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CISG CASE PRESENTATION

Russia 30 May 2001 Arbitration proceeding 185/2000 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/010530r2.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: 185/2000

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Not specified (respondent)

GOODS INVOLVED: Goods


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 4 ; 55 [Also cited: Articles 54 ; 61 ; 62 ; 74 ] [Also relevant but not cited: Article 9 ]

Classification of issues using UNCITRAL classification code numbers:

4B1 [Scope of Convention (issues excluded): validity under domestic law];

9C [Practices established by the parties];

55A [Enforceability of agreements that do not make provision for the price]

Descriptors: Scope of Convention ; Validity ; Usages and practices ; Open-price contracts

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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. 16 [107-114]

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 185/2000 of 30 May 2001

Translation [*] by Mykhaylo Danylko [**]

Translation edited by Yelena Kalika [***]

1. SUMMARY OF RULING

    1.1 The contract clause which provides for settlement of any disputes in connection with the present contract by the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry [hereinafter Tribunal] also covers the parties' disagreements as to the amount and procedure of payment for goods used by the Respondent [Buyer] for its own purposes without Claimant [Seller]'s consent and above the amount specified in the contract. Although the contract provides for the conclusion of an additional agreement in such an event, this is so because the parties could not reach an agreement on the settlement of these issues for a long period of time.

    1.2 By virtue of the Russian Federation Constitution (Art. 15) and the Russian Federation Civil Code (Art. 7), a contract term providing for application of the substantive law of the Claimant's country to the relations of the parties does not exclude application of the UN Vienna Convention 1980 [hereinafter CISG] to the relations of the parties, since the countries where the companies of the parties are located, are CISG Contracting States, with the domestic law of the [Seller]'s country (i.e., Russian civil law) applicable as the subsidiary law.

    1.3 When arbitrating the parties' dispute about the meaning of a notion contained in the contract, the Tribunal, based on Art. 431 of the Russian Federation Civil Code, interpreted this notion by considering contracts already concluded between the same parties for the delivery of the same goods, which had this notion explained, and also by applying an international treaty in effect between the countries of the parties to the contract.

    1.4 The Tribunal found the parties' contract valid although it did not specify the price, since Art. 55 CISG contains provisions for determination of the price for contracts that are validly concluded. Besides, the Tribunal took into consideration that:

    -   By virtue of Art. 4 CISG, the validity of the contract is to be determined according to the applicable national law;
    -   Russian law (Art. 424 of the Russian Federation Civil Code), which is applicable to the present contract, permits the existence of a valid contract in which the price is not specified.

    1.5 The Tribunal noted that that Art. 74 CISG does not qualify as losses the requirement for payment of the price according to Art. 62 CISG.

    1.6 The Tribunal awarded a penalty in addition to the price. [This penalty] was set forth in the contract in case of such events.

    1.7 Since the [Seller] did not present necessary evidence as to the fact and amount of such losses incurred by him, the Tribunal cannot grant [Seller]'s claim for recovery of such losses. At the same time, Art. 61 CISG does not preclude the possibility of filing a claim to recover the losses along with [Seller]'s claim to recover the price based on Art. 62 CISG.

2. FACTS AND PLEADINGS

The action was brought by Claimant [Seller], a Russian company, against Respondent [Buyer], a foreign company. [Seller] delivered the goods to [Buyer] under a contract concluded between the parties on 30 December 1999. At same time, [Buyer] transported the same goods, which were designated for the [Seller]'s customers in other countries, through the territory of its country.

The [Seller] filed a claim since the [Buyer] used some portion of the goods designated for the [Seller]'s customers in other countries for [Buyer]'s own purposes, without having paid for them. According to a contract between the [Seller] and its insurance company, such actions of the [Buyer] were covered by insurance. The [Seller] received a compensation from the insurance company, which, in the [Seller]'s opinion, only partially covered the losses incurred. Thus, the [Seller] claimed recovery of contractual penalties provided for such events as well as compensation of losses that were not covered by the penalty.

The [Buyer] challenged the Tribunal's competence to arbitrate the present dispute, referring to the fact that the contract set forth that the use of goods above the quantity specified in the contract was to lead to treating [such goods] as delivered to the [Buyer]. However, the payment [for such goods] was to be made at commercial prices and a separate agreement was to be made. Since the contract provided for formalization of relations between the parties by a separate agreement, the [Seller] and the [Buyer] were to negotiate a separate contract and only in the event that the parties were unable to reach a mutually acceptable agreement, any of them could file an appeal with the Tribunal. [The Tribunal] is a competent tribunal in accordance with the contract. Thus, the [Seller]'s action to recover from [Buyer] the amount liberally calculated contradicts the contract concluded between the parties. Therefore, the [Buyer] believes that the claim to recover the amount liberally determined by the [Seller] cannot be the subject of a dispute before the Tribunal -- until the parties take steps required for concluding an additional contract.

Admitting the fact that [Buyer] used goods above the quantity provided for in the contract, the [Buyer] argued that payment [for the goods] to [Seller] had to be made at the contractual prices along with payment of the penalty prescribed in the contract.

The [Seller] objected to the [Buyer]'s arguments with respect to procedural issues and the amount of price. In [Seller]'s opinion, the [Buyer]'s arguments concerning a separate (additional) contract are not reasonable since the [Buyer] consciously made no efforts to conclude the additional contract. The [Seller] also presented other contracts with the [Buyer] for the same type of goods, which provided in such event for a different settlement than the one proposed by the [Buyer] in this case. The [Seller] also presented the text of an international treaty between the countries of [Buyer] and [Seller], in which the price of goods, which are subject of the present contract, was specified. [The Treaty also set forth] the price of transportation of these goods through the [Buyer]'s country.

3. TRIBUNAL'S REASONING

The ruling of the Tribunal contained the following main points.

    3.1 [Jurisdiction competence of the Tribunal]

The contract between the parties contains the following clause:

"If the parties are not able to reach a mutually acceptable settlement of any dispute arising from or in connection with the present contract, the dispute shall be finally arbitrated by the Tribunal of International Commercial Arbitration at the Chamber of Commerce and Industry of the country of permanent location of Claimant in accordance with the Rules of such Tribunal. The dispute shall be arbitrated by three arbiters.

"The arbitral award shall be final, binding on the parties, and shall not be subject for appeal."

This is a written agreement to arbitrate that completely meets the requirements of Art. 7 of the Russian Federation Law on International Commercial Arbitration 1993. However, the [Buyer], referring to the European Convention on International Commercial Arbitration 1961, of which the Russian Federation and the country of [Buyer] are signatories, alleged that the dispute was beyond the Tribunal's competence claimed by virtue of Art. V of that Convention, since the main issue of the dispute was about a matter - i.e., the amount and the procedure of payment of the debt for the excessively used goods at the "commercial price" - that was subject to formalization by a separate contract. Hence, it is the [Buyer]'s position that the claim filed by the [Seller] "cannot be a subject of arbitration by the Tribunal until the parties take steps required to conclude an additional contract."

Having reviewed the [Buyer]'s objections, the Tribunal found them unreasonable for the following reasons:

    -   The parties had not been able to reach a mutually agreed settlement of the issue in dispute for about a year. The positions taken by the parties during the arbitral proceeding that commenced before the Tribunal on 25 September 2000 do not give any reasons to believe that such settlement will ever be reached;
    - According to the language of the arbitration clause, this clause is applicable to any "disputes arising from the present contract."

Therefore, the Tribunal concludes that the issue of the amount and terms of payment of the price for the goods used by [Buyer] above the quantity specified in the contract is covered by the arbitration clause of the contract.

For the above stated reasons and based on Art. 16 of the Russian Federation Law On International Commercial Arbitration and para. 1 of the Rules of Tribunal, the Tribunal finds that it has competence to arbitrate the present dispute.

    3.2 [Applicable law]

As to the issue of applicable law, the Tribunal follows the clause in the contract stating that "rules of substantive law of the country of Claimant shall be the applicable rules of substantive law." In the opinion of the Tribunal, this does not exclude application of the rules of international treaties, which according to Art. 15 of the Russian Federation Constitution and Art. 7 of the Russian Federation Civil Code, are a component part of the Russian Federation legal system. Accordingly, the CISG, to which the countries of parties to the contract are Contracting States, applies to the relations of parties.

Moreover, the responses of the parties given in connection with the Tribunal's questions concerning the CISG demonstrate that the parties did not mean to exclude the application of CISG.

Issues not settled in the CISG shall be governed by Russian civil law as the law of the country of the Claimant [Seller]. [Russian civil law] shall be applied as the law subsidiary to the CISG.

    3.3 [Merits of the case]

As to the merits of the case, the Tribunal states that [Buyer]'s use of goods beyond the quantity provided for in the contract, is evidenced by the certificates, signed by the parties on 1 June 2000 and 1 July 2000. The latter certificate settled the parties' disagreements reflected in the first certificate. The absence of disagreements between the parties regarding the quantity of the goods was confirmed during the hearing of the case.

The parties also agreed on the fact that [Buyer]'s use of goods beyond the quantity, provided for in the contract, was qualified as an accident covered by the insurance policy. As a result, the [Seller] received an appropriate compensation from the insurance company.

The Tribunal also ascertains that the parties agree that a [proper] sanction for the [Buyers]'s use of goods beyond the quantity provided for in the contract is a penalty in the amount specified in the contract.

For the above stated reasons, the only unresolved issue remains the price of the goods used by [Buyer] beyond the quantity provided for by the contract.

When examining this issue, the Tribunal has to make an interpretation of the contract in conformance with the rules of Art. 431 of the Russian Federation Civil Code. Based on the plain meaning, the Tribunal notes that the contract provided for "above-the-contract" use of goods that should be considered as a delivery of goods at the commercial prices and should be formalized by a separate contract.

During the arbitration proceeding, the disagreements between the parties arose about the time period for conclusion of the above-mentioned separate contract. The [Seller] believed that the contract had to precede the use of goods by [Buyer], while the [Buyer] based his arguments on acceptability of unilateral decision to use the goods and on the follow-up formalization of contractual relations. Accepting the possibility of dual interpretation of the corresponding contract term, the Tribunal found that a separate contract was not concluded as of the end of the hearing of the case in spite of the [Seller]'s claim of 19 June 2000 and [Buyer]'s draft contract of March 2001. [Both the claim and draft contract], in fact, represented the parties' positions taken during the hearing.

The Tribunal also noted the lack of a required precise definition of the notion "delivery [of goods] at the commercial price" written in the contract. At the same time, according to other contracts (dated 22 January 2000 and 22 December 1999) concluded between the same parties for the same goods that were presented by [Seller] during the arbitration, a price for the goods used by [Buyer] beyond the contractual quantity was set higher than the price for the goods delivered according to the quantity provided for by a contract.

The Tribunal pointed out that a treaty in effect between the countries of the parties to the contract provided for the prices and transportation tariffs for these particular goods.

Based on the above, the Tribunal concludes that the parties to the contract in controversy qualified the "beyond-the-contract" use of goods by [Buyer] as a delivery of the goods at the commercial prices, i.e., [they treated it as] a sales contract. However, they did not expressly or implicitly define those prices.

In such circumstances, Art. 55 CISG should apply. According to [Art. 55 CISG]:

"Where a contract has been validly concluded, but does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned."

A similar rule is provided for by Art. 424 of the Russian Federation Civil Code. Since, according to Art. 4 CISG, [the CISG] does not deal with the validity of the contract itself, its validity has to be determined according to the applicable national (in the present case - Russian) law. Russian law, according to Art. 424 of the Russian Federation Civil Code, allows conclusion of contracts without setting forth the price.

This leads to the conclusion that the price, which has to be paid for the goods used by [Buyer] above the quantity provided for in the contract in controversy, is a price set by a treaty between the countries of the parties to the contract.

Based on this, the [Buyer]'s principal debt to the [Seller] consists of the cost of goods that were used by the [Buyer] beyond the quantity specified in the contract minus the insurance compensation that [Seller] received from the insurance company.

This sum represents [Buyer]'s obligation (Art. 54 CISG) and accordingly is a means of a legal protection of seller (Art. 62 CISG) in connection with the payment of the price. The latter, according to the CISG, is not included in the category of losses (Art. 74 CISG), which are the subject of the present dispute. However, Art. 61 CISG permits the combination of claims for damages with other legal remedies, including claims for payment of the price. But the [Seller] did not submit the necessary evidence of the fact and amount of the losses suffered. Therefore this claim cannot be granted.

As follows from the above-mentioned conclusions, the claim to recover a penalty in the amount specified in the contract should be granted in addition to the price.

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


FOOTNOTES

* This is a translation of data on Proceeding 185/2001, 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. 416 [107-114].

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 a foreign country (not specified in the Russian text) is referred to as [Buyer].

** Mykhaylo Danylko is a partner with the law firm Danylko, Kushnir, Soltys & Yakymyak, Attorneys & Counselors at Law, Kiev, Ukraine <http://www.dksylaw.com>. He holds a Master of Laws (European Studies Program) from the Law School of International Business Science and Technology University, Kiev, Ukraine (July 2000); a Master of Management in Business of the Business School of International Science and Technology University, Kiev, Ukraine (June 2002); and has received his LL.M. in International and Comparative Law at the Pace University School of Law.

*** 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 November 8, 2004
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