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CISG CASE PRESENTATION

Ukraine 25 November 2002 Arbitration proceeding [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/021125u5.html]

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

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Case identification

DATE OF DECISION: 20021125 (25 November 2002)

JURISDICTION: Arbitration ; Ukraine

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

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: England (respondent)

BUYER'S COUNTRY: United States (claimant)

GOODS INVOLVED: [-]


UNCITRAL case abstract

UKRAINE: Tribunal of International Commercial Arbitration at the Ukraine Chamber of Commerce and Trade 25 November 2002

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/110],
CLOUT abstract no. 1083

Reproduced with permission of UNCITRAL

Abstract prepared by Luiz Gustavo Meira Moser

In October 2001, an English company (the seller) and an American firm (the buyer) concluded a contract according to which the seller undertook to deliver goods on the conditions CIF (Cost Insurance, Freight, Incoterms 2000) and the buyer undertook to accept and pay for the goods pursuant to additional agreements which set forth the quantity, cost for the unit and sum of the contract. These additional agreements were integral parts of the contract, though they were not signed by the parties.

The International Commercial Arbitral Tribunal at the Ukrainian Chamber of Commerce and Trade dealt with the action brought by the buyer for the recovery of the monetary loss and avoidance of the contract.

Section 9 of the contract provided that in settling disputes submitted to the Tribunal, the arbitrators shall be guided by the provisions of the contract and by Ukrainian substantive law. By virtue of Article 1 (1)(b) CISG the Convention was applicable. The contract conditions required written alterations and additions to the contract in the form of a single document signed by both parties, and permitted signature of documents received via fax. This was held not to contradict Article 29 (2) CISG since it provides that a contract in writing, which contains a provision requiring any modification or termination by agreement to be in writing, may not be otherwise modified or terminated by agreement.

The Tribunal found that, among others, the seller's statements on the parties' agreement on the total amount of the contract and on the reduction of the sum of the contract were not confirmed by the facts of the case. Further, the Tribunal found that the seller had breached its obligations given that it had not drawn an invoice for payment for the goods and had unilaterally altered the conditions of the contract. In accordance with Articles 25 and 45 CISG, the Tribunal upheld the buyer's claim for avoidance of the contract and recovery of losses from the seller. The Tribunal also ordered the seller to reimburse the buyer the arbitration expenses.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 13 ; 18 ; 19 ; 25 ; 29(2) [Also cited: Article 45 ]

Classification of issues using UNCITRAL classification code numbers:

13A [Telegram and telex as writing];

18A [Acceptance of offer: criteria for acceptance];

19C [Acceptance of offer with modifications: modifications that are material];

25A [Effect of a fundamental breach: avoidance of contract];

29B [Modification or termination of contract by agreement: written contract may require writing for modification or termination]

Descriptors: Writing, definition of ; Acceptance of offer ; Fundamental breach ; Avoidance ; Modification of contract

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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): Praktika ofzhdunarodnogo kommercheskogo arbitrazhnogo suda pri TPP Ukraine. Vneshneekonomicheskie spory [Practice of the International Commercial Arbitration Tribunal at the Ukraine Chamber of Commerce and Industry, Foreign Economic Disputes], Kyiv, published by Praksis (2006), Case No. 68 [553-563]

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 of the Ukrainian Chamber Commerce and Trade

Award of 25 November 2002

Translation [*] by Gayane Nuridzhanyan [**]

The International Commercial Arbitral Tribunal at the Ukrainian Chamber of Commerce and Trade (hereinafter Tribunal) having considered the action brought by [Buyer], an English company, against [Seller], an American firm, for the recovery of US $105,000 and avoidance of Contract # 01 of 1 October 2001 has decided the following.

The legal basis for the adjudication of the dispute by the Tribunal is Section 9 of Contract # 01 concluded by the parties on 1 October 2001. According to the Contract, all disputes arising out of the contract shall be settled by the parties by negotiations. In the event the parties are not able to reach agreement within 30 days from the date of the first negotiations, the dispute shall be adjudicated by the ICA Tribunal at the Ukrainian Chamber of Commerce and Trade in Kiev in accordance with its rules of arbitration proceedings. Section 9 of the Contract provides that:

"In adjudicating disputes, the arbiters shall follow the provisions of the present contract and Ukrainian substantive law. All papers connected with submission of disputes to the Tribunal and with respect to decisions on disputes shall be in Russian and proceedings shall be conducted in Russian. The Tribunal shall consist of three arbiters."

Under Contract # 01 of 1 October 2001, [Seller] undertook to deliver on the conditions CIF (Incoterms 2000) and the [Buyer] undertook to accept and pay for the goods according to Additional agreements which are integral part of the Contract.

The goods shall be delivered at the port of Mariupol City. They shall be delivered not later than within ten days from the date when prepayment is entered to [Seller]'s bank account in the amount of 50% of the total cost of the goods indicated in the Additional agreements to the Contract.

The Additional agreements to Contract # 01 were not signed by the parties. On 28 September 2001, i.e., before the conclusion of Contract # 01, the [Seller] submitted an invoice in the amount of US $135,000 which was paid for by the [Buyer] on 5 October 2001.

On 24 October 2001, [Seller] returned US $30,000.

Since the [Seller], having not delivered the agreed goods, has returned the prepayment only in part, the [Buyer] lodged a suit with the Tribunal claiming recovery from the [Seller] of US $105,000 of losses under Contract # 01 of 1 October 2001.

By resolution of the Tribunal President of 19 February 2002, the Tribunal initiated proceedings in the case. After preparations and composition of the Tribunal, proceedings were appointed on 13 September 2002.

On 26 July 2002, the Tribunal received [Seller]'s statement of defense in which the [Seller] alleged that the [Buyer]'s action is unfounded and petitioned for non-satisfaction of the action stating that conditions of the contract were agreed with the [Buyer] as early as the beginning of September of 2001. First, an invoice for the reservation of the goods was sent by the [Seller] to the [Buyer] on 28 September 2001. On 9 October 2001, the [Seller] reserved 3,000 metric tons of the goods. Information about the presence of the goods and its cost -- US $940 per metric ton on the delivery conditions CIF -- Mariupol - were reported to the [Buyer]'s chief executive by telephone and were approved by him.

On 10 October 2001, the [Seller] sent the [Buyer] an invoice for the advance payment in the amount of US $429,000. This amount should have constituted 20% of the total cost of the delivery under the Contract for US $2,820,000. The further payment procedure was agreed as follows: another 30% of the cost of the delivery shall be transferred seven days before the shipment of the goods on the ship, i.e., before 15 October 2001; and the residuary 50% shall be paid before the arrival of the ship at the port of Mariupol City. This was confirmed by an e-mail message sent to the [Buyer]'s representative on 10 October 2001. The [Buyer] sent to the [Seller] via fax the payment order of 12 October 2001 on the advance payment in the amount of US $429,000; however, [Seller] has not received this sum. Therefore, the [Seller] believed that [Buyer] has not performed the actions which would enable the [Seller] to have a possibility to fulfil its obligations.

On 23 August 2002, the Tribunal received added specifications on the suit and comments on the [Seller]'s statement of defense with enclosed papers in which the [Buyer] has changed its action demands, alleging that Contract #01 of 1 October 2001 should be regarded as void (not concluded) owing to its failure to conform with the requirements of art. 153 of the USSR Civil Code and [Buyer] seeks to recover from the [Seller] all money received under the present agreement, in particular, monetary funds in the amount of US $105,000 and, moreover, to be reimbursed for expenses on the payment of the arbitration fee.

[Buyer] submits that these action claims are supported by the fact that the parties had not reached agreement on substantial contract conditions in due form: the quantity and cost of the goods were not agreed. The [Buyer] has stated that since there were no additional agreements signed to the Contract which would set cost and quantity of goods, it was the [Buyer]'s bona fide belief that the payment sum billed in the invoice was sufficient for delivery of the necessary quantity of goods. In the [Buyer]'s opinion, [Seller]'s objections expressed in its statement of defense are unfounded and unsubstantial and do not correspond to the factual circumstances of the case.

At the hearings of the Tribunal on 13 September 2002, [Seller]'s representatives stated that the added specification on the suit and the [Buyer]'s comments on the statement of defense with enclosed documents were not received by the [Seller] and, therefore, the latter petitioned for postponement of the proceedings in the case for a month in order to prepare its arguments. [Buyer]'s representative did not object to this. Furthermore, at the hearings of the Tribunal the parties expressed the possibility of concluding an amicable agreement. Taking this into account and following art. 7.5 of the Rules of the Tribunal, the Tribunal postponed proceedings to 21 October 2002 and suggested that the [Seller] present its explanations with regard to the [Buyer]'s specified action claims and the [Buyer]'s comments on [Seller]'s statement of defense.

On 17 October 2002, the Tribunal received a letter in which the [Buyer] withdrew its request to have Contract # 01 regarded as void as a result of its lack of conformity with art. 153 of the USSR Civil Code and [Buyer]'s claim for recovery from the [Seller] of all funds received under the Contract on that legal basis. [Buyer]'s claim of 17 October 2002 was to avoid the Contract and recover from the [Seller] monetary funds received by [Seller] in the amount of US $105,000.

The [Buyer] submits that this claim is supported by the fact that since no additional agreements to the Contract were signed by the parties, it was the [Buyer]'s bona fide believe that the US $135,000 payment sum billed by the [Seller] in the invoice of 28 September 2001 was sufficient for delivery of the necessary quantity of goods: 300 tons (to the total amount of US $270,000 on the basis of US $900 per ton). After the necessary sum was transferred, the [Seller] claimed that this sum was not supposed to be sufficient for purchase of that quantity of goods. After that, the [Seller] has returned part of the transferred sum in the amount of US $30,000. However, the [Seller] refused to return US $105,000. The [Buyer] stated that [Seller]'s refusal to deliver the goods in the manner and on the terms foreseen in para. 3.3 of the Contract constitutes a unilateral refusal to fulfil its obligations which contradicts art. 162 of the USSR Civil Code.

On 21 October 2002, the [Seller] presented its statement of defense on the merits to [Buyer]'s allegation that Contract # 01 of 1 October 2001 was not concluded (void) and to [Buyer]'s claim for recovery of US $105,000. In this statement of defense, the [Seller] petitioned for denial of the [Buyer]'s action, asserting that it is groundless. The [Seller] alleges that the legal relationship of the parties with regard to Contract # 01 is regulated in full by the provisions of the UN Convention on Contracts for the International Sale of Goods of 1980 (CISG), according to which parties have to reach agreement in a prescribed form on all of the substantial conditions of the contract and that such an agreement was reached in Contract # 01 by:

   -    The invoice in the sum of US $135,000, which is the offer made by the [Seller];
 
   -    The payment of the invoice by the [Buyer], which is an acceptance in the meaning of art. 18 of the Convention; according to art. 18 of the Convention, a statement made by or other conduct of the offeree indicating assent to an offer is an acceptance;
 
   -    The letter of the [Seller] of 10 October 2001 which expresses all the substantial conditions of the Additional agreement, in particular, the total price: US $2,820,000; the quantity of the goods: 3 000 metric tons; the cost of the goods: US $940 per metric ton; the payment procedure: 20% of prepayment for the layaway (in total US $564,000); 30% of the prepayment before the supposed date of the shipment (before 15 October 2001, US $846,000); 50% of payment seven days before the arrival of the ship to the port of Mariupol City in the amount of US $1,410,000.
 
   -    Moreover, [Buyer] was requested to add an additional payment of US $429,000 to the US $135,000 that had been paid, and a copy of the [Buyer]'s payment order for the transfer to the [Seller]'s account of US $429,000 was received by the [Seller] by fax on 12 October 2001.

In its statement of defense, the [Seller] stated that Ukrainian legislation does not foresee the possibility of recognizing this contract as not concluded and that [Buyer] is not entitled to recovery of the monetary funds claimed.

At the hearings of the Tribunal on 21 October 2002, [Seller]'s representatives having familiarized themselves with the new specifications of the action, the claims in which [Buyer] claimed avoidance of Contract # 01 and recovery from the [Seller] of US $105,000, petitioned for postponement of the proceedings in the case. This petition was granted.

At the hearings of the Tribunal on 25 November 2002, [Buyer]'s representative insisted on satisfaction of the action claims for avoidance of Contract # 01 and recovery of the monetary funds in the amount of US $105,000 received by the [Seller].

[Seller]'s representatives objected to the satisfaction of the [Buyer]'s claims for the reasons presented in its statement of defense of 25 November 2002 and alleged that:

   -    The payment order, its percentage comparing to the total amount for each consignment of the goods and the condition that payment be executed on the basis of [Seller]'s invoices were agreed in the contract according to which the first payment should constitute 10% of the total cost of the goods. The first invoice was presented by the [Seller] in the amount of US $135,000 for the reservation of goods;
 
   -    The [Buyer] transferred US $135,000 on the above-mentioned account according to the payment order of 5 October 2001. The payment order contained precise information on the basis for the monetary funds transfer which was Contract # 01 of 1 October 2001;
 
   -    On 9 October 2001, the [Seller] reserved 3,000 metric tons of the goods. Reservation of a smaller amount of the goods was not possible since the minimal freight of the ship is 3,000 metric tons of which the [Buyer] was notified by e-mail and during oral discussions;
 
   -    The [Seller] sent to the [Buyer] via e-mail and fax a further advance payment invoice in the amount of US $429,000. This amount of prepayment [coupled with the US $135,000 payment] would constitute 20% of the total cost of the delivery under the Contract of the total sum of US $2,820,000;
 
   -    On 12 October 2001, the [Seller] received a faxed copy of the payment order on the advance payment in the amount of US $429,000. This copy testified to [Buyer]'s intention to continue cooperation under the Contract under the conditions established by the [Seller];
 
   -    Further procedure of the payments was agreed in para. 4.3 of the Contract which is mentioned above;
 
   -    The [Buyer], right up to the arbitration proceedings, has never contested the amounts and cost of the delivery mentioned in the [Seller]'s e-mail message of 10 October 2001, and notification of cancellation of the contract was not sent to the [Seller] by the [Buyer]; however, the latter has evaded fulfillment of the contract conditions envisaged in para. 4.3 due to reasons beyond the [Seller]'s control.

Taking the above into consideration, it is the [Seller]'s position that [Buyer] has not performed actions after fulfillment of which [Seller] would have a possibility to fulfill its obligations under the Contract. Therefore, due to the [Buyer]'s delay, the [Seller] cannot bear responsibility for fulfillment of its obligations.

OPINION OF THE ARBITRAL TRIBUNAL

Taking into account that:

1. On 1 October 2001, [Seller] and [Buyer] concluded Contract # 01 according to which [Seller] undertook to deliver on the conditions CIF (Incoterms 2000) and [Buyer] undertook to accept and to pay for the goods pursuant to the Additional agreements which set forth the quantity, cost for the unit and sum of the Contract. Additional agreements are integral parts of the Contract. The Additional agreements to Contract # 01 were, however, not signed by the parties.

2. Section 9 of Contract # 01 provides that in settling disputes submitted to the Tribunal, the arbiters shall be guided by the provisions of the Contract and by Ukrainian substantive law. By virtue of art. 1(1)(b) of the UN Convention on Contracts for the International Sale of Goods, this Convention is applicable as well to the obligations of the parties under Contract # 01.

3. According to para. 3.3 of the Contract, delivery of the goods must be not later than within ten days after the entering of the prepayment to the bank account of the [Seller] in the amount of 50% of the total cost of goods indicated in the Additional agreement to the Contract.

Para. 4.3 of the Contract specifies the procedure for payment for the goods:

   -    Within three calendar days from the date on which the [Seller]'s invoice is presented, the [Buyer] shall transfer to the [Seller]'s account a prepayment in the amount of 10% of the total cost of the goods indicated in the Additional agreement in the form of an advance payment for the reservation of the goods;
 
   -    Within 24 hours after the invoice is presented by the [Seller] and after agreement on the cost and quantity of the shipped goods, the [Buyer] shall transfer to the [Seller]'s account the funds lacking for the reservation of the goods, in particular prepayment in the amount of 10 % of the total cost of the goods;
 
   -    30 % of the cost of the goods shall be transferred at the moment of ship loading;
 
   -    50% of the cost of the goods (final settlement) shall be transferred five days before the arrival of the ship to the port of Mariupol City.

4. In pursuance of the obligations under the Contract, the [Seller] presented an invoice of 28 September 2001 for the payment of US $135,000 which according to para. 4.3 of the Contract shall constitute 10% of the total cost of the goods. On 5 October 2001, the [Buyer] paid that invoice indicating that it was payment under Contract # 01 of 1 October 2001. The Tribunal has not taken into account the [Seller]'s statement that, according to the conditions of the contract, the amount of the initial installment may be less than 10%, since this is not provided in the contract conditions.

5. Later on, after agreement on the cost and quantity of the shipped goods according to para. 4.3 of the Contract, the [Seller] was obliged to draw up an invoice which was to be paid by the [Buyer] within 24 hours for an advance payment for the reservation of the goods in the amount of 10% of the total cost of the goods. The [Seller] has not adduced arguments of fulfilment of the obligations with regard to the invoice.

In its statement of defense, the [Seller] alleges that on 10 October 2001 it sent an invoice for the advance payment in the amount of US $429,000. At the same time, as evidence of the invoice, the [Seller] has presented the letter of 10 October 2001 sent to the [Buyer] via e-mail which mentions the quantity of the goods subject to the delivery, i.e., 3,000 metric tons, cost of which is US $940 per ton, total cost of the Contract: US $2,820,000, as well as the payment procedure.

[Seller] states that the indicated letter is its offer which was accepted by the [Buyer] by the payment order of 12 October 2001 for the advance payment in the amount of US $429,000 sent to the [Seller] by the [Buyer] via fax. However, this sum was not paid for by the [Buyer].

At the same time, analysis of the conditions contained in the [Seller]'s letter of 10 October 2001 evidences that it changed the conditions of para. 4.3 of Contract # 01 in respect to the payment procedure. In particular:

   -    According to para. 4.3 of the Contract, the initial payment executed by the [Buyer] in the amount of US $135,000 should have amounted to 10% of the total cost of the Contract; hence, the sum of the Contract should have amounted to US $1,350,000;
 
   -    Para. 4.3 foresees that 30% of the cost of the goods shall be transferred at the moment of the ship loading and the letter of 10 October 2001 indicates that payment of 30% of the cost of the goods is to be executed seven days before the ship loading;
   -    Para. 4.3 provides that 50% of the cost of the goods (final settlement) is to be executed five days before the arrival of the ship to the port of Mariupol City and the letter of 10 October 2001 establishes a seven day term.

Para. 10.3 of Contract # 01 stipulates that any alterations and additions to the present contract shall be valid only if they are performed in written form and duly signed by the authorized representatives of both parties. Para. 10.5 of the Contract establishes that fax copies shall have the same legal force as the original.

Thus, the Contract conditions foresee written alterations and additions to the Contract in the form of a single document signed by both parties, including the possibility to sign the documents received via fax. This does not contradict art. 29(2) of the UN Convention on Contracts for the International Sale of Goods which envisages that a contract in writing which contains a provision requiring any modification or termination by agreement to be in writing may not be otherwise modified or terminated by agreement.

Hence, [Seller]'s statement that the offer of 10 October 2001 was accepted by the [Buyer] in the copy of the payment order of 12 October 2001 for the advance payment of the sum of US $429,000 sent by the [Buyer] via fax and that, as a result, the parties have agreed on the total amount of the contract [US $2,820,000], is not confirmed by the materials of the case and contradicts the effective law.

6. [Seller]'s statement about agreement of the parties on reduction of the sum of the Contract in connection with the [Seller]'s return to the [Buyer] of US $30,000 of the transferred prepayment on 24 October 2001 is also not confirmed by the materials of the case.

7. Taking into account that the [Seller] has not drawn an invoice for payment for the goods in accordance with para. 4.3. of the Contract and, moreover, that the [Seller] has unilaterally altered the conditions of the Contract, the latter has breached its obligations under the Contract.

Under such conditions, according to arts. 25 and 45 of the UN Convention on Contracts for the International Sales of Goods, the [Buyer]'s claims for the avoidance of Contract # 01 and recovery of losses from the [Seller] in the amount of US $105,000 are to be satisfied.

8. Due to satisfaction of the [Buyer]'s claims in full, according to para. 1, V of the Regulations on Arbitration Fees and Expenses, the arbitration fee paid by the successful [Buyer] is imposed on the adverse party. In this case, it is to be recovered from the [Seller].

AWARD

Following the conditions of Contract # 01, arts 13, 25, 29, and 45 of the Vienna Convention of 1980, art. 161 of the USSR Civil Code, art. 31 of the Law of Ukraine "On International Commercial Arbitration", arts 8.2 and 8.4-8.9 of the Rules of the Tribunal, para. 1, V of the Regulations on Arbitration Fees and Expenses, the Tribunal has decided:

The English [Seller] is obliged immediately after receipt of the present award to pay to the American [Buyer]:

-    US $105,000 of losses; and
-    US $5,750 as reimbursement of the arbitration expenses.

In total, the amount of the satisfied claims is US $110,750.

The judgment is final.


FOOTNOTES

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

** Gayane Nuridzhanyan, junior associate at the law firm Danylko, Kushnir, Solltys & Yakymyak, Attorneys & Counselors at Law, Kyiv, Ukraine <http://www.dksylaw.com/>, student at Kyiv International University with major in private international law; participant of Canada-Ukraine Parliamentary Program, member of Ukrainian team at 2005 Telders International Moot Court Competition, The Hague.

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