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CISG CASE PRESENTATION

Russia 30 May 2001 Arbitration proceeding 239/2000 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/010530r1.html]

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

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Case identification

DATE OF DECISION: 20010530 (30 May 2001)

JURISDICTION: Arbitration ; Russian Federation

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

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 239/200o

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Ukraine (respondent)

GOODS INVOLVED: Goods


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 53 [Also cited: Article 54 ]

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): Rozenberg, Praktika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy [Practice of the International Commercial Arbitration Court: Scientific - Practical Comments] Moscow (2001-2002) No. 17 [115-121]

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

Russian Federation arbitration proceeding 239/2000 of 30 May 2001

Translation [*] by Yelena Kalika [**]

1.  SUMMARY OF RULING

     1.1  When resolving disputes between Russian and Ukrainian firms, the Moscow Convention 1972 does not apply. Although, as the successor to the USSR, Russia is one of its Contracting States and although Russia has informed other Contracting States of this fact, the Respondent [Buyer] failed to present evidence that the Ukraine is a [Moscow Convention] Contracting State either as a successor to the USSR or as a State which joined the Convention in accordance with the procedure stated in it.  (The [Buyer] raised the issue to contest the Tribunal's competence).

     1.2  Since the States, where the commercial enterprises of the parties to the contract for the international sale of goods are located, are CISG Contracting States, the CISG applies to the parties' relationships.  Issues not settled in the CISG are subsidiary governed by Russian law in accordance with the parties’ agreement.

     1.3  The comparison of the terms in the contract lead the Tribunal to the conclusion that the buyer's argument, that he had a contractual right to a discount in case of a short delivery, is unreasonable because, in accordance with the contract, the seller had a right either to limit deliveries or to terminate them completely in case of any delay in payment.  The delay in payment in fact took place and the seller notified the buyer that he was going to utilize his right.

     1.4  The [Buyer]'s argument that the [Seller]'s claims should be reduced due to [Buyer]’s offsetting claims against the [Seller]'s daughter company was rejected because this daughter company is an independent legal entity and the [Seller] has not agreed to offset the claims.

     1.5  Pursuant to Article 333 of the Russian Federation Civil Code, the Tribunal found it reasonable to reduce the amount of contractual penalties.  The Tribunal took into consideration the disproportionality [of the penalties] to the consequences of the [Buyer]'s breach. The Tribunal also took into consideration that the amount of contractual penalties is 1.5 times higher than the median interest rate for short-term loans issued by commercial banks in Russia.

2.  FACTS AND PLEADINGS

[Seller], a Russian firm, brought a claim against Respondent [Buyer], a Ukrainian firm, in connection with partial non-payment for goods delivered under a contract for the international sale of goods. The contract was made by the parties on 31 December 1996.  The [Seller] demanded from the [Buyer] the sum in arrears and contractual penalties for the delay in payment.  The [Buyer] contested the Tribunal's competence to arbitrate the dispute.  [Buyer] also contested both the amount of the debt and the penalties computed by the [Seller].   In particular, [Buyer] argued that in a protocol of 5 April 1999 the parties agreed on the [Buyer]'s paying a reduced sum of penalties.  The [Seller] submitted numerous objections to the [Buyer]'s position.

3. TRIBUNAL’S  REASONING

The Tribunal's award contained the following main points.

     3.1  As to the issue of the Tribunal's competence to arbitrate the present dispute, the Tribunal ascertained that in Clause 8.2 of the contract the parties agreed that "all disputes and disagreements shall be arbitrated by the Tribunal in accordance with its Rules, if the parties are unable to reach a [mutual] agreement".

Based on this arbitration clause, the [Seller] asked the Tribunal to arbitrate the dispute.  Acting in accordance with the Rules of the Tribunal, the [Seller] paid arbitration fees, submitted evidence, appointed an arbiter and sent procedural documentation to the Tribunal.  At the proceeding held on 30 May 2001 the [Seller] confirmed that, when making the contract and when inserting an arbitration clause in it, the parties intended that their disputes following from international commercial transactions be arbitrated by the Tribunal.

Upon receipt of the claim, the [Buyer] filed a written motion with the Tribunal on 26 March 2001. In that motion, the [Buyer] contested the Tribunal's competence.  He argued that, since both Russia and the Ukraine are successors to the rights and obligation of the former USSR under all of its international treaties, the present contract should be governed by the Convention on the Arbitration of Civil Disputes Following from Relations Based on Economic and Scientific Cooperation.  [The said Convention] was signed in Moscow on 26 May 1972 (The Moscow Convention 1972).

After reviewing these arguments of the [Buyer], the Tribunal finds them unreasonable.  Article I (1) of the Moscow Convention sets forth that all disputes between [business] organizations located in its Contracting States shall be arbitrated.   The jurisdiction of a state court [to adjudicate such disputes] is [expressly] excluded.  Article II (1) sets forth that the said disputes shall be arbitrated either by arbitral tribunals at the Chamber of Commerce in the Respondent's State or, by agreement of the parties, in a third State where such State is also a [Moscow Convention] Contracting State.   First of all, it follows that the Moscow Convention should apply to the arbitration between organizations located in its Contracting States.  The Respondent [Buyer] argues that the Ukraine, just like Russia, is a [Moscow Convention] Contracting State.  As to Russia, the Tribunal ascertained that on 13 January 1992 the Russian Federation Ministry of Foreign Affairs sent a note to the heads of diplomatic missions in Moscow.   [In the note] the Ministry asked to view the Russian Federation as a party to all the current treaties of the USSR.   Since, by doing so, Russia announced that it became a successor [to the USSR] in connection with the Moscow Convention, according to the information contained in the depositary this Convention is still in force in Russia.  As to the Ukraine, according to the information contained in the depositary, as of 1995 the Ukraine had not announced its status in connection with the Moscow Convention.  Besides, the [Buyer] presented no evidence that the Ukraine either made an announcement of its succeeding [in rights to the USSR] or delivered documentation necessary to join the Moscow Convention with approval of other Contracting States as required on Article IX (1) of the Convention.  Therefore, it is concluded that the Ukraine is not a Moscow Convention Contracting State.

The Tribunal also rejects the [Buyer]'s argument that the provision in the Moscow Convention on the exclusive competence of arbitral tribunals at the Chamber of Commerce in a Respondent's State was broadened in the Agreement on Arbitration Procedure in Connection with Business Disputes.  [The Agreement] was signed by the CIS states on 20 March 1992 in Kiev.  Unlike the Moscow Convention, the said Agreement provides that, as a rule, disputes between business organizations located in CIS States shall be resolved by state courts and, if possible, by arbitral tribunals.   (This provision expressly contradicts Article I (1) of the Moscow Convention).  Therefore, the said Agreement excludes the application of the provision in the Moscow Convention on the mandatory arbitration of disputes by arbitral tribunals at the Chamber of Commerce in the country of a Respondent.   It follows that the Moscow Convention does not govern the present dispute.

Pursuant to article 16(1) of the Russian Federation Law "On International Commercial Arbitration" as well as in accordance with Article 1(2) and (3) of the Rules of the Tribunal, the Tribunal finds that it has competence to arbitrate a dispute arising out of the contract based on the arbitration clause in the parties' contract (Clause 8.2).

     3.2  The arbitration panel in this case has been composed in accordance with the Rules of the Tribunal.   Neither Claimant [Seller], nor Respondent [Buyer] has made any protest or objection to the composition of the panel.

     3.3  Taking into account that, when the contract was made on 31 December 1996, the commercial enterprises of the [Seller] and [Buyer] were located in CISG Contracting States as well as that at the proceeding the parties agreed that the CISG should govern their relationships following from the contract, based on Article 1(1)(a) CISG the Tribunal concludes that, when arbitrating the present dispute, it should apply the provisions of the CISG. 

At the proceeding, the parties also agreed that issues not settled in the CISG should be subsidiary governed by the rules of Russian substantive law, i.e., the Russian Federation Civil Code.

     3.4  After reviewing the [Seller]'s claim to recover from the [Buyer] the debt for the goods delivered, the Tribunal finds that this claim is reasonable.

The materials of the case evidence the fact of delivery by [Seller] of the goods under the contract of 31 December 1996 in the quantity stated in the claim.  [The fact of delivery] is also acknowledged by the [Buyer] both in his reply to the claim of 29 May 2001 and [by his statements] during the proceeding.   As stated in the claim, the [Buyer] failed to fully pay the price of the goods delivered by the [Seller].   In the mutual verification statement signed by the parties, as of 1 January 2000 the [Buyer]'s debt amounted to the sum stated in the main claim of the [Seller].

The [Buyer] contested the said amount of debt.   He referred to Clause 6.3 of the contract and argued that he applied an 8% discount to the price of goods due to the [Seller]'s failure to deliver a substantial portion of goods.   [He argued] that, thus, the factual cost of the goods delivered should be reduced by 8%.

This argument of the [Buyer] cannot be found reasonable because, in accordance with Clause 6.3 of the contract, that discount shall apply only if there is fault on the [Seller]'s part.  However, the [Buyer] has presented no evidence demonstrating [Seller]'s fault in connection with the short delivery of goods.   At the same time, contrary to the [Buyer]'s argument stated both in the materials of the case and at the proceeding, the [Seller]'s statement, that the short delivery resulted from the [Buyer]'s delays in payment, is supported by the materials of the case, i.e., [the short delivery resulted from] the [Buyer]'s breach of contract.   In particular, it is evidenced by the [Seller]'s numerous attempts to claim the sum in arrears from the [Buyer] (see Telegrams of 11 July 1997, 2 September 1997, 4 September 1997).   In such circumstances, the Tribunal finds that by reducing the quantity of goods delivered to the [Buyer], the [Seller] acted in full compliance with the terms of the contract because Clause 5.9 of the contract gives the [Seller] a right either to limit deliveries of the goods under the contract or to fully terminate them.  [This right shall be triggered] by the [Buyer]'s delay in payment for more than one month.  In fact, the delay in payment [here] exceeded two months.  It should be noted that the [Seller] notified the [Buyer] of such consequences in advance.  In particular, [notice was given] in the above mentioned telegrams.

The Tribunal cannot take into consideration the [Buyer]'s argument that the parties offset the debts under a different contract and Appendix to it by writing off the debt of the [Seller]'s daughter company.   The [Buyer]'s statement that this offsetting of debts was made in accordance with Clause 5.2 of the contract cannot be found reasonable.  Pursuant to Clause 5.2 of the contract, the [Buyer] could offset the payment for the goods only upon [Seller]'s agreement.  However, as established at the proceeding, the [Seller] did not sign either the contract to which the [Buyer] refers, or any Appendix to it.  Nor did the [Seller] agree to or ratify this offsetting [of debts] by the [Buyer].  The [Seller] explained that he refused to offset the said sum because, although the enterprise signing the contract and Appendix to it was a daughter company of the [Seller]'s firm; however, being a legal entity, it must be independently liable for its contractual obligations.

For the above stated reasons and taking into account that, based on Articles 53 and 54 CISG, it is an obligation of the Respondent as a buyer to pay the price of goods set in the contract, the Tribunal sustains the [Seller]'s claim to recover the sum in arrears from the [Buyer].

     3.5  When arbitrating the [Seller]'s claim to recover penalties from the [Buyer], the Tribunal took into consideration the following circumstances.

The [Seller]'s claim of penalties is based on Clause 5.6 of the contract.  According to [Clause 5.6], in case of a delay in payment the [Buyer] shall pay penalties to the [Seller]. [The amount of penalties] is set at 0.05% for each day of delay in payment.  The terms of payment are set forth in Clause 5.2. 

The [Buyer] did not fully acknowledge the amount of penalties claimed by the [Seller].  The [Buyer] argued that the penalties due should not exceed the amount agreed upon by the parties in the protocol of 5 April 1999.  However, the Tribunal disagrees with the [Buyer]'s opinion because the rest of the penalties claimed by the [Seller] are computed in accordance with the terms of the contract.  At the same time, it is impossible to ignore the fact that the amount of penalties set in the contract (18% annually) is 1.5 times the median bank interest rate for short-term loans issued by Russian banks in US dollars (12% annually).  [The data on the median bank interest rate] are provided by the Bank of Russia.  In the Tribunal's opinion, this amount of penalties, claimed by the [Seller] in addition to the sum acknowledged by the [Buyer], is excessive.  Article 330 of the Russian Federation Civil Code categorized penalties as a form of damages.   Article 333 of the Russian Federation Civil Code allows the court to reduce the sum of damages if they are excessive.   Thus, the Tribunal finds it reasonable to reduce the amount of penalties claimed by the [Seller] by one third.

     3.6  The Tribunal also took into consideration that under the terms of the contract all the payments under it, including payments for the goods delivered, shall be made in Rubles at the Central Bank rate of US dollars on the date of depositing a payment to the [Seller]'s account.  Therefore, the [Seller]'s request to recover from the [Buyer] a Ruble equivalent of the sum in US dollars based on the payment procedure set in the contract should be sustained. 

     3.7  In accordance with Article 6(2) of the Regulations on Arbitration Fees and Expenses (Appendix to the Rules of the Tribunal), the Respondent [Buyer] should reimburse arbitration fees to the Claimant [Seller] in proportion to the claims sustained.


FOOTNOTES

* This is a translation of data on Proceeding 239/2000, dated 30 May 2001, of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, reported in Rozenberg ed., Arb. Praktika (2001-2002) No. 17 [115-121].

All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the Russian Federation is referred to as [Seller] and Respondent of the Ukraine is referred to as [Buyer].

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

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Pace Law School Institute of International Commercial Law - Last updated September 13, 2004
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