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CISG CASE PRESENTATION

Russia 17 February 2003 Arbitration proceeding 168/2001 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030217r1.html]

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

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Case identification

DATE OF DECISION: 20030217 (17 February 2003)

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: 168/2001

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: United States (respondent)

GOODS INVOLVED: [-]


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 30 ; 35 ; 36 ; 62 ; 63 ; 74 ; 78 [Also cited: Articles 7(2) ; 39(1) ; 45(1)(b) ; 61(1)(a) ]

Classification of issues using UNCITRAL classification code numbers:

30A [Seller's obligations];

35A [Conformity of goods to contract: quality, quantity and description required by contract];

36A [Conformity determined as of time when risk passes to buyer];

62A [Seller may compel performance of any of buyer's obligations];

63A [Seller's notice fixing additional final period for buyer's performance];

74A [General rules for measuring damages: loss suffered as consequence of breach];

78B [Rate of interest]

Descriptors: Conformity of goods ; Specific performance ; Nachfrist ; Damages ; Interest

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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): M.G. Rozenberg, Praktika Mezhdunarodnogo kommercheskogo arbitrazhnogo suda pri TPP RF za 2003 g./Sost. [Arbitration decisions rendered by the International Commercial Tribunal at the Russian Federation Chamber of Commerce and Industry in 2003], published by "Statut" (2004), Case No. 7 [52-61]

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 arbitration proceeding 168/2001 of 17 February 2003

Translation [*] by Yelena Kalika [**]

1. SUMMARY OF RULING

      1.1 In the absence of a choice of law provision in the contract of international sale, the Tribunal found that the parties' relationships were governed by the CISG and Russian civil law as subsidiary law since the parties' commercial enterprises were located in CISG Contracting States. The application of Russian law as subsidiary law follows from the provisions of Article 166 of the USSR Principles of Civil Law 1991 which were in force when the contract was made. The Tribunal pointed out that the conflict of laws provision of Chapter 3 of the Russian Federation Civil Code was inapplicable because the parties had made the contract before Chapter 3 came into force.

      1.2 If a party refers to certain circumstances, that party has the burden of proof of such circumstances. Consequentially, the Tribunal found that only those payments were paid off which were made by the Respondent [Buyer] pursuant to those payment documents which contained references to the said contract.

      1.3 The parties' additional agreement on the procedure of quality inspection did not state that it could be applied retroactively. [Thus,] it was not applied to the deliveries made prior to its date of signing.

      1.4 In the absence of the parties' agreement on the reduced price of goods, where it was determined that the goods were defective, the Tribunal found unreasonable the [Buyer]'s actions where the [Buyer] retained the goods for the sum by which, in his opinion, the price of such [defective] goods was to be reduced.

      1.5 Since neither party took proper steps to settle the issue of price reduction, which led to the imposition of penalties on the [Seller] by the customs authorities, the Tribunal found that the parties were mutually liable and held that the [Buyer] was to reimburse the [Seller] 50% of the penalties paid. ([The penalties were imposed] in connection with the [Seller]'s failure to timely deposit hard currency proceeds).

      1.6 The [Seller]'s claim to recover a payment for the goods, which he delivered in breach of the contractual terms concerning the quality of goods as well as of the term of delivery as applied to the fulfillment of the customs formalities, was denied.

2. FACTS AND PLEADINGS

Claimant [Seller], a Russian firm, brought a claim against Respondent [Buyer], a U.S. firm, in connection with partial non-payment for goods delivered under a contract for the international sale of goods made by the parties on 1 March 2000.

The contract provided for the delivery of goods FCA place of shipment in the place of the [Seller] based on Incoterms-90. The goods were to be shipped to two Russian ports. In connection with the shipment to Port No. 1, the [Buyer] made a partial payment alleging that he incurred certain expenses in connection with processing the goods at the port and putting aside the defective goods. The [Buyer] did not pay for the delivery of the goods to Port No. 2 at all alleging that the [Seller] delivered the goods that did not conform with the quality requirements set forth in the contract and failed to fulfill his obligations to carry out all the customs formalities as set forth in Incoterms-90.

The [Seller]'s claims included:

     --      Payment of the sum in arrears for the goods delivered;
     -- Interest for the delay in payment;
     -- Damages sustained in connection with the payment of the penalties imposed by the customs authorities in connection with the failure to timely deposit hard currency proceeds;
     -- Arbitration fees;
     -- Attorneys' fees.

The [Buyer] contested the [Seller]'s claims regarding deliveries made to Port No. 1. In particular, the [Buyer] argued that he was making payments to the [Seller] not only in connection with the contract in controversy but also in connection with another contract made by the [Seller] with a different firm. [Thus,] the [Seller] unreasonably counted the payments made by the [Buyer] against that other contract and not against the present contract. As to the deliveries made to Port No. 2, in the [Buyer]'s opinion, the [Seller] completely failed to perform his obligations under the contract to hand over the goods in conformity with the requirements set forth in the contract.

In particular, the parties disputed the following issues:

     --      The procedure of inspection of the quality of goods;
     -- Whether or not the goods delivered to Port No. 2 conformed with the contractual requirements as to their quality;
     -- The method of determining the length of delay in connection with deliveries of goods to Port No. 1;
     -- The rate of annual interest;
     -- The recovery by the [Seller] of losses resulted from his paying penalties for the untimely deposit of hard currency proceeds.

3. TRIBUNAL'S REASONING

The award rendered by the Tribunal contained the following main points.

      3.1 The Tribunal's competence to arbitrate the present dispute follows from the arbitration clause in the contract made by the parties on 1 March 2000 (Clause 11). The [Seller] also acknowledged the Tribunal's competence in his complaint. The [Buyer] does not contest the competence of the Tribunal. Therefore, pursuant to Article 1(2) and (3) of the Rules of the Tribunal, the Tribunal is competent to arbitrate the present dispute.

      3.2 Turning to the issue of the applicable law, the Tribunal ascertains that, although the title of Clause 11 of the contract of 1 March 2000 is "The applicable law and jurisdiction", it does not, in fact, contain the parties' agreement on this issue.

Taking into consideration that, when the contract was made, the [Seller]'s and [Buyer]'s enterprises were located in CISG Contracting States and that the parties did not exclude the application of the CISG to the relationships following from the contract, and since the [Seller]'s position, which is stated in the complaint, that the CISG governs the present dispute, is well supported, the Tribunal concludes that, pursuant to Article 1(1)(a) CISG, the parties' relationships in the present dispute are governed by the CISG.

Pursuant to Article 7(2) CISG, the Tribunal also finds that issues not directly settled in the CISG are governed by the rules of international private law. Based on Article 5 of the Federal Law "On coming into force of Chapter 3 of the Russian Federation Civil Code", which limits the applicability of the conflict of laws provisions only to the relationships that arose after the said rules of law came into force, i.e., pursuant to Article 1 of the said law, to the relationships that arose after 1 March 2002, the Tribunal finds that the applicable substantive law should be determined in accordance with the rules of international private law which were in force when the relationships under the contract were created. [Thus, the applicable substantive law] should be determined in accordance with the USSR Principles of Civil Law 1991. Article 166 [of the said Principles] sets forth that the law of the State of the seller under a contract of sale shall apply. Since under the present contract the seller is a Russian firm, the laws of the Russian Federation shall apply to the present dispute as stated by the [Seller] in his complaint.

      3.3 When arbitrating the [Seller]'s claim to recover the sum in arrears for the goods delivered to Port No. 1, the Tribunal took into consideration the following.

The materials of the case evidence and the parties do not contest that, in accordance with Appendixes 1 and 2 to the contract of 1 March 2000, from July, 2000 to September, 2000 the [Seller] delivered to the [Buyer] the goods for the total value stated in the complaint. Of all of the copies of payment orders contained in the materials of the case, only the payment orders dated 11 October 2000 and 25 December 2000 expressly refer to the contract of 1 March 2000 and the payment order dated 14 September 2000 refers to the three invoices issued in connection with that contract (invoices No. 310 of 27 July 2000, No. 313 of 24 July 2000 and No. 346 of 14 August 2000). The copies of other payment documents, which are contained in the materials of the case or submitted by the [Buyer], do not prove that the amounts stated in them were transferred under the contract of 1 March 2000. The payment order dated 20 October 2000 does not refer either to the present contract or to the invoices issued in connection with it. However, the copies of the operation documents in connection with the electronic banking transfer of the same amount dated 19 October 2000 and 2 October 2000 refer to invoice No. 468 of 5 January 2000 issued in connection with another [Seller]'s contract, i.e., the contract of 10 December 1998, under which the [Buyer] was the payor. This fact is also supported by the notice on the separate payments under the two said contracts, which the [Buyer] sent to the customs authorities. The [Seller]'s suggestion to divide the payment under invoice No. 468 in order to attribute part of the sum to the contract of 1 March 2000, which was stated in his letter of 8 August 2001 and to which the [Buyer] refers as to proof that the said amount was transferred under the said contract, only proves that the [Seller] made an attempt to settle the situation in connection with non-deposit of the hard currency proceeds under the contract. However, no documents evidencing that the above stated sum was attributed to the contract of 1 March, 2000 have been presented to the Tribunal.

For the above stated reasons, the Tribunal concludes that the [Buyer] made only partial payment for the goods delivered by the [Seller] to Port No. 1 under the contract of 1 March 2000.

In connection with the sum for which the [Seller] failed to deliver goods, the Tribunal agrees with the [Seller]'s argument that the [Seller] did not take the said amount into account when computing the amount of the claim. The [Buyer] failed to present any evidence to the Tribunal that the said amount was included into the amount of the claim by the [Seller].

The Tribunal further ascertains that the [Buyer] lawfully made the inspection of the quality of the goods delivered in accordance with the procedure set in Clause 6 of the contract of 1 March 2000 and not in accordance with the procedure to which the parties agreed in Appendix 5 to the contract signed by the parties on 10 October 2000, i.e., after the deliveries had been made in July - August 2000. [Moreover, Appendix 5] does not expressly state that it also governs deliveries already made.

The materials of the case evidence that, in his letter of 22 September 2000, the [Seller] agreed to completely sort the goods in response to [Buyer]'s offer stated in the letter of 21 September 2000 in which the cost of sorting was suggested in US dollars. Thus, the [Buyer]'s expenses in connection with sorting of the goods delivered amounted to the sum in U.S. dollars stated by the [Buyer]. Pursuant to Articles 36 and 39(1) CISG, the Tribunal concludes that the [Buyer] rightfully withheld the said amount.

As to the [Buyer]'s reference to the reduction of price by the said amount made by him in U.S. dollars, the Tribunal ascertains that there was no documentary evidence that the parties agreed to such reduction of the price. Both parties are responsible for not entering into the relevant agreement to reduce the price and, thus, the [Buyer] has no right to withhold the payment of the said amount.

The [Seller] presented to the Tribunal a bank statement of 12 August 2002 evidencing the amount of the hard currency proceeds that were not deposited under the contract of 1 March 2000. Thus, the [Seller] has supported with documents the amount that the [Buyer] failed to pay for the goods.

Since the [Seller]'s claims are made within the limits of the sum unpaid, pursuant to articles 61(1)(a) and 62 CISG, the Tribunal finds the [Seller]'s claim reasonable and sustains it.

      3.4 When arbitrating the [Seller]'s claim to recover from the [Buyer] annual interest for the use of another's funds from 29 October 2000 to 31 July 2001 (275 days) at the rate of 12.5% annually, the Tribunal took the following circumstances into consideration.

During the proceeding, the [Seller] filed a corrected claim to recover [such annual interest] for 270 days at the rate of 11.8% annually based on "Vestnik Banka Rossii" No. 40-41 of 17 July 2002 ["The Bank of Russia News"]. According to [the said publication], [the said] rate was set for August 2001, i.e., when the claim was brought.

In accordance with Clause 5 of the contract, the payment obligation was to be fulfilled within seven banking days after the date on which the act of acceptance was signed at the place of destination (the port of destination) and certified by a representative of the port but no later than ninety days from the date on which the state customs declaration was issued. The copies of the general form acts, which the materials of the case contain and which were made in conformity with the contractual terms, evidence that the [Seller] delivered the goods to Port No. 1 in 13 lots from 29 July 2000 to 11 September, 2000. Therefore, the payment obligations accrued on different dates. However, pursuant to Articles 45 and 47 of the Unified Rules and Customs for Documentary Letters of Credits (the 1993 publication MPT No. 500), [the said payment obligations] accrued no later than 21 September 2000. However, in Protocol of 3 October 2000 the parties agreed to postpone payments under the contract to 25 October 2000 - 28 October 2000 since it was necessary to sort the goods. For the above stated reasons and based on Article 63 CISG, which establishes a right of the seller to fix an additional period of time of reasonable length for performance by the buyer of his obligations, the Tribunal finds reasonable the [Seller]'s choice of 29 October, 2000 as the date on which the delay [in payment] started.

Pursuant to Article 78 CISG, Article 395(1) of the Russian Federation Civil Code, Clause 52 of the Resolution issued by the Russian Federation Supreme Court and Higher Arbitration Court No. 6/8 of 1 July, 1996 on Recovery of Annual Interest on Short-term Loans in Hard Currency, as well as to the Resolution of the Russian Federation Supreme Court and Higher Arbitration Court No. 13/14 of 8 October, 1998, the Tribunal finds that the [Seller]'s claim to recover from the [Buyer] interest for the use of another's funds should be granted in the amount claimed by the [Seller].

      3.5 When arbitrating the [Seller]'s claim to recover from the [Buyer] the sum paid as penalties for the breach of the customs rules, the Tribunal took into consideration the following. The [Seller] submitted a copy of the Resolution of 7 May, 2001, according to which liability should be imposed on the [Seller] in connection with his failure to deposit hard currency proceeds. The amount of liability imposed was equal to 100% of the cost of the goods delivered under the contract of 1 March 2000 and pursuant to the state customs declaration No. 10203/290800/0001189. The [Seller] also submitted a copy of the Resolution No. 10200-481/2001 of 7 May 2001, according to which liability should be imposed on the [Seller] in connection with his failure to deposit hard currency proceeds. The amount of liability imposed [under the second Resolution] was equal to 100% of the cost of the goods delivered under the same contract and pursuant to the State customs declarations No. 10200/080800/0006251 and No. 10200/150800/0006349.

The copies of the payment orders No. 65 of 14 November, 2001, No. 1397 of 13 December, 2001 and No. 50 of 15 January, 2002 evidence that the [Seller] has paid the said penalties.

The obligation to pay the said penalties resulted from the [Buyer]'s failure to pay for the goods, which the [Seller] delivered under the contract of 1 March 2000. However, it follows from the materials of the case and from the parties' statements made during the proceeding that both parties had an opportunity to settle the issue of the price of the goods exported -- in particular, the issue of reduction of the price of the goods due to their defectiveness -- but failed to take any reasonable steps in order to settle. Thus, they are equally liable for the penalties paid.

For the above stated reasons and pursuant to Articles 45(1)(b) and 74 CISG as well as to Article 404(1) of the Russian Federation Civil Code, the Tribunal finds that the [Buyer] must reimburse the [Seller] 50% of the penalties paid by the [Seller].

      3.6 When arbitrating the [Seller]'s claim to recover from the [Buyer] the sum of the principal debt for the goods delivered to Port No. 2, the Tribunal took into consideration the following circumstances.

Appendix 3 to the contract of 1 March 2000 sets forth that the goods delivered to the second port of destination in order to be exported further must conform to the GOST 8486 1-4C standard but with certain additional requirements. According to the documents submitted with the materials of the case, the goods were delivered in violation of Article 35 CISG and were not of the quality stated in the contract. This fact is evidenced by the acts of acceptance and other documents as well as admitted by the [Seller] in his letter of 9 January 2001.

The [Seller] also failed to fulfill his obligation to ship the goods based on the shipping term set by the parties in the contract of 1 March 2000 as FCA place of shipment under Incoterms-90. Clause A2 of [the contract] set forth the buyer's obligation to carry out all the export customs formalities required. Moreover, in accordance with the railroad waybills submitted with materials of the case, the recipient of the goods was not the [Buyer] but a different organization. It was that organization that accepted the goods. It also accepted the quality of the goods. That the goods were delivered to Port No. 2 not for the [Buyer] is also evidenced by the [Seller]'s letter of 9 January 2001. [In that letter] the [Seller] asked the [Buyer] to assist him in selling the said goods since his own attempts to sell the goods had failed. Thus, the [Seller] failed to fulfill his obligation to deliver the goods to the [Buyer].

For the above stated reason and pursuant to Article 30 CISG, the Tribunal finds unreasonable the [Seller]'s claim to recover the price of the goods delivered to Port No. 2 and denies it.

      3.7 When arbitrating the [Seller]'s claim to recover from the [Buyer] annual interest for the use of another's funds calculated at the rate of 12.5% annually on the sum of the unpaid goods for the period of time from 1 September, 2000 to 31 July, 2001 (334 days), the Tribunal took into consideration that, according to the materials of the case, the [Seller] failed to deliver the goods to the [Buyer] at Port No. 2. [Thus, the Tribunal] finds the said claim unreasonable and denies it.

      3.8 When arbitrating the [Seller]'s claim to recover from the [Buyer] attorneys' fees paid by the [Seller], the Tribunal concludes, based on Article 9 of the Regulations on Arbitration Fees and expenses (Appendix to the Rules of the Tribunal), that although the said claim of the [Seller] is evidenced by the copy of the contract No. 5 of 5 April 2001 to provide legal services -- and according to which the said sum has been transferred by the [Seller] under the payment orders No. 412 of 10 April 2001 and No. 677 of 24 May 2002 -- it exceeds the limits of reasonable expenses and, thus, shall be sustained in the amount that the Tribunal believes to be reasonable.

      3.9 In accordance with Article 6(2) of the Regulations of Arbitration Fees and Expenses (Appendix to the Rules of the Tribunal), arbitration fees shall be paid by the [Buyer] in proportion to the claims sustained. The [Seller] shall pay arbitration fees in proportion to the claims denied.


FOOTNOTES

* This is a translation of data on Proceeding 168/2001, dated 17 February 2003, of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, reported in Rozenberg ed., Arb. Praktika (2003) No. 7 [52-61].

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 United States 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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