Russia 18 February 2002 Arbitration proceeding 165/2001 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020218r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 165/2001
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Russian Federation (claimant)
BUYER'S COUNTRY: United States (respondent)
GOODS INVOLVED: Goods
APPLICATION OF CISG: Yes [Article 1(1)(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): penalty clauses]; 74A [General rules for measuring damages: loss suffered as consequence of breach]
4B [Scope of Convention (issues excluded): penalty clauses];
74A [General rules for measuring damages: loss suffered as consequence of breach]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (Russian): Rozenberg, Praktika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy [Practice of the International Commercial Arbitration Court: Scientific -- Practical Comments] Moscow (2001-2002) No. 40 [246-248]
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Queen Mary Case Translation Programme
Translation [*] by Mykhaylo Danylko [**]
Translation edited by Yelena Kalika [***]
1. SUMMARY OF RULING
1.1 Since there was no agreement between the parties on the law applicable to their relations, the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry [hereinafter Tribunal] resolved the dispute based on the provisions of the Vienna Convention 1980 [hereinafter CISG] and rules of Russian Federation Civil Code [hereinafter Civil Code], which were applied as subsidiary law. The commercial companies of the parties to the contract are located in CISG Contracting States. The Seller is a Russian company.
1.2 Since according to the provisions of the contract, failure to present a claim as to the quality of the goods within the time period specified in the contract leads to loss of the right to claim, the Tribunal found unreasonable the actions of Buyer, who, when making payment, retained a portion of the price of the goods due to the alleged bad quality of several lots of the goods.
1.3 The Tribunal rejected Buyerís allegations that the packaging of the goods did not comply with the international standards, since the Seller observed the requirements as to the packaging that were specified in the contract.
1.4 The Tribunal dismissed Sellerís claim to recover from Buyer the sum of losses suffered by Seller due to his payment to the bank of the interest for a loan used during the delay in payment caused by [Buyer]. In so doing, the Tribunal took into account that:† (i) Seller has recovered contractual penalties from Buyer for this delay and that the amount of such penalties was higher than the sum of Sellerís losses; and (ii) the relations of the parties in connection with this issue were governed by Art. 394 Civil Code, which provided that the losses should be recovered only in the part not covered by penalties, unless the law or contract provided otherwise.
2.† FACTS AND †PLEADINGS
The action was brought by Claimant, a Russian company [Seller], against Respondent, a US company [Buyer], in connection with partial payment for goods delivered under an international sales contract concluded between the parties on 19 January 2001. The [Seller] claimed recovery of the principal debt, recovery of contractual penalties for delay in payment, compensation of losses suffered due to the use of a loan issued by a bank, and compensation of arbitration fees. In support of his position, the [Buyer] alleged bad quality of several lots of delivered goods and that the packaging of the goods did not meet international packaging requirements.
3. TRIBUNALíS †REASONING
The ruling of the Tribunal contained the following main points.
3.1† [Jurisdictional competence of the Tribunal]
Clause 16 of the contract concluded between the parties on 19 January 2001 provides that disputes related to the contract shall be resolved by the partiesí negotiations. It also states that if the parties cannot resolve a dispute themselves, it should be referred to the Tribunal for arbitration in Moscow City. Therefore, the Tribunal found itself competent to arbitrate the dispute that arose from the partiesí contract.
3.2† [Merits of the case]
The [Seller]ís claim to recover the sum of the principal debt should be granted. The delivery of the goods for the specified amount is evidenced by the case materials and is not disputed by [Buyer]. According to Art. 62 CISG, which is applicable to the parties contractual relations, the seller may require the buyer to pay the price of the goods.
The Tribunal cannot accept [Buyer]ís allegation of the bad quality of several lots of the goods delivered, since the [Buyer] did not utilize his right to file a counterclaim against the [Seller]. The [Buyer] failed to file a claim as to the quality of the delivered goods within the period of time specified in Clause 10 of the contract. According to the provisions of the contract this led to loss of the right to claim.
The Tribunal found unreasonable [Buyer]ís allegation that [Seller] breached the requirements set for packaging of the goods. According to Clause 8 of the contract, the goods were to be packaged and marked in accordance with the documentation attached to the contract. Annex 2 to the contract provides that every roll to be roped-up three times with steel packing tape in a radial direction and once more at the exterior diameter; with the roll packed in a polyethylene sack and stored face up on the wooden tray with a cover. At the hearing of the Tribunal, the [Seller] established that he fulfilled these requirements; the contract does not contain any other requirements as to the packaging of goods.
The Tribunal found it reasonable to grant the claim of [Seller] to recover from [Buyer] the sum of the contract penalty for the delay of payment.
According to Clause 12 of the contract, in case of non-payment of the price for the goods within the time period specified in the contract, the buyer shall pay a penalty to seller in the amount of 0.1 percent from the amount of the debt for each day of delay but not more than 8 percent of the price of the unpaid goods. The [Buyer] failed to present documents disproving the [Seller]ís calculations of the amount of penalty.
On the other hand, the Tribunal did not find any basis to grant the [Seller]ís claim to recover from [Buyer] the sum of losses suffered by [Seller] due to the use of a loan issued pursuant to a loan agreement of 21 March 2001 with the bank. The [Seller] failed to present compelling evidence to the Tribunal that this loan agreement was made as a result of [Buyer]ís breach of the contract of 19 January 2001.
Besides that, Art. 74 CISG, stating that the losses and lost profit should be recovered, at the same time does not address the issue of the proportionality of losses and penalties. In this connection, the partiesí relations arising from the contract, which are not capable of being settled in accordance with the CISG and its general principles, should be settled based on the domestic law of the Russian Federation as the subsidiary law. In particular, they should be settled in accordance with the provisions of Art. 394 Civil Code, according to which losses should be recovered in the part not covered by the penalty. In the present case, these losses of [Seller] are compensated by the sum of the recovered penalty.
According to para. 6(2) of the Rules of Tribunal on Arbitration Fees And Expenses, the arbitration fees are placed on the [Buyer] in proportion to the amount of the claims granted.
* This is a translation of data on Proceeding 165/2001, dated 18 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. 40 [246-248].
All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Russian Federation is referred to as [Seller] and Respondent of the United States 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 Mascow law firm, and is an Associate at the Pace Institute of International Commercial Law.Go to Case Table of Contents