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CISG CASE PRESENTATION

Russia 13 May 2002 Arbitration Court [Appellate Court] for the Moscow Circuit [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020513r1.html]

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

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Case identification

DATE OF DECISION: 20020513 (13 May 2002)

JURISDICTION: Russian Federation

TRIBUNAL: Federal Arbitration Court for the Moscow Circuit

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: KG-A40/2790-02

CASE NAME: Clearages Trading Group LLC v. Gaskomplektinpex Ltd.

CASE HISTORY: 1st instance Arbitration Court for the City of Moscow (A40-40520/01-30-468) 11 December 2001 [reversed]

SELLER'S COUNTRY: Ukraine (claimant is seller's assignee)

BUYER'S COUNTRY: Russian Federation (respondent)

GOODS INVOLVED: Metal goods and pipes


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 8

Classification of issues using UNCITRAL classification code numbers:

8C [Interpretation of intent in light of surrounding circumstances]

Descriptors: Intent

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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)

Queen Mary Case Translation Programme

Federal Arbitration Court for Moscow Circuit of Russian Federation
Case No. KG-A40/2790-02 of 13 May 2002

Translation [*] by Yelena Kalika [**]

Translation edited by Mykhaylo Danylko [***]

The "Clearages Trading Group LLC" [Seller's assignee] commenced an action with the Arbitration Court for the City of Moscow against "Gaskomplektimpex Ltd." [Buyer] to recover US $1,489,678.00 ([in Rubles] at the exchange rate of the Central Bank of the Russian Federation), of which US $910,653.94 is the amount of the main debt under Contract No. 25 of 15 September 2001 [1995] and US $579,024.11 is the interest.

"Ukrrosgas Ltd." [Seller] was brought to court as a third party.

Prior to hearing the case on the merits, the [Seller's assignee] filed a motion to increase the amount of interest sought to US $639,354.93 due to the extension of the period of time for which it has to be calculated. The motion was granted by the [lower] court.

The Arbitration Court for the City of Moscow granted the claims of [Seller's assignee] in its decision of 11 December 2001 on case No. A40-40520/01-30-468.

There was no review of the lawfulness and reasonableness of this decision by the Appellate Division of the Arbitration Court for the City of Moscow.

The [Buyer] filed an appeal to the Federal Arbitration Court for the Moscow Circuit in which it argued that the decision of the Arbitration Court for the City of Moscow of 11 December 2001 on case No. A40-40520/01-30-468 should be reversed due to the erroneous application of the norms of material laws by the [lower] court.

In its reply to the [Buyer]'s appeal, [Seller's assignee] requests that the appeal be dismissed since the ruling of the [lower] court is lawful and reasonable and the arguments set forth in the appeal are without merit.

At the hearing held by the Appellate Court for the Moscow Circuit, the [Buyer]'s representative argued in support of the arguments set forth in the appeal. The representatives of the [Seller's assignee] and the [Seller] argued against sustaining the appeal.

After reviewing the lawfulness of the decision reached by the lower court in accordance with Article 162 of the Arbitration Procedure Code of the Russian Federation, after discussing the arguments set forth both in the appeal and in the reply to it, and after hearing the arguments of the parties' representatives, the Appellate Court has found that the ruling of the [lower] court should be reversed on the following grounds.

When sustaining the claim of [Buyer's assignee], the [lower] court took into consideration the following circumstances that it had established.

-   On 15 September 1995, the [Seller] and "Gaskomplektimpex" [Buyer] (daughter company of the Russian Joint Stock Company "Gasprom") entered into the Contract No. 25, according to which certain material and technical resources were to be delivered to enterprises [owned by] "Gasprom".
- As the [lower] court has found, according to the terms of the contract, [Seller] was obligated to deliver metal goods and pipes to the recipients in Russia as directed/instructed by [Buyer]. The quality, prices and terms were set forth in specifications to the contract. The goods were to be bought from Ukrainian manufacturers for the account of [Seller]. [Buyer] was obliged to give directions/instructions as to [the names of] the recipients to whom the goods were to be delivered. In addition, [Buyer] -- in cooperation with the Department of Finances -- was to make payments for the goods by offsetting [the cost of goods against] the debt for the natural gas delivered by "Gasprom" from Russia to Ukraine.

After analyzing the terms of Contract No. 25, the [lower] court came to the following conclusions:

-   When entering into the contract, both parties acted on their own behalf and not under assignment. The contract itself is a [bilateral] contract to deliver goods. The term in the contract on the mutual offset of debts is not enforceable because, in accordance with Articles 307(2) and 308(3) of the Russian Federation Civil Code, an obligation arising from a contract is not binding on the parties that are not parties to the contract.
- After making a finding that the contract in controversy represented an international commercial transaction and after applying the Vienna Convention for the International Sale of Goods to it, the [lower] court concluded that the [Buyer] had to pay both its debt and interest in connection with the goods [involved].
- On reviewing Contract No. 38 of 25 June 2001 between [Seller] and [Seller's assignee], pursuant to which the right to collect the debt and interest from [Buyer] was transferred to [Seller's assignee] and on determining that the laws of Ukraine were to be applied to that contract, the [lower] court found the [Seller's assignee]'s claims reasonable in accordance with Article 309 of the Russian Federation Civil Code.
- The [Buyer]'s argument that the statute of limitation had run out was dismissed [by the lower court] with reference to Articles 196, 200, 203, 207 of the Russian Federation Civil Code.

The above holdings of the [lower] court cannot be found reasonable and correct, and with due application of the rules of material law.

In accordance with Article 431 of the Russian Federation Civil Code, when interpreting the terms of a contract, the court shall take into account the plain/literal meaning of the words and phrases written in it. When a term in a contract is not clear, its plain/literal meaning shall be determined by making a comparison with other terms and with the meaning of the contract as a whole. Besides, the same article establishes that, if the said rules do not allow one to determine the meaning of the contract, the court shall determine the mutual intent of both parties taking into consideration the purpose of the contract. All the relevant circumstances, including the negotiations and correspondence preceding the contract, the usage set in the relationships between the parties, business customs and the parties' subsequent actions, shall be taken into account.

In the present case, clause 1.1 of the contract clearly sets forth its subject, which is to deliver certain material and technical goods by [Seller] to enterprises [owned by] "Gasprom", as well as to other enterprises and organizations named by "Gasprom" in order to offset the debt for the Russian natural gas delivered [by "Gasprom"] to [Seller] to the Ukraine.

The preamble to the contract states that it was concluded in accordance both with the Amendment No. 3 of 31 July 1995 to Contract No. 6-G of 19 December 1994 between the Russian Joint Stock Company "Gasprom" and [Seller] and with Contract No. 23 of 7 August 1995 between [Buyer] (the daughter company of "Gasprom") and [Seller]. In [Contract No. 6-G], the parties agreed as to both the quantity and terms of delivery of natural gas to the Ukraine and the transit of gas through the territory of the Ukraine in 1995. In Contract No. 23 the parties agreed to the mutual delivery of goods.

However, the [lower] court did not review these two contracts in order to determine what the real mutual intent of the parties was when they entered into the Contract No. 25 of 15 September 1995. Therefore, conclusions that, when entering into the Contract No. 25, the parties acted on their own behalf and not under assignment -- in the absence, as the [lower] court noted, of the assignment contract -- cannot be found reasonable. The [lower] court's conclusion that the contract itself was a barter contract is also not reasonable.

In addition, the court's conclusion, that the term on the offset stated in clause 2.1 of the contract is not enforceable because it contradicts Articles 307(2) and 308(3) of the Russian Federation Civil Code, is also erroneous. As stated in Article 308(3) of the Russian Federation Civil Code, in the circumstances stated either in the law or in the parties' agreement, an obligation may create rights for third parties as against one or both parties to the contract. Taking into consideration that the contract in controversy was concluded in order to fulfill obligations under other agreements then existing -- which, in particular, set forth the terms of making payments for the goods delivered in the form of the offset of payments (Contract No. 23 of 7 August 1995) -- the application of Article 308(3) of the Russian Federation Civil Code by the [lower] court as well as its conclusion that the term on the offset of payments (clause 2.2 of Contract No. 25 of 15 September 1995) was not enforceable cannot be found lawful and reasonable.

Taking into consideration the above stated reasons, the [lower] court's conclusion that obligations, which would correspond to a delivery contract, arose under the contested contract -- in particular, an obligation of [Buyer] to pay both the debt for the goods delivered and interest -- is also erroneous, since the monetary obligations of the parties were not set forth in the contract and since the parties' liability in case of a breach or failure to fulfill the contract obligations, which was set forth in clause 4 of the contract, establishes nothing more than a breaching party's obligation to make an indemnification of any documentary proven losses to the other party.

It proves that the [lower] court incorrectly determined the obligations of the parties and, thus, the provisions of the Vienna Convention on Contracts for the International Sale of Goods were applied incorrectly.

According to the general provisions of civil law, a right to recover can be transferred under a contract on transfer of rights to a new creditor only in connection with the right owned by the original creditor.

While correctly stating that Contract No. 38 of 25 June 2001 on transfer of rights [to collect the debt] (which was entered into by [Seller] and [Seller's assignee]) is governed by the laws of Ukraine, the [lower] court failed to evaluate [in the light of current legislation] the fact that the right to collect the debt and interest from [Buyer] was transferred under the said contract. Besides, the [lower] court also stated that the [Seller's assignee]'s claims were reasonable not under the laws of Ukraine but under the Russian Civil Code (Article 309).

In accordance with Article 159 of the Principles of Civil Law of the USSR and Republics, which was in force when the dispute was being decided, the issues of statute of limitation shall be resolved in accordance with the laws of the country whose law governs the relationships in controversy. Therefore, the [lower] court's application of the provision of the Russian Federation Civil Code in connection with the issue of statute of limitation in the present case is also erroneous.

Taking into account that the [lower] court did not fully establish the factual circumstances in the present case, the [lower] court's conclusions do not reflect such circumstances. Therefore, the holding of the [lower] court is not reasonable. Thus, the Appellate Court remands the case.

On remand the [lower] court should take into account the above stated reasoning and make a lawful and reasonable decision.

For the above stated reasons and in accordance with Articles 171, 174-177 of the Russian Federation Arbitration Procedure Code, the Federal Arbitration Court for the Moscow Circuit holds:

The decision of the Arbitration Court for the City of Moscow of 11 December 2001 on case No. A40-40520/01-30-468 is reversed. The case is remanded.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Respondent-Appellant Gaskoplektinpex of the Russian Federation is referred to as [Buyer]; Claimant-Appellee Clearages Trading Group LLC is referred to as [Seller's assignee], with third-party Ukrrosgas of the Ukraine referred to as [Seller].

** 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.

*** 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 Masters of Laws (European Studies Program) from the Law School of International Science and Technology University, Kiev, Ukraine (July 2000); a Master of Management in Business of the Business School of International Science and Technology University (June 2002); and has received his LL.M. in International and Comparative Law at the Pace University School of Law.

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