Italy 28 September 2001 Milan Arbitration proceeding (Steel wire case) [English text]
[Cite as: http://cisgw3.law.pace.edu/cases/010928i3.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: Unavailable
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Cyprus (claimant)
BUYER'S COUNTRY: Italy (respondent)
GOODS INVOLVED: Steel wire, nails and wire rod
ITALY: Chamber of National and International Arbitration of Milan 28 September 2001
Case law on UNCITRAL texts (CLOUT) abstract no. 727
Reproduced with permission of UNCITRAL
In 1999 a seller - a Cyprus company having its principal place of business in Russia - and a buyer, an Italian company, entered into an agreement concerning steel goods.
The parties agreed on many specifications of the contract - in order to detail sorts of production, prices, delivery and payments - but when they begun performance, a dispute arose on the quality standards of some delivered goods. Once settled the matter, with a reduction of the price of the goods already delivered, the parties decided to go on with further deliveries.
Nonetheless, divergences arose between them on alleged misconduct in the performance of their mutual obligations, mostly regarding the payment of the reduced price and the further deliveries of goods at the terms and conditions agreed upon.
The contract contained an arbitration clause referring to the Rules of the Chamber of National and International Arbitration of Milan. Thus, the seller initiated an arbitration proceedings.
The contract was silent on the rules applicable to the merits of the case. The seller identified it with Russian law whereas, according to the buyer, the Italian law should apply.
The Arbitral Tribunal, going beyond parties' assumptions on the point, concludes that the CISG is the body of law applicable to the arbitration, under the following reasoning.
The CISG is the special regulation for international sales of the national legal system of the two States more directly involved in the case (both of which have ratified the CISG).
The Arbitral Tribunal upheld the seller's position considering Russian law as the national law applicable - Russia indeed had a closer connection with the contract as the goods were to be produced in Russia, according to Russian standards and delivered on Russian ships, being all these circumstances perfectly known by the parties - whereas the CISG applied to the dispute as lex specialis within the domestic general law of sales. Moreover, in the Arbitral Tribunal's opinion, CISG must automatically apply also by virtue of articles 1(a) and 10(a), as the law applicable to a sale contract between parties belonging to different contracting states.
The Arbitral Tribunal considered the framework contract plus various specifications as a contract for delivery of goods by instalments, pursuant to article 73 CISG.
The Arbitral Tribunal found that the buyer's failure to complete payment of the goods already delivered was without well founded reasons, consequently the seller was entitled to recover the corresponding amount. The fact that the seller made its agreement to further deliveries subject to cooperation of the buyer on some requests did not constitute either a violation of the duty of good faith or a fundamental breach of the contract. Thus, the buyer could not refuse to make the payment assuming a fundamental breach on the seller's side.
In the Arbitral Tribunal's opinion the principle inadimplenti non est adimplendum did not apply to the case at hand. First, CISG does not include that exception among the remedies to be used. Secondly, the buyer did not validly terminate the contract (article 73 CISG) in its entirety or with respect to the third shipment.
Besides, wherever permitted, the exception could be used to withhold the performance until the other party has performed its obligation in respect of the same instalment.
The Arbitral Tribunal ruled that the seller was entitled also to interest on the payment pursuant to article 78 CISG. The interest rate was to be calculated in conformity with Russian law.
As for the incomplete shipment of goods complained by the buyer, the seller's refusal was groundless and the buyer was so entitled to compensation of damages for delayed performance (articles 45.2 and 47.2 CISG) as it bought other goods in replacement (paying a different price).Go to Case Table of Contents
APPLICATION OF CISG: Yes [Articles 1(1)(a) and 10(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
4B [Scope of Convention (issues excluded): set-off]; 7A3 [Observance of good faith]; 10A [Place of business: which of multiple places of business is relevant]; 74A [General rules for measuring damages: loss suffered as consequence of breach]; 78A [Interest on delay in receiving price or any other sum in arrears]; 80A [Failure of performance caused by other party (party causing non-performance): loss of rights]
4B [Scope of Convention (issues excluded): set-off];
7A3 [Observance of good faith];
10A [Place of business: which of multiple places of business is relevant];
74A [General rules for measuring damages: loss suffered as consequence of breach];
78A [Interest on delay in receiving price or any other sum in arrears];
80A [Failure of performance caused by other party (party causing non-performance): loss of rights]
CITATIONS TO OTHER ABSTRACTS OF DECISION
CITATIONS TO TEXT OF DECISION
Original language (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
IN THE ARBITRATION
XXX Ltd (Cyprus), Claimant [Seller]
YYY S.r.l. (Italy), Respondent [Buyer]
Rendered in Milan, Italy
|I.|| THE PARTIES|
|1.||Claimant, XXX Ltd, is a limited liability company under the laws of Cyprus with
its registered offices at, -----, Cyprus and Moscow, Russia ... represented in these
arbitration proceedings by: Avv. ..., Via ..., Milan (Italy).
|2.||Respondent (and counterclaimant), YYY S.r.l., is a limited liability company under the laws of Italy with its registered office at --------, Milan, Italy ... represented in these arbitration proceedings by: Avv. ..., Via ..., Genoa, Italy.
|3.||Claimant and Respondent may be collectively referred to in this Award as the "Parties" or, individually, as "Party".
|[Hereafter, in this presentation of the Award, references to "Claimant" or "XXX" are generally presented as "[Seller]" and references to "Respondent" or "YYY" are generally presented as "[Buyer]".]
|II.||THE ARBITRAL TRIBUNAL
|Based on agreement of the Parties, the Arbitral Tribunal (hereinafter also referred to as
the "Tribunal") was composed of a sole arbitrator, prof. ..., with offices in Milan, Italy,
appointed by the Chamber of National and International Arbitration of Milan
(hereinafter referred to as the "Chamber").|
|III.||THE ARBITRATION AGREEMENT AND THE PROCEEDINGS
|A.|| Arbitration Agreement
|1.||The present case is based on a contract, numbered ... (hereinafter referred to as the "Contract"), executed in English on February 5, 1999 between [Seller] and [Buyer].
|2.|| With regard to the settlement of disputes between the Parties arising out of the
Contract, Article 10 of the Contract relevantly provides as follows:
"All disputes and differences which may arise out of the present Contract or in connections with it are to be settled by the parties in an amicable way.
If the parties do not come to an agreement, the matter is to be submitted to the International Commercial Arbitration Court of the Chamber of Commerce and Industry of MILANO ITALY in compliance with the rules of procedures of said Court award of which is final and binding upon both parties.
Appliance to the State Court is not allowed."
|3.||The jurisdiction of the Chamber and of the Arbitral Tribunal, appointed according to the International Rules of the Chamber (hereinafter referred to as the "Rules"), has never been questioned by the Parties.
|4.||The place of arbitration was Milan, Italy, according to Art. 11 of the Rules, as confirmed by letter of the Chamber.|
|1.||The present arbitration proceedings were governed, in particular, by the Rules and two Procedural Orders enacted by the Tribunal.
|2.||The [Seller]'s Request for Arbitration was received by the Chamber in 2000, and
the Answer to the Request ("Explanations") was filed by the [Buyer]
|3.||During the proceedings, the Parties submitted to the Tribunal and exchanged with each other various statements, briefs, memorials and other documents, in full compliance with the Rules, the Orders and the instructions of the Tribunal, namely: [Seller]'s Request of arbitration; [Buyer]'s Statement of defence;
[Seller]'s Memorial; [Buyer]'s Additional memorandum in defence; [Buyer]'s
Pleading; [Seller]'s Memorial; [Buyer]'s Counterpleading; [Seller]'s Reply;
[Seller]'s Closing brief; [Buyer]'s Final pleading.
|4.||In the course of the proceedings, two hearings were held: a preliminary hearing in
Milan with the Counsel of the Parties and, for [Buyer], Mr. ---, and a hearing on
the merits in Milan, 2000, with the Counsel of the Parties and, for [Seller], Mr. ---.
|5.||During the hearings, attempts to have the Parties reach a conciliation proved unsuccessful.
|6.||As for the witnesses, [Seller] filed the written statements of Mr. ---, Mr. ---, Mr. --- and Ms. ---, and introduced only Mr --- as a witness, heard and cross-examined
during the second Milan hearing; [Buyer] filed the written statement of Mr. ---.
|7.||In 2001 the Tribunal informed the Parties that the fact finding phase of the proceedings had been completed.|
|C.||Language of the proceedings
|1.||The Parties agreed with the Tribunal that English should be the language of the arbitration proceedings, according to Article 12 of the Rules and to the Chamber's letter.
|D.||Sureties for the arbitration costs
|1.||[Seller] has complied with the Arbitral Council's directions with respect to the payment of sureties by remitting to the Chamber:
- 23.000 United States Dollars (hereinafter "US$") plus VAT; and
|1.1.||Moreover [Seller] has paid to the Chamber US$ 1.000 as registration fee.|
|2.||[Buyer] has equally complied with the Arbitral Council's directions with respect to the payment of sureties by remitting to the Chamber:
- 24.000 US$ plus VAT; and
|2.2.||Moreover [Buyer] has paid to the Chamber US$ 1.200 as registration fee.
|E.||Deliberation of the award
|1.||Following prior extentions, in 2001 the Chamber extended until September 2001 the time limit for rendering the award.
|IV.||DOCUMENTARY AND FACTUAL BACKGROUND|
|1.||On February 5, 1999 [Buyer] and [Seller] entered into Contract No. 01-1999, a
sale and purchase agreement, under which the [Seller], as the Seller, engaged to
sell and the [Buyer], as the Buyer, undertook to buy, at certain terms and
conditions, the goods specified in "enclosed Appendices" (hereinafter referred to
as the "Specifications").
|2.||More precisely, Article 1 of the Contract reads as follows:
"The Seller has sold and the buyer has bought the goods specified in the enclosed
Appendices, showing specifications, quantities, prices and delivery time and
constituting an integral part of the present Contract."
|3.||The goods consist in steel wire, nails and wire rod, as it results from fifteen
Specifications signed under the Contract.
|4.||According to Article 2 of the Contract, prices are in US$ and include "export Packing and Marketing".
|5.||Under Article 6, complete payment must be effected within 45 days from the date
of delivery of the goods, which coincides (Article 3) with the date of the relevant
bill of lading. In case of the Buyer's failure to observe the contractual terms of
payment, Article 11, third paragraph, entitles the Seller not to fulfil its obligations
under the Contract and to claim damages. The Contract is silent on the
consequences of non-performance or inadequate performance on the part of the
|6.|| With regards to the quantity of the goods actually delivered, Article 3 of the
Contract permits a tolerance of +/- 5% vis à vis the quantity agreed in the
|7.||The quality of the goods must fully conform to Russian standards and the
technical conditions in force at the manufacturing works - namely ZZZ
(hereinafter referred to as "ZZZ") - and must be confirmed by a "Manufacturer's
Quality Certificate" (Article 4).
|8.||Quantity and quality claims must be submitted within 30 days from the date of
arrival of the goods at the place of destination, but, in any case, no later than 60
days after the delivery date. Claims must be confirmed by a Seller's representative
and by a representative of a neutral organisation (Article 8).
|9.||Furthermore, the Contract contains a force majeure clause, Article 9, which refers,
inter alia, to the "prohibitions of exports or imports beyond the control of the
parties". Article 9 also relevantly provides:
"If any of the above circumstances last longer than 6 months, each party shall have the right to refuse any further fulfilment of the obligations under the Contract and in this case neither of the parties shall have the right to make a claim upon the other party for compensation of any possible damages.
The party, for whom it becomes impossible to meet their obligations under the
Contract, shall immediately advise the other party as regards the beginning and
the cessation of the circumstances preventing the fulfilment of their obligations.
|10.||Finally, alterations and additions to the Contract are valid only if made in writing and signed by both Parties (Article 11, second paragraph).
|11.||On February 5, 1999 (the same date of the Contract), the Parties signed
Specifications NN. 1 and 2. Together they referred to 3.030 tons of goods, for a
total price of US$ 636.000. Specifications NN. 1 and 2 were the only ones
attached to the original Contract and their implementation (the so called "First
Shipment") gave rise to no disputes.
|12.||On March 6, 1999 the Parties signed in (Russia) another agreement (hereinafter referred to as the "Agreement"). [Buyer] engaged to buy from [Seller] a further
amount of 12.000 tons of wire and nails and 4.500 tons of wire rod, to be
delivered according to a time schedule between April and July 2001. With regards
to "sorts of production, prices, conditions of delivery and payments" the
Agreement referred to the Contract and to Specifications NN. 3, 4, 5, 6, 7, 8.
|13.||The latter Specifications were signed on March 6, 1999 - the same date of the
Agreement - and contemplated, on the whole, the delivery of 3.000 tons of goods,
by April 30, 1999, against US$ 678.600.
|14.||On the same day, March 6, 1999, [Seller] (the trader) signed an agreement (in Russian "Soglashenie") with ZZZ (the wire and wire rod Manufacturer) strikingly
similar in form and content to the Agreement. Under this agreement ZZZ engaged
to deliver to [Seller] 12.000 tons of wire and nails and 4.500 tons of wire rod
between March and June 1999 (see [Seller]'s Exhibit 1). However, whereas the
single lots (or shipments) were identical with the lots listed in the Agreement, the
time forecast for the delivery of each lot (shipment) was anticipated by one month
(e.g. the April 3.000 tons of the Agreement became the March 3.000 tons of the
Soglashenie). As for concrete types of goods, prices, conditions of delivery and
payments, the Soglashenie, like the Agreement, sent back to an original contract
with ZZZ (contract N. .... of February 8, 1999) and to Specifications NN. 3, 4, 5,
6, 7, and 8 of March 6, 1999 (presumably parallel to, but not identical with the
ones relating to the Contract under dispute), but neither the former nor the latter
have been submitted to the Tribunal.
|15.||During the first days of April, Specifications NN. 4, 5 and 7 were modified
(quantity and price were reduced in Specifications NN. 4 and 5 and increased in
Specification N. 7) and Specification N. 9 was added. Also the delivery date for
all the Specifications was posponed from April 30 to May 30, 1999. Specifications
NN. 3, 4, 5, 6, 7, 8, as modified, and Specification N. 9 together provided for
2.970 tons of goods to be delivered against a total price of US$ 684.750. All these
changes were introduced to satisfy [Buyer]' requests.
|16.||All the goods provided for under Specifications NN. 3 to 9 (the so called "Second
Shipment") occurred within the agreed new time limit, namely May 30, 1999, as
evidenced by the relevant bill of lading.
|17.||However, a part of the goods delivered with the second shipment did not meet the
agreed package and quality standards and gave rise to a Buyer's claim under
Article 8 of the Contract. A meeting took place at a warehouse, in the first week
of July 1999, during which representatives of the Parties (Mr. --- for [Seller] and
Mr. --- for [Buyer]) and ZZZ (Ms. ---), as well as --, an independent survejor
jointly appointed by the Parties, assessed the nature and extent of the defects and
discussed a reduction of the price.
|18.||As a result of that meeting an amicable settlement (hereinafter referred to as the "Settlement Agrement") was reached. According to the Settlement Agreement - undated, but admittedly and most likely concluded between July 15 and 19, 1999 - the total price for the goods comprised in the Second Shipment was reduced to
US$ 579.415,63, which were to be paid in two instalments: US$ 339.291 on July
15, 1999 and US$ 240.124,63 on October 30, 1999. The first instalment was paid
on July 20 and received by the Seller on July 23, 1999, whereas the second has not been paid so far.
|19.||The Settlement Agreement expressely stated that "[a]ll other terms and conditions
of the contract N 1/99 and following addendum dated March 6th 1999, still under
performance, remain unchanged".
|20.||[Seller] initially hesitated (see faxes N. 17 of July 14 and N. 18 of July 16, 1999),
but eventually agreed to sign the Settlement Agreement, apparently on July 19,
2001. However, before (faxes of July 14 and July 16) and after (faxes of July 26
and 29, August 8 and 27, 1999) the date of the Settlement Agreement, the Seller
requested urgently from the Buyer a proper claim (in accordance with Article 8 of
the Contract) and a series of documents allegedly necessary to explain to Russian
export and exchange control authorites the reasons for the lower price and the
worsened terms of payment of the goods delivered (under Specifications NN. 1 to
9) and to avoid major sanctions.
|21.||The requested documents were sent by the Buyer gradually, but somehow slowly
and not fully satisfactorily, between August and September (see, in particular,
[Buyer]'s fax of September 2, 1999: "our cooperation [in sending the documents]
is subject to your fulfilling of the sale contract"). Most of the original documents
were admittedly sent by mail only on September 22, 1999.
|22.||In the meantime, namely on May 18, 1999, the Parties had agreed on
Specifications NN. 10, 11, 12, 13, 14 and 15, altogether allegedly covering
approximately 3.000 tons of goods, to be delivered within July 30, 1999.
However, Specifications NN. 10, 11 and 12 have not been submitted to the
Tribunal while Specifications NN. 13, 14 and 15 ([Buyer]'s Exhibits 41, 42, 43) only provide for the delivery of 2.250 tons of steel wire for a total price of US$ 520.250.
|23.||On June 7, 1999, [Buyer] asked [Seller] to urgently instruct ZZZ to "temporarily
suspend the production" covered by Specifications NN. 14 and 15, owing to the
"need to change the diameter of the wire, leaving the total quantity unmodified";
nonetheless the Buyer asserted its readiness to accept goods already manufactured.
In a subsequent letter of June 16, 2001 [Buyer] proposed to modify Specifications
NN. 14 and 15 by slightly reducing the quantity (from 1.450 to 1.420 tons) and the
price (from 312.250 to 302.000 US$).
|24.||1.432,252 tons of goods were shipped on July 23, 1999, aboard the vessel "...", within the agreed deadline ([Buyer]'s Exhibit 45). The weight roughly coincides with that contemplated by Specifications NN. 14 and 15 (as modified), although from subsequent correspondence from the Seller ([Seller]'s fax of July 14, 1999, [Buyer]'s Exhibit 9) it appears that the so called "Third Shipment" referred to the
goods under Specifications NN. 12, 13 and 14. In this regard the Seller relevantly
stated, on July 14, 1999 that the shipment of the goods under Specifications NN. 10, 11 and 15 - for 1.630,547 tons - was planned for September.
|25.||The Buyer never specifically objected to this postponement and, referring to the
Agreement schedule in general, on August 9, 1999 wrote that it was ready "to
accept though delayed the quantity not yet delivered".
|26.||The payment of the goods delivered through the Third Shipment (US$
319.153,44), due on September 6, was ordered by the Buyer on September 9, but
reached the Seller only on September 15, 1999 ([Seller]'s Exhibits 26 and 35).
|27.||The second half of July 1999 witnesses the birth of divergences between the
Parties concerning the payment by [Buyer] of the second (Settlement) instalment,
the dispatch by [Seller] of the missing part of the Third Shipment, the allegedly
delayed forwarding of the documents requested by the Seller in connection with
the Settlement Agreement and, above all, the price of the goods to be delivered in
the further shipments. As it emerges from the correspondence between the Parties,
divergences and disputes widened in August and September and eventually led
[Buyer] not to pay the second instalment on October 30, 1999 and [Seller] to start
the present arbitration in Milan in February 2000.
|28.||It is clear from [Seller]'s correspondence that the new terms of payment
(expecially the delayed second instalment) adopted in the Settlement Agreement
have put the Seller in an awkward position vis à vis Russian authorites and the
Manufacturer, both ZZZ and [Seller] being chargeable with infringement of stern
Russian Export and Foreign currency regulations. [Seller] tried to have the second
(Settlement) instalment paid earlier, offering in exchange a price discount (or,
more precisely, unchanged prices) on the future shipments.
|29.||Towards the end of July 1999 ([Seller]'s Exhibit 24) the Seller informed the Buyer that the non-payment of the second instalment - certainly not due until October 30, 1999 - and the lack of appropriate documents might prevent [Seller] from further deliveries.
|30.||As for [Seller]'s prayer for an earlier payment of the second (Settlement) instalment, [Buyer] made its agreement subject to conditions ([Seller]'s Exhibit 28) unacceptable for the Seller:
a) immediate delivery of all the goods (quantities) provided for in the March Agreement;
b) granting of a discount on the (allegedly) agreed prices of all future shipments, [Buyer]'s position being that the prices agreed in Specifications NN. 3 to 8 were fixed and applicable to all further deliveries under the Contract and the Agreement;
c) rate of discount apparently to be proportionally equal to the reduction fixed in
the Settlement Agreement.
|31.||In its fax of August 12, 2001, the Seller, in case of a prompt and full payment by
the Buyer of the goods delivered with the Second Shipment, offered a price
discount proportionally equal to the reduction agreed in the Settlement
Agreement, to be calculated on prices increased by 25-30 US$ per ton, in line with
a general price increase for the contractual goods on the Russian market ([Seller]'s Exhibit 29, 30).
|32.||[Buyer] implicitely rejected that offer, insisting on obtaing the discount on the allegedly already agreed prices (fixed in the Agreement and the Specifications NN. 3 to 8 attached thereto). In its correspondence ([Buyer]'s Exhibits 12 and 16) [Buyer] accused [Seller] of breach of Contract, asserted that it was suffering (August 5 and September 9, 1999) or was about to suffer (September 2, 1999) heavy damages caused by non-delivery of approximately 12.000 tons of goods, and, in its letter of September 9, 1999, for the first time threatened not to pay the second (Settlement) instalments, when due, to cover those damage ([Buyer]'s Exhibit 28).
|33.||[Buyer] also asserted, on August 5, 1999 ([Buyer]'s Exhibit 12), that "we were
consequently compelled to buy from other sources the material which we needed,
with relevant increase of our costs", although in a later fax of September 9 it
stated that "we are compelled to buy the products on the market at a higher price
in order to satisfy the orders we have accepted relying on your supply".
|34.||Apparently to solve its difficulty with ZZZ and to avoid the Manufacturer's and its own responsibility for violation of Russian Export and Currency regulation, on August 30, 1999 [Seller] entered into a year long Loan Agreement (the "Loan Agreement") with ZZZ. The amount of the loan was the same amount due but not paid by [Buyer] to [Seller] on October 30, 1999 and on September 25, 2000 [Seller] paid to the ZZZ US$ 39.029,25, being the 15% yearly interest on the principal of 240.124,63 US$.|
|V.||RELIEF SOUGHT BY EACH PARTY
|In the course of this arbitration the Parties have slightly changed the formulation or
amount of their respective claims; their final requests are set out herebelow.|
|A.||On the [Seller]'s side
|The [Seller] shortly asks that the Tribunal:
|1.||order [Buyer] to pay to [Seller] US$ 240.124,63 (being the Settlement second
instalment), with legal interest on said amount from October 30, 1999 until the
date of actual payment, to be calculated according to Article 395 of the Civil Code
of the Russian Federation (hereinafter referred to as the "RF Civil Code");
|2.||order [Buyer] to pay to [Seller] US$ 39.020,25 (being the amount paid by [Seller]
to ZZZ as interest on the Loan Agreement) and all costs consequent thereto;
|3.||order [Buyer] to pay all arbitration and legal costs.
|B.||On the [Buyer]'s side
|The [Buyer] shortly asks that the Tribunal:
|1.||order [Seller] to compensate to [Buyer] all the damages it suffered as a
consequence of [Seller]'s breach of its contractual obligation to deliver the goods
listed in paragraph 2 of the Agreement at the terms and conditions defined in
paragraph 3 of the same;
|2.||assess and quantify such damages at an amount not lower than US$ 301.248,400 and not higher than US$ 361.498,08;
|3.||terminate by set-off [Seller]'s credit of US$ 240.124,63 (the second instalment under the Settlement Agreement) against [Buyer]'s higher credit under paragraph 3 above ("as assessed by the Arbitrator") and consequently order [Seller] to pay the balance to [Buyer];
|4.||order [Buyer] to pay all arbitration and legal costs.
|Moreover, each Party has in its briefs and/or at various stages of the proceedings
requested the Tribunal to reject all the claims submitted by the other Party.
Neither Party has validly terminated the Contract or asked the Tribunal to declare its termination, although each of them has threatened to terminate it or stated that it would consider the Contract terminated failing fulfillment of the other Party's obligations within a given deadline (see [Buyer]'s faxes of September 9 and October 27, and [Seller]'s fax of October 29, 1999).
|VI.||OPINION AND REASONS
|A.|| Applicable law
|1.||The Contract is silent on the norms applicable to the merits of the present dispute and no agreement has been reached between the Parties on this issue. Such being the case, the arbitrator is authorized and invited by the Rules to apply the law with which the Contract has its closest connection.
|2.||The [Buyer] identifies this law with Italian law, whereas, according to the [Seller],
Russian law is the law applicable. Incidentally, but perhaps significantly, neither
Party maintains that the arbitrator should have recourse to the law of Cyprus,
being the law of the "formal" Seller.
|3.||The Tribunal finds [Seller]'s arguments more convincing for the following reasons.
|3.1.||First of all, although the arbitrator is not compelled (neither by the Rules nor by
the lex fori) to move from a given system of rules on conflicts of laws, let us
remember that in a sale-purchase relationship - which we are undoubtedly dealing
with in the present dispute - the widely prevailing rule, failing a choice of law by
the Parties, is that the law applicable should be that of the seller.
|3.2.||In Russia, this rule is expressly set forth in Article 166.1(1) of the 1999 "Basis of
legislation of the Union of the SSR and the Republics".
|3.3.||In Italy, the same result is achieved through Article 4.2 of the 1980 Rome EC
Convention on the Law Applicable to Contractual Obligations (now an integral
part of Italian law, ex Article 57 of the Law [= "Legge"] May 31, 1995, N. 218),
because, with few exceptions, the so called "characteristic performance" is, in a
sale contract, the performance of the seller.
|3.4.||Following this "conflict of laws" approach, the law applicable to the Contract should be the law where [Seller], a company incorporated under the laws of Cyprus, has, at the time of conclusion of the Contract, its "central administration" or "principal place of business".
|3.5.||However, as the Contract was certainly entered into "in the course of the party's
trade", Article 4.2 of the Convention clearly prescribes that, where the
performance is to be effected through a place of business other than the principal
place of business, the country to be considered is the country in which that other
place of business is situated.
|3.6.||From the documents, the facts of the case and the written and oral testimonies it
appears that [Seller] has its principal place of business in Moscow (Russia); even
if it were not so, Russia would still be the most closely connected country to the
Seller, as the place (ZZZ) through which the Contract had to be performed.
|4.||Russian law appears to be the law applicable to the Contract, as the one having the
closest connection therewith, also on a "substantive law" line of reasoning, i.e.
without recourse to private international law.
|4.1.||A sufficient number of connecting factors lead to the substantive law of the
Russian Federation: (a) [Seller] is incorporated in Cyprus, but it has two legal
adresses and corresponding places of business, Nicosia and Moscow (Article 6
and 11 of the Contract), the first looking like an accounting and payment centre,
the second like the effective operational unit; (b) the Manufacturer of the goods
sold under the Contract is a Russian firm, ZZZ; (c) all the goods originated from
ZZZ are shipped from Russia and loaded aboard Russian ships; (d) the Agreement
was signed in Russia when Mr. ---- visited ZZZ; (e) most if not all correspondence
between the Parties comes from or is addressed (by [Buyer]) to [Seller]'s Moskow
|4.2.||On the contrary, very few factors connect the Contract with the substantive law of
Italy, more so as two of the criteria mentioned by the [Buyer] - namely the choice
of Milan as a procedural venue (but lex fori and lex causae do not necessarily
coincide) or the conclusion in Italy of the Settlement Agreement (a merely
accidental event in the life of the Contract) - must obviously be dismissed.
|5.||Neither Party has argued that the 1980 Vienna UN Convention on Contracts of
International Sale of Goods (hereinafter referred to as the "Vienna Convention")
applies to the present dispute, although the [Seller] has indirectly done so by
quoting Article 74 of the Vienna Convention in its submissions.
|5.1.||However, the Tribunal believes that the Vienna Convention is the main body of
law applicable in this arbitration, for the following reasons.
|5.2.||The Vienna Convention has been ratified by the two States more directly involved
in the present arbitration and has therefore become a part (speciel rules for
international sales) of their national legal systems. Whether Russian (in this
Tribunal's opinion) or Italian law (in [Buyer]'s view) is the national law
applicable, therefore, the Vienna Convention applies to the present dispute as lex
specialis within the domestic general law of sales.
|5.3.||Moreover, the Tribunal finds that the Vienna Convention must autonomously and
automatically apply in the present arbitration also by virtue of Article 1 (a) and 10
(a) of the same Convention, as the law applicable to a contract of sale between
parties belonging to two different contracting States (Italy and Russia).
|5.4.||As stated above, [Seller] has more than one place of business, Moskow and Nicosia, but Article 10 (a) of the Vienna Convention offers a clear criterium to risolve this conflict: the closest relationship of one place of business with the contract or its performance "having regard to the circumstances known to or contemplated by the parties at any time before or at the conclusion of the contract".
|5.5.||The Tribunal has already shown (at paragraph 3.6. above) that Russia has a closer
connection with the Contract than Cyprus, a seat mainly (if not only) chosen for
payment (Contract, Article 6) and possibly tax reasons.
|5.6.||In addition, also the parameters set out in the second part of Article 10 (a) are fully
met, since the circumstances that the goods were to be produced in Russia,
according to Russian standards, and sent from Russia to Italy aboard Russian ships
were perfectly known to and considered by [Buyer] when concluding the Contract
and during its performance.
|6.||The Tribunal's final conclusion is that the law applicable to the Contract and the present dispute is the Vienna Convention and, for matters not covered by the Convention, the substantive law of the Russian Federation (in primis the RF Civil Code).|
|B.||Nature of the Contract, the Agreement and the Specifications
|1.||The Parties extensively disagree on the function, extent and effects of the
Contract, the Agreement and the Specifications, so that it is absolutely necessary
to ascertain, as a first step, their true nature -irrespective of their given names and
notwithstading the poor quality (to put it mildly) of the language used in these
documents and in part of the correspondence- and to define their mutual
|2.||First of all the Tribunal notes that the Contract at issue is, from the viewpoint of
the Vienna Convention and the Russian applicable law, a general contract of sale,
which, however, does not independently and completely determines all the
necessary elements of the agreement.
|3.||As usual in the export trade practice (not only Soviet and Russian), the general or
framework contract is accompanied, or to be followed, by an often unspelled
number of annexes or appendices, where the essential, indispensable aspects of the
contract (technical characteristics, quantities, prices, packing ways and times of
delivery of the goods sold and bought) are specified. Without such concrete
specifications, frequently variable in number (especially when the contract does
not have a time limit), the general contract remains an abstract and possibly empty
document, dictating broad rules capable of being implemented only if and when a
concrete "specification" will be adopted, whereby the key or chore elements of the
contract will actually be agreed between the Parties. Without at least one
specification, the contract cannot operate and its only or mainly effect is the
obligation of each Party to negotiate in good faith in order to reach a reasonable
agreement on the (many and essential) unspecified elements of the general sale
|3.1.||Only the Specifications, therefore, by showing sorts (types) of production (steel
wire, nail, wire rods), technical characteristics of the gods (diameter, etc.),
quantity, port of destination, packing instructions, time of delivery and, above all,
price (see Article 1 and 2, first sentence, of the Contract, all the Specifications
submitted by the Parties and parargaph 3 of the Agreement) make the Contract, so
to say, concretly usable, or "enforceable", and create a reciprocal duty to deliver
and to pay the specified goods at the specified terms and conditions.
|3.2.||Notwithstanding the wording of the Contract (Article 1 and 2 of which speak of
"enclosed Appendices"), it is not controversial that only Specifications NN. 1 and
2 were originally appended thereto. The following (N. 3 to N. 15) were all
prepared, agreed and occasionally changed (by the Buyer) at later times and
provided for successive deliveries. It appears that the largest number of
Specifications (NN. 3 to 8) was made on March 6, 1999 in ..., when the so called
Agreement was signed by the Parties (a contemporary symmetric agreement, the
Soglashenie, having been entered into between ZZZ and [Seller]).
|4.||The nature and effects of the Agreement have been the subject of extensive debate
between the Parties and by the witness testimony, the [Buyer] asserting its
bilateral character, the [Seller] arguing for its merely unilateral nature (the Buyer's
exclusive commitment to buy).
|5.||Irrespective of the inadeguate text wording, the Tribunal accepts that the Agreement is a source of bilateral (and not merely unilateral) obligations.
|5.1.||A comparison of the English and the Russian text, respectively of the Agreement
and of ZZZ-[Seller] (in the former [Buyer] engages to buy from [Seller], whereas
in the latter ZZZ engages to supply to [Seller], but in both cases the verbal tense is
the perspective future: respectively, "will buy" and "postavit"), [Seller]'s parallel
and contemporary signature of both these documents, the structure of the
Agreement itself (in which the first two paragraphs refer respectively to an
obligation to buy and to an obligation to deliver), and Mr. ----'s witness testimony
(admittedly, "both parties have to be guided by an agreement", even if [Buyer]
was the Party which requested it) have led the Tribunal to such conclusion.
|6.||But of course the bilateral nature of the Agreement - identical to the bilateral
nature of the numbered Specifications - does not affect the higher rank of the
Contract and its controlling functions and does not suppress the need that a
potential or abstract obligation contemplated in the Contract or in the subordinate
Agreement (such as a delivery to be carried out within certain periods of time)
become actual and concrete through Specifications adopted at the same time (like
Specifications NN. 3 to 8, appended to the Agreement) or to be agreed in the
|6.1.||In this perspective it is clear that the Agreement is not the Contract - as [Buyer]
mistakenly tries to depict it (see, inter alia, [Buyer]'s exhibit 14) -, it does not
replace, alter or add to the Contract - notwithstanding its wrong definition as
"addendum" in the Settlement Agreement - unless we use the latter term in the
sense of completing the Contract with some missing items (namely the quantity
and the time of delivery, but not the technical description and the price), with a
function similar to but less extensive than each numbered Specification. On the
contrary, the Agreement (paragraph 3) refers to the Contract (as a higher ranking
document), as well as to Specifications NN. 3 to 8, attached thereto, and,
significantly, is never referred to in the Specifications. Moreover, each and all
numbered Specifications are said to be appended to the Contract and not to the
Agreement. By its content, the Agreement rather resembles a grouped or super
specification (from March 6, 1999 onwards), a program, agenda or instruction
(when coupled with the ZZZ-[Seller] agreement) for production and delivery
purposes, a calendar or forecast of supplies, which, like the Contract, had
unavoidably to be completed with numbered Specifications.
|6.2.||Like the Contract, but even more than the Contract, the Agreement is not self-sufficient, it does not have a life of its own, but it becomes usable and enforceable
only through individual Specifications.
|7.||Incidentally, from a structural point of view, a careful analysis of the combined
provisions of the Contract, the Agreement and the Specifications fully authorize a
definition of the overall agreement as a contract for delivery of goods by
instalments in the sense of Art. 7.3 of the Vienna Convention [sic. Art. 73 appears to have been intended], as acknowledged also by [Buyer] in its first submission.
|8.||We know from the facts of the case and the concordant statements of the Parties
that Specifications NN.3 to 8 were adopted at the date of the Agreement (March 6,
1999), Specifications NN. 9 to 15 were adopted on May 18, 1999 (with
subsequent adjustments), while further Specifications (necessary to cover the total
amount of goods (16.500 tons) contemplated by the Agreement were never agreed
by the Parties.
|9.||If what stated above is true, a breach of contract, whether fundamental (in the sense of article 25 of the Vienna Convention) or not, relevant for these proceedings, must forcibly be also a breach of one or more numbered Specifications, because only these Specifications determine some indispensable elements of the Contract, such as the technical and mechanical properties of the goods, the concrete delivery terms, the packing conditions, the shipment documents and, above all, the price (this of course does not apply to the obligations autonomously and exceptionally born from the Settlement Agreement; see section D below).|
|C.|| The prices of the goods and [Buyer]'s claim of damage compensation for non-delivery of 10.430 tons of goods included in the Agreement
|1.||Whereas it is not controversial that the prices of the goods delivered under the Contract could only be fixed in the Specifications, the positions of the Parties widely differ on the price issue.|
|1.1.||According to [Seller], the price had to be agreed for each delivery and it could
therefore fluctuate, at least after the Third Shipment (although this limitation
emerges only from the unclear testimony of Mr. -- and seems only to regard the
relationship between ZZZ and [Seller]).
|1.2||In [Buyer]'s opinions the price was fixed once and forever through the Agreement,
or more precisely, through the Specifcations NN. 3 to 8, mentioned in paragraph 3
of the Agreement.
|2.||The Tribunal finds that neither the Contract nor the Agreement provides for a
fixed price, that a fixed price agreement was never concluded, that the price was
firmly set only in the Specifications and that only fifteen such Specifications were
finally agreed upon (however Specifications NN. 10 to 12 have not been
submitted to the arbitrator and their content can only be indirectly and
approximately inferred from [Seller]'s fax of July 14, 1999).
|3.||In terms of quantities, 10.430 tons of undelivered goods (approximately 12.050
tons less approximately 1.620 tons, as suggested by [Buyer] in its second
submission) were never concretely defined or specified, especially price-wise, in
properly agreed Specifications - the ones enclosed in [Buyer]'s fax No. 388 of
September 3, 1999, certainly not qualifying for this purpose - and precisely owing
to the failure of relevant Sepcifications they could not and did not have to be
delivered by [Seller].
|4.||Paragraph 3 of the Agreement is the crucial argument in [Buyer]'s contention. In
the [Buyer]'s view that paragraph was to govern all the deliveries foreseen in the
Agreement (and not only those covered by Specifications NN. 3 to 8) in as much
as sorts of production, prices, conditions of delivery and payments were
concerned; the price of the different types of goods was allegedly frozen for all the
April-July deliveries and [Buyer] has also listed those prices in its Exhibit 29 for
the Tribunal's convenience.
|5.||The Tribunal, however, is not persuaded by these arguments.
|5.1.||First of all the wording of paragraph 3, as usually not univocal, seems simply (and
redundantly) to indicate that the price, etc., of the items listed in Specifications
NN. 3 to 8 were to be found in the respective Specifications.
|5.2.||Moreover, Specifications NN. 3 to 8 could not apply as such - that is to say
without further specifications, adjustments or changes - to future deliveries, out of
a very simple reasoning. How can the goods be precisely described? How are their
technical conditions or properties to be determined? Which is the port of
destination? Furthermore, with regard to the price, where is the fixed price for
wire rod (4.500 tons) to be found, since none of the Specifications in question
refers to this product? In its Exhibit 29 [Buyer] does include wire rod and shows a
price of 200 US$/MT, but sintomatically it draws this price from Specification N.
2, viz. from an earlier Specification, not embraced by the Agreement.
|5.3.||In addition, even if the prices had been fixed or stabilized (as per Mr. ---'s words),
they could not have been fixed forever, but only until July 1999, in accordance
with the tentative time schedule of the Agreement; the frozen prices could
certainly not apply to goods delivered after the end of July 1999, owing to a delay
which, in the Tribunal's opinion, had been silently accepted by both Parties or, in
any case, could not be exclusively ascribed to [Seller]. On the contrary, the
[Seller], as late as September 9, 1999 (see [Buyer]'s fax 405 on this date) was
justified in relying on the (additional) period of time fixed by the Buyer for
performance (within the current year). Any different interpretation of the
Agreement would be unreasonable.
|6.||But les ut assume, only for the sake of truth and arguments' completeness, that
[Seller], during the period under investigation (August - October 1999) did not
comply with some of the broader obligations of good faith and fair dealing in
international trade, namely by making its agreement to further deliveries
conditional upon the arrival of the requested post-Settlement documents and/or an
earlier payment of the second instalment.
|6.1.||Was the bad faith actually proved and so serious as to constitute a fundamental
breach? Was the procedure established in Section III of the Vienna Convention
adhered to by the Buyer? Did [Buyer] observe the general duty (UNIDROIT
Principles of International Commercial Contracts, Art. 5.3) of cooperation with
[Seller], in a situation in which such cooperation could be reasonably expected for
the performance of the latter's obligations? The Tribunal can only answer
negatively to these questions.
|6.2.||Furthermore, even if [Seller]'s bad faith were proved and constituted a
fundamental breach on the part of the Seller, the causal nexus between the breach
and the alleged damages is far from being proved, the Contract was not duly
terminated by the Buyer, there are serious doubts and contradictions as to the
connection and timing of the six replacement purchases - two of which took place
before [Seller]'s alleged breach (on August 11 and 12, 1999) and three of which
were performed only on November 12 and 15, that is to say after the expiration of
the time limit for the payment of the second (Settlement) instalment, whereas the
last invoice, of September 30, 1999, only concerns wire rod, i. e. a good whose
price was certainly not fixed in the Agreement - and most of the goods listed in
the invoices submitted to the Tribunal are not identical to, and are hard to compare
with, the ones (still unspecified) mentioned in paragraph 2 of the Agreement.
|7.||Finally, one cannot ignore a deciding argument: even though [Seller] had been
guilty to a wantonly delay in reaching an agreement on the missing necessary
Specifications (that is to say those concerning the 10.430 undelivered tons) and
forced [Buyer] into the substitute transactions, there would be no actual harm
caused to the buyer, because no difference would exist or could be proved
between the Contract price (never agreed between the Parties) and the price of the
replacement transaction: as it emerges very clearly from the correspondence
between the Parties (see above all [Seller]'s fax N. 28 of August 12, 1999) and the
oral testimony, on the one hand the Seller would have never agreed to a price not
including the notified market increase - unless it could benefit of some
concessions with regard to the second instalment - and, on the other hand, the
Buyer - which between August and November 1999 bought from third parties at
higher prices - did not agree to buy at the increased price from the Seller.
|8.||For all the reasons explained so far the Tribunal finds that [Buyer]'s request to compensate the damage allegedly caused by [Seller]'s non-delivery of 10.430 tons of goods under the Agreement must be rejected.|
|D.||The Second Shipment and the Settlement Agreement
|1.||[Seller], beyond any doubt, signed the Settlement Agreement consciously and
voluntarily, after inspecting in loco the defective goods together with a
representative of the Manufacturer.
|2.||Afterwords [Seller] probably repented having done so, owing to the well known
mandatory norms of the applicable law concerning timely documentation and
payment of Russian exports and to the slow and inadequate incoming of the
documents requested from [Buyer].
|3.||However, even if [Buyer] did not comply promptly with [Seller]'s justified
requests, until October 30, 1999 the possible infringement of Russian mandatory
norms and the related sanctions, if any, could certainly not be attributed to the
former, nor could the Russian regulations and sanctions be used as an argument by
the latter in order not to complete its Third Shipment or to obtain an earlier
payment of the second (Settlement) instalment.
|4.||[Seller], assisted at the wharehouse by Ms. ----of ZZZ, knew or ought to have
known that the content of the Settlement Agreement was or might have been in
contradiction with Russian export and foreign exchange control regulations. Even
if Mr. ---- had been acquainted with those regulations at the time of the meeting in Bari and perhaps earlier - according to the written and oral testimony from the
[Seller]'s witnesses - he later rightly relied on the Settlement Agreement.
|5.||Nemo potest venire contra factum propium and [Seller], having agreed to the Settlement without any clear written reservation, was undoubtely estopped from
subsequently invoking the existence of mandatory norms of Russian law
prohibiting a postponed payment without prompt and adequate documentation.
|6.||Is it unquestioned that the first instalment was regularly paid, although with a
negligible and untimely contested delay (5 days).
|7.||On the other hand, we already know that on September 9, 1999 [Buyer]
announced its intent "to link the payment of the second instalment - never
disputed by [Buyer] - to the weight of the goods actually delivered" by [Seller];
moreover, on October 27, 1999, contrary to its previous statement (Augut 8,
1999), the Buyer wrote to the Seller that because of [Seller]'s fundamental breach,
it would not pay the second instalment on October 30, 1999.
|8.||We also know that this deadline was not respected, with the consequence that
from November 1999 onwards, as a result of the Buyer's failure to observe a
contractual term of payment, the Seller became entitled to refuse the fulfillment of
its obligations under the Contract (Art. 11, 3rd paragraph).
|9.||As the second (Settlement) instalment was never paid, without well founded reasons, [Seller] is certainly entitled to recover the corresponding amount.|
|E.||The Loan Agreement and the interest payable on the principal owed to the [Seller]
|1.||The [Seller] classifies as damages the amount of US$ 39.020,25 that it paid to
ZZZ on September 25 (or 30), 2000 as 15% yearly interest (on the sum of US$
240.124,63) under the Loan Agreement. [Seller] primarily justifies its request for
compensation of these damages with the alleged "coercion" (so to say) to enter
that Loan Agreement, when it became apparent that the [Buyer] would not pay the
second (Settlement) instalment by the October 30 deadline, lest it be subjected to
major sanctions, export bans and judicial proceedings on the part of the
|2.||The Tribunal, familiar with the peculiarities of Russian export-trade legislation,
does not question the truth, reality and risks of these consequences (easily
foreseeable by the [Buyer] which, at the date of its non-performance, had been
acquainted with them long since), but must remark the following.
|3.||First of all the Tribunal observes that when a Party fails to pay the price or any
other sum that is in arrears, the other Party is entitled to interest on it (Vienna
Convention, Art. 78), irrespective of the legal characterization thereof, and
therefore agrees that interest is surely owed to the [Seller] on the amount of US$
240.124,63 as of October 30, 1999.
|4.||However, neither the Contract nor the Vienna Convention fix any interest rate or
mention any method to establish it, so that the [Seller] correctly demands that
interest be calculated in conformity with the applicable law, i.e. according to
Article 395 of the RF Civil Code.
|5.||Obviously, to avoid a double payment of interest (although at possibly different
rates) for the same cause and period of time (October 30, 1999 - September 25 or
30, 2000), the [Seller]'s request can only be construed as a prayer to grant interest
quantified at US$ 39.020,25, until September 25 or 30, 2000, plus interest to be
calculated in conformity with Art. 395 of the RF Civil Code, from September 25
or 30 onwards.
|6.||Nevertheless it must be also noted that [Seller] entered the Loan Agreement
autonomously, without any previous or contemporary notice to [Buyer] and, above
all, two months before the deadline for payment of the second (Settlement)
instalment; with the consequence that the 15% yearly rate, privately agreed upon
by the [Seller] with ZZZ, could only run from the initial date of October 30, 1999
and would only be acceptable if it were not higher than the rate of interest
applicable under Russian law (Art. 395, RF Civil Code).
|7.||Hence, the claimed amount (liquidated interest) of US$ 39.020,25 should be
proportionally reduced to US$ 33.017,14; but, unfortunately, the second condition
mentioned in the preceding paragraph is not fulfilled, irrespective of the methods
of calculation allowd by Art. 395.
|8.||The Tribunal has autonomously sought and obtained information on average bank
short-term US$ lending rates to prime commercial borrowers in Russia in the
years 1990 and 2000 - as per data of the Central Bank of the Russian Federation -
and has ascertained that these rates were 11.85% per annum in October/November
1999 and 13% per annum in February 2000 (when the request of arbitration was
|9.||The Tribunal, faced with the alternative choices allowed by Article 395 of the RF
Civl Code, decides to take as a basis and parameter for its decision the average
bank interest rate prevailing in the [Seller]'s country (Russia) on the date of
presentation of the claim, such rate being the closest one to the rate applied to the
|10.||The Tribunal, therefore, hereby fixes a rate of interest of 13% on the principal
amount granted to the [Seller].
|11.||The [Seller] is entitled to interest at the above rate on US$ 240.124,63 from October 30, 1999 until the date of actual collection.|
|F.|| The incomplete third shipment
|1.||It is admitted by both Parties that the Third Shipment [Seller] had delivered to
[Buyer] less than one half (in terms of weight) of the goods covered by the
Specifications NN. 10 to 15 (approximately 3000 tons).
|2.||The initial cause of this partial non-performance seemingly consisted in [Buyer]'s
requests and Specifications' adjustments, and in any case the Tribunal is
convinced that a delivery postponement was at least silently agreed by the Parties,
but it is indisputable that the Seller had an obligation to deliver the remaining
quantity (slightly over 1600 tons) within a reasonable time.
|3.||In this connection the Tribunal must reject the [Seller]'s argument that the [Buyer]
did not comply with the claim procedure prescribed in Art. 8 of the Contract,
when the first and partial delivery arrived at the place of destination. As a matter
of fact, whether or not that procedure was compulsory in this case, its
infringement was never invoked by [Seller] before the beginning of the present
arbitration; besides, [Buyer] was fully entitled to rely on [Seller]'s announcement
(notified by fax NN. 16 of July 14, 1999) that it was planning to perform the
missing deliveries (under Specifications NN. 10, 11 and 15), albeit only in
|4.||But was there a time limit for these deliveries?
|4.1.||Certainly not before September 1999, after the July 14 notification to the Buyer
which, by failing to raise any precise objection, acquiesced in this postponement
and, more generally, reiterated its readiness to accept belated deliveries.
|4.2.||Furthermore, [Seller] was perhaps justified (Contract, Art. 11, 3rd paragraph) in
not completing its deliveries from September 6, when the payment for the
performed part of the Third Shipment was due (see [Seller]'s fax No. 31 of the
same date, referring to INV 99035) to September 15, when the payment was
|4.3.||However, as from September 16 and until October 30, [Seller]'s refusal to
complete its deliveries under Specifications NN. 10 to 15 was undoubtedly
groundless and [Buyer] is therefore entitled to have its damages for delayed
performance compensated (Vienna Convention, Artt. 45.2 and 47.2, last sentence).
|5.||[Buyer] has asked to have these damages calculated as the difference between the
Contract (that is to say the Specifications NN. 10 to 15) price and the price paid by
the Buyer for the goods bought in replacement of those not delivered by the Seller.
|6.||The Tribunal agrees to this method of calculation, although the Buyer did not
strictly abide by the directions of the Vienna Convention (Art. 51), the Contract
(or the transaction under Specifications NN. 10 to 15) was not previously
terminated by [Buyer] (Vienna Convention, Art. 75) and the Specifications NN.
10 to 12 could not be examined by the arbitrator, and even though the connection,
timing and sequence of the substitute purchases (two of which were made before
[Seller]' breach) -as already explained in Section C, par. 6.2. above -, as well as
the causal connection between [Seller]'s delayed performance and [Buyer]'s
substitute transactions ([Buyer]'s exhibits 30 to 35), are largely unsubstantiated
|6.1.|| The reason of this decision is that both Parties have proved or admitted that an
increase in the world market price of the goods to be delivered with the Third
Shipment took place in the relevant period of time, so that, in the Tribunal's
opinion, it has been established with a sufficient degree of certainty that [Buyer]
suffered harm as a consequence of the delay.
|6.2.||However, the circumstances recalled in par. 6 above induce the Tribunal to select
the lowest amount of average price increase proposed by the Buyer and admitted
by the Seller, namely US$ 25 per metric ton of goods.
|6.3.||As for the quantity of undelivered goods, the figure of 1.620 tons, pointed out in
[Buyer]'s submission of September 28, 2000 (page 6) is accepted, but this figure
must be reduced by 5%, i.e. to 1.539 tons, on the basis of the Contract provision
on tolerances (Art. 3, 2nd paragraph).
|7.||As a conclusion, [Buyer] is entitled to a compensation of damages worth US$ 38.475 (1.539 tons x 25 US$).|
|G.||The set-off and the exceptio inadimpleti contractus (hereinafter the
|1.||In its fax of September 9, 1999 the Buyer notified the Seller that, if [Seller] did
not deliver 12.000 tons of allegedly missing goods within the next month of
October, [Buyer] would deduct from the second (Settlement) instalment, due on
October 30, 1999, US$ 20 for each undelivered ton. In other words, [Buyer] was
apparently or implicitly declaring or announcing a forthcoming termination of its
obligations by set-off.
|2.||But was the set-off an admissible way of terminating [Buyer]'s obligations uder
the Settlement Agreement? Russian law gives a negative answer to this question.
According to the RF Civil Code (Art. 410) and the relevant judge-made law and
legal writings (see for istance Nauchno-prakticheskij kommentarij k chasti pervoj
GK Rossijskoj Federacij, 2nd ed., Moscow, 1999, at page 540), an obligation can
be terminated by set-off (zachet) only if the counterclaim is identical or
homogeneous, quantified and indisputed: unlike [Seller]'s claim, [Buyer]'s claim
met none of these conditions.
|3.||Consequently, in the circumstances of the case, a valid set-off could not be
unilaterally declared by the Buyer, who, not insignificantly, in its briefs has asked
the Tribunal to declare an (arbitral) partial set-off of the Parties' claims.
* * * *
|4.||A seemengly different approach was taken by the Buyer toward the end of October
1999. In fact, after numerous earlier warnings [Buyer] decided not to pay the
second (Settlement) instalment at the due time on the basis of the well known
principle inadimplenti non est adimplendum and because, in [Buyer]'s contention,
the value of the damage previously caused by [Seller]'s contractual breaches (non-delivery of over 12.000 tons of goods) abundantly exceeded ([Buyer]'s letter of
October 27, 1999) the amount of the second (Settlement) instalment:
301.248,400/361.498,080 US$ versus 240.124,63 US$.
|5.||The Tribunal disagrees with this argument, and consequently finds that [Buyer]
was not entitled to hold back its payment on October 30, 1999, for the following
|5.1.||First of all the Vienna Convention does not include the Exceptio among the remedies available to the Buyer for breach of contract by the Seller (Art. 51.1), nor
did the Buyer, at least before the deadline for the payment of the second
(Settlement) instalment expired, validly terminate the Contract in its entirety or
with respect to the Third Shipment (Art. 73 of the Vienna Convention).
|5.2.||Additionally, taking into account the facts and circumstances of the case and the
findings of this Tribunal, even assuming that the Vienna Convention allowed a
recourse to the Exceptio, it could only be used by one Party, in a Contract for
delivery of goods by instalments as the Contract undoubtedly is, to withold its
performance until the other Party had performed its obligations "in respect of the
same instalment": this means, in the present dispute, that [Buyer] might have
opposed the Exceptio only with respect to the Third Shipment (= instalment),
since the delivery of the second load of this Shipment was the only proved breach
of [Seller], whereas the obligation to pay US$ 240.124,63 had a different origin
and cause, had already been completed and accepted (although through a
settlement) and, above all, pertained to an earlier and not interdependent delivery
(the Second Shipment).
|5.3.||Moreover, wherever this remedy is permitted, it is doubtful that it can apply when one Party performs in part but not completely (as in the case of the Third Shipment). Even when permitted, performance may be withheld but only where in normal circumstances this is consonant with good faith. In any case, and in the vast majority of the legal systems, the Exceptio is paralized when the non-performance of one Party ([Seller]) is minor or significantly lower than the performance expected from the other Party ([Buyer]), as in the present dispute.|
|H.||Arbitration and related costs
|1.||Both Parties request reimbursement of (a) all arbitration costs and (b) all legal
costs and other arbitration related expenses (duly specified by [Seller] and [Buyer]
in their respective submissions).
|3.||The Parties have always paid their respective shares of the arbitration costs, as
shown in detail in the Chamber Secretariat's letter.
|2.1.||It seems to the Tribunal that the circumstances of the case do not give any ground
for ignoring or distancing itself from the principle that the arbitration costs follow
the event, i.e. that the losing party has a duty to reimburse the winning party for its
costs of the proceedings; consequently these costs must be apportioned
|2.2.||This award grants more monies to [Seller] than to [Buyer], also in proportion to
the Parties' respective claims, so that, in the Tribunal's opinion, the [Buyer] must
compensate to the [Seller] 2/3 (two third) of its arbitration costs (US$ 24.000 and
Lit 757.000), namely US$ 18.000 (+ VAT) and Italian Lire 504.667 (+ VAT).
|4.||However, each Party shall bear its own expenses, autonomously decided and
incurred in connection with the present arbitration, including the costs and fees of
its respective attorneys.
|For the foregoing reasons this Tribunal hereby renders the following:
|1.||[Buyer] is ordered to pay to [Seller] US$ 240.124,63 being the unpaid second
instalment provided for in the Settlement Agreement.
|2.||[Seller] is ordered to pay to [Buyer] US$ 38.475 as damage compensation for the
|3.||[Buyer] is ordered to pay to [Seller] interest, at an annual interest rate of 13%, on
the sum due under paragraph 1 above, from October 30, 1999, until the date when
payment is effected.
|4.||[Buyer] is ordered to pay to [Seller] US$ 18.000 (plus VAT) and Lit 504.667 (plus
VAT) as partial reimbursement of the [Seller]'s arbitration costs.
|5.||Each Party shall bear its own legal costs and arbitration related expenses.
|6.||Every other claim or counterclaim of the Parties is rejected.
* * * *
|This award is made and signed in three identical originals, one for each of the Parties
and one for the Chamber.|
|The Sole Arbitrator|