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CISG CASE PRESENTATION

Russia 1 February 2002 Arbitration proceeding 234/2000 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020201r1.html]

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

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Case identification

DATE OF DECISION: 20020201 (1 February 2002)

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: 234/2000

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Germany (respondent)

GOODS INVOLVED: Goods


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 74 [Also mentioned: Article 53 ]

Classification of issues using UNCITRAL classification code numbers:

74A ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Outer limits of damages: foreseeability of loss]

Descriptors: Damages ; Foreseeability of damages

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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 Moscow (2001-2002) No. 37 [234-237]

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 234/2000 of 1 February 2002

Translation [*] by Mykhaylo Danylko [**]

Translation edited by Yelena Kalika [***]

1.  SUMMARY OF RULING

     1.1 The Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry [hereinafter Tribunal] found the Vienna Convention 1980 [hereinafter CISG] applicable to the relations of the parties to an international sales contract since the commercial companies of the parties are located in CISG Contracting States. The main place of business of the seller is the Russian Federation. In accordance with the Russian rules of conflict of law, the Tribunal therefore applied Russian law as the subsidiary law.

     1.2  The Tribunal granted the [Buyer]’s claim [as to quality of the delivered goods] in the amount of 50 percent taking into consideration the context of the claim to the quality of goods and the course of negotiation between the parties to settle the dispute.

      1.3  The Tribunal granted the [Seller]’s claim to recover a penalty for delay of payment for the period from the date when the payment had to be made to the date of [Buyer]’s attempt to pay off the debt, which did not succeed due to change of banking details of [Seller]. The Tribunal found that the penalty following the above mentioned period should be recovered in the amount of 50 percent due to the mutual responsibility of the parties such as (i) [Buyer]’s failure to take additional steps to pay off the debt and (ii) [Seller]’s failure to inform the [Buyer] of the change of his banking details.

     1.4  Referring to Art. 74 CISG, the Tribunal dismissed the [Seller]’s claim to recover from [Buyer] a penalty [Seller] had to pay pursuant to the decision of Customs authorities due to non-receipt of hard currency proceeds, because at the time of conclusion of the contract the [Buyer] neither foresaw nor ought to have foreseen such possible consequences of his breach and because the [Seller] did not inform the [Buyer] about the existence in Russia of such public legal rules, application of which led to such consequences.

     1.5  The Tribunal dismissed a counterclaim that [Buyer] filed based on a preliminary frame agreement of the parties, which did not specify particular obligations of the parties and required a follow-up formalization that was not done by the parties.

2.   FACTS AND PLEADINGS

The action was brought by Claimant [Seller], a Russian company, against Respondent [Buyer], a German company, in connection with non-payment for goods delivered under an international sales contract concluded between the parties on 5 April 1995. The [Seller] claimed recovery of the principal debt; recovery of the contract penalty for delay of payment and compensation of losses suffered due to payment of a penalty by the [Seller] for failure to timely deposit hard currency proceeds. The latter penalty was paid pursuant to a decision of the Russian Customs authorities. The [Buyer] challenged the [Seller]’s claims referring to defects in the delivered goods that were admitted by the [Seller]. Besides this, [Buyer] did not have an opportunity to pay off the debt due to a change of banking details of [Seller] of which the [Buyer] was not informed by the [Seller]. [Buyer] also alleged losses in connection with [Seller]’s breach of his obligations under an Addendum to the present contract concluded between the parties. In this connection, the [Buyer] filed a counterclaim.

3.   TRIBUNAL’S REASONING

The ruling of the Tribunal contained the following main points.

     3.1 [Jurisdictional competence of the Tribunal]

Clause 8 of the contract between the parties of 5 April 1995 provides for arbitration of disputes or misunderstandings in connection with performance of the contract by the […] Tribunal. [On this basis] the Tribunal came to the conclusion that it is competent to arbitrate the present dispute.

     3.2  [Applicable law]

In their contract of 5 April 1995, the parties did not specify the applicable law. Since the Russian Federation and Germany are CISG Contracting States, this Convention should be applied to relationships of the parties concerning the issues not settled in the contract concluded between them.

By virtue of the rule of conflict of law of Art. 166 of the Principles of Civil Law 1991 [hereinafter Principles], effective in the Russian Federation since 3 August 1992, the law of the country where the seller to the contract is established, has his main place of residence or main place of business should be applied to the relations of the parties not governed by the CISG, i.e., in this case – the substantive law of the Russian Federation, in particular, Russian Federation Civil Code (Part One, effective since 1 January 1995 and Part Two, effective since 1 March 1996) [hereinafter Civil Code].

     3.3  [Merits of the case]

Having reviewed the claims of [Seller], the Tribunal found that the case materials confirm the delivery by [Seller] according to the contract of 5 April 1995 on 14 November 1997 of the goods under the “FOB Saint Petersburg” term with two bills of lading. According to [Seller]’s invoice No. 21 of 29 October 1997, the total cost of goods consisted of the sum of the principal debt claimed for recovery. The [Buyer] did not challenge that the delivery was made nor did he contest his failure to pay for the goods delivered.

On the basis of Clause 5 of the contract, the [Buyer] had to make a payment by wire transfer within ten days from the date of the bill of lading in favor of [Buyer] at his account at International Moscow Bank, Moscow City. Based on the dates of the bills of lading the [Buyer] had to make a payment not later than 24 November 1997. However, he did not make a payment either on that date or at a later time.

The Tribunal found that the [Buyer] breached Clause 5 of the contract as well as Art. 53 CISG according to which the buyer must pay the price for the goods delivered as required by the contract. Therefore, the debt for the goods received should be recovered from [Buyer].

The [Buyer] deducted from his debt the sum claimed by him for reclamation of the quality of the goods received. However, the reclamation data presented by him at the hearings showed a lesser sum and partially referred to expenses in Germany that the [Buyer] had to bear as the owner of goods bought by him according to the “FOB Saint Petersburg” term of delivery.

In such circumstances, the Tribunal found it reasonable to admit only 50 percent of the [Buyer]’s reclamation claim. Moreover, such an apportionment of the reclamation claim was admitted by both [Buyer] and [Seller] as the accepted method of resolving this dispute (see [Buyer]’s letter of 5 May 1998, [Seller]’s Draft Agreement of 26 February 1998). Therefore, the debt of [Buyer] for the delivered goods for which he ought to pay [Seller], should be decreased by the amount of the allowed reclamation claim as to the quality of the goods.

The [Buyer] made an attempt to pay off invoice No. 21 but in a lesser sum and only on 21 April 1998, i.e., with delay compared to the contractual “not later than 24 November 1997”. For this period, the [Buyer] has to pay to [Seller] a penalty for delay of payment, provided for by Clause 5 of the contract, which for 144 days of delay equals 7.2 percent of the sum that has to be paid by [Buyer].

However, [Buyer]’s order to pay – given to the International Moscow Bank –  was not performed due to the change of banking details of the [Seller], of which the [Buyer] was not informed on time. The Tribunal found that the ensuing delay of payment was the mutual responsibility of both [Buyer] and [Seller], as follows from Art. 404 Civil Code. The [Buyer] breached his obligation to timely pay for the goods in term to 24 November 1997 and did not take additional measures to pay off his debt. For his part, the [Seller] failed to inform the [Buyer] of the change of his banking details on time, thus prejudiced payments for the goods.

Accordingly, the penalty for the delay of payment for this period – 821 days – should be recovered from [Buyer] in the amount of 50 percent.

Having reviewed the [Seller]’s claim to recover losses resulted from the payment of a penalty by the [Seller] to the Russian Customs authorities for non-receipt of hard currency proceeds, the Tribunal did not find it reasonable to put on [Buyer] the disadvantageous consequences of the application of public legal rules established in the Russian Federation to control the financial activity of Russian businesses.

According to Art. 74 CISG, losses should be recoverable in cases in which the party that breached the contract foresaw or ought to have foreseen at the conclusion of the contract the possible consequences of such a breach taking into consideration the circumstances about which the party knew or ought to have known at that time.

In this case, the [Buyer] did not know and could not have foreseen at the time of conclusion of the contract the possible occurrence of the above mentioned losses suffered due to the Russian Federation rules of law on public legal penalties for non-receipt of hard currency. Moreover, in the case materials presented by [Seller], there is no evidence that he informed the [Buyer] of such rules.

The counterclaim of [Buyer] is based on Addendum No. 5 of 11 December 1996 to the parties’ contract of 5 April 1995, which by its context is a frame agreement on long-term relations between the parties in dispute in the area of manufacture and sale of certain goods that also provides for delivery by [Seller] of 350 items of goods under the pre-agreed specifications and at the set prices.

Following from the legal nature of Addendum No. 5, the Tribunal found it to be simply a preliminary frame agreement, which does not provide for particular obligations of parties and which sets forth only general principles for the parties’ future relations that have to be formalized in future contracts setting forth the terms of delivery, which the parties did not do.

For the above stated reasons, the Tribunal found that the [Seller] did not have obligations to deliver the goods under the Addendum No. 5. Therefore, there is no need to examine the calculation of losses alleged by [Buyer] on this account. Accordingly, the Tribunal dismissed the counterclaim of [Buyer].

Based on para. 6(2) of the Rules of Tribunal on Arbitration Fees and Expenses, the arbitration fees are imposed on [Buyer] in proportion to the claims granted. Arbitration fees in connection with the counterclaim shall be paid by the [Buyer] in full.


FOOTNOTES

* This is a translation of data on Proceeding 234/2000, dated 1 February 2002, 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. 37 [234-237].

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 Germany 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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