Russia 11 October 2002 Arbitration proceeding 62/2002 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/021011r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 62/2002
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Russian Federation (claimant)
BUYER'S COUNTRY: Belarus (respondent)
GOODS INVOLVED: Goods
APPLICATION OF CISG: No. “In Clause 6.3 of the contract, the parties set forth that Russian Federation law should apply. … Taking into consideration that international treaties are a part of the Russian Federation legal system and not of the Russian Federation laws, the Tribunal came to the conclusion that the CISG did not apply to the parties’ relationships. They should be governed by the provisions of the Russian Federation Civil Code.”
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
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. 71 [429-433]
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Case text (English translation) [second draft]
Queen Mary Case Translation Programme
Translation [*] by Yelena Kalika [**]
1. SUMMARY OF RULING
1.1 Where in the contract for the international sale of goods there was a provision on the application of Russian law to the relationships of the parties located in CISG Contracting States, the Tribunal asked the parties representatives whether or not, when drafting such a provision in the contract, the parties meant to exclude the application of the CISG. Since the [Buyer]'s representative objected to the application of the CISG and since the CISG allows the parties to exclude its application (Article 6 CISG), the Tribunal came to the conclusion that the parties relationships should be governed by the provisions of the Russian Federation Civil Code. At the same time, it was taken into account that, pursuant to the Russian Federation Constitution, international treaties of Russia are a component part of the Russian Federation legal system and not of the Russian Federation laws.
1.2 As to the questions of the parties' contractual relationships, where the parties are the entities located in States participating in the Commonwealth of Independent States [CIS] Agreement on Common Terms of Delivery of Goods between entities located in the CIS (Kiev, 20 March 1992), the provisions of this international agreement were taken into account.
1.3 Since the [Seller] submitted the text of the contract signed by the directors of both parties, the Tribunal rendered an award based on that text. That the [Seller] suggested that the parties sign the contract on different terms prior to signing of that contract has no legal force. The Tribunal took into consideration that the [Buyer] failed to present evidence that he accepted the [Seller]'s earlier offer.
1.4 That the written contract was sent after the shipments began cannot serve as a ground for finding the contract invalid. Article 425(2) of the Russian Federation Civil Code sets forth that the parties have a right to agree that their contract should govern their relationships created prior to making the contract.
1.5 The Tribunal found the penalties set forth in the contract disproportionate to the consequences of the breach and reduced them pursuant to Article 333 of the Russian Federation Civil Code.
1.6 Taking into account that the [Seller] calculated the penalties in accordance with the contract and that their reduction did not follow from the [Seller]'s wrongful actions but was in the Tribunal's discretion, the [Buyer] must pay arbitration fees for the total amount including the penalties calculated by the [Seller].
2. FACTS AND PLEADINGS
[Seller], a Russian firm, brought a claim against Respondent [Buyer], a Belarus firm, in connection with partial nonpayment for the goods delivered under the parties' contract made on 23 November 2001. The [Seller]'s claims included the sum in arrears and penalties for the delay in payment (1% on the sum in arrears for each day of delay), as well as arbitration fees paid by the [Seller].
The [Buyer] acknowledged the main debt but contested the claim of penalties. The [Buyer] argued that there was a discrepancy in this connection between the contract and the [Seller]'s facsimile offers.
3. TRIBUNAL'S REASONING
The Tribunal's award contained the following main points.
3.1 The Tribunal's competence to arbitrate disputes between the parties is based on Clause 6.3 of the contract dated 23 November 2001. In accordance with that contract, if the parties cannot resolve their disputes by mutual agreement, disputes arising in connection with the contract shall be arbitrated by the International Commercial Arbitral Tribunal at the Russian Federation Chamber of Commerce and Industry (Moscow). Based on this arbitration clause in the contract, the Tribunal is competent to arbitrate the present dispute.
3.2 As to the issue of substantive law applicable in this case, the Tribunal took into account the principle of the independent will of the parties. In Clause 6.3 of the contract, the parties set forth that the Russian Federation law should apply. At the proceeding, the [Buyer]'s representative objected to the application of the CISG. Article 6 CISG allows the parties to exclude the application of the CISG. Taking into consideration that international treaties are a part of the Russian Federation legal system and not of the Russian Federation laws, the Tribunal came to the conclusion that the CISG did not apply to the parties' relationships. They should be governed by the provisions of the Russian Federation Civil Code.
At the same time, the Tribunal took into consideration the provisions of the Agreement on common terms of delivery of goods between the entities located in the CIS (Kiev, 20 March 1992). Both the Russian Federation and the Republic of Belarus are Member States to this Agreement.
3.3 When arbitrating the claims on the merits, the Tribunal found that the [Seller] fulfilled his contractual obligations by shipping the goods under the contract to the [Buyer] (see pro forma invoices No. 14490 of 14 December 2001, No. 14850 of 24 December 2001, No. 14976 of 26 December 2001, and No. 15014 of 28 December 2001). The [Buyer] made a 30% advance payment to the [Seller]'s account within the period of time set forth in the contract.
Clause 1.3 of the contract provides that the remaining portion of the price of goods and of the railroad shipping costs shall be paid within five banking days after the goods are delivered to the buyer's warehouse. The goods were delivered to the warehouse in January 2002. However, no payment has been made.
There is no dispute as to the [Buyer]'s obligation to pay the sum in arrears to the [Seller]. The [Buyer] also acknowledges that the sum demanded by the [Seller] is correct. Therefore, the Tribunal concludes that the [Buyer] must pay the sum of the main debt to the [Seller] in the amount stated in the claim.
3.4 As to the contractual provisions on the penalties to be recovered from the [Buyer], the Tribunal comes to the following conclusions.
Pursuant to Article 433(1) of the Russian Federation Civil Code, a contract is concluded when a party, who sent an offer, receives its acceptance. The materials of the case evidence that the [Seller] sent an offer. However, there is no evidence that the [Buyer] sent an acceptance of that offer to the [Seller]. Pursuant to Clause 18 of the CIS Agreement on Procedure of Dispute Resolution, when an agreement was made by means of exchanging letters, telegrams, teletype messages or by other methods of telecommunication, each of the parties must submit proof evidencing that it sent the relevant offers to the other party as well as answers to them.
The [Seller] submitted the contract with the Tribunal. The contract is signed by the directors of both parties and is sealed as required by Clause 18 of the CIS Agreement on Procedure of Dispute Resolution. Clause 6.1 of the contract contains a provision concerning penalties. The [Seller] calculated penalties based on that provision.
That the [Seller] sent the written version of the contract on 19 December 2001, i.e., after the shipment had begun, cannot serve as a ground for finding invalid the written contract between the parties. The Tribunal, in particular, took into consideration that Article 425(2) of the Russian Federation Civil Code sets forth that parties have a right to agree that the provisions of their contract would govern their relationships created prior to the conclusion of the contract.
The CIS Agreement on Procedure of Dispute Resolution states that, if a party has an objection to the draft [of a contract], the contract and the protocol of disagreements must be signed. The contract must contain a reference to the protocol of disagreements. In the absence of such reference, objections do not have any legal force (Clause 20). There were no such references in the texts of the contract submitted by the parties.
Therefore, the Tribunal finds that, when sustaining the [Seller]'s claim to recover penalties for failure to timely transfer a payment to the seller's bank account, the text of the written contract submitted by the [Seller] should be taken into account.
* This is a translation of the award in proceeding 62/2002, dated 11 October 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. 71 [429-433]. 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] and Respondent of the Republic of Belarus 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.Go to Case Table of Contents