Russia 28 January 2003 High Arbitration Court (or Presidium of Supreme Arbitration Court) of the Russian Federation [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030128r1.html]
DATE OF DECISION:
* Russia has two types of State courts for private law disputes: Courts of general jurisdiction (also called "People's Courts") and economic courts (also called "Arbitration Courts). The above is the official title of the top judicial authority of the Arbitration Courts.
CASE NUMBER/DOCKET NUMBER: Resolution No. 6134/01
CASE HISTORY: 1st instance Arbitration Court for the Altai District (A 03-33/01-06) 27 June 2001; 2d instance Federal Arbitration Court for Western Siberia Region resolution of 16 October 2001 (reversing and remanding); 3d instance Arbitration Court for the Altai District decision of 1 April 2002; 4th instance Federal Arbitration Court for Western Siberia Region resolution of 6 August 2002 (reversing in part)
SELLER'S COUNTRY: Germany (plaintiff)
BUYER'S COUNTRY: Russian Federation (defendant)
GOODS INVOLVED: Harvesting combines
APPLICATION OF CISG: No
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
4B [Scope of Convention (issues excluded): Convention limited to sales contracts]
4B [Scope of Convention (issues excluded): Convention limited to sales contracts]
Go to Case Table of Contents
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (Russian): Unavailable
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Queen Mary Case Translation Programme
Translation edited by Yelena Kalika [*]
Translation edited by Mykhaylo Danylko [**]
The Presidium of the Supreme Arbitration Court of the Russian Federation consisting of
has reviewed the protest of the First Deputy Prosecutor General of the Russian Federation, Biryukov Yu. S., on the Resolution of the Federal Arbitration Court for the Western Siberia Circuit of 6 August 2002 in connection with the case No. A03-33/01-6 of the Arbitration Court for the Altai District.
The following parties took part in the hearing:
After hearing and discussing the report of the Judge Novoselova L.A., the presentation of the First Deputy Prosecutor General of the Russian Federation and the arguments of the parties to the case, the Presidium has found the following:
The firm "O.I.L. Otto International Leasing Aktiengesellschaft" (Germany) ('the Firm") commenced an action against the private joint-stock company "Zernopererabatyvayuschy kombinat "Barnaulskaya melnitsa" (earlier known as the limited liability partnership "Melnitsa" and the limited liability company "Melnitsa") at the Arbitration court for the Altai District. The action was to recover DM [Deutsche Mark] 1,838,860.78, including leasing payments accrued in the amount of DM 1,616,326.00 and interest for the delay in payment in the amount of DM 224,534.78.
The claim was denied by the decision of 27 June 2001.
The Federal Arbitration Court for the Western Siberia Circuit reversed and remanded the above decision in its Resolution of 16 October 2001.
At the new trial the Respondent counterclaimed that sale contract No. 6449 of 12 February 1997 should be held not valid and the Respondent should be released from its obligations under leasing contract No. 6449 of 12 February 1997.
In accordance with the decision of 5 February 2002 the Altai Customs Department of the Siberian Department of the State Customs Committee of the Russian Federation was brought as a third party to the action.
The Firm's claim was denied by the decision of 1 April 2002; the counterclaim was granted.
In its Resolution of 6 August 2002 the Federal Arbitration Court for the Western Siberia Circuit reversed the decision in the part denying the collection of the debt and interest from the Respondent and granted the claim of the Firm. The Federal Arbitration Court for the Western Siberia Circuit also upheld the decision in the part stating that contract No. 6449 of 12 February 1997 was invalid.
In his protest, the First Deputy Prosecutor General of the Russian Federation argues that the Resolution of the Cassational Court of 6 August 2002 should be reversed and that the decision of 1 April 2002 should be reinstated.
[RULING OF THE PRESIDIUM]
The Presidium is of the opinion that both the decision of 1 April 2002 and the resolution of the Cassational court of 6 August 2002 shall be reversed. The case shall be remanded on the following grounds.
As follows from the materials of the case, the Firm made a leasing agreement No. 6449 of 15 August 1995 with the private joint-stock company "Terra." According to the agreement, the Firm ("the Lessor") leased twenty combines "Dominator 204 Mega" with the total cost of DM 4,540,000.00 to the private joint-stock company "Terra" ("the Lessee"). The term of the agreement was three years beginning 15 November 1995.
In October 1995, the combines entered the territory of the Russian Federation under the "temporary import" regime which was supposed to end on 15 August 1997.
Since the private joint-stock company "Terra" failed to fulfill its obligations to make leasing payments, the Firm unilaterally terminated the leasing agreement, as was stipulated in the above agreement, and demanded that its property be returned.
In July 1996, ten combines were transported from the customs territory of the Russian Federation to the Republic of Kyrgyzstan. The remaining ten combines continued to be used by the farmers of the Altai Region in accordance with the leasing agreements and sale contracts made with the private joint-stock company "Terra."
The Firm and the Limited Liability Partnership "Melnitsa" (at present the private joint-stock company "Zernopererabatyvayuschy kombinat "Barnaulskaya melnitsa," the Respondent) made a contract No. 6449 of 12 February 1997, referred to by the parties as a use agreement within the leasing agreement No. 6449.
In accordance with the above contract, the Firm transferred to the Limited Liability Partnership "Melnitsa" its right to claim the ten combines from the private joint-stock company "Terra" (clause 1.1 of the contract). The rights and obligations of the private joint-stock company "Terra", which were securing the monetary obligations of the latter in connection with the leasing agreement in the amount of DM 1,614,326.00, passed to the Limited Liability Partnership "Melnitsa" as well. The rights to claims were to pass to the Limited Liability Partnership "Melnitsa" at the moment of its fulfillment of its obligations to make payments under the contract (clause 2.1 of the contract).
The Limited Liability Partnership "Melnitsa" accepted an obligation to recover the combines from the private joint-stock company "Terra" (clause 2.5 of the contract) as well as to make payment for the combines in the amount of DM 1,614,326.00 (clause 3.2 of the contract). Upon the full payment of the amounts set forth in the contract, the right to property in the combines and hinged equipment was to pass to the Limited Liability Partnership "Melnitsa" (clause 3.4 of the contract).
On the same day, the Firm (Seller) and the Limited Liability Partnership "Melnitsa" (Buyer) signed a sales contract No. 6449 of 12 February 1997 according to which the Buyer was to purchase ten combines "Dominator 204 Mega" from the Seller. The right to property to the combines was to pass to the Buyer upon the full payment of the cost of the combines (DM 1,614,326.00).
Having signed the contract, the Limited Liability Partnership "Melnitsa" sent the Firm the amendments and modifications to the contract which the Firm did not accept (the Firm's letter of 12 May 1997).
In accordance with the Resolution of the Altai Customs Department No. 14100-2687/97 of 25 August 1998, the combines in controversy were confiscated and transferred to the public joint-stock company "Barnaulsky zavod mekhanicheskih pressov" in order to be sold on commission (contract of commission No. 5 of 16 February 1999). The public joint-stock company "Barnaulsky zavod mekhanicheskih pressov" sold nine combines to the Limited Liability Partnership "Melnitsa" in accordance to the sale contracts No. 38/4 and 39/4 of 15 March 1999.
Since the leasing payments had not been made, the Firm commenced the present action at the Arbitration court for the Altai Region.
When hearing the case, the lower and cassational courts applied German law as well as the provisions of the UN Convention on Contracts for the International Sale of Goods of 11 April 1980 ("the Vienna Convention").
Besides, the Firm brought a claim to recover the leasing payments due under the leasing agreement of 15 August 1995 entered into with the private joint-stock company "Terra." In Claimant's opinion, according to the contract of use of 12 February 1997 the Respondent accepted an obligation to make leasing payments. There was no agreement of the parties on the applicable law.
Taking into consideration the requirements of the Principles of the Civil Legislation of the USSR and Republics the court should have resolved the issue of the laws applicable to an obligation in connection with an international commercial transaction by looking at the nature of the contract (contracts) between the parties.
When resolving the issue of the applicable law, the lower court did not determine the legal nature of the mentioned contract by analyzing all of its terms, the nature of the rights and obligations of the parties following from the contract. In its decision, the court refers to both Article 166(1)(1) (sales) and Article 166(1)(2) (hiring) of the Principles of the Civil Legislation of the USSR and does not state on which grounds it uses these provisions on the conflict of laws when determining the applicable law.
In the absence of a definite legal qualification of the transactions which have led to the claim, the court's conclusion as to determining of the law applicable to the relationships between the parties is be held to be unreasonable.
The lower court did not state any reasons which led it to the conclusion that the Vienna Convention was applicable to the relationships of the parties to the action.
The cassational court also did not state such reasons.
When applying the provisions of the Vienna Convention, the courts assumed the existence of a sale-of-goods relationship between the parties. However, the Claimant did not bring the claim to enforce a sales contract. Therefore, both courts heard and the cassational court sustained a claim which had not been brought by the Claimant.
Besides, when reversing the decision in the part relating to the collection of the main debt and interest for the delay in payment and sustaining that claim, the cassational court did not take into account the fact of sustaining the counterclaim in the part releasing the Respondent from the contract obligations.
When making a decision regarding the counterclaims, the lower court did not determine their relation to the original claim, which led to the wrong decision in connection with the counterclaim.
The contested judicial decisions break the uniformity in interpretation and application of the laws by the arbitration courts. According to Article 304(1) of the Arbitration Procedural Code of the Russian Federation, this is a ground for their reversal.
On remand, the court should determine the legal nature of the contract of use taking into consideration all of its terms and intentions of the parties at the time of its conclusion; resolve the issue of the law applicable to the relationships between the parties on such ground; and resolve the issue of the validity of the transactions which served as the basis for the Claimant's claim (leasing agreement No. 6449 of 15 August 1995 and contract of use No. 6449 of 12 February 1997); the nature of obligations taken by the parties and the legal consequences of parties' actions in connection with the contract performance on the grounds of the applicable law.
On the above grounds and in accordance with Articles 304-306 of the Arbitration Procedural Code of the Russian Federation, the Presidium of the Supreme Arbitration Court of the Russian Federation holds:
Chairman V.F. Yakovlev
* Yelena Kalika, a law student at the Pace University School of Law, has studied at the Moscow State Law Academy, interned with a Moscow law firm, and is a Research Assistant at the Pace Institute of International Commercial Law.
All translations should be verified by cross-checking against the original text.
** 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 Masters of Laws (European Studies Program) from the Law School of International Science and Technology University, Kiev, Ukraine (July 2000); a Master of Management in Business of the Business School of International Science and Technology University (June 2002); and has received his LL.M. in International and Comparative Law at the Pace University School of Law.Go to Case Table of Contents