of the case also contain the responses sent by the defendant from the fax-machine of the defendant's representative-translator, which certifies that the defendant was notified of the fact that the equipment did not conform with the requirements of Attachment 1 to the contract. Because the defendant did not provide substitutes for the non-conforming equipment, the plaintiff shipped back the said equipment, in witness whereof he presented the documents of title for the re-export of the furnace and the equipment, customs declarations for the re-export, and documents certifying that the re-export would be carried out by two vehicles.

By delivering non-conforming equipment, the defendant caused damage to the plaintiff, which amounts to the cost of the returned equipment, namely the cost of: a furnace ($ 129,300 U.S.), equipment ($ 200 U.S.), a missing cart ($ 441 U.S.), and assembly of the equipment in accordance with Attachment 1 to the contract and the cost of returning the equipment to the defendant ($ 45,000 U.S.). [page 74]

In accordance with Article 74 of the CISG, damages for breach of contract by one party consist of a sum equal to the loss suffered by the other party as a consequence of the breach.

In view of the circumstances stated above the [Arbitration] Court [of the City of Moscow] correctly granted the claim for recovery of damages.

The defendant's arguments, set forth in its appeal, as to misapplication by the [Arbitration] Court [of the City of Moscow] of procedural rules do not require reversing the decision and dismissing the claim. The Court of the Appellate Instance finds no grounds for reversing the decision in accordance with section 2 of Article 158 [21] of CAP, and the defendant failed to state which procedural rules exactly were misapplied or violated in a manner that produced, or could have produced, an erroneous decision.

Guided by Articles 153, [22] 155, [23] 157 [24] and 159 [25] of the CAP the Court [of the Appellate Instance]

Orders

That the decision of February 28, 2000, in the case # A 40-39073/99-40-395 be unchanged and that the appeal be denied.

Chief Judge
B. N. Zhukov
Judges [page 75]
I. A. Elizaryeva, M. V. Osipova
April 21, 2000.


Federal Arbitration Court for the Moscow Circuit opinion
of the Cassation Instance on the legality and validity of the
decision and opinion of the Arbitration Court that are effective

June 21, 2000
Case # KG-A40/2396-00

Extract:

The limited liability company "Gorpischecombinat 'Livensky'" brought a claim to the Arbitration Court of the City of Moscow against "SECOM ITA di Pier Giorgio Pavan" for the recovery of sums paid for goods as well as damages in the total amount of $ 134,316 U.S.

Prior to the start of consideration of the merits of the case, the plaintiff filed a motion to amend the claim to increase the amount of the claim to $ 217,478 U.S. The court granted the motion [in part] and increased the amount of the claim to $ 174,816 U.S.

By its decision of February 28, 2000, in case # A 40-39073/99-40-395, the Arbitration Court of the City of Moscow found in favor of the plaintiff's claims.

By its opinion of April 21, 2000, the Arbitration Court of the City of Moscow affirmed the decision of February 28, 2000, in case # A 40-39073/99-40-395.

In the cassation appeal from the decision of February 28, 2000, and from the order of the appellate instance of the Arbitration Court of the City of Moscow of April 21, 2000, in case # A 40-39073/99-40-395, the defendant asks that said judgment be reversed because they were rendered in violation of procedural rules, and that the claim be dismissed.

Plaintiff did not submit a written response to the cassation appeal.[26]

In the hearing on the cassation appeal the counsel for the defendant advanced the arguments set forth in the appeal and added an argument that the [page76] lower court erred in determining the law applicable to the matter in controversy. Counsel for the plaintiff objected orally to the appeal stating that the judgments were valid and correctly reasoned and that the arguments of the defendant were unfounded.

Having reviewed the case materials, considered the arguments in the cassation appeal and heard the parties' representatives who appeared before the court, the cassation instance finds no grounds for allowing the appeal.

When deciding the claim, the [arbitration] court proceeded from the fact that the plaintiff/buyer duly performed its obligations under Contract # 380/00358782/00005 for the delivery and assembly of equipment for the manufacture of baked goods. The defendant delivered the equipment, which did not conform to the terms and conditions of the contract, and thereby caused damage to the plaintiff in the amount of the equipment price and the cost incurred for shipping the non- conforming equipment back to the defendant. The extent of the damage is evidenced by the case materials and was not contested by the defendant.

The arguments in the cassation appeal are subject to dismissal on the following grounds. The defendant argues that the [arbitration] court erred in determining jurisdiction over the dispute and the applicable law. In this respect, it is necessary to note the following.

Considering that one of the participants to the dispute was a foreign legal entity, the [arbitration] court had to determine whether it had jurisdiction over the dispute. In arguing for the jurisdiction of the Arbitration Court of the City of Moscow, the plaintiff referred to the provision of Contract # 380/00358782/00005 whereby all disputes were to be considered by the Arbitration Court of the City of Moscow. In support of this allegation, the plaintiff tendered the original copies of the contracts in the Italian and Russian languages (the certified copies thereof are available in the case materials). The defendant in support of its allegation that the dispute should have been considered by the arbitration tribunal [in Switzerland] presented a facsimile copy signed solely by the defendant. The defendant did not produce any original copy of the contract containing a clause whereby the disputes were to be settled by the arbitration tribunal. The [arbitration] court held that the draft agreement produced by electronic means of communication [i.e., the facsimile copy], which was presented by the defendant, was not evidence of entry into a contract within the meaning alleged by the defendant and, therefore, may not serve as a confirmation of an agreement on settling the disputes [in the Swiss] arbitration tribunal. The facsimile copy of the agreement was the basis for the defendant's argument when it filed a motion [page 77] to dismiss the claim under section 2, Article 87 of the CAP.[27] Accordingly, the defendant's motion to examine the facsimile copy of the contract was dismissed by the [arbitration] court in its determination of February 28, 2000 (pages 30-31) because the court found no grounds for such an examination.

In view of the stated circumstances, the [arbitration] court correctly concluded that the dispute is subject to consideration by the Arbitration Court of the City of Moscow.

In determining the applicable law the [arbitration] court stated that the CISG should govern the settlement of the dispute. The dispute was settled on the basis of Articles 35 and 74 of the CISG and Articles 15 and 393 of the CC.

In accordance with paragraph 2 of Article 7 [of the CISG], questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law. Hence, the article itself determines the rules that will govern the interpretation of the Convention and the settlement of issues unsettled by the Convention. The essence of the rule [of Article 7] stated above is that interpretation of and gap-filling for the Convention shall take into account its international character as much as possible and shall be based first of all on the rules and principles of the Convention itself rather than the rules and principles of a given national system. If it is impossible to settle an issue on the basis of the rules of the Convention, then and only then, "the law applicable by virtue of the rules of private international law" will govern. Consequently, impossibility [to settle an issue on the basis of the rules of the Convention] is the sole grounds for application of the relevant conflict of laws rules, which refer to the applicable [domestic] substantive law.

In settling the dispute, the [arbitration] court erred in applying Russian legislation since, in accordance with the Russian conflict of law rules (paragraph 1, section 1 of Article 166 of the Basic Law of Civil Legislation of the Union of the Soviet Socialist Republics) in cases where the settlement of a dispute in accordance with the provisions of the Convention is impossible, the Italian law should be applied.[28] [page 78]

However, application of domestic law is unnecessary because the provisions of the Convention govern fully all the issues that were matters in controversy in the present dispute. Thus, the [arbitration] court erroneously applied the rules of Russian legislation. However, it [i.e., application of the Russian legislation] did not lead to an incorrect decision and, thus, may not serve as the basis for reversing judgment. Referring to the necessity of applying Italian law, the defendant did not state which issues of the dispute could not be settled without the application of Italian law and which led, according to him, to an incorrect decision.

Based on the above, and pursuant to Articles 171 [29] and 174-177 [30] of the CAP, the Federal Arbitration Court for the Moscow Circuit Decides:

-   To leave the Decision of February 28, 2000, and the Opinion of the appellate instance of the Arbitration Court of the City of Moscow in case # A40-390973/99-40- 395 unchanged, and
- To dismiss the cassation appeal of "SECOM ITA di Pier Giorgio Pavan."


COMMENTARY

I. Introduction

On September 1, 1991, the U.N. Convention on Contracts for the International Sale of Goods became effective in the Russian Federation. Interestingly, it was the Soviet Union that acceded to the Convention on [page 79] August 16, 1990. However, since Russia proclaimed itself the assignee of all the rights and obligations of the USSR, the CISG became effective only for Russia rather than for all the 15 republics of the former USSR.[31] Since that time, Russian courts have had several opportunities to apply and interpret the provisions of the CISG. The translations provided above give a good example of the application of the CISG by Russian courts.

Prior to analyzing the present case, it is necessary to point out certain facts. First, an American reader should bear in mind that Russia is a civil law country where court decisions at any level are the mere legal solutions of certain cases. This means that, once rendered, the rule of a court decision does not become the rule of Russian law, and has no precedential authority in subsequent applications. Thus, unlike the US courts, the courts in Russia are not bound by prior applications and/or interpretations of, for example, the CISG.

Second, unlike in the United States, the general public in Russia has restricted access to court opinions. The non-precedential nature of opinions in Russia is the main reason for this, which makes the publication of decisions unnecessary. As a result, until recently, there were few official publications dealing with judicial decisions and the practice of settling disputes. This trend, however, is changing as Russia is trying to implement a tradition of official publication of court opinions. Court opinions have thus been published in special reports called "Vestnik." Once published, a copy of the edition goes to a public library where it is available on a permanent basis. There is also an unofficial source of published court opinions, and that is a special legal database (analogous to Lexis or Westlaw), created and owned by a private entity, where opinions are systematized and kept in electronic form.[32] [page 80] Note, however, that both official and unofficial sources do not give full-text court opinions. The opinions are usually available in the form of extracts, which give a very restricted picture of both the facts of the case and the court's reasoning.

Therefore, to the extent possible, the present commentary will be based upon the officially available data and, where necessary, logical implications from these facts will be derived. With this in mind, the discussion below will focus on: (1) the CISG provisions that were applied in the translated opinions; (2) the manner in which the Russian Courts applied and interpreted these provisions; (3) the courts' rationale and logic in applying the CISG provisions; and (4) the CISG provisions, which should have been, but were not, applied by the courts and the reasons for not applying them.

II. Discussion

In deciding the case, the courts cited only three provisions of the CISG: Art. 7(2),[33] Art. 35(1) [34] and Art. 74.[35] Interestingly, there are other CISG provisions directly related to the matter in dispute. However, all three courts failed to apply them. As will be shown later, it is very likely that the outcome of the case would have been different had the courts applied these provisions or had the defendant raised its defense on the basis of these provisions. [page 81]

     1. Applicability of the CISG and Court's Interpretation of the Gap-filling Principle

The applicability of the CISG was determined by the Arbitration Court of the City of Moscow almost at the very beginning of the case. Although the court does not cite the exact provision of the CISG that governs this determination, it is evident that the rule of paragraph 1(a) of Article 1 was applied.

Note that the defendant challenged the applicability of the law claiming that "[t]he arbitration court erred in determining . . . the applicable law." It is not clear, however, whether the defendant argued the applicability of: (1) the CISG; or (2) Russian domestic law; or (3) both the CISG and Russian domestic law. However, it can be inferred from the subsequent analysis of the opinions that the defendant challenged the applicability of both the CISG and Russian law. This conclusion is derived from that fact that the Federal Arbitration Court for the Moscow Circuit in the third opinion discussed the application of both the CISG and Russian domestic law.

As to the CISG, there are two factors that determine its applicability: (1) both parties (the plaintiff/buyer and defendant/seller) are from the contracting states, and (2) as it is provided by Article 6 of the Convention, neither party opted out of the CISG.[36] Although, the court did not discuss the second factor, which is no less important, it was obvious that there was no concrete evidence that the parties intended to reject the application of the CISG because no such intent was disclosed by either party. Even if the case had been tried by an arbitration tribunal in Switzerland, as claimed by the defendant,[37] the CISG would have been applied on the grounds stated above. Thus, this aspect of the defendant's claim was legally unsubstantiated. [page 82]

As to the applicability of Russian domestic law, the Federal Court took a rather peculiar approach. The court determined that the application of Russian domestic law by the trial court was erroneous on two grounds. First, in matters not regulated by the Convention, the law applicable by virtue of private international law should govern.[38] According to Russian private international law rules, in cases of sales contracts, the law of the seller (i.e., the defendant) applies unless otherwise agreed upon by the parties. Thus, the trial court should have applied Italian law instead of Russian law.

Second, the Federal Court determined that the application of domestic law (either Italian or Russian) was unnecessary in any way because the CISG governed all the issues that were matters of controversy between the parties. Thus, Russian domestic law was inapplicable in any case (either by virtue of private international law or because the Convention governed all aspects of the dispute). Based on the foregoing, the logical conclusion would be the reversal of the trial court's decision. This, however, did not happen. On the contrary, the Federal Court upheld the trial court's decision by stating that, although erroneous, it led to the same result as would the application of the CISG. It should be assumed that because the litigation went this far and because the defendant failed to provide well-founded arguments in support of its allegations, the Federal Court decided not to reverse the entire litigation at this stage.

Some may say that the above ruling fits within the doctrine known in the US as the "doctrine of harmless error." In my opinion, however, it contains potential threats to the application of international agreements, in general, and of the CISG, in particular. First, the Federal Court admitted that the CISG covered all the issues that were the matter in controversy in this dispute. In such a situation, the trial court should have invoked the application of not only Articles 35(1) and 74, which deal with issues of non-conformity and damages, but also the CISG provisions that govern issues of notice of non-conformity, the declaration of avoidance, the buyer's right to require substitute goods, the buyer's right to avoid the contract and the issue of a fundamental breach. It is very likely that, if the trial court had applied these provisions, the outcome of the case would have been different.

Another negative impact that this decision will most likely have is on the subsequent application of the CISG by Russian courts. It was mentioned in the introduction to this commentary that judicial decisions in Russia have no precedential authority. However, in new areas of law where judicial practice [page 83] is not yet established, such as application of the CISG, judicial decisions have "an informal stare decisis"[39] in that they provide guidelines for subsequent application of a new law. Thus, by ruling that the trial court's decision was correct because the provisions of Russian domestic law applied by the court are similar and lead to the same result as the application of the CISG, the Federal Court in fact justified the application of domestic law instead of the CISG. This creates a loophole in Russian judicial practice through which courts will more likely attempt to escape the application of unfamiliar international agreements (such as the CISG) and justify the application of allegedly similar provisions of domestic law. This phenomenon was repeatedly described by CISG scholars as the "homeward trend,"[40] and carries "[t]he most significant threat to the values embraced in Article 7(1) -- the temptation to project the familiar rules of one's own national legal system onto the Convention's provisions. . . ."[41]

     2. The Court's Approach to Determining a Breach of Contract

In determining whether there was a breach of the contract the court applied the rule of paragraph 1, Article 35 of the Convention. Under this provision "[T]he seller must deliver goods which are of the quantity, quality and description required by the contract."[42] The court applied this provision to the facts before it, and determined that the goods did not correspond to the quality (the gas burner of the furnace had less capacity than the one required under the contract), quantity (the missing car, the absence of the spare parts), and the description (the equipment was of a different shape, the furnace also had different dimensions). Theoretically, the defendant could point out that the goods in fact appeared to have complied with the implied standards of Article 35(2)(a), which required the goods to be fit for ordinary purposes.[43] [page 84] However, this would not have been sufficient since the contract also required the goods to comply with Attachment 1 to the contract.

Prior to analyzing the issue of damages, which resulted from the seller's breach of its obligations, it is necessary to focus on certain issues that substantially determine the buyer's right to choose among the remedies available under the CISG. From the facts of the case, it is clear that the buyer, after discovering the non- conformity and notifying the seller thereof, requested the substitute equipment. It is also clear that by returning the non-conforming equipment the buyer decided to avoid the contract.

As a general rule, "[t]he buyer has a right to avoid the contract only if the seller's breach of contract is "fundamental" within the meaning of Article 25."[44] Although none of the courts examined whether there was a fundamental breach, it is particularly important to discuss this issue because in cases of "[t]he delivery of non-conforming goods, the existence of a fundamental breach of contract is the condicio qua non for avoidance of the contract."[45]

Under Article 25 of the CISG, "[A] breach of contract . . . is fundamental if it results in such detriment . . . as to substantially deprive [the aggrieved party] of what he is entitled to expect under the contract . . . ." In this respect, an immediate question arises: what kind of detriments fall within the meaning of a fundamental breach? To answer this question is particularly difficult in cases of non-conformity. However, foreign judicial decisions have developed certain standards for determining whether non-conformity can be qualified as a fundamental breach. According to the German Supreme Court, "[i]n determining whether the non conformity is fundamental, i.e., it deprives the buyer substantially of what it is entitled to expect under the contract (Art. 25 CISG), it is decisive whether the buyer can still make use of the goods or resell them in the usual commercial relationships . . . ."[46] Under this standard, "[a]voidance for non conformity of the goods represents the last resort in respect to other remedies available to the buyer, such as price reduction or damages."[47] [page 85]

We do not know the full facts of the present case, which would enable us to determine whether there was a fundamental breach. However, there are some suggestions that indicate that the breach was not fundamental. Under the contract, the last payment was to be made within 15 days after the equipment was in operation. Because the buyer completely fulfilled its payments obligations, it can be inferred that the equipment was in fact put in operation and was used for some period of time. This suggests that the buyer could "[s]till make use of the goods . . . ."[48] Thus, assuming that the equipment, which the seller delivered, would have worked for the buyer (although, maybe not as well the buyer would prefer), it can be concluded that there was no fundamental breach and, consequently, the buyer had no right to return the equipment. The fact that the buyer might have to spend some extra money adapting the goods to the buyer's particular situation (because, for instance, the goods were of a different shape and capacity from those that were ordered) does not necessarily mean there is a right to avoid the contract.

Even assuming that there was a fundamental breach (because the seller, despite the buyer's request, did not deliver the substitute goods [49] and thereby failed to remedy the breach), there are some suggestions that indicate that the buyer did not comply with the requirements of the CISG relating to avoidance of the contract. One of the prerequisites of avoidance is a declaration of avoidance. The court determined that the buyer gave notice of non-conformity. However, there is nothing in the opinions indicating that the non-conformity notice contained a declaration of avoidance as mandated by Article 26 of the CISG.[50] On the contrary, the fact that the buyer initially required substitutes suggests that it did not initially want to avoid the contract. Thus, if there was a declaration of avoidance, it should have been given after the seller failed to deliver substitute goods. Nothing in the opinions indicates that prior to returning the equipment the buyer informed the seller of its intent to avoid the contract or somehow "[m]ade it clear that [the buyer] is no longer prepared to perform the contract because of the seller's breach of contract."[51] [page 86] Thus, assuming that the buyer did not give a notice of avoidance but instead simply proceeded to return the equipment, the seller could claim that avoidance was not effective and thereby seek other solutions to the problem (e.g., fixing an additional period of time to fulfill the obligations or reducing the price to cover the non- conformities). Based on the above, it can be concluded that, had the court applied the CISG rules relating to notice of avoidance, the buyer's rights would have greatly depended on whether it complied with those rules. As mentioned by one of the commentators, "the outcome of a case so often turns upon the adequacy of the notice . . . ."[52]

To conclude, it is necessary to note that the courts did not apply any of the CISG provisions that deal with the issues discussed above (i.e., the requirements for avoidance). Judging from the wording of the opinions, the courts proceeded from the idea that whether or not there was a fundamental breach and whether or not the notice of avoidance was sent, the buyer acted properly after sending the notice of breach. Here is where the court's analysis breaks down in such a way that might indicate that the court did not produce the right result. In this respect, it can be assumed that because the court session was held in the absence of representatives of the seller (i.e., the defendant), the court did not thoroughly analyze the provisions of the CISG. The failure on the part of any of the courts to focus upon any of the requirements for the buyer to return the goods (i.e., the issue of fundamental breach and the requirement of avoidance of the contract) substantially decreases the value of the courts' entire analysis.

     3. Court's Interpretation of Damages

The court in the instant case took a narrow approach when determining the damages payable for breach of contract. A combination of the CISG provisions (Article 74) and domestic law (Articles 15 and 393 of the CC) was applied to make this determination. Much like the U.S. court in Delchi Carrier, S.p.A. v. Rotorex Corp., the court here "[a]pplied the causation principles of Article 74 in a manner consistent with . . . [Russian domestic] law. . . ."[53] Thus, applying Article 74 of the CISG, the court resorted only to the concept of "loss . . . as a consequence of the breach,"[54] skipping the idea [page 87] of "lost profit." Likewise, the court applied the Russian civil legislation that deals with the issue of damages, awarding the actual damages and disregarding the issue of lost profit. We do not know from the opinions whether there was a claim for lost profit. However, it is clear that the court did not grant the full amount of money claimed by the plaintiff, which suggests that there may very well have been a claim for lost profit.[55]

Assuming that it was a lost profit claim and the court denied it, then the most probable basis for such denial could have been the strict standards of the Russian law for proving loss of profit. According to these standards, mere allegations, speculation, statements or conclusions are not deemed probative by the Russian courts. A document certifying that the party would have obtained profit in the future if the present transaction had been performed should be presented before the court. With regard to the Court's application of its domestic law in denying evidence of lost profit, a substantive question arises-whether it was proper for the court to apply domestic law proof standards under the CISG.

Some would argue that, as a matter of autonomous interpretation of the CISG, the court should not have applied Russian standards of proof and that the loss of profit should have been interpreted within the meaning of the CISG and not with reference to domestic law. In other words, the interpretation of the phrase "lost profit," including what proof of lost profit there has to be, should have been handled as an autonomous matter, i.e., it should have been handled as an international question divorced from domestic law. Otherwise, the uniformity of the CISG would be undermined.[56]

For the sake of uniformity, in cases where there are gaps in the Convention (as is the case with determining the meaning of lost profit and its [page 88] proof), it is urged that the general principles of the CISG should be applied;[57] and that, in fact, application of domestic law should be the last resort in filling the gaps in the Convention.[58] With regard to the instant case, the ultimate question is whether or not there is any general principle of the CISG that allows for the determination of what a lost profit is, and what proof there has to be in order to allow damages for lost profit.[59] The author of this commentary found no such principles explicitly or implicitly provided in the Convention. Much like the issue of interest payments, the issue of lost profit gives rise "[t]o problems concerning the precise meaning of [CISG] provisions and to problems concerning the necessity of filling the gaps in which an incomplete discipline will inevitably result."[60]

Also, one should note that questions of proof are not a matter of substantive sales law but are a matter of procedural law, and procedure is beyond the scope of the Convention. As one commentator has stated, "[p]roblems of proof and certainty of loss are procedural matters which remain within the province of national law [61] . . . [and] . . . will not be subject to the CISG or any other rules besides those of the forum."[62] However, different legal systems approach the issue of lost profit differently. While one system might have loose procedural rules on awarding the loss of profit, another legal system could be very strict. This means that depending on the standards of proving lost profit, courts in different countries may come to different results in similar cases (i.e., in one case the lost profit claim will be awarded while in another it will not). Thus, by depending on the concepts used in the legal system of the country of the forum, courts may indirectly interpret the CISG with "[d]iffering constructions of the provisions of this [page 89] Convention . . . ."[63] This runs counter to the need to promote uniformity in its application stressed by Article 7(1) of the CISG.

III. Conclusion

The instant case is a vivid example of how disputes involving the application of an international agreement are usually, though not always, settled by Russian courts. Despite the constitutionally declared principle of pre-eminence of international agreements over national laws, courts in Russia still tend to supplement the rules of international agreements with those of national law.[64]

In the context of CISG application, several features of the courts' analysis should be pointed out. The courts' discussion and application of the CISG were cursory and fragmented. While the courts initially declared the supremacy of the CISG rules over domestic law, they fell back on familiar domestic law analysis, thereby missing an opportunity to contribute to the international jurisprudence of the CISG. Thus, by giving terse mention of the CISG articles at issue, by ignoring some of the provisions that were directly relevant to the case, by failing to examine the CISG as an integrated whole, by interpreting the CISG articles according to Russian law, and by justifying the application of domestic law instead of the CISG, all three courts created decisions that can hardly serve as an example for subsequent application of the CISG or make a valuable contribution to the application of international agreements in general. [page 90]


FOOTNOTES

* The description of the arbitration system of the Russian Federation is based on the translator's knowledge as a lawyer trained in the legal system of Ukraine and her knowledge of the Russian legal system from that training. See also Vol. II-A Thomas H. Reynolds, Arturo A. Flores, Foreign Law: Current Sources of Codes and Legislations in Jurisdictions of the World (1994); Iarkov V.V., Arbitrazhnyi Protsess: Praktikum, Jurist Publishing (1999). All translations should be verified by cross-checking against the original text.

** Translation and commentary by Iryna Nurzad, LL.M., University of Pittsburgh School of Law, 2001-2002. All footnotes included in the translation have been provided by the translator.

1. Code of Arbitration Procedure. The CPA was adopted by the Russian Parliament on April 5, 1995 and became effective two months later (May 5, 1995).

2. Note that the instant case was heard by the panel of judges as opposed to an individual judge.

3. Code of Arbitration Procedure, ch. II, art. 14.

4. Literally, "Gorpischecombinat" means the city food plant, a combination of several interrelated and interdependent factories involved in the food industry. The second part of the plaintiff's name determines the region where the plant is located, in this case, Livensk.

5. Unlike in the United States, claims in Russian courts can be rendered in a foreign currency.

6. For the purpose of this translation, it is important to distinguish between the terms "arbitration court" and "arbitration tribunal" in the context of the Russian legal system and doctrine. The latter term, "arbitration tribunal," is used to define what is known in the United States as an "arbitration panel"; that is, an independent institution, not part of the public court system, established by the parties' agreement. The rules for the formation of arbitration tribunals are not written in Russian law, and the parties have full discretion to establish these rules in their agreement, while the procedural rules for the Russian arbitration courts are set forth in the laws, primarily in codes such as the Code of Arbitration Procedure (CAP).

7. Please note that the court of the first instance may issue either a decision or a determination. Compared to a decision, a court determination is less significant since it deals with only one aspect or issue of a case (e.g., a motion to dismiss, a motion to amend the claim, etc.) and can be issued during a consideration of the case. A decision encompasses all issues of a case and is rendered at the final stage of the trial.

8. Although the trial court does not specify the location of the parties nor is this fact specified in the subsequent opinions, it becomes apparent from later proceedings that the seller is located in Italy because the Federal Arbitration Court for the Moscow Circuit mentions Italian law as an alternative to Russian law.

9. Convention on Contracts for the International Sale of Goods. All the abbreviations are provided by the translator.

10. CISG Article 1(1) reads: "This Convention applies to contracts of sale of goods between parties whose places of business are in different States: (a) when the States are Contracting States; or (b) when rules of private international law lead to the application of the law of a Contracting State."

11. According to common practice adopted in the Russian Federation, in order to certify the conformity or non-conformity of goods, the buyer must get an official conclusion from an expert agency. In transactions involving foreign counterparts, the expert agency is the Chamber of Commerce and Industry. The word "Orlov" in this case indicates that the expert conclusion was obtained from a regional department of the Chamber.

12. Article 37 of CAP reads: "[T]he plaintiff may, prior to the rendering of the decision by the arbitration court, amend . . . increase or decrease the amount of the claim. . . ." The court, however, may dismiss the motion if "[i]t violates the laws and other legislative acts or infringes upon the rights and legitimate interests of other individuals."

13. Article 123 of the CAP describes procedures for documenting particular procedural action, such as granting or dismissing a motion to amend a claim. The general rule is that such actions shall be documented in a protocol called a court determination and shall be signed by the judge immediately after performing the procedural action.

14. Article 393 of Civil Code reads:(1) The debtor shall compensate the creditor for damages caused by non- performance or undue performance of his obligations. (2) The damages are determined in accordance with rules set forth in Article 15 of the [Civil] Code. (3) Unless otherwise provided by the law, other legal acts or [international] agreements, damages shall be determined on the basis of prices at the place where performance was to occur and on the date when the debtor voluntarily agreed to settle the claim or, if the claim was not so settled, on the date when the creditor brought the claim. Depending on the circumstances, the court may approve a claim for the recovery of damages taking into account the prices on the day when the judgment is rendered. (4) In determining lost profit an account shall be taken of the measures taken by the creditor to obtain the profit and the preparations made for this purpose.

15. Article 15 of CC reads: (1) A person whose right is infringed may claim full recovery of the incurred damages if the law or the agreement does not provide for the recovery of a smaller amount. (2) The term "damages" includes expenses which a person, whose right is infringed, incurred or will incur in order to restore the infringed right, loss of or damage to property (actual damage), as well as the income which this person would have received in the normal course of business had his right not been infringed (lost profit). If the person who infringed the right received income as a result of infringement, the person whose right was infringed may claim, along with other damages, recovery of lost profit in an amount no less than such income.

16. Article 95, paragraph 2 of CAP. Article 95 sets forth the rules for allocation of litigation fees among the parties to the dispute. The main principle in this regard is "the loser pays" unless otherwise agreed by the parties. Note, however, that state duty is always paid by the lost party.

17. Articles 124 to 128 of CAP deal with the procedural rules for rendering a decision by the arbitration court.

18. Note that this opinion is an almost verbatim repetition of the first-level court's decision except for the very beginning and the very end of this decision.

19. A decision of the arbitration court of the first instance enters into force upon the expiration of one month after it was rendered. Within this period the disagreeing party may appeal to the appellate level of the same court (in this case, the Arbitration Court of the City of Moscow).

20. Under Russian legislation, no person can represent another in court without a properly issued power of attorney from the person s/he represents.

21. Article 158 of the CAP identifies grounds to amend or reverse decisions rendered by the arbitration court of the first instance. These include, but are not limited to, the grounds stated by the defendant in its appeal such as the erroneous application of procedural rules and incomplete determination of facts and circumstances of the case.

22. Article 153 of the CAP reads: "In the appellate instance a case shall be considered in accordance with the rules applicable to the arbitration courts of the first instance having regard to the peculiarities, stated in this chapter. The rules that are exclusively applicable to the first instance shall not apply."

23. Article 155 of the CAP sets forth the extent to which a case can be reviewed at the appellate level. As stated earlier, the Russian appellate courts, unlike appellate courts in the US, may review the facts of the case. However, the extent of such review may not go beyond the limits of the factual basis considered by the court of the first instance.

24. Article 157 of the CAP determines the scope of authority of the court of appellate instance. Having reviewed the case, the court at the appellate level may either (1) leave the decision unchanged and deny the appeal, (2) reverse the decision in full or in part and render a new decision, (3) amend the decision, or (4) reverse the decision in full or in part and terminate the proceedings or (5) dismiss the claim in full or in part.

25. Article 159 of the CAP establishes rules for issuing an opinion by the appellate court. Interestingly, unlike decisions of the courts at the lowest/trial level, which enter into force in a month, the opinion of the appellate court becomes effective immediately upon rendering. However, it still can be appealed.

26. Under the CAP, the appellee (in this case, the plaintiff) is not required to submit a written response to the appeal. This, however, does not deprive the appellee of its right to appear before the court and present oral arguments. See Article 167 of the CAP.

27. Under section 2 of Article 87 of the CAP, an arbitration court must dismiss a claim if (1) there is an agreement between the parties to submit the dispute to an arbitration tribunal, (2) such submission is still possible, and (3) the defendant that objects to the consideration of the case by the arbitration court brings a motion to submit the claim to the arbitration tribunal no later than when it makes its first statement on the merits of the case.

28. The Basic Law of Civil Legislation of the USSR was initially intended to accommodate the transition of the Soviet Union towards an economy based on market principles. After the break-up of the Soviet Union, the Basic Law served as transitional legislation that regulated civil law relations in the Russian Federation until the adoption of a the new civil code. The new Civil Code was adopted in 1994. However, certain provisions of the Basic Law are still effective in as much as they do not contradict the provisions of the Constitution and of the new Civil Code. Mostly, such provisions serve a gap-filling function. One such provision is Article 166 cited by the court above. This article sets forth conflict of law rules. According to paragraph 1, section 1 of this article, "[i]n the absence of an agreement between the parties as to the applicable law . . . in case of a sales agreement the law of the country of the seller shall apply." Note that this provision is quite distinguishable from the formerly effective conflict of law rule, whereby in sales transactions the law of the country where the sales agreement was concluded had to be applied.

29. Article 171 of the CAP sets forth the procedural rules for considering a case at the cassation level and contains rules analogous to those applicable to the appellate level. Supra note 17.

30. Articles 174 to 177 of the CAP deal with the scope of authority of the cassation court, procedures for issuance of a cassation opinion, grounds for amendment of prior court decisions or opinions, etc.

31. <http://www.cisg.law.pace.edu/cisg/countries/cntries.html> Other former republics of the USSR acceded to the CISG on an individual basis. Today, 10 out of 15 former republics are parties to the Convention (Belarus, Estonia, Georgia, Kyrgystan, Latvia, Lithuania, Moldova, Russian Federation, Ukraine, Uzbekistan).

32. Note that the situation concerning access to court decisions in other former Soviet republics is different. In Ukraine, for example, judicial opinions are not, as a general rule, available to the general public. This specifically relates to commercial disputes with foreign entities. There are several reasons for this situation. First, under Ukrainian law, ordinary arbitration courts are not allowed to consider a dispute if a party to such dispute is a foreign legal entity. Therefore, the majority of commercial disputes involving foreign parties are subject to the jurisdiction of the Tribunal of International Arbitration at the Chamber of Commerce and Industry of Ukraine [hereinafter Tribunal]. In fact, the Tribunal is the only judicial body that can consider disputes that involve a foreign party. Further, the Tribunal does not officially publish its decisions, case reviews, practice reviews, or any materials that could indicate this body's practice in applying various rules. The officials of this body explain this lack of official materials by a "confidentiality" principle, i.e., everything relating to decisions of the Tribunal constitutes a "commercial secret" of this court. Therefore, the problem is that the only place where international commercial disputes are settled is the Tribunal, which denies public access to its records and does not publish official practice reviews.

33. Article 7(2) of the CISG reads: "[Q]uestions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of private international law."

34. Article 35(1) of the CISG provides: "[T]he seller must deliver goods which are of the quantity, quality and description required by the contract and which are contained or packaged in the manner required by the contract."

35. Article 74 of the CISG states: "Damages for breach of contract by one party consists of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract, in light of the facts and matters of which he then knew, or ought to have known, as a possible consequence of the breach of contract."

36. Article 6 of the CISG reads: "The parties may exclude the application of this Convention or, subject to article 12, derogate from or vary the effect of any of its provisions."

37. With regard to defendant's challenge of the choice of forum, it is necessary to note the following. Although not mentioned in the opinion of the court of the first instance (probably due to the redactions of the editor), it is evident from the opinion of the Federal Arbitration Court for the Moscow Circuit that the defendant failed to prove that there was an agreement between the parties about submitting the disputes to the arbitration tribunal of the City of Zurich. As mentioned in the court opinion, the defendant presented a facsimile copy of such an agreement, but it was signed solely by the defendant. Presumably, some of the main reasons for the defendant trying to hale the plaintiff into a Swiss arbitration tribunal were: (1) the fear of prejudicial approach of the Russian courts to a dispute involving its domestic entity; and (2) the defendant's reliance on the plaintiff's inability to provide itself with a good defense in a far away and rather expensive foreign litigation.

38. See Article 7(2), supra note 34.

39. This term is used by Larry A. DiMatteo, The CISG and the Presumption of Enforceability: Unintended Contractual Liability in International Business Dealings, 22 Yale J. Int'l L. 111, 136, 167 (1997).

40. John Honnold, General Introduction, in Documentary History of the Uniform Law for International Sales: The Studies, Deliberations and Decisions That Led to the 1980 United Nations Convention with Introductions and Explanations 1 (John O. Honnold ed., 1989).

41. Harry M. Flechtner, Recovering Attorney's Fees As Damages Under the U.N. Sales Convention: A Case Study on the New International Commercial Practice and the Role of Foreign Case Law in CISG Jurisprudence, 22 Nw. J. Int'l L. & Bus. 121 (2002).

42. CISG, paragraph 1, article 35.

43. See id., paragraph 2, which reads: "[E]xcept where the parties have agreed otherwise, the goods do not conform with the contract unless they: (a) are fit for the purposes for which goods of the same description would ordinarily be used. . . ."

44. Peter Schlechtriem, Commentary to the UN Convention on the International Sale of Goods (2d ed. 1998).

45. Id.

46. Decision of April 3, 1996, Bundesgerichtschaft (Germany), # VIII ZR 51/95, English Abstract appearing in Center for Comparative and Foreign Law Studies, Unilex: International Case Law and Bibliography on the 1980 UN Convention on Contracts for the International Sale of Goods (CISG) (Micheal J. Bonnell ed.) (Transnational Publishers, Inc., December 1998 Issue) (emphasis added).

47. Id. (emphasis added).

48. Id.

49. Note that under the CISG "[t]he right to require performance, in the form of the delivery of substitutes, exists only insofar as the lack of conformity represents a fundamental breach of contract." See Schlechtriem, supra note 45, at 377. Article 46(2) reads: "[I]f the goods do not conform with the contract, the buyer may require delivery of substitute goods only if lack of conformity constitutes a fundamental breach of contract. . . ." Thus, the right of the buyer to require substitute goods was as questionable as its right to avoid the contract. Both should have been established by the court.

50. Article 26 of the CISG reads: "[D]eclaration of avoidance of the contract is effective only if made by notice to the other party."

51. See Schlechtriem, supra note 45, at 425.

52. Andrew J. Kennedy, Recent Developments: Nonconforming Goods Under the CISG-What's a Buyer to Do?, 16 Dick. J. Int'l L. 319, 331 (1998).

53. See Eric C. Schneider, Consequential Damages in the International Sale of Goods: Analysis of Two Decisions, 16 J. Int'l Bus. L. 615-68 (1995).

54. See Article 74 of the CISG: "Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw of ought to have foreseen at the time of the conclusion of the contract, in the light of the facts and matters of which he then knew or ought to have known, as a possible consequence of the breach of contract."

55. The court points out that the plaintiff increased the amount of the claim to $ 217,478 U.S. The court, however, granted only $ 174,816 U.S. instead of the required $ 217,478. Presumably, the amount not granted was the lost profit claim.

56. For a discussion on the issues of uniformity and autonomous interpretation see Jeffrey S. Sutton, Measuring Damages Under the United Nations Convention on the International Sale of Goods, 50 Ohio St. L.J. 737 (1989); Joanne M. Darkey, A U.S. Court's Interpretation of Damage Provisions under the U.N. Convention on Contracts for the International Sale of Goods: A Preliminary Step Towards an International Jurisprudence of CISG or a Missed Opportunity?, 15 J.L. & Com. 139 (1995); Frank Diedrich, Maintaining Uniformity in International Uniform Law Via Autonomous Interpretation: Software Contracts and the CISG, 8 Pace Int'l L. Rev. 303 (1996); Franco Ferrari, Uniform Interpretation of The 1980 Uniform Sales Law, 24 Ga. J. Int'l & Comp. L. 183 (1994).

57. Article 7(2) of the CISG: "Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of rules of private international law."

58. Recourse to the rules of private international law "represents under the . . . uniform law a last resort to be used only if and to the extent that a solution cannot be found either by analogical application of specific provisions or by the application of "general principles" underlying the uniform law as such." Ferrari, supra note 57, at 195.

59. With regard to the general principles that are provided in the Convention see Ferrari, supra note 57, at 193- 195.

60. See Ferrari, supra note 57, at 187.

61. Joseph M. Lookofsky, Consequential Damages in Comparative Context: From Breach of Promise to Monetary Remedy in the American, Scandinavian, and International Law of Contracts and Sales 189 (1989).

62. See Schneider, supra note 54, at 623.

63. Id.

64. In accordance with the Constitution of the Russian Federation of December 12, 1993, "[i]nternational agreements of the Russian Federation form the constituent part of its legal system. If an international agreement of the Russian Federation provides for different rules than those of its national legislation, the rules of international agreement apply." See Article 15 of the Constitution as well as the preamble of the Law of the Russian Federation, "On International Agreements of the Russian Federation" dated July 15, 1995.

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