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CISG CASE PRESENTATION

Russia 20 December 2002 Arbitration Court [Appellate Court] for the Volgo-Vyatsky Circuit [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/021220r1.html]

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

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Case identification

DATE OF DECISION: 20021220 (20 December 2002)

JURISDICTION: Russian Federation

TRIBUNAL: Federal Arbitration Court for the Volgo-Vyatsky Circuit

JUDGE(S): Kashirskaya N.A. (chairman), Otdelnaya L.I and Pronina S.A. (judges)

CASE NUMBER/DOCKET NUMBER: A43-1453/02-27-2

CASE NAME: Verkhnevolzhskie magistralnye nefteprovody v. Novopolotsk State Oil Refining Enterprise

CASE HISTORY: 1st instance lower Arbitration Court 10 July 2002; 2d instance Appellate Division of the Arbitration Court for the Nizhniy Novgorod Region 2 October 2002 [reversed and remanded]

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Belarus (respondent)

GOODS INVOLVED: Mobil homes


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8(3) ; 9 ; 33

Classification of issues using UNCITRAL classification code numbers:

8C [Interpretation of partyís statements or other conduct: interpretation in light of surrounding circumstances];

9C [International usages and practices established by the parties];

33C [Time for delivery: when not fixed by contract, within a reasonable time after contractís conclusion]

Descriptors: Intent ; Usages and practices ; Incoterms ; Delivery

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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) [second draft]

Queen Mary Case Translation Programme

The Federal Arbitration Court for the Volgo-Vyatsky Circuit
of the Russian Federation

Case No. A43-1453/02-27-2 of 20 December 2002

Translation [*] by Yelena Kalika [**]

The Federal Arbitration Court for the Volgo-Vyatsky Circuit consisting of the Chairman Kashirskaya N.A. and Judges Otdelnaya L.I. and Pronina S.A. adjudicated the Respondent [Buyer]'s cassation claim in the hearing held in the presence of the Claimant [Seller]'s representative Lukoyanov S.N. (power of attorney No. 21-19/99 of 7 October 2002) and the [Buyer]'s representative Zhevnov D.M. (power of attorney No. 964/1 of 17 April 2002). † The [Buyer] is the Novopolotsk State Oil Refining Enterprise "Druzhba" (Novopolotsk, Belarus). † The cassation claim was brought in connection with the decision of 10 July 2002 of the lower court and the resolution of 2 October 2002 rendered by the appellate division of the Arbitration court for the Nizhniy Novgorod Region on case No. A43-1453/02-27-2.† [The decision and resolution] were rendered by Judges Lyagin V.V., Voynov S.A., Ignatieva O.V., Landa R.M. in connection with the claim brought by the [Seller] joint stock company "Verkhnevolzhskie magistralnye nefteprovody" (Nizhniy Novgorod) [i.e., "Upper Volga Pipelines"] against the Respondent [Buyer] Novopolotsk State Oil Refining Enterprise "Druzhba" (Novopolotsk, Belarus).† [The claim] was brought to recover US $27,355.96.

The Federal Arbitration Court for the Volgo-Vyatsky Circuit

FOUND:

[Seller], the public joint stock company "Verkhnevolzhskie magistralnye nefteprovody", filed a claim with the Arbitration court for the Nizhniy Novgorod Region.† The claim was brought against the Respondent [Buyer], Novopolotsk State Oil Refining Enterprise "Druzhba", to recover a debt in the amount of US $18,104.20 and penalties for the delay in payment for the goods received in the amount of US $8,668.03.

Before the decision was rendered, the [Seller] increased the amount sought pursuant to Article 37 of the Russian Federation Arbitration Procedure Code.† The [Seller] sought to recover from the [Buyer] US $27,355.96 including US $18,104.20 of the debt and US $9,251.76 of penalties for the delay in payment for the period from 3 October 2000 to 10 July 2002.† The Ruble equivalent of the amount sought was RUR 841,589.70.

On 10 July 2002, the lower court sustained in full the claims brought.† The appellate division upheld the decision on 2 October 2002.† The [Buyer]'s arguments that Article 410 of the Russian Federation Civil Code regarding the termination of an obligation due to its being offset [by a similar obligation] applied to the parties' relationships were denied.† When doing so, the court pointed out that the claims sought to be offset were not similar.† The court concluded that the contract did not set forth the periods of time within which the goods were to be delivered and, thus, did not provide for liability for such a breach.

[Buyer] contested the said judicial acts in the Federal Arbitration Court for the Volgo-Vyatsky Circuit by bringing a cassation claim. It asked [the court] to reverse both the decision and the resolution and to render a new decision denying the claim in connection with the termination of an obligation due to the mutual offsetting of similar claims.

In the [Buyer]'s opinion, the court's finding that in their contract the parties failed to set forth the periods of time within which the goods were to be delivered and that the offsetting of obligations made by the [Buyer] was invalid are unlawful, unreasonable and do not reflect the factual circumstances and the materials of the case.

The [Buyer] does not deny non-payment for the goods delivered in the sum sought by the [Seller].† However, the [Buyer] points out that he offset the debt in his letter No. 634/ur of 3 March 2001 pursuant to Clause 5.4 of the contract.† [Clause 5.4] provides for the liability of the seller for delay in delivery.† It also sets forth a buyer's right to apply sanctions for a breach of contract. In his opinion, the parties set forth the dates of delivery and the goods were to be delivered not later than 60 days after the date of the advance payment. [Such conclusion] follows from the language of Clauses 3.2-3.4, 4.1, 4.3, and 5.4 of the contract as well as from the parties' correspondence at the time when the contract was being performed.

A representative of the [Seller] objected to the arguments stated in the cassation complaint both in his reply and during the hearing and asked to have the contested judicial acts upheld as lawful and reasonable.† In his opinion, since the contract does not provide for the dates of delivery of goods, pursuant to Article 314 of the Russian Federation Civil Code, the goods are to be delivered either within a reasonable period of time or within seven days after a claim to deliver the goods is brought.† The [Seller] is of the opinion that he did not breach the terms of delivery and, therefore, the [Buyer]'s offsetting [of the debt] was invalid.

The cassation complaint in connection with the decisions of the Arbitration court for the Nizhniy Novgorod Region on case No. A43-1453/02-27-2 was reviewed by the Federal Arbitration Court for the Volgo-Vyatsky Circuit in accordance with the procedure set in Articles 284 - 289 of the Russian Federation Arbitration Procedure Code.

In accordance with Article 163 of the Russian Federation Arbitration Procedure Code, the hearing was adjourned to 20 December 2002.

The Circuit Court is of the opinion that the Arbitration court for the Nizhniy Novgorod Region was a proper court to adjudicate the present dispute because, in accordance with Article 212(2)(3) of the Russian Federation Arbitration Procedure Code 1995, arbitration courts in the Russian Federation may decide cases in which one party is a foreign entity, if a claim follows from a contract which either was to be carried out in the Russian Federation or has indeed been carried out there. Besides, in Clause 6.3 of the contract the parties provided for the adjudication of disputes by an arbitration court in the place of the [Seller].

As follows from the materials of the case and established by the two courts [below], the [Seller] and the [Buyer] entered into contract No. 64 on 29 March 2000. In accordance with the contract, the Seller was to transfer a right to property in the goods to the Buyer.† According to the specification, the goods included three residential mobile homes "Comfort", two mobile homes "Sushilka" (i.e., "the Drier"), one mobile home "Stolovaya" (i.e.,† "the Diner") and one mobile home "Sauna".

The contract provided for the period of time within which the goods were to be manufactured (see Appendix No. 1 "Specifications") as well as for the dates of payment for the goods (see Clauses 3.2 - 3.5).

Pursuant to Article 431 of the Russian Federation Civil Code, when interpreting the terms of a contract, a court should take into account the plain meaning of the words and expressions contained in it.† If the plain meaning of a contractual term is unclear, it should be determined in accordance with other terms and the meaning of the contract as a whole.

Since the dispute arose in connection with the parties' relationships under an international sale contract, the parties' relationships should be governed by the CISG.

Pursuant to Article 8(3) CISG, in determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including the negotiations, any practices which the parties have established between themselves, usages and any subsequent conduct of the parties.

Article 33 CISG provides that the seller must deliver the goods: if a date is fixed by or determinable from the contract, on that date; if a period of time is fixed by or determinable from the contract, at any time within that period since the circumstances do not indicate that the buyer is to choose a date; or in any other case, within a reasonable time after the conclusion of the contract.

Clauses 5.3 and 5.4 of the contract state that in case of untimely delivery of the goods, the seller shall pay penalties in the amount of 0.1% to the buyer. † In case of a delay in delivery in excess of sixty days from the date of payment by the seller, the seller shall pay penalties in the amount of 2% of the price of the goods paid for each day of delay beginning with the sixty first day but not exceeding the price of the goods paid.† The same clauses of the contract set forth a right of the seller to apply the said sanctions to the final payment due.

Therefore, the contract allows to determine a period of time within which the goods are to be delivered, i.e., the parties in fact set the dates of delivery.

In accordance with Article 9(1) CISG, the parties are bound by any usage to which they have agreed and by any practices that they have established between themselves.

In the present case the seller and buyer provided for the FAC Velikie Luki term of delivery in Clause 4.2 of the contract.† According to INCOTERMS-90, it means that the seller must deliver the goods to the place agreed upon and hand them over either to a carrier or to a party acting on the carrier's behalf.† It follows from the materials of the case (files 45-71, 83-91) that the goods were accepted in the city of Velikie Luki by a representative of the [Buyer] acting pursuant to one-time powers of attorney.† The lower court failed to evaluate this fact, although the fact demonstrated the real intent of the parties and evidenced that, by stating the period of time within which the goods were to be manufactured in the contract, the parties meant the period of time within which the delivery was to be made because deliveries were made to the seller's headquarters in the city of Velikie Luki.

The [Seller] points out that the [Buyer] failed to pay 40% of the price of a mobile home "Comfort" in the amount of US $4,009.20 and 50% of the price of two mobile homes "Sushilka" in the amount of US $14,095.0. The total sum in arrears is US $ 18,104.20.† The [Buyer] does not contest this sum.† At the same time, in the letter No. 634/ur of 3 March 2001 (see file 15)† the [Buyer] informed the [Seller] that he applied penalties for the untimely delivery of the goods to offset his debt in the amount of US $18,104.20.

Pursuant to Article 407(2) of the Russian Federation Civil Code, termination of an obligation on demand of one of the parties is permitted only in cases set either in the law or in the contract [itself].

It follows from Clause 5.4 of the parties' contract that the mutual offsetting of similar claims is contractual in its character. The materials of the case contain the [Buyer]'s statement that the parties offset [the claims] (see file 15).† There is also a reply of the [Seller] in connection with the claim brought by [Buyer] (see file 72).† It follows from the reply that the [Seller] did not contest the fact of his breaching the terms of delivery.

Therefore, the lower and appellate courts failed to evaluate the said circumstances that are extremely relevant in resolving this dispute. At the same time, [the courts] incorrectly applied the rules of substantive law, namely, in its decision the lower court applied only Article 431 (interpretation of a contract), Article 314 (the period of time within which an obligation is to be performed) and Article 330 (definition of penalties) of the Russian Federation Civil Code. The lower court failed to apply Article 407 of the Russian Federation Civil Code (grounds for termination of an obligation).

When deciding the issue of the currency in which the payment is to be made, the court correctly determined that the debt was to be recovered in US dollars since the parties to the contract agreed to make payments in US dollars (see Clause 3.7 of the contract) and since such provision does not violate the currency regulations.

In accordance with Article 317(3) of the Russian Federation Civil Code, when making payments in the Russian Federation, the use of foreign currency and foreign payment instruments is permitted in cases set in the law and in accordance with the procedure and terms set there.

The Russian Federation Law No. 3615-1 of 9 October 1992 "On currency control and regulation" sets forth the principles in accordance to which [foreign] currency transactions must be conducted in the Russian Federation.† It also provides for the rights and obligations of legal entities and private persons in connection with possession and disposal of the currency as well as for the liability for a violation of the currency regulations.

The State fee for the adjudication of such a dispute shall be paid in Rubles pursuant to Articles 13 and 45(3) of the Tax Code. The Ruble equivalent of the price of the claim was determined as of the date of the claim and stated in the complaint.

In accordance with the provisions of Article 171(1) of the Russian Federation Arbitration Procedure Code, the court's reasoning should have stated the total sum to be recovered.† It should have also separately stated the sum of the main debt, losses, penalties and interest.† This was not done.† (Article 128(1) of the Russian Federation Arbitration Procedure Code 1995, which was in force at the time of the hearing held by the lower court, contains the same provision).

For the above stated reasons, the Circuit Court is of the opinion that the contested judicial acts contain conclusions that do not reflect the factual circumstances of the case and are not supported by evidence in the materials of the case.† Therefore, they should be reversed and the case should be remanded. Besides, the court incorrectly applied the rules of substantive law. †Pursuant to Article 288 (2) of the Russian Federation Arbitration Procedure Code, it is also a ground for reversal of a judicial act.

Pursuant to Articles 274, 286, 287(1)(3), 288(1) and 289 of the Russian Federation Arbitration Procedure Code, the Federal Arbitration Court for the Volgo-Vyatsky Circuit

HOLDS:

The decision of 10 July 2002 of the lower court and the resolution of 2 October 2002 rendered by the appellate division of the Arbitration court for the Nizhniy Novgorod Region on case No. A43-1453/02-27-2 are reversed.

The case is remanded to the lower court.† This Resolution comes into force immediately.

The Chairman
  
Judges
KASHIRSKAYA, N.A.
 
OTDELNAYA, L.I.
PRONINA, S.A.
††††††


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant Verkhnevolzhskie magisralnye nefteprovody of the Russian Federation is referred to as [Seller] and Respondent Novopolotsk State Oil Refining Enterprise "Druzhba" 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.

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Pace Law School Institute of International Commercial Law - Last updated October 18, 2004
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