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CISG CASE PRESENTATION

Russia 16 October 2001 Arbitration Court [Appellate Court] for the Western Siberia Circuit (Harvesting combines case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/011016r1.html]

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

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Case identification

DATE OF DECISION: 20011016 (16 October 2001)

JURISDICTION: Russian Federation

TRIBUNAL: Federal Arbitration Court for the Western Siberia Circuit

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: F04/3157-638/A03-2001

CASE NAME: O.I.L. Otto International Leasing Aktiengesellschaft v. Zernopererabatyvayuschiy kombinat Barnaulskaya melnitsa

CASE HISTORY: 1st instance Arbitration Court for the Altai District (A 03-33/01-06) 27 June 2001 (reversed and remanded); 3d instance Arbitration Court for the Altai District 1 April 2002; 4th instance Federal Arbitration Court for Western Siberia Region 6 August 2002; 5th instance High Arbitration Court for Presidium of Supreme Arbitration Court 28 January 2003 [reversing in part]

SELLER'S COUNTRY: Germany (plaintiff)

BUYER'S COUNTRY: Russian Federation (defendant)

GOODS INVOLVED: Harvesting combines


Classification of issues present

APPLICATION OF CISG: No

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 4

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): Convention limited to sales contracts]

Descriptors: Scope of Convention ; Sale, definition of

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Russian): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Federal Arbitration Court for the Western Siberia Circuit of the Russian Federation

Resolution of the Cassation Board
on the lawfulness and reasonableness
of decisions of arbitration courts

Case No. F04/3157-630/A03-2001 of 16 October 2001

Translation by Yelena Kalika [*]

The German firm "O.I.L. Otto International Leasing Aktiengesellschaft" commenced an action with the Arbitration Court for the Altai Region. The action was brought against the private joint stock company "Zernopererabatyvayuschiy kombinat "Barnaulskaya melnitsa"" to recover Deutsche Mark [DM] 1,838,860.78, including DM 1,614,326.00 of leasing payments and DM 224,534.78 of interest for the delay in making leasing payments. As of 25 December 2000, the leasing payments accrued amounted to Russian Rubles [RuR] 24,089,076.21, taking into consideration the currency rate of RuR 13.10 per DM 1.00.

The claim was reasoned by the failure of the limited liability partnership "Melnitsa," whose successor the Respondent is, to fulfill its obligation to make payments for the use of 10 combines "Dominator 204 Mega."

By the decision of 27 June 2001, the claim was denied. The court found that the Respondent received the combines from the public joint stock company "Barnaulsky zavod mekhanicheskih pressov" under a sale contract. The combines, which had been the object of customs violations and had become federal property, were handed over to "Barnaulsky zavod mekhanicheskih pressov" by the Altai Customs Department for sale. [The court found that] the contracts of use and sale, which were made by the Claimant and Respondent, did not comply with the rules of international law governing the said relationship since they did not provide for the Claimant's duty as a Lessor or Seller to hand over the goods. Pursuant to the CISG and the German Civil Code, the court concluded that the Respondent had no obligations to the Claimant.

The case was not reviewed by the appellate instance.

The Claimant disagrees with the decision of the court. In his cassation complaint he asks to reverse the said decision and to make a new decision granting the leasing payments and interest in full. [The Claimant] argues that there are no grounds for concluding that there were no obligations between the parties as well as that there was no relevant obligation on the Respondent's part to carry out the agreement. [The Claimant] points out that the court failed to apply the rule of the German law -- Article 535 of the Civil Code -- and made a wrong reference to the provisions of the CISG.

At the hearing, the Claimant confirmed his intention to recover leasing payments under the contract No. 6449 of 15 November 1995 and the contract of use No. 6449 of 12 February 1997. He asserts that the contract made by the parties is consensual in character, while the court found it to be a real transaction. In this connection, the obligation arises at the time when [the contract] is concluded. Besides, the Claimant argues that the provisions of the leasing agreement No. 6449 of 15 November 1995 with the private joint stock company "Terra", which was later terminated by the letter of 28 June 1998, are still in force. The Claimant argues that the Respondent is liable for the failure to make a timely customs clearance of the goods. In the Claimant's opinion, the court has no right to interfere with the substance of contractual obligations of the parties. The Claimant confirms that he has not filed a motion to bring the Altai Customs Department [as a party] into this action. However, the arbitration court, while allowing the said party to participate in the action, failed to determine its procedural role. The Claimant has not been able to submit evidence confirming his right to the property leased.

In his reply, the Respondent argues both against sustaining the claim and against the reversal of the decision of the court. [The Respondent] argues that the decision of the court is lawful and reasonable. He points out that the Claimant failed to fulfill his obligation to deliver the combines since he held them under a different legal regime, i.e., he was preserving them as evidence in a criminal case. At the same time, [the Respondent] asserts that he received the combines into property from the public joint stock company "Barnaulsky zavod mekhanicheskih pressov" after they had been confiscated by the Customs Department and become federal property due to the violation of the regime of temporary import into the Russian Federation by the German firm.

The Respondent's representatives have explained that the sale contract of 12 February 1997 cannot be considered enforceable since it was signed by the Buyer, while containing discrepancies to which the Buyer did not agree. They also have confirmed the submission of the documents proving their succession [to "Melnitsa"].

After reviewing the case, the Claimant's complaint, the Respondent's counter arguments and after verifying the lawfulness of the decision, the reasonableness of the application of the rules of substantive and procedural law, the Cassation Board finds that the decision of the arbitration court shall be reversed and the case shall be remanded for the following reasons:

As follows from the documents presented, "O.I.L. Otto International Leasing Aktiengeselshaft" and the private joint stock company "Terra" entered into a leasing agreement No. 6449 of 15 November 1995. The agreement provided for the lease of 20 new combines "Dominator 204 Mega" for the total amount of DM 4,540,000.00, including VAT.

Later, on 28 June 1998, the Claimant utilized his right to unilaterally terminate the said contract by sending a letter to the private joint stock company "Terra".

The Claimant argues that he fulfilled his obligation on the basis of a receipt issued by an investigator of the Altai Region Prosecution Office proving that the "Melnitsa" partnership received 10 combines. (The receipt has been submitted into evidence in the criminal case No. 76291). The Claimant insists that the leasing payments, which have been due under the contract of use No. 6449 of 12 February 1997, be recovered from the Respondent.

It follows from the plain language of the said contract that -- due to the termination of the leasing agreement No. 6449 of 15 November 1995 regarding 20 combines "Dominator 204 Mega" with the private joint stock company "Terra" -- "O.I.L. Otto International Leasing Aktiengeselshaft", the Lessor, transferred its right to claim in 10 combines to the limited liability partnership "Melnitsa". At the same time, the Lessor, who transferred his rights to claim to the Lessee, was to be liable for the invalidity of the claim transferred, but not for the debtor's failure to fulfill that claim/obligation (clause 2.2 of the contract of 12 February 1997).

At the same, [the contract set forth] the transfer of the rights and obligations held by the private joint stock company "Terra" to the Lessee. [Such rights and obligations] were to secure the still existing obligations to make payments of DM 1,614,326.00 under the contract No. 6449. The Lessee accepted the liability for fulfilling the obligations of the private joint stock company "Terra" in the part concerning the 10 combines. The parties agreed that the Lessee was to make a contract with any Russian firm, as he might find proper, to take the combines from the private joint stock company "Terra" in accordance with appendix 1. [The cost of services under] such a contract was not to exceed 10%, or DM 161,432.00.

Besides, on the same date the parties made a sale contract. [The sale contract], with amendments and modifications of 8 May 1997, was signed by the limited liability partnership "Melnitsa" on Buyer's behalf. There was no response from the Seller [concerning such amendments and modifications].

While evaluating the said contracts, the arbitration court concluded that the German firm failed to fulfill its obligations to hand the goods over. The court also found that the relationships violated the rules of international law governing leasing and sale obligations.

However, such assertion is not based on any rule of law. The grounds for application of the CISG were not properly evaluated.

The court applied Article 535 of the German Civil Code without analyzing the substance of the parties' contract as a leasing agreement.

The court evaluated the circumstances of the customs clearance of the combines, which crossed the customs boarder of the Russian Federation, in the absence of the relevant documents and based on the oral statements of a representative of the Altai Customs Department only. While allowing the said representative to participate in the court proceeding, the arbitration court did not determine his procedural role.

At the same time, in the materials of the case there are no documents evidencing the succession of the limited liability partnership "Melnitsa" by the private joint stock company "Zernopererabatyvayuschiy kombinat "Barnaulskaya melnitsa"".

Therefore, the conclusion drawn by the arbitration court that the Claimant failed to fulfill his obligation to hand over the goods to the Respondent was made without any clarification and evaluation of the factual circumstances of the case. It entailed the wrong application of substantive law which is a ground for reversal of a judicial act pursuant to Article 176(1) of the Russian Federation Arbitration Procedure Code.

The case should be remanded to the first instance of the lower arbitration court. It should be suggested to the Claimant that he should prove his right to the contested property and explain how the Respondent's leasing obligation was created.

By correctly applying the rules of substantive law, the arbitration court should find out how the transfer of a claim from the Lessor corresponds with the transfer of rights and obligations from the Lessee -- the public joint stock company "Terra" -- to the same party, i.e., the limited liability partnership "Melnitsa". [The court should also find out] on what rule of law was based the term in the contract of use No. 6449 of 12 February 1997 by which the debt was transferred from the public joint stock company "Terra" to the limited liability partnership "Melnitsa" in the absence of the agreement on the part of the original debtor the leasing agreement was unilaterally terminated by the creditor.

If it is necessary to review the circumstances of the customs clearance of the goods and the change of the relevant regime, in accordance to which this property was present at the customs territory of the Russian Federation, as well as the participation of the Customs Department in the proceeding, the court should find out the opinion of the party who initiated the proceeding, and determine the procedure of such participation [by the Customs Department].

In addition, the documents evidencing the reorganization of the limited liability partnership "Melnitsa" and its succession by the private joint stock company "Zernopererabatyvayuschiy kombinat "Barnaulskaya melnitsa"" should be submitted with the materials of the case.

After determining the legal relationships between the parties, the court should review the lawfulness of the claims to recover the amount of debt in connection with the leasing payment. [The court should also determine the lawfulness] of the measure of liability stated by the Claimant in accordance with the relevant rules of substantive law.

After reviewing the case in the fist instance of the arbitration court, the legal expenses should be divided based on the amount factually paid by the Claimant at the time of submitting the cassation claim.

Pursuant to Articles 175(3), 176(1) and 177 of the Russian Federation Arbitration Procedure Code, the court

HOLDS:

The decision of the Arbitration Court for the Altai Region on case No. A03-33/01-6 of 27 June 2001 is reversed. The case is remanded to the first instance of this court.

The resolution shall become binding at the time of its rendering and cannot be appealed.


FOOTNOTES

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

All translations should be verified by cross-checking against the original text.

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Pace Law School Institute of International Commercial Law - Last updated March 17, 2004
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