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CISG CASE PRESENTATION

Ukraine 21 June 2002 Tribunal of International Commercial Arbitration, Ukrainian Chamber of Commerce & Trade (Equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/020621u5.html]

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

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Case identification

DATE OF DECISION: 20020621 (21 June 2002)

JURISDICTION: Arbitration ; Ukraine

TRIBUNAL: Tribunal of International Commercial Arbitration at the Ukrainian Chamber of Commerce and Trade

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: [-] (claimant)

BUYER'S COUNTRY: Ukraine (respondent)

GOODS INVOLVED: Equipment


UNCITRAL case abstract

UKRAINE: Tribunal of International Commercial Arbitration at the Ukraine Chamber of Commerce and Trade 21 June 2002

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/110],
CLOUT abstract no. 1084

Reproduced with permission of UNCITRAL

Abstract prepared by Arpan Kumar Gupta

The seller agreed to deliver to the buyer equipment of the price of 2,500,000 Russian rubles. The buyer was required to pay a 50 per cent prepayment within two months from the moment of signing of the contract; 25 per cent within five days from the day of manufacturing of the equipment; and 25 per cent within five days from the signing of the certificate of acceptance. The buyer paid 1,000,000 Russian rubles as a prepayment and the seller shipped equipment worth 1,350,000 Russian rubles to the buyer. The goods were found to be defective and this was reported to the seller by the buyer. The goods were subsequently partially repaired. The buyer did not pay any further amounts.

The seller claimed a penalty for the buyer's delay in payment. The Arbitration Tribunal refused the claim under Article 80 CISG. The Tribunal applied the CISG as it had been ratified by both parties' States. According to Article 80 CISG "a party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission". The Tribunal found the shortage and malfunctions in the shipped goods were evidence of such omissions of the seller and thus no penalty for delay of the buyer's payment was awarded.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 80

Classification of issues using UNCITRAL classification code numbers:

80A2 [Failure of performance caused by other party (as a general principle): party causing non-performance (loss of rights)]

Descriptors: Failure of performance, other party

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Russian): Newspaper "Advopkatura", No. 3(11), 14 February 2004

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

Tribunal of International Commercial Arbitration at the Ukrainian Chamber of Commerce and Trade

Award of 21 June 2002

Translation [*] by Mykhaylo Danylko [**]

The Tribunal of International Commercial Arbitration at the Ukrainian Chamber of Commerce and Trade (hereinafter Tribunal) heard at the hearing of 21 June 2002 the case arisen from an action of Claimant [Seller], a foreign company, against Respondent [Buyer], a Ukrainian company, to recover the sum of 495,480 Russian Rubles, constituting the cost of delivered goods in the sum of 350,000 Russian Rubles plus the penalty for the delay of payment in the sum of 145,480 Russian Rubles. [Seller] also requested compensation of the arbitration fees.

The competence of the Tribunal to arbitrate this dispute follows from clause 10.1 of the contract concluded between the parties on 28 February 2001, according to which all disputes and issues arising from or in connection with the contract which cannot be settled by mutual negotiations, should be settled by the Tribunal in accordance with current material and procedural laws of Ukraine.

Having reviewed the case materials and having heard the pleadings of the parties, the Tribunal found:

Under the contract of 28 February 2001 and Annex to it of 25 April 2001, the [Seller] undertook to deliver one lot of equipment costing 2,500,000 Russian Rubles on the conditions CPT Ukraine, Kiev City, within thirty days from the day of wiring of prepayment, with the equipment considered delivered from the moment of transfer of the equipment, cleared from export duties, to and under responsibility of the shipper.

The [Buyer] undertook to accept the equipment and to make payment in Russian Rubles: 50% prepayment within two months from the moment of signing of the contract in accordance with the invoice issued by the [Seller]; 25% within five days from the day of manufacturing of the equipment; and 25% within five days from the signing of the certificate of acceptance of the equipment.

Also, the parties agreed that in the case of breach of the terms of performance of specified in the contract, the party in breach shall pay to other party a penalty in the amount of double the rate of the National Bank of Ukraine that is current at the moment of delay, but not less than 0.3 percent of the sum of non-performed obligations for the each day of delay.

In a case of delay of delivery of the equipment during the thirty-day term from the moment of making the prepayment, the [Seller] shall pay to the [Buyer] a penalty of 0.5 percent of the cost of goods delivered with delay for each day of delay. In a case of delay of delivery beyond the thirty-day term, the [Seller] shall return to the [Buyer] the prepaid sum and pay a penalty in the amount of 10 percent of the prepayment sum within five days from the moment the [Seller] issued the claims.

In a case of delivery of non-conforming equipment or incomplete delivery, the [Seller] shall replace the non-conforming equipment or make an additional delivery in accordance with the instructions of the [Buyer], or shall return the payment within five days from the moment the [Buyer] issued the claim in a written form. Reclamations as to the quantity and quality have to be sent in a written form within thirty days from the moment of delivery of the goods. [Seller] has to answer within ten days from the moment the [Buyer] issued a claim.

In the course of performance of the contract, the [Buyer] transferred to the [Seller] a prepayment in the sum of 1,000,000 Russian rubles by four wires and on 26 June 2001 the [Seller] shipped goods, agreed and cleared from export duties, in the sum of 1,350,000 Russian Rubles. After this, the [Buyer] did not transferred any payments to the account of the [Seller] and as a result he ran into debt to the [Seller] in the amount of 350,000 Russian Rubles.

In the claim of 28 December 2001, the [Seller] demanded either to recover the payment for the delivered goods and terminate the contract, or to make the full prepayment, i.e., pay 875,000 Russian Rubles, and after this the rest of the equipment will be delivered.

The [Buyer] did not fulfill any of these requirements referring to the shortage of the shipped goods and the [Seller] reclamations.

In March 2002, the [Seller], a foreign company, filed an action against the [Buyer], a Ukrainian company, to recover 495,480 Russian rubles of the price of the goods and the penalty for the delay of payment.

The action proceeded to arbitration by the decision of the Head of the Tribunal of 13 March 2002.

In response to the action of 30 April 2002, the [Buyer] objected to the claim, alleging that:

-   The [Seller] incorrectly interprets the clause of the contract on prepayment for the equipment, which constitutes 50 percent of the price, but not 75 percent, as the [Seller] assumed, because 25 percent of the price has to be paid after manufacturing and shipping of the equipment, for which the contract gives thirty days for the [Seller], and the remaining 25 percent after the signing of the certificate of acceptance of the equipment.
- The [Buyer], having the [Seller]'s invoice for payment of 1,350,000 Russian Rubles (the full cost of the delivered equipment), had transferred to the [Seller] 1,000,000 Russian Rubles, which greatly exceeds 50 percent of the cost [of the equipment].
- The [Seller] delayed the delivery of equipment for forty-five days and under the terms of the contract (clause 9.6) the [Seller] should pay to the [Buyer] a penalty in the amount of 0.5 percent of the cost of goods not delivered on time for each day of delay; that amounts to 303,750 Russian Rubles.
- Because of the [Seller]'s delay of delivery of the equipment partially paid for by the [Buyer], the [Buyer] suffered losses as he had to pay a penalty to the State for violation of currency laws in the amount of 5,287.27 Ukrainian Hryvnas equivalent to 29,968.09 Russian Rubles.
- The equipment delivered by the [Seller] is incomplete, about what the [Buyer] sent reclamations to the [Seller], but the malfunctions have not been repaired to the present day, thus the equipment can only be partially used at the [Buyer's factory] and the certificate of acceptance has not been signed.

Besides this, the [Buyer] mentioned that the [Seller], having calculated the sum of penalty, did not take into account:

-   The terms of the statute of limitations provided for by the Ukrainian Civil Code Art. 72 for claims to recover a penalty limited to six months of the delay.
- The decrease of the National Bank of Ukraine's credit rate during the period of arbitration of the case.

In response to the action, the [Buyer] enclosed the reclamation of 25 July 2001 addressed to the [Seller] and the document (without the number and date) confirming the business trip of the [Buyer]'s employee to the [Seller].

At the hearing of the Tribunal, the [Seller]'s representatives upheld the action, having confirmed the claim to recover the cost of the delivered goods in the amount of 350,000 Russian Rubles, but changed the claim as to recovery of the penalty for delay of payment, fixed it in the amount of 65,833 Russian Rubles, on the assumption of a delay period of 258 days and the National Bank of Ukraine's credit rate for this period.

In addition, in the [Seller]'s commentaries to the [Buyer]'s response, presented at the hearing of the Tribunal, the [Seller]'s representatives disputed the statement of the [Buyer] about the [Seller]'s delay of delivery of the equipment, referring to fact that the term of delivery has not yet happened even at the present day, since according to the conditions of the contract of 28 February 2001, the equipment should be delivered after the prepayment in the amount of 1,875,000 Russian Rubles and the [Buyer] has transferred to the [Seller] only 1,000,000 Russian Rubles; [Seller] also alleged that [Seller] did not receive from the [Buyer] any reclamations provided for by clause 9.5 of the mentioned contract.

At the same time the [Seller] presented to the Tribunal the following documents:

-   Invoices addressed to the [Buyer] of 5 March 2001 in the sum of 500,000 Russian Rubles and in the sum of 2,000,000 Russian Rubles;
- Invoice of 25 June 2001 addressed to the [Buyer] for the payment for the equipment in the sum of 1,350,000 Russian Rubles with the stamps of Russian and Ukrainian Customs;
- A letter from the [Buyer] to the [Seller] of 2 October 2001 asking to repair the malfunctions of the delivered equipment;
- Traveling document for the [Seller]'s employee who made a business trip to the [Buyer] within the period from 2 October 2001 to 12 October 2001;
- A report of OJSC Elektrosviaz dated 15 May 2002, informing that no documents from the state of Ukraine were send to the fax of the [Seller] during the period from 25 July 2001 to 1 August 2001; (the [Seller] is served by the OJSC Elektrosviaz since the [Seller] does not have its own fax machine).

The [Buyer]'s representatives objected to the action, having confirmed the arguments stated in the response to the action. Besides this, [Buyer] informed that since the unavailability of the [Seller] to duly perform the obligation to deliver the equipment, the parties by oral negotiations amended the contract, having agreed on delivery of the equipment only in the sum of 1,350,000 Russian Rubles that was fulfilled by the [Seller]. However, the delivered equipment was malfunctioning about what the [Seller] was informed by the reclamation of 25 July 2001. In spite of [Seller]'s repeated attempts to correct the malfunctions, at the present time the equipment can only be partially used [at the Buyer's factory] and, because of this, the delivery of the other part of the equipment, provided for by the contract of 28 February 2001, is useless and unacceptable for the [Buyer].

At the Tribunal's hearing the [Buyer] additionally presented the import customs declaration for the equipment in dispute with a stamp of the Ukrainian Customs of 4 July 2001.

Taking into account that:

  1. According to the contract concluded between the parties on 28 February 2001, the [Seller] was obligated to deliver to the [Buyer] equipment costing 2,500,000 Russian Rubles and the [Buyer] was obligated to pay the price for this equipment according to the Annex of 25 April 2001 to the contract in the following way: 50 percent of the prepayment within two months from the moment of signing of the contract; 25 percent within five days from the day of manufacturing of the equipment; and 25 percent within five days from the signing of the certificate of acceptance.

  2. On the account of performance of his obligations, the [Buyer] transferred 1,000,000 Russian Rubles as a prepayment for the equipment to be delivered by making four wires during the period from 11 March 2001 to 4 June 2001, which is confirmed by the case materials and is not disputed by the parties.

  3. The [Seller] shipped to the [Buyer] the agreed equipment in the sum of 1,350,000 Russian Rubles, which is confirmed by the bill of lading, invoice, export and import customs declarations.

  4. In the received goods, the [Buyer] found a shortage and malfunctions, which is confirmed by the reclamation to the [Seller]'s address of 25 July 2001 with a fax confirmation of 25 July 2001, and by the [Buyer]'s letter to the [Seller] of 2 October 2001 with a relevant fax confirmation, enclosed to the action documents along with a [Buyer]'s letter to the [Seller] of 18 December 2001 and also by the information expressed by the [Seller]'s representatives during the hearings of the Tribunal about the removal of the malfunctions in the equipment by the employees of the [Seller], sent with this aim to the [Buyer].

  5. Because of the mentioned circumstances, the [Buyer] refused further deliveries from the [Seller], against which the [Seller] did not object, considering the merits of the claims against the [Buyer] on 28 December 2001, the contract was de facto terminated by the partial delivery of the goods in the amount of 1,350,000 Russian Rubles.

  6. According to clause 11.3 of the contract, the condition for termination of the contract is a full mutual settlement of payments between the parties. Since the [Buyer] partially prepaid the delivered equipment in the sum of 1,000,000 Russian Rubles, he has to pay to the [Seller] the rest of the cost of equipment, which comes to 350,000 Russian Rubles (1,350,000 Russian Rubles minus 1,000,000 Russian Rubles = 350,000 Russian Rubles). The claim of the [Seller] to recover from the [Buyer] this sum is reasonable and should be granted.

  7. At the hearing of the Tribunal, the [Seller] reduced its penalty claim for delay of payment, reducing it to 65,833 Russian Rubles. Because of that, in the part of recovering of the penalty in the sum: 145,480 Russian Rubles minus 65,833 Russian Rubles = 79,647 Russian rubles, the hearing of this part of case should be terminated in connection with [Seller]'s withdrawal according to Art. 8(12)(a) of the Rules of Tribunal. The arbitration fees in this connection should be put on [Seller].

  8. As to the recovery of the penalty for the delay of payment in the sum of 65,833 Russian Rubles, it should not be granted by virtue of Art. 80 of the Vienna Convention 1980 [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG], ratified by the governments of the States of the parties, according to which "a party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party's act or omission" The abovementioned shortage and malfunctions in the shipped goods evidence such omissions of the [Seller].

  9. Therefore, the [Seller]'s claims should be granted partially in the sum of 350,000 Russian Rubles, that constitutes 71 percent of the claimed sum. According to Art. 5 of the Rules of Tribunal on Arbitration Fees and Expenses, the arbitration fees paid by the [Seller] in the sum of 958 US Dollars, equivalent to 29,828.21 Russian Rubles at the rate of National Bank of Ukraine at the date of payment, are put on the [Buyer] pro rata to the amount of granted claims, that constitutes 29,828.21 Russian Rubles x 71 percent = 21,178.03 Russian Rubles.

Guided by the conditions of the contract of 28 February 2001, the Annex of 25 April 2001 to the contract, Art. 80 CISG, Art. 31 of the Law of Ukraine on the Tribunal of International Commercial Arbitration, Art. 8(4) - 8(9), 8(12) of the Rules of Tribunal, the Tribunal decided:

-   To oblige the [Buyer] to pay to the [Seller] immediately after receiving this judgment the sum of 350,000 Russian Rubles constituting the price of the goods and to pay 21,178.03 Russian Rubles as a compensation of the arbitration fees; the total sum equals 371,178.03 Russian Rubles;
- To terminate the hearing of the claim to recover the penalty for the delay of the payment in the sum of 79,647 Russian Rubles in connection with [Seller]'s withdrawal of that claim;
- To dismiss the rest of the claims since they are unreasonable;
- To put the arbitration fees in the sum of 8,650.18 Russian Rubles on the [Seller].

The judgment is final.


FOOTNOTES

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

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