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CISG CASE PRESENTATION

Ukraine 8 September 2000 Arbitration proceeding (Forming press case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/000908u5.html]

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

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Case identification

DATE OF DECISION: 20000908 (8 September 2000)

JURISDICTION: Arbitration ; Ukraine

TRIBUNAL: Tribunal of International Commercial Arbitration at the Ukraine Chamber of Commerce and Trade

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Ukraine (claimant)

BUYER'S COUNTRY: Germany (respondent)

GOODS INVOLVED: Forming press


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 53 [Also cited: Articles 60 ; 62 ]

Classification of issues using UNCITRAL classification code numbers:

53A [Buyer's obligation to pay price of goods]

Descriptors: Price

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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): Praktika ofzhdunarodnogo kommercheskogo arbitrazhnogo suda pri TPP Ukraine. Vneshneekonomicheskie spory [Practice of the International Commercial Arbitration Tribunal at the Ukraine Chamber of Commerce and Industry, Foreign Economic Disputes], Kyiv, published by Praksis (2006), Case No. 21 [577 - 586]

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

Tribunal of International Commercial Arbitration
of the Ukrainian Chamber of Commerce and Trade

Award of 8 September 2000

Translation [*] by Gayane Nuridzhanyan [**]

   -    Particulars of the case
   -    Position of the Parties
   -    Opinion of the Tribunal
   -    Award

PARTICULARS OF THE CASE

The International Commercial Arbitral Tribunal at the Ukrainian Chamber of Commerce and Trade (hereinafter Tribunal) having considered the action brought by Claimant [Seller], a Ukrainian LLC, against Respondent [Buyer], a German firm, for the recovery of 205,700 Deutsche Mark [DM], including 170,000 [DM] of the main sum in arrears and 35,700 [DM] as a penalty for the delay in payment has decided the following.

The legal basis for the adjudication of the dispute by the Tribunal is Section 11 of Contract # 19/99 of 19 October 1999 signed by the parties in the City of Tokmak, Ukraine. According to the Contract:

   -    The parties shall undertake all possible measures to settle disputes, disagreements and complaints arising from the fulfilment of the Contract by negotiation and mutual consent. In the event consent is not reached, disputes that do not fall under jurisdiction of the common courts shall be submitted for hearings of the Commercial Arbitral Tribunal at the Ukrainian Chamber of Commerce and Trade, City of Kyiv, in accordance with the rules and order, i.e., the Regulations of the Tribunal.
 
   -    The award of the Tribunal shall be final and binding on the parties.

According to art. 12.5 of the Contract, all issues that are not foreseen by the Contract shall be regulated by the UN Conventions on Contracts for the International Sale of Goods (Vienna, 1980) and the UN Convention on the Limitation Period in the International Sale of Goods (New-York, 1974).

For other issues not foreseen by the Contract, in accordance with art. 6 of the Law of Ukraine "On External Economic Activity," the substantive law of Ukraine is applicable as the law of the country of the place at which the contract was signed and the place of the main activity of the [Seller].

Under the terms of the Contract and Supplementary Agreement #1 to the Contract, the [Seller] undertook to sell and the [Buyer] to purchase a forming press manufactured in 1989 and previously used, referred to as "the goods", according to the specifications in Supplement # 1 which is an integral part of the Contract.

The Contract provides for the delivery of the press in two shipments: by wagon and by lorry. The delivery term is November 1999: not later than 20 November for the press frame and the muff, and not later then 29 November for the other components. The date of the delivery is considered to be the date of the receipt of the goods by the [Buyer]'s expediter. The delivery term for the press frame and the muff is FOR, the railway station of Tokmak City, the other components of the press should be shipped by the vehicles under the basic terms of FCA, the warehouse of the Tokmak City. INCOTERMS 1990 shall apply. The general price of the Contract is 440,000 [DM]. This price is fixed firmly and is not to be changed. The payments shall be carried out as follows:

   -    The [Buyer] is obliged to pay 100,000 [DM] as an advance within ten days after the signing of the Contract. Payment shall be by direct bank transfer to the [Seller]'s account.
 
   -    The [Buyer] shall pay the remainder of the contract price (the sum of 340,000 [DM]) by direct bank transmission to the [Seller]'s account upon the take-over by the [Buyer] of the goods packed and prepared for shipment. The basis for the payment to the [Seller]'s account shall be the acceptance report from the [Buyer], the freight hand-receipt of the [Buyer]'s expediter on the acceptance of the goods.

The completeness of the press set, the condition of the units and the packaging should be examined prior to the delivery. The representative of the [Buyer] should participate in this examination and in the acceptance document. In the event of non-compliance with the terms of the delivery or payment established by the Contract, for every week of delay the parties are obliged to pay to each other the penalty of 1 % of the cost of goods not delivered in time or 1 % of the delayed payment. However, the penalty shall not exceed 10 % of the cost of the goods or the amount of the delayed payment.

If delivery of goods is delayed for more than one month, the [Buyer] has the right to avoid the Contract. The [Seller] in this case is obliged to pay back all the sums received from the [Buyer].

POSITION OF THE PARTIES

[Seller]'s position

The [Seller] has fulfilled all of its obligations established by the Contract and delivered to the [Buyer] the forming press that costs 440,000 [DM]. The [Buyer] has partially fulfilled the obligations under the Contract paying to the [Seller] 270,000 [DM]. However, the [Buyer] has violated the terms of the contract by not paying the remaining sum of 170,000 [DM].

As the negotiations between the parties did not lead to a positive result, i.e., paying off the indebtedness by the [Buyer], the [Seller] brought this action to the Tribunal, asking the Tribunal to require the [Buyer] to pay 205,700 [DM]. This sum includes the main debt - the remainder of the payment for the goods in sum of 170,000 [DM] - and a penalty for the delay in payment in the sum of 35,700 [DM]. [Seller] also sought payment of the arbitration fee.

The Tribunal initiated proceedings in the case by the Resolution of the Tribunal's President of 21 February 2000.

[Buyer]'s objections

On 23 May 2000, the Tribunal received the objections of the [Buyer] on the merits of the statement of claim, in which the [Buyer]:

1. Affirmed that it received the claim papers and documents from the Tribunal and informed that external economic contracts, to which the present Contract belongs, should comply with the special requirements regarding the form of the contract - the presence of two signatures. The requirements are set by the Civil Code of the USSR, the Law of Ukraine "On International Commercial Arbitration", "On External Economic Activity", the Order of the Ministry of the External Economic Relations and Trade of Ukraine # 75. As only one signature is on the original Contract # 19/99, which the [Buyer] possesses, the Contract between the parties is invalid in view of the aforementioned requirements of the Ukrainian legislation. At the same time, the [Buyer] referred to the Decision of the Constitutional Court of Ukraine # 16-pn/98 of 26 November 1998 and the Clarification of the Supreme Arbitration Court of Ukraine # 02-5/11 of 12 March 1999.

2. Based on the above, the [Buyer] contested the validity of the arbitration clause contained in the Contract. The [Buyer] considered that the [Seller] had no right to bring the dispute under the present Contract to trial at the Tribunal.

3. In any event, the [Buyer] believes that the [Seller] has violated the terms of the Contact regarding the shipping of the press frame and the muff by 20 November 1999 and the handing the goods over to the expediter of the [Buyer], since the note of the St.-Petersburg LLC is absent from the railroad waybill. The [Buyer] also asserted that the offprint on the railroad waybill with the note about the date of the shipping of the press frame and the muff does not correspond to the terms of the Contract and that the force majeure circumstances regarding the delay in the transit of the goods should not be considered as such. The goods were delivered to the [Buyer] after a delay of more than 60 days, which caused unjustified financial damages to the [Buyer] in sum of around 100,000 [DM].

4. The [Buyer] asked the Tribunal to:

   -     Declare Contract # 19/9 of 19 October 1999 and the arbitration clause contained in it invalid;
   -     Return the parties to the previous state, i.e., to oblige the [Seller] to give back to the [Buyer] the 270,000 [DM] paid by [Buyer];
   -     Recover the expenses of the [Buyer] connected with the delivery of the goods and the customs clearance of the goods in the sum of 150,000 [DM]; and
   -     Deny [Seller]'s demands to recover the penalty and arbitration fee.

After the preparations of the case for the hearings of the Tribunal and composing the court bench, the hearings were appointed for 30 June 2000.

Requests at the hearings

During the hearings, the [Seller] asked the Tribunal to impose on the [Buyer] the expenses for the legal services in the case in sum of 27,000 hryvnyas [UAH]. Furthermore, the [Seller] presented its response to the objections of the [Buyer] to the claim, in which [Seller] provided more details on its demands based on the documents presented to the Tribunal.

The representative of the [Buyer] petitioned for the adjournment of the hearings in view of the necessity to get familiarized with the comments of the [Seller] regarding its objection to the claim, as well as the necessity to present to the Tribunal additional documents, in particular, the original copy of Contract # 19/99 with one signature. The representative of the [Seller] did not object to the petition and informed that there is a possibility to negotiate an amicable agreement between the parties. The Tribunal accepted the [Buyer]'s petition and adjourned the hearings until 4 August 2000. The representatives of the parties were so notified.

On 3 August 2000, the Tribunal received a facsimile of 2 August 2000 from the [Buyer] which notified that the representative of the [Buyer] who participated in the previous hearing of the Tribunal on this case cannot participate in the hearings of 4 August 2000 since the representative of the [Buyer] is now having the in-patient treatment because of an illness. The [Buyer] asked the Tribunal to adjourn the hearings of the case to enable it to obtain a substitute for the representative and to familiarize him with the papers of the case.

The representatives of the [Seller] did not object to the adjournment of the hearings; however, they stated that, in their opinion, the [Buyer] was deliberately delaying the hearings of the case on the merits.

The Tribunal noted that the hearings of the present case had already been delayed to give the [Buyer] an opportunity to present to the Tribunal the necessary documents including the original Contract that the [Buyer] possessed, and to carry out the negotiations for the signing of an amicable agreement by the parties. However, the [Buyer] has not presented the aforementioned document to the Tribunal by 4 August 2000 and the parties have not presented to the Tribunal an amicable agreement.

Nevertheless, taking into account the petition of the [Buyer] for the adjournment of the hearings, the opinion of the representatives of the [Seller] on that question and, following art. 7.5 of the Regulations of the Tribunal, the Tribunal adjourned the hearings until 8 September 2000 by its ruling of 4 August 2000 and warned the [Buyer] that, in case of its representative's failure to appear in the hearings of the Tribunal on 8 September 2000 and their failure to present the original Contract that the [Buyer] possesses, the case will be examined based on the present papers of the case.

On 8 September 2000, during the hearings of the Tribunal the Tribunal received the supplemental papers of the [Buyer] of 1 September 2000, in which the [Buyer] requested the Tribunal to rule against the [Seller]'s demands to recover 170,000 [DM] of the main debt, the 35,700 [DM] penalty for the delay in payment for the goods, and the recovery of the cost of the legal services provided to the [Seller]. The [Buyer] alleged violation by the [Seller] of the requirements as to the form of the Contract (the presence of one signature), the terms of the Contract as to the delivery of the press, the wrongful application of the FOR term, which, in the opinion of the [Buyer], was the delivery of the press frame and the muff not to the expediter of the [Buyer] but to the Ukrainian railroad that delivered the abovementioned goods to the border between Ukraine and Russia (the Solovey station) with considerable delay in view of the force majeure circumstances. In connection with the last violation, the [Buyer] suffered damages in form of a 212,700 [DM] payment to its German customer for the frustration of the manufacturing process of the latter (salaries, manufacturing costs, loss of profits).

The original Contract # 19/99 with one signature of the [Seller]'s Head was presented to the Tribunal by the [Buyer]. In their turn, the representatives of the [Seller] presented to the Tribunal the original of the same Contract that they possessed with two signatures of the Head and the accountant of the Ukrainian LLC.

The representatives of the [Seller] confirmed their demands and requested satisfaction.

OPINION OF THE ARBITRAL TRIBUNAL

Taking into consideration that:

1. According to the terms of Contract # 19/99 of 19 October 1999, the [Seller] delivered to the [Buyer] for 440,000 [DM] a forming press manufactured in 1989 and previously used. The fact of the delivery is proven by the cargo customs declarations, railroad waybills, the international waybills (CMR), and the acceptance of the goods signed by the parties on 19 October 1999.

2. Although the [Buyer] accepted the goods, the [Buyer] only partially paid for the goods, violating the contract terms of the payment) by paying to the [Seller] only 270,000 [DM], 100,000 [DM] of which it paid on 1 November 1999 as a prepayment for the goods, and 170,000 [DM] on 28 January 2000, which is proven by the memorial slip of the [Seller]'s bank.

3. According to art. 53 of the UN Convention on Contracts for the International Sale of Goods and art. 224 of the Civil Code of the USSR, the [Buyer] is obliged to pay the contract price for the delivered goods, which the [Buyer] did not do.

4. In its letter of 21 August 2000, the [Buyer] admitted its debt to the [Seller].

5. Under such conditions, the demands of the [Seller] to impose on the [Buyer] the recovery of 170,000 [DM], the cost of the delivered press, are lawful, proven by the papers of the case and should be satisfied.

6. The following assertions of the [Buyer] are not to be taken into account:

   -    The [Seller] has not fulfilled the terms of the delivery envisaged by the Contract and did not transit the press frame and the muff to the expediter of the [Buyer], the St. Petersburg LLC, on 20 November 1999 at the Solovey station of the Russian railroad, since the assertions are disproved by the documents of the present case. The latter is proven in particular by the reference of the St. Petersburg LLC of 20 June 2000, which affirms that the [Buyer] had addressed the St. Petersburg LLC with the inquiry to carry out the mixed railroad and marine delivery of the press from the Ukrainian station Bol'shoy Tokmak to the final place of destination on 14 October 1999, that is, before Contract #19/99 was signed. However, since the Ukrainian railroad does not accredit non-resident foreign companies, the St. Petersburg LLC responded to the [Buyer] that it can fulfill the transit of the press under the condition that the Ukrainian railroad will be the expediter on the territory of Ukraine. The St. Petersburg LLC informed the [Buyer] but not the [Seller] about the necessity to fulfill certain conditions delivering the goods to the expediter-forwarder on the territory of Ukraine (the Ukrainian railroad). The [Buyer] redirected the abovementioned conditions to the [Seller], and the latter fulfilled the conditions in a bona fide manner.
 
According to the aforementioned conditions, the terms of the delivery of the goods to the forwarder were not envisaged. Taking into consideration that the terms of Contract # 19/99 stipulated that the goods should be delivered to the forwarder (the expediter of the [Buyer], the St. Petersburg LLC) in the Ukrainian city of Tokmak, but not the Solovey station of the Russian railroad, the Ukrainian railroad fulfilled the obligations of the expediter of the [Buyer] who transferred the press frame and the muff from the station Bol'shoy Tokmak to the Solovey station. Therefore, the delivery of the press frame and the muff to the expediter-forwarder by the [Seller] on 19 November 1999 to be afterwards delivered to the Solovey station does correspond to the terms of the delivery of the goods provided by the Contract, which are FCA terms - the city of Tokmak. The terms FOR, the railroad delivery, and FOT, the delivery by air, which had previously been included in INCOTERMS 1980, however, were excluded from INCOTERMS 1990 since they are completely included in the FCA terms (see the INCOTERMS Commentary of 1990, the International Trade Chamber Publication # 461/90). According to the FCA terms, to fulfill the obligation "the city of Tokmak (INCOTERMS 1990)", the [Seller] was obligated to deliver the goods to the expediter-forwarder, which is the Ukrainian railroad, at the city of Tokmak (the railroad station Bol'shoy Tokmak), by 20 November 1999. This obligation was fulfilled on 19 November 1999. Moreover, the correspondence between the parties that the [Buyer] refers to signifies that the [Buyer] did not have a question about the expediter-forwarder, the Ukrainian railroad, and the [Buyer] did not challenge the eligibility of the expediter-forwarder, the Ukrainian railroad, to deliver the goods from the Ukrainian city of Tokmak to the border between Russia and Ukraine. Based on the aforementioned, the date of the delivery of the press frame and the muff should be considered 19 November 1999.
 
   -    The [Buyer] avoided Contract # 19/99 in light of the alleged violation of the terms of the delivery of the goods by the [Seller]. However, the Contract envisages the only condition for its unilateral cancellation as more then one month delay in the delivery of the goods (para. 9.2 of the Contract). Considering that the [Seller] delivered the press frame and the muff on 19 November 1999, the [Buyer] did not have the right to avoid the Contract unilaterally.

However, the demands of the [Seller] with respect to the entire amount of the penalty claimed are not proven by the documents, are not based on the Contract but based on the wrongful facts and are disproved by the papers of the case.

7. According to art. 6 of the Law of Ukraine "On External Economic Activity" and the Decision of the Constitutional Court of Ukraine of 26 November 1998 # 16-pn/98 (which was in force at the time of the signing and implementation of the Contract), non-fulfillment of the requirements regarding the signing of an external economic treaty (contract) can be a ground for determining the external economic treaty (contract) invalid by the court.

However, based on the following, there are no grounds for regarding this Contract invalid.

   -    The obligations of the [Seller] under the Contract are fulfilled fully, the [Buyer]'s obligations are fulfilled partially, and the Contract is virtually implemented.
 
   -    The parties presented to the Tribunal the originals of the Contract # 19/99 that they possessed. The [Seller] presented an original Contract with two persons from the Ukrainian LLC designated in the preamble of the Contract, the Director and the General Accountant, and the signatures of both present in the Contract. And in the original of the Contract presented by the [Buyer], the same official persons of the [Seller] are designated in the preamble, however, only one signature, the signature of the Director of the Ukrainian LLC is present in the Contract. In this situation, the presence of two signatures on the original of the [Seller] signifies that the [Seller], the Ukrainian LLC, fulfilled the requirements of a contract signature, the order that existed at the moment of signing the present Contract.

8. In the petition of 1 September 2000, the [Buyer] alleged that because the delivery of the press frame and the muff was delayed, it incurred damages in form of having to pay 212,700 [DM] to its German customer for the frustration of the manufacturing process of the latter, the overhead expenses for paying salaries, manufacturing costs, and loss of profits. Since these demands of the [Buyer] are not drawn up in a counterclaim and the arbitration fee is not paid the Tribunal does not take them into consideration.

9. Under Contract # 19/99, the [Buyer] is obliged to pay a penalty of 1 % of the unpaid amount for every week of delay, however, the general cost of the penalty should not exceed 10 % of the unpaid payment. The [Seller] has calculated the penalty in the sum of 35,700 [DM] and asks the Tribunal to impose this penalty on the [Buyer]. The demand should only be satisfied partially according to the terms of the Contract (para. 9.1), which states that the general cost of the penalty should not exceed 10 % of the unpaid payment. The unpaid payment in this case is 170,000 [DM] and 10% of that sum is 17,000 [DM]. Therefore, only a penalty of 17,000 [DM] should be imposed on the [Buyer].

10. The demands of the [Seller] to impose on the [Buyer] the recovery of the cost of the legal services provided to the [Seller] to represent its interests before the Tribunal in sum of 27,000 UAH should not be satisfied since they are not proven.

11. The arbitration fee paid by the [Seller] according to para. 2, Chapter V of the Regulations on Arbitration Fees and Expenses is imposed on the [Buyer] proportionally to the satisfied claims of the [Seller].

AWARD

In accordance with the terms of Contract # 19/99 of 19 October 1999, the additional agreements to the Contract, arts. 53, 60, 62 of the UN Convention on Contracts for the International Sale of Goods (Vienna, 1980), the FCA terms of INCOTERMS 1990, art. 224 of the Civil Code of the USSR, art. 31 of the Law of Ukraine "On International Commercial Arbitration", and art. 8.4-8.9 of the Rules of the Tribunal, para. 2, Chapter V of the Regulations on Arbitration Fees and Expenses the Tribunal has decided:

The [Buyer], German LLC, is obliged immediately after receipt of the present award to pay to the [Seller], Ukrainian LLC:

   -    170,000 [DM] [the cost of the delivered goods];
   -    17,000 [DM] [the penalty for the delay in payment for the goods]; and
   -    9,448.70 [DM] [the reimbursement of the expenses on payment of the arbitration fee].

In total, the amount of the satisfied claims constitutes 196,448.70 [DM].

The other part of the claim is rejected. This judgment is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Ukraine is referred to as [Seller] and Respondent of Germany is referred to as [Buyer]. Amounts in the former currency of Germany (Deutsche Mark) are indicated as [DM].

** Gayane Nuridzhanyan, junior associate at the law firm Danylko, Kushnir, Solltys & Yakymyak, Attorneys & Counselors at Law, Kyiv, Ukraine <http://www.dksylaw.com/>, student at Kyiv International University with major in private international law; participant of Canada-Ukraine Parliamentary Program, member of Ukrainian team at 2005 Telders International Moot Court Competition, The Hague.

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