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CISG CASE PRESENTATION

Russia 10 December 2002 Arbitration proceeding 211/2001 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/021210r1.html]

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

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Case identification

DATE OF DECISION: 20021210 (10 December 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: 211/2001

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Germany (respondent)

GOODS INVOLVED: Goods


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 88(3) [Also cited: Article 35 ; 36 ; 53 ; 54 ; 61 ; 62 ]

Classification of issues using UNCITRAL classification code numbers:

88C [Right to retain reasonable expenses from proceeds of sale (with obligation to account to the other party for the balance)]

Descriptors: Resale of goods

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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. 78 [458-462]

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 arbitral proceeding 211/2001 of 10 December 2002

Translation [*] by Yelena Kalika [**]

1.  SUMMARY OF RULING

    1.1 Since the parties' contract provided for the mandatory procedure of seeking pre-arbitration settlement, which the Claimant [Seller] has duly followed, the Tribunal agrees to arbitrate the claim brought based on the arbitration clause in the contract.

    1.2 In the absence of a choice of law provision in a contract for the international sale of goods, the Tribunal finds that the parties' relationships are governed by the CISG with Russian law as the subsidiary law, as the law of the Seller's State.† The Tribunal takes into consideration that the commercial enterprises of the parties to the contract are located in CISG Contracting States.

    1.3 After establishing from the parties' correspondence that the [Seller], who brought the claim to recover the price of the goods delivered, has, in fact, acknowledged that [the goods] are defective and agreed to accept the proceeds received from the sale of the goods for scrap, the Tribunal sustains the [Seller]'s claim of payment from the Respondent [Buyer] only in the amount received after selling the metal for scrap.

    1.4 The Seller's claim to recover contractual penalties for the delay in payment is sustained only in connection with the sum received after selling the goods for scrap. [The claim is sustained] for the period from the date of sale of the metal for scrap to the date of hearing of the case on the merits.

2.  FACTS AND†PLEADINGS

[Seller], a Russian firm, brought a claim against Respondent [Buyer], a German firm, in connection with non-payment for the goods delivered under a contract for the international sale of goods of 23 October 2000.† The [Seller]'s claims included: the sum in arrears, contractual penalties for the delay in payment and arbitration fees. As the [Seller] stated, the [Buyer] refused to pay taking the position the [Seller]ís claim was unreasonable due to the fact that the goods were defective.

The [Buyer] objected to the [Seller]ís claim.† He argued that the [Seller] misled him at the time the contract was concluded.† The [Buyer] ordered the goods to meet the DIN EN standard of quality. [However], the contract provided for the GOST standard. As the [Seller] asserted, [the GOST] standard was higher than the DIN EN standard. The [Seller] had been notified in advance of the intended purpose for which the goods were purchased.† Therefore, he should have known that the goods he delivered would not be suitable for the [Buyer]'s purpose.† In his letters, the [Seller] expressed his readiness to reimburse any expenses to the [Buyer].† It proves that the [Seller] has acknowledged his liability for the delivery of defective goods. The goods received from the [Seller] were sold for scrap.† The [Seller] was notified of that sale.† The [Seller] asked the [Buyer] to transfer to him the funds received from the sale of the metal for scrap.† The [Buyer] agreed to transfer that sum but on a condition that the [Seller] would issue an invoice and confirm that he had no claims against the [Buyer]. The [Seller] did not give such a confirmation.

3. †TRIBUNALíS REASONING

The Tribunal's award contained the following main points.

    3.1 Clause 8 ("Arbitration") of the contract, which the parties made on 23 October 2000, states: "... any disputes, in which the parties are unable to reach an agreement by means of negotiations, shall be arbitrated by the International Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industry in Moscow... The dispute shall be submitted to the Arbitration Court within thirty days after any party makes a suggestion that the parties settle it."

In accordance with Article 2 of the Regulations of the Tribunal and Article 1(2) of the Rules of the Tribunal, the Tribunal may arbitrate disputes following from contractual and other civil relationships arising out of international commercial transactions or other types of international business relations, if a commercial enterprise of at least one party to the dispute is located abroad.† In this connection, the Tribunal ascertains that the parties' contract of 23 October 2000 is a contract for the international sale of goods. The parties to the contract are a Russian firm (Seller) and a German firm (Buyer).

Taking the above into consideration and since, as evidenced by the materials of the case, the [Seller] has fully complied with the pre-arbitration procedure of seeking to settle the dispute and filed the claim and other documents with the Tribunal and since the [Buyer] has filed his objections to the claim and other documents with the Tribunal, the Tribunal finds itself competent to arbitrate the present dispute based on Article 7 of the Russian Federation Law "On International Commercial Arbitration".

    3.2 Turning to the issue of the applicable law, the Tribunal ascertained that the parties failed to agree upon it.† To support his claims, the [Seller] applied Russian law, namely, the Russian Federation Civil Code.

As stated above, the Tribunal views the parties' contract of 23 October 2000 as a contract for the international sale of goods in which the Seller is a Russian firm and the Buyer is a German firm.

The Russian Federation, like Germany, is a CISG Contracting State. The CISG governs the parties relationships based on Article 1(1)(a) CISG.

In the absence of a CISG provision directly settling the parties' relationships, domestic rules of law should govern such relationships. Pursuant to the conflict of laws provision in Article 166(1)(1) of the USSR Principles of Civil Law 1991, the rights and obligations of the parties to an international transaction shall be determined based on the law of the State which the parties chose either when making a transaction or in a subsequent agreement.† In the absence of the parties' agreement on the applicable law, the law of the State, where the Seller under the sale contract was incorporated, has its office or a main place of business, shall apply. Thus, Russian law should govern the present dispute as a subsidiary statute.

    3.3 After reviewing the [Seller]'s claim to recover from the [Buyer] the sum in arrears, the Tribunal ascertains that the [Seller] delivered the goods to the [Buyer] in accordance with the terms of the contract of 23 October 2000. [The goods] were delivered for the sum and in the quantity stated in the claim and evidenced by the materials of the case.† The [Buyer] does not contest the fact of delivery of the goods.

The [Buyer] has not paid the price of the goods delivered. The [Buyer] argues that the goods did not meet the quality requirements.† The [Buyer] informed the [Seller] of that fact and offered to return the goods to the [Seller]. Since the [Seller] did not respond to the [Buyer]'s offer, the [Buyer] sold the goods for scrap and offered to transfer the proceeds [from that sale] to the [Seller] but on a condition that the [Seller] would confirm in writing that he did not have any clams against the [Buyer].

The Tribunal ascertains that in his letters of 15 June and 20 June 2001 the [Seller] offered to reimburse any expenses incurred by the [Buyer]. In the Tribunal's opinion, it may be interpreted as the [Seller]'s making an assumption of the possibility that the [Buyer] might have incurred some expenses in connection with the delivery of the goods not meeting the quality requirements agreed upon by the parties as well as the [Seller]'s expressing his readiness to reimburse any such expenses to the [Buyer].

The Tribunal also takes into consideration that in a letter of 7 December 2001 the [Seller] asked the [Buyer] to transfer to him the proceeds received by the [Buyer] for the goods sold for scrap, i.e., the [Seller] in fact agreed to accept the said amount.

For the above stated reasons and based on Articles 35, 36, 53, 54, 61, 62 CISG, the Tribunal finds it reasonable and just for the [Seller] to recover from the [Buyer] the proceeds received for the goods sold. [The proceeds must be transferred to] the [Seller].

    3.4 After reviewing the [Seller]'s claim to impose penalties on the [Buyer], the Tribunal ascertains that Clause 4 of the contract sets forth the Buyer's liability for the untimely payment for the goods. [The amount of penalties is set at] 0.1% of the sum in arrears but not exceeding 10% of the contract price.

As follows from the claim and amended claim, the [Seller] calculated penalties based on the total cost of the goods delivered from 24 April 2001, i.e., twenty days after the customs clearing of the goods as set forth in the contract, to 14 October 2002, i.e., the date of arbitration of the case on the merits.

Taking into account that [as of the date of the arbitral proceeding] the [Buyer] has not transferred the proceeds received from the sale of goods to the [Seller], although he had an opportunity to do so, the Tribunal believes that the [Buyer] should be held responsible for the wrongful retaining of another's funds. The Tribunal finds it just to calculate the penalties set forth in Clause 4 of the contract based on the amount of the main debt awarded.† The penalties must be paid for the period from 14 September 2001, i.e., the date when the goods delivered by the [Seller] was sold for scrap, to 14 October 2002, i.e., the date of arbitration of the case on the merits. As stated in the amended claim No. 13-1226 of 11 October 2002, the [Seller] capitalized the penalties [on the date of arbitration]. The total period [for which the penalties must be paid] consists of 396 days. The Tribunal bases this decision on Clause 4 of the contract and Articles 329, 330, and 331 of the Russian Federation Civil Code.

    3.5 Based on Article 6(2) of the Regulations on arbitration fees and expenses, the arbitration fees must be paid by the Respondent [Buyer] in proportion to the claims sustained. The Claimant [Seller] must pay the arbitration fees in proportion to the claims denied.


FOOTNOTES

* This is a translation of data on Proceeding 211/2001, dated 10 December 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. 78 [458-462].

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 Germany 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 October 7, 2004
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