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CISG CASE PRESENTATION

Russia 16 April 2002 Arbitration proceeding 222/2001 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020416r1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20020416 (16 April 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: 222/2001

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (claimant)

BUYER'S COUNTRY: Kazakhstan (respondent)

GOODS INVOLVED: Goods


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 78 [Also cited: Articles 53 ; 62 ]

Classification of issues using UNCITRAL classification code numbers:

78B [Rate of interest]

Descriptors: Interest

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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 (2001-2002) No. 52 [313-317]

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

Russian Federation arbitration proceeding 222/2001 of 16 April 2002

Translation [*] by Yelena Kalika [**]

1.† SUMMARY OF†RULING

     1.1 Where there is a provision in the contract for the international sale of goods stating that the parties' relationships under the contract shall be governed by the substantive law of the Russian Federation and the commercial enterprise of one of the parties is located in a State which is not a CISG Contracting State, the Tribunal concludes based on the CISG (which is the law of the Russian Federation) that the parties relationships are governed by the CISG.† Russian substantive law should apply as the subsidiary law.

     1.2 † The interest rate of the Bank of Russia set for the transactions in Rubles was applied to the transactions in hard currency.† Therefore, as the Claimant [Seller] agreed, when computing the amount of penalties, the Tribunal took into consideration not the rates of refinancing set by the Bank of Russia for transactions in Rubles but the median bank interest rates. † Russian banks are applying [these median rates] to short-term loans in hard currency.† The information on [the rates] is published in "Vestnik Banka Rossii" ["The Bank of Russia News"]. (The contract sets forth the penalties in the amount of 1.5 times the rate of refinancing set by the Bank of Russia for every day of delay).

     1.3 Based on article 78 CISG, the Tribunal found reasonable the [Seller]'s claim of annual interest in addition to the penalties for the delay in payment.† The annual interest was calculated in accordance with the provisions of Article 395 of the Russian Federation Civil Code.

2.† FACTS† AND†PLEADINGS

[Seller], a U.S. firm brought a claim against Respondent [Buyer], a Kazakh firm, in connection with partial non-payment for the goods delivered under the contract for the international sale of goods made by the parties on 24 June 1999.

The [Seller] demanded the sum in arrears, as well as the penalties for the delay in payment and interest for the use of another's funds.† The [Seller] based his claims on the provisions in the contract as well as on the provisions of the Russian Federation Civil Code.† The materials of the case evidence that the unpaid goods were in fact delivered.

3.†TRIBUNALíS† REASONING

The Tribunal's award contained the following main points.

     3.1† The Tribunal's competence to arbitrate the present dispute follows from the arbitration clause in Clause 13.2 of the parties' sale contract of 24 June 1999.

In accordance with the [arbitration] clause, "any disputes, disagreements or claims following from or in connection with either the present contract or a breach, termination or invalidity thereof shall be arbitrated by the International Commercial Arbitral Tribunal at the Russian Federation Chamber of Commerce and Industry in Moscow in accordance with its Rules, if it is not possible to reach a mutual decision."

Taking into consideration that the said arbitration clause meets both the requirements of Article 1(5) of the Tribunal's Rules and the requirements of Articles 7 and 16 of the Russian Federation Law "On International Commercial Arbitration," the Tribunal finds that it has competence to arbitrate the present dispute between the parties.

The arbitration panel was selected in accordance with the Tribunal's Rules.† Neither [Seller], nor [Buyer] made any objections to it at the time of the proceeding.

     3.2 After reviewing the issue of the [Buyer]'s absence at the proceeding, the Tribunal ascertained that the [Buyer] was duly notified of the time and place of the hearing as required in Article 23(1) of the Tribunal's Rules.† The [Buyer] received the notice No. 1800-222/734 of 11 March 2002 on 15 March 2002.† The Tribunal took into account both the above stated facts and that there was no written motion by the [Buyer] to adjourn the hearing for a good cause shown.† Based on Article 28(2) of the Tribunal's Rules, the Tribunal concluded that the [Buyer]'s absence at the proceeding does not preclude the arbitration of the case and the rendering of an award.† Besides, the materials of the case are sufficient to resolve the dispute on the merits.† Taking into consideration the [Seller]'s position at the hearing, the Tribunal found it possible to arbitrate the case in the absence of the [Buyer].

     3.3 Turning to the issue of the applicable law, the Tribunal ascertained that, pursuant to Clauses 11.4 and 13.2 of the contract of 24 June 1999, the parties chose the substantive law of the Russian Federation as the applicable law.

Since the materials of the case contain no evidence that this [choice of law] provision is invalid, in accordance with Article 1(1)(b) CISG, the Tribunal finds that the CISG should govern the parties' relationships under the contract because, pursuant to Article 15 of the Russian Federation Constitution and Article 7 of the Russian Federation Civil Code, international treaties of the Russian Federation are a component part of its legal system.† Issues not settled in the CISG should be subsidiary governed by the Russian substantive law.

     3.4† When arbitrating the claim on the merits, the Tribunal ascertained that, in accordance with the contract, from July 1999 to June 2000 the [Seller] delivered the goods to the [Buyer]. The goods were delivered in the amount and for the total value stated in the claim.† [This fact] is evidenced by the materials of the case including the acts of acceptance submitted by the [Seller].† [The acts of acceptance are dated] 5 August 1999, 5 September 1999, 5 October 1999, 5 November 1999, 3 December 1999, 5 January 2000, 4 February 2000, 3 March 2000, 5 April 2000, 5 May 2000, 5 June 2000, 5 July 2000.

Notwithstanding the [Seller]'s demand of payment (see the claim of 2 July 2001), the [Buyer] only partially paid for the goods delivered to him.

The sum in arrears for the goods delivered, thus, amounted to the sum stated by the [Seller] in his claim.

Besides, the [Buyer] acknowledged his debt in the said amount.† [This acknowledgement] is evidenced by his letter of 17 September 2001.

For the above stated reasons and based on the terms of the contract and Articles 53 and 62 CISG, the Tribunal finds that the [Seller]'s claim to recover the main debt is reasonable and should be sustained. † [Articles 53 and 62 CISG] set forth the buyer's duty to pay for the goods received.

The Tribunal also takes into consideration that the [Buyer] failed to file a reply to the claim with the Tribunal. The [Buyer] also failed to contest either the merits of the claims or the amount sought.† The [Buyer] had an opportunity to do so.

     3.5 † After reviewing the [Seller]'s claim to recover penalties computed based on the main debt and taking into account that, according to his letter of 17 September 2001, the [Buyer] acknowledged his debt to the [Seller], the Tribunal ascertained that -- due to the [Buyer]'s failure to duly perform his duty under the contract to make a timely payment for the goods delivered -- a new [Buyer]'s duty to the [Seller] arose. [The duty] is to pay penalties for the failure to timely perform the main duty.

In Clause 11.1 of the contract the parties set forth that, in case of a delay of payment for the goods, the buyer should pay penalties.† The amount of penalties was set at 1.5 times the rate of refinancing set by the Russian Federation Central Bank for every day of delay.

The [Seller] submitted to the Tribunal the rates set by the Russian Federation Central Bank for loans in Rubles issued to commercial banks (the rate of refinancing).† In particular, he submitted evidence of the rates in the form of telegrams of the Russian Federation Central Bank:

     -      Telegram No. 574-U of 9 June 1999 according to which the rate was set at 55%.† The said rate was in force until 24 January 2000;
     -      Telegram No. 734-U of 21 January 2000 according to which the rate was set at 45%.† The said rate was in force until 7 March 2000;
     -      Telegram No. 754-U of 6 March 2000 according to which the rate was set at 38%.† The said rate was in force until 21 March 2000;
     -      Telegram No. 757-U of 20 March 2000 according to which the rate was set at 33%.† The said rate was in force until 10 July 2000;
     -      Telegram No. 818-U of 7 July 2000 according to which the rate was set at 28%.

However, during the arbitration proceeding the [Seller] agreed that, when determining the amount of penalties, the median bank interest rates applied by Russian banks should be utilized and not the rate of refinancing set by the Central Bank of Russia for short-term loans in Rubles.† [The median bank interest rates] are published in "Vestnik Banka Rossii" ["The Bank of Russia News"]. "Vestnik Banka Rossii" is the official publication of the Central Bank of Russia.

For the above reasons, the [Seller] agreed that median bank interest rates should be applied to calculate the penalties. [The median bank interest rate] amounted to 12% annually.† Therefore, based on Clause 11.1 of the contract, 1.5 times this rate amounted to 18% annually.

For the above stated reasons and taking into account the [Seller]'s computation, the Tribunal calculated the penalties in the following manner based on the rate of 18% annually:

  1. The amount of penalties for the period from 11 June 1999 to 21 January 2000 was reduced 3 times.
  2. The amount of penalties for the period from 31 January 2000 to 29 February 2000 was reduced 2.5 times.
  3. The amount of penalties for the period from 11 March 2000 to 21 March 2000 was reduced 2 times.
  4. The amount of penalties for the period from 21 March 2000 to 30 June 2000 was reduced 1.8 times.

The [Buyer] must pay the sum of penalties computed in the above manner.

     3.6 Based on Article 78 CISG and Article 395 of the Russian Federation Civil Code, the Tribunal decided that the [Seller]'s claim to recover interest for the use of another's funds for the period from the date of the award to the date of factual payment is reasonable and should be sustained.† [The interest] must be calculated based on the LIBOR rate as of the date of the arbitral award (3.54513% annually).

     3.7 Based on Article 6(2) of the Regulations on arbitration fees and expenses, the [Buyer] must pay arbitration fees in proportion to the claims sustained.


FOOTNOTES

* This is a translation of data on Proceeding 222/2001, dated 16 April 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. 52 [313-317].

All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the United States is referred to as [Seller] and Respondent of Kazakhstan is referred to as [Buyer].

** 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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Pace Law School Institute of International Commercial Law - Last updated September 7, 2004
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