Russia 22 March 2002 Arbitration proceeding 225/2000 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020322r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 225/2000
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Russian Federation (claimant)
BUYER'S COUNTRY: Peoples’ Republic of China (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:
90A [Relationship to other conventions: conventions with provisions governing same matters]
90A [Relationship to other conventions: conventions with provisions governing same matters]
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. 46 [277-282]
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 Transformation of a barter contract into an international sales contract according to the parties’ agreement does not affect the validity of an arbitration clause contained in the barter contract.
1.2 Since the parties’ contract did not contain a choice of law provision, the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry [hereinafter Tribunal], ruled that pursuant to Art. 15(4) of the Russian Federation Constitution [hereinafter RF Constitution] and Art. 7(2) of the Russian Federation Civil Code [hereinafter Civil Code] the parties’ relations should be governed both by the Vienna Convention 1980 [hereinafter CISG] (as the parties to the contract are from Contracting States – the Peoples Republic of China and the Russian Federation) and by the General Principles of Deliveries between the Soviet Union and the Peoples’ Republic of China [hereinafter Principles of Deliveries]. In this connection, by virtue of Art. 90 CISG, the rules of the Principles of Deliveries prevail over the provisions of the CISG. On the basis of Art. 166 of the Principles of Civil Law 1991, the law of the Russian Federation was applied as the subsidiary law, as the law of the country of the seller.
The Tribunal pointed out that since Art. 166 of the Principles of Civil Law 1991 contains a special rule regarding obligations under international sales contracts, thus the general rule of Art. 165(2) of the Principles of Civil Law 1991 – which provides for a rule of conflict of laws based on the criterion of the place of conclusion of a contract – was not applicable.
1.3 Taking into consideration that the Principles of Deliveries contain provisions on payment of interest for delay of performance of financial obligations, these provisions -- and not Art. 395 Civil Code -- govern the relations of the parties. Accordingly, the amount of interest to be recovered is limited to the ceiling provided for in the Principles of Deliveries.
1.4 Calculation of interest could be made only from the date when the delay of performance of a monetary obligation began under the international sales contract into which the barter contract was transformed. The interest cannot be calculated for the period of performance of obligations under the barter contract since those obligations were not monetary by their nature.
1.5 On the basis of Art. 74 CISG, the Tribunal allowed the [Seller] to recover from the [Buyer] losses suffered by [Seller] due to the breach of contract by [Buyer] in connection with a penalty imposed on the [Seller] by the Russian Federation Customs authorities for non-receipt of hard currency proceeds within the period of time specified in the law.
2. FACTS AND PLEADINGS
The action was brought by Claimant [Seller], a Russian company, against Respondent [Buyer], a Chinese company, in connection with non-performance of obligations under a contract concluded between the parties on 18 September 1998. Under this contract, which was a barter contract, the [Seller] delivered to [Buyer] the goods specified in the contract, but the [Buyer] did not ship the goods that should be delivered in exchange within thirty days after delivery by [Seller] of his lots of goods. The [Buyer] referred to difficulties that arose in connection with obtaining a license. On 16 December 1998, the parties therefore signed an Addendum to the contract which provided that [Buyer] would make a monetary payment for the goods delivered to him by [Seller]. The [Buyer] only partially performed his obligation. By the decision of Russian Customs authorities of 29 December 1999, a penalty was imposed upon [Seller] for his violation of the rules governing deposit of hard currency proceeds received for the goods exported. The proceeds were to be deposited to [Seller]'s transit account.
The claims of [Seller] included: recovery of the sum of the principal debt and interest for delay of performance of monetary obligation based on Art. 395 Civil Code; compensation of the sum of the penalty [Seller] paid pursuant to the decision of the Customs authorities; and compensation of arbitration fees and expenses.
Since the contract did not set forth the applicable law, the [Seller] grounded application of rules of Russian law referring to both Art. 166(1)(2) of the Principles of Civil Law 1991 (as the law of country of the seller under a contract transformed into a sales contract) and to Art. 165(2) of the Principles of Civil Law 1991 (considering that the contract was signed in the Russian Federation, i.e., the place of [Seller]).
The [Buyer] did not appear before the Tribunal, nor did he submit his explanations to the action.
3. TRIBUNAL’S REASONING
The ruling of the Tribunal contained the following main points.
3.1 [Jurisdictional competence]
The competence of the Tribunal to arbitrate the present dispute follows from Clause 11 of the contract which provides that all disputes and misunderstandings that might arise from or in connection with the contract should be arbitrated by the Tribunal in accordance with the Rules of Tribunal. The Tribunal ascertained that the parties had concluded an arbitration agreement that met the requirements as to form prescribed in Art. 7(2) of the Russian Federation Law on International Commercial Arbitration.
On the basis of Art. 16(1) of the said Law, the Tribunal interprets the arbitration clause, which is a part of the contract, as an agreement independent from the other terms of the contract. Therefore, even if the contract -- which at the beginning commenced as a barter contract and was later transformed into an international sales (delivery) contract signed by the parties on 16 December 1999 Addendum No. 1 -- had been deemed void, the arbitration agreement of the parties would have remained in force. Thus, the arbitration clause is applicable to the parties’ contract transformed by their mutual agreement into a contract of another type.
3.2 [Hearing in absentia]
Having reviewed the issue of the possibility to arbitrate the case on the merits in the absence of representatives of the parties, the Tribunal stated that the Respondent [Buyer], was duly notified of the time and place of the hearing, which is evidenced by a receipt issued by the post office. Since the [Buyer] submitted neither a written motion to adjourn the hearings for a good cause nor objected to the claims of [Seller], the Tribunal found that according to para. 28(2) of the Rules of Tribunal, non-appearance of the [Buyer] before the Tribunal does not preclude arbitration of the case and rendering of the decision. In addition, the Tribunal -- having stated that [Seller] based on para. 28(3) of the Rules of Tribunal asked the Tribunal to try the case in the absence of his representative -- granted this motion, finding it possible to arbitrate the dispute on the merits in the absence of the Claimant [Seller]’s representative.
3.3 [Applicable law]
As to the law applicable to the relations of parties to this dispute, the Tribunal followed the provisions of Art. 15(4) of the RF Constitution and Art. 7 Civil Code, according to which international treaties of the Russian Federation are a component part of the Russian Federation legal system, and if they provide for different rules than are provided for by civil law, then the rules of the international treaties apply.
The Tribunal ascertained that the parties failed to choose the applicable law in their contract. Since, having signed Addendum No. 1 to their contract, the parties transformed it into an international sales (delivery) contract, and, since as of the date of such transformation of the contract – 16 December 1999 – the CISG had been in force both in the country of [Seller], the Russian Federation, and the country of [Buyer], the Peoples’ Republic of China, the provisions of this Convention should be applied. According to Art. 90 CISG, it does not prevail over any already existing international treaties or treaties that might be concluded and which contain provisions concerning the matters governed by the CISG. Since there is such a treaty between the Russian Federation and the Peoples’ Republic of China – the Principles of Deliveries – the Principles of Deliveries should be applied to the contractual relations of the parties.
Art. 7(2) CISG provides, inter alia, that questions concerning matters governed by this Convention are to be settled in conformity with the law applicable by virtue of the rules of private international law. According to Art. 166(1)(1) of the Principles of Civil Law 1991, Russian law should be applied to issues not governed by the Principles of Deliveries and the CISG. The Tribunal cannot accept the additional arguments of [Seller] that Russian law should be applied as the law of the place of conclusion of the contract by virtue of Art. 165(2) of the Principles of Civil Law 1991. Art. 166 of the Principles of Civil Law 1991 sets forth a special rule regarding obligations under international sales contracts such as the ones in dispute here; thus the general rule of Art. 165(2) of the Principles of Civil Law 1991 is not applicable to the present dispute.
3.3 [Merits of the case]
As to the merits of [Seller]’s claims, the Tribunal ascertained that the case materials evidence the sum of [Buyer]’s principal debt claimed by [Seller]. The amount of debt is not disputed by [Buyer]. In accordance with Arts. 53 and 62 CISG, this sum should be recovered from [Buyer].
As to the [Seller]’s claim to recover from [Buyer] interest for use of money, the Tribunal concluded that the calculation performed according to the provisions of Art. 395 Civil Code could not be taken into consideration in the present case since as it was stated above, by virtue of Art. 15(4) of the RF Constitution and Art. 7(2)(2) Civil Code, international treaty rules prevailed over the rules of national civil law. Para. 55(1) of the Principles of Deliveries provides for a penalty in the amount of 6 percent per annum from the delayed sum in the event of a delay of performance of a monetary obligation. The monetary obligation arose between the parties only at the moment of signing Addendum No. 1 to the contract, i.e., on 16 December 1999. This Addendum obligated [Buyer] to make "payment in hard currency" to the account of [Seller]. Therefore, the [Buyer]’s delay of payment of the full cost of goods delivered by [Seller] is eleven days (from 17 to 28 December 1999, when the [Buyer] made a partial payment to the account of [Seller]), and 269 days of the delay of payment of the rest of the cost of the goods (from 29 December 1999 to 25 October 2000). The Tribunal found reasonable and granted the aggregate sum of interest calculated by [Seller] at the rate of 6 percent per annum as provided for in the Principles of Deliveries.
Non-performance by [Buyer] of his obligation under the barter contract and later under the international sales contract led to the Russian Customs authorities to impose on [Seller] a penalty due to non-receipt of hard currency proceeds, as provided for by the customs law of Russia. The imposition of such penalty is evidenced by the decision of the Customs authorities. Taking into consideration that payments between the parties were to be made in US Dollars, the [Seller] calculated the sum of the penalty in dollars at the [banking] rate of ___ Russian Rubles per US Dollar. The [Buyer] did not dispute the amount of this claim of the [Seller]. The [Seller] is entitled to claim compensation of losses caused him due to actions of the other party based on Art. 74 CISG, which states that damages for breach of contract by one party consist of a sum equal to the loss, suffered by the other party as a consequence of the breach of contract. The sum of the penalty imposed on [Seller] by the Customs authorities of the Russian Federation constitutes such a loss. On this basis, the Tribunal granted the claims of [Seller] to recover from [Buyer] the sum paid by [Seller] as a penalty.
Pursuant to para. 6(2) of the Rules of Tribunal on Arbitration Fees and Expenses, the arbitration fees are placed on [Buyer] pro rata to the amount of granted claims.
* This is a translation of data on Proceeding 225/2000 of 22 March 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. 46 [277-282].
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]; Respondent of Peoples Republic of China 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.Go to Case Table of Contents