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CISG CASE PRESENTATION

Russia 25 June 2003 Arbitration proceeding 151/2002 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/030625r1.html]

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

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Case identification

DATE OF DECISION: 20030625 (25 June 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: 151/2002

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Ukraine (respondent)

BUYER'S COUNTRY: Russian Federation (claimant)

GOODS INVOLVED: Equipment


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 33 ; 46 ; 49

Classification of issues using UNCITRAL classification code numbers:

6A ; 6B [Choice of law: application of law of Contracting State held to be an application of the Convention; Modification of Convention by contract];

33C [Time for delivery: when not provided in contract, a reasonable time after conclusion of contract];

46C [Buyer's right to require repair of non-conforming goods];

49A [Buyer's right to avoid contract]

Descriptors: Choice of law ; Delivery ; Cure ; Avoidance

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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. 24 [136-142]

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 151/2002 of 25 June 2003

Translation [*] by Yelena Kalika [**]

1. SUMMARY OF RULING

     1.1 A provision in the contract for the international sale of goods established the application of Russian substantive law to the relationships of the parties. [The Tribunal] took into account that the parties' commercial enterprises were located in CISG Contracting States and that in their contract the parties did not exclude the application of the CISG. Thus, the CISG was found to govern the relationships of the parties as the principal statute.

     1.2 The provision in the contract stating that the parties' liability in connection with non-performance of obligations should be determined in accordance with the Regulations on delivery of industrial goods, which was approved by Resolution No. 888 of the USSR Council of Ministers on 25 July 1988 [typographic error corrected: 1998 had been written in the published text] ("Regulations "), was interpreted as the parties' agreement on a contractual term in connection with a certain issue because the Regulations had not been in force since 1 March 1996, i.e., since the date on which Part II of the Russian Federation Civil Code came into force. Thus, the Tribunal concluded that other provisions of the Regulations were inapplicable to this contract that was entered into in 2001.

     1.3 When resolving the issue of liability for the untimely delivery of goods as well as for the delivery of defective goods, the Tribunal applied the relevant provisions of the Regulations. At the same time, when evaluating the reasonableness of the means of legal protection, which were utilized by the [Buyer], the Tribunal took into account the provisions of the CISG.

     1.4 The Tribunal concluded that where the contract provided for alternative means of legal protection, the [Buyer] had a right to choose any of them.

     1.5 That the buyer made an advance payment in a sum exceeding the amount stated in the contract cannot be viewed as a breach of contract.

2. FACTS AND PLEADINGS

[Buyer], a Russian firm, bought a claim against Respondent [Seller], a Ukrainian firm, in connection with the improper quality of the equipment delivered and in connection with a short delivery under a contract for the international sale of goods made on 23 March 2001. The [Buyer] made a 100% advance payment. His claims included a refund of the advance payment for the equipment not delivered and for the defective equipment delivered as well as penalties for the short delivery and for the delivery of defective goods.

The [Seller] contested the claim. In his opinion, the [Buyer] unilaterally changed the terms of the contract when the [Buyer] made a 100% advance payment instead of 50% as provided in the contract. Besides, the [Seller] argued that the contract did not limit his performance to a certain period of time and, thus, the contract was still in force. The [Seller] also contested the amount of penalties sought by the [Buyer].

The representatives of the [Seller], who on 27 March 2003 were duly notified of the time and date of the proceeding that was to be held, failed to appear at the arbitration hearing held on 12 May 2003. The [Buyer]'s representative confirmed the claims and contested the [Seller]'s reply to the claim.

On 19 May 2003, the Tribunal received a letter from the [Seller] in which he requested to adjourn the hearing of the case. The Tribunal ascertained that it could not grant such a request because it was clearly late. The Tribunal received the request after it had arbitrated the case on the merits and announced the resolution. The [Seller] received notice of the time and date of the hearing on 27 March 2003. Thus, the [Seller] had sufficient time to send a timely request to the Tribunal.

3. REASONING OF THE TRIBUNAL

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

     3.1 The competence of the Tribunal to arbitrate disputes between the parties is set forth in Clause 4.3 of the parties' contract. The contract contains a provision stating that any disputes shall be submitted for arbitration to the Tribunal. The arbitration shall be done in accordance with the Rules of the Tribunal. Article 1 of the Rules of the Tribunal expressly provides that, in the presence of the parties' agreement, the Tribunal may resolve any such disputes that arise out of contractual or other civil relationships concerning international commercial transactions, if commercial enterprises of the parties are located in different States.

For the above stated reasons and based on Articles 1(2), 1(3) and 1(5) of the Rules of the Tribunal, the Tribunal finds that it has competence to arbitrate the present dispute.

     3.2 Turning to the issue of the law governing the relationships of the parties to the contract, the Tribunal firstly took into account that the States where commercial enterprises of the parties to the dispute are located are CISG Contracting States. Russia has been a CISG Contracting State since 1 September 1991, the Ukraine has been a CISG Contracting State since 1 February 1991. Pursuant to Article 1(1)(a) CISG, the Convention governs the relationships of the parties under the present contract. Clause 4.3 of the contract contains a provision according to which, when resolving a dispute, the rules of Russian substantive law shall apply. It means that the parties agreed that Russian civil law should apply to their relationships as a subsidiary statute. The contract of the parties does not contain any provisions stating that the parties agreed to exclude the application of the CISG to their relationships.

Clause 4.1 in the contract of the parties states that a party's property liability for a breach, as provided in the contract, shall be determined in accordance with the Regulations on delivery of industrial goods which was approved by Resolution No. 888 of the USSR Council of Ministers on 25 July 1988. Such provision means that that the parties agreed that the interpretation of the meaning would be contractual. As expressly stated in the resolution of the Plenum of the Russian Federation Higher Arbitration Court of 22 October 1997, which was published in the News of the Russian Federation Higher Arbitration Court, issue No. 3, 1998, the Regulations, as a legal document, lost their force on 1 March 1996 when Part II of the Russian Federation Civil Code came into force.

     3.3 When resolving the issue of the validity of the contract in controversy, the Tribunal found the following. The [Seller] stated in his reply to the claim of 30 January 2003, which was received by the Tribunal on 11 February 2003, that in accordance with Clause 19 of the Regulations of 25 July 1988, the contract between the parties should be held invalid since it did not contain provisions concerning the date of delivery. This argument of the [Seller] is unreasonable for the following reasons. First, the contract of the parties (Clause 2.3) expressly states the period of time within which the [Seller] should manufacture the equipment and prepare it for delivery. The equipment was to be transported in the buyer's vehicles. Second, as stated above, the Regulations of 25 July 1988, on which the [Seller] relies, lost their force on 1 March 1996, whereas the parties signed their contact in March 2001. Third, even if the parties' contract did not contain a provision on the date of performance by the [Seller], Article 33 CISG provides that:

"The seller must deliver the goods: (a) if a date is fixed by or determinable from the contract, on that date; (b) if a period of time is fixed by or determinable from the contract, at any time within that period unless circumstances indicate that the buyer is to choose a date; or (c) in any other case, within a reasonable time after the conclusion of the contract."

Taking the above into consideration, the Tribunal finds that the contract should be considered valid.

     3.4 When reviewing the claims on the merits, the Tribunal found that the materials of the case established the following.

The [Buyer] paid for the delivery of the equipment in full, as evidenced by payment orders No. 2066 of 26 March 2001 and No. 5625 of 26 April 2001. According to the terms of the contract (Clause 2.3), the [Seller] was to manufacture the equipment and to prepare it [for delivery] within 45 days after the [Buyer] transferred 50% of the advance payment to the [Seller]'s account. Where there is such a term in the contract, the fact that a buyer made an advance payment for the equipment in full does not release the [Seller] from his duty to perform his obligations within the period of time set forth in the contract.

As evidenced by specifications No. 22 of 7 May 2001, No. 25 and 26 of 17 May 2001 as well as by the [Buyer]'s statement and the [Seller]'s reply, the [Seller] delivered only a portion of the equipment.

As evidenced by the inspection reports of 30 May 2001 and 13 June 2001 made by the [Buyer] as well as by the [Seller]'s two letters of 14 June 2001, some portion of the equipment delivered by the [Seller] turned out to be defective.

Pursuant to Article 46 CISG, if the goods do not conform to the contract, the buyer may require the seller to remedy the lack of conformity by repair. The [Buyer] did so. In response to the [Buyer]'s claim, in his letter of 14 June 2001 the [Seller] promised to replace the non-conforming equipment. However, the [Seller] failed to keep his promises.

On 11 June 2002, the [Buyer] sent the [Seller] a claim in which he, in particular, demanded a refund of the payment made in connection with the purchase of the equipment. The [Buyer] also asked the [Seller] to dispose of the equipment rejected. Such demands should be viewed as a claim to declare the contract avoided as provided in Article 49 CISG that gives the buyer such a right.

For the above stated reasons and based on Articles 46 and 49 CISG, the Tribunal concludes that the [Seller] must issue the [Buyer] a refund of the sum paid for the goods undelivered.

     3.5 After reviewing the [Buyer]'s claim to recover from the [Seller] a penalty for the short delivery of the equipment in the amount of 8% of the cost of the equipment not delivered, the Tribunal finds that this claim is based on Clause 4.1 of the parties' contract which provided for property liability for one's failure to perform one's contractual obligations in accordance with Clause 57 of the Regulations of 25 July 1988. The [Seller] has failed to present compelling evidence that the goods delivered under the contract fell within the "machines and specially manufactured equipment" category to which, according to Clause 57 of the Regulations of 28 July 1988, a lower penalty should apply.

The materials of the case fully evidence the fact of a short delivery. The [Seller] did not contest that fact in his reply to the claim.

The Tribunal notes that under the terms of the contract (Clause 4.2), in case of untimely delivery, the [Seller] was to pay the [Buyer] a penalty in a significantly higher amount (at the [bank interest] rate of the Russian Federation Central Bank for each day of delay). Since the parties' contract, in fact, provided for an alternative means of choosing the legal protection by the [Buyer], the Tribunal finds that the [Buyer]'s claim to recover from the [Seller] a penalty for the short delivery of the equipment should be granted in the amount sought.

     3.6 Turning to the [Buyer]'s claim to recover from the [Seller] a penalty for the delivery of the defective equipment (in the amount of 20% of the cost of the defective goods), the Tribunal finds that the said claim is also based on Clause 4.1 of the parties' contract which provides for property liability for one's failure to perform one's contractual obligations in accordance with Clause 59 of the Regulations of 25 July 1988. By referring to Clause 59 of the Regulations of 25 July 1988 in their contract, the parties, thus, set forth that the goods, which were to be delivered under the contract, were subject to the sanctions provided for in that Clause of the Regulations.

The materials of the case and the [Seller]'s letters of 14 June 2001 fully evidence the fact of delivery of defective goods. The [Seller] did not contest that fact in his reply to the claim. It also follows from the materials of the case that the defects discovered were not repaired by the [Seller].

The [Seller]'s arguments, which were stated in his reply to the claim and according to which Clause 59 of the Regulations of 25 July 1988 applied only in cases, where all the goods set forth in the contract were delivered, cannot be found reasonable. The Tribunal noted that, in accordance with this clause of the Regulations of 25 July 1988, the [Seller] would have been released from the penalty, if he had repaired the defects in the portion of the goods that was timely delivered.

For the above stated reasons, the Tribunal finds that the [Seller] must pay the penalties sought in connection with delivery of defective goods to the [Buyer].

     3.7 Since the [Buyer]'s claims were fully granted, pursuant to Article 6(1) of the Regulations on arbitration fees and expenses, the Tribunal holds that the [Seller] must reimburse to the [Buyer] the amount of the arbitration fees paid.


FOOTNOTES

* This is a translation of data on Proceeding 151/2002, dated 25 June 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. 24 [136-142].

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 [Buyer] and Respondent of the Ukraine is referred to as [Seller].

** 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 February 22, 2005
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