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CISG CASE PRESENTATION

Serbia 23 February 2004 Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce (Gray cast iron case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040223sb.html]

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

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Case identification

DATE OF DECISION: 20040223 (23 February 2004)

JURISDICTION: Arbitration ; Serbia

TRIBUNAL: Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce in Belgrade, Serbia

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: T-09/01

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Serbia (claimant)

BUYER'S COUNTRY: Italy (respondent)

GOODS INVOLVED: Gray cast iron


Classification of issues present

APPLICATION OF CISG: The tribunal appears to have applied both the Yugoslav Law on Contracts and Torts and the CISG

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 39 ; 78 [Could also be relevant: Article 49 ]

Classification of issues using UNCITRAL classification code numbers:

39C[Requirement to notify seller of lack of conformity: form of notice]

78B [Rate of interest]

Descriptors: Lack of conformity notice ; 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 (Serbian): Click here for Serbian text of case

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Serbian: [2008] Vladimir Pavic, Milena Djordjevic, Primena Becke konvencije u arbitraznoj praksi Spoljnotrgovinske arbitraze pri Privrednoj komori Srbije, Pravo i privreda br. 5-8/2008, cited at pp. 580, 583, 588, 600.

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Foreign Trade Court of Arbitration
Attached to the Serbian Chamber of Commerce in Belgrade

Award of 23 February 2004 [Proceedings No. T-09/01]

Translation [*] by Ivana Nincic [**]
Edited by Dr. Vladimir Pavic, Milena Djordjevic , LL.M. [***]

Claimant (Serbia and Montenegro) [Seller] v. Respondent (Italy) [Buyer]

The Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce in Belgrade, Arbitral Tribunal [...], in a dispute concerning the claim of the [Seller] against the [Buyer] for payment of the debt amounting to Deutsche Mark [DM] 639,145.95, makes the following:

AWARD

1.     [Seller]'s claim is partially granted and [Buyer] is ordered to pay to [Seller] the amount of EUR 239,189.04 within fifteen days from the day of receipt of the award.
 
2. [Buyer] is ordered to pay to [Seller] interest on the amount stated in point 1 of the award pursuant to the discount rate of the Central European Bank in Frankfurt, starting from 10 May 2001 until final payment.
 
3. [Buyer] is ordered to pay to [Seller] the amount of Serbian dinar [DIN] 401,193.00 as compensation for costs of the arbitral proceedings within 15 days from the day of receipt of the award.

STATEMENT OF REASONS

1. Jurisdiction of the Arbitral Tribunal

The jurisdiction of the Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce in this legal matter is established for disputes which arise from contracts for long-term business cooperation, first by the contract concluded between [Seller] and [Buyer] on 10 June 1998, by which the clause in the contract of 3 September 1997 was changed. It had established the jurisdiction of the Court of Arbitration of the Zurich Chamber of Commerce. The Jurisdiction of the Foreign Trade Court in Belgrade was confirmed by the contract of 31 March 1999, and was not amended by later contracts between the parties.

[Buyer] did not contest the existence and validity of the arbitration clause but it indirectly disputed the possibility of this Court of Arbitration to proceed and decide in this case.

Namely, with the submission received by the Court of Arbitration on 25 December 2001, Mrs. A.C,, performing the duty of a Curatore, i.e., representative of a party in insolvency proceedings (insolvency representative - liquidator), pursuant to the Decision of the Tribunale di G., informed this Court of Arbitration that that court had initiated insolvency proceedings against the [Buyer]. She enclosed copies of Decision of that Court No. 168/00 of 14-18 December 2000. Although it was not explicitly asserted, from the communication one deduces the allegation that [Buyer] cannot enter into these proceedings because of the fact that insolvency proceedings were initiated against it.

Evaluating these facts, the Arbitral Tribunal concluded that the Court of Arbitration has jurisdiction and that it can decide in this matter. Particular reasons for such a holding are elaborated on in point four of the statement of reasons of this Award.

2. Appointment of the Arbitrators

[...]

3. The course of the proceedings (chronology of the dispute)

The Statement of Claim was submitted to the Court of Arbitration by the [Seller] on 10 May 2001, [Buyer] submitted its answer though its authorized representative in the insolvency proceedings on 25 December 2001, in the way described in point one of the statement of reasons. In its submission of 26 February 2002, [Seller] stated its response to [Buyer]'s defense, i.e., on the effect and significance of the fact that insolvency proceedings were initiated against [Buyer]. In the same way as in the submission of 25 December 2001, and through the same person, [Buyer] reiterated its position in the submission of 27 March 2002, as an answer to [Seller]'s submission.

The hearing was held on 23 December 2002, in the presence of [Seller]'s representative (attorney). Even though [Buyer] was duly notified of the scheduled hearing, it did not take part in it.

Tribunal had a closed session on 14 January 2003 and decided to order [Seller] to submit to the Tribunal precisely listed data regarding the deliveries and commercial invoices, within 15 days from the day of receipt of the decision.

[Seller] was late in submitting the requested documents (30 May 2003), and the submitted documents were not complete.

In a closed session held on 18 November 2003, the Tribunal decided on the basis of written evidence as stated in the operative part of the award.

4. Preliminary point of law regarding the existence of procedural obstacles

The preliminary procedural question for the hearing and ruling in this case was whether the Court of Arbitration should proceed and decide in light of the fact that insolvency proceedings had began against [Buyer], prior to initiation of the arbitral dispute.

Even though [Buyer] did not expressly dispute the jurisdiction of the Court of Arbitration, [Buyer] had, by sending the notice regarding the commencement of the insolvency proceedings and by not giving any further answer to the Statement of Claim, i.e., by not stating its position on the subject matter of the dispute, de facto called upon [Seller] to attempt compensation in the insolvency proceedings, i.e., [Buyer] asserted that arbitration proceedings cannot be conducted.

In its submission of 26 February 2002, [Seller] laid out its position regarding this issue. According to [Seller], as [Buyer] was not erased from the registry of the authorized Court of the Republic of Italy, it can participate in the proceedings. As the claim was disputed, because the previous attempts (before the commencement of insolvency procedure) to solve the dispute in an amicable way and to satisfy the claims were not successful, the possibility of their satisfaction depends on the award of this Court of Arbitration, and therefore, [Seller] has a legal interest that the Court of Arbitration decide on the disputed relationship.

The question is procedural in nature, and the Tribunal is of the opinion that it should be resolved pursuant to the procedural rules of the law which is in effect in Yugoslavia (Serbia and Montenegro), therefore, by applying the lex fori.

The Rules of this Court of Arbitration do not explicitly provide that initiation of insolvency proceedings is a barrier for conducting arbitration proceedings.

According to Article 203 paragraph 1 point 4 of the Civil Procedure Act which is to be applied as lex fori, a court shall discontinue proceedings when the legal consequences of insolvency proceedings begin. However, the same Act, in its Article 206 paragraph 1 provides that the proceedings will continue if the insolvency representative takes over the proceedings or if the court calls upon it to do so, upon a proposal of the opposite party. These rules can be applied by analogy when dispute resolution is granted to arbitration.

Further, pursuant to the law which according to the Tribunal's opinion should be applied to this issue, after the initiation of insolvency proceedings, the insolvency representative can acknowledge the claim which previously had not been claimed, or the insolvency council of the creditor of the disputed claim can direct it to claim it in a legal suit, in front of a court or another organ (Article 127 of the Law on Compulsory Settlement, Insolvency and Liquidation, which is in effect in Serbia and Montenegro). Therefore, the debtor according to domestic law can be sued even after initiation of insolvency proceedings.

Finally, the parties had explicitly contracted that disputes from their business cooperation (delivery) contracts are to be settled by this Court of Arbitration. If these proceedings can be held in front of a court, there is no reason why only the fact that insolvency proceedings began against a debtor would annul the autonomy of the parties regarding the entrusting of the proceedings to an arbitration and why they would constitute jurisdiction of the court in the seat of the debtor.

In the present case, the Court of Arbitration had on [Seller]'s request called upon [Buyer], and in its name came the person who by Italian law has the status of an insolvency representative, to participate in the proceedings. The Curatore had on two occasions in her submissions laid out her position, but without an express request for termination of proceedings (even though the Tribunal would have proceeded in the same way even if such a request had been submitted), with which she realized her right to participate in the proceedings, by means which she considered appropriate.

Having these reasons in mind, the Tribunal concluded that there are no obstacles to conduct the proceedings before this Court of Arbitration.

5. Statement of Claim and Statements and Allegations of the Parties concerning the factual and legal issues that were considered

In its Statement of Claim, submitted on 1 May 2001, [Seller] had requested that [Buyer] pay it DM 638,145.95, based on contracted and delivered goods pursuant to the contract, plus domiciliary interest on this sum, starting from the day of submitting of the Statement of Claim until final payment, as well as the costs of arbitral proceedings.

In the Statement of Claim, at the hearing and in its submissions, [Seller] stated that it had concluded several contracts with [Buyer] for the delivery of gray cast iron. [Seller] particularly refers to the contract of 31 March 1999, which provides for the delivery of 300,000 kg of cast iron per year, pursuant to the contracted specifications. With its Statement of Claim, [Seller] enclosed the contracts of the same kind which preceded the one concluded on 31 March 1999, and the evidence of deliveries which preceded this date, but according to the statements in the Statement of Claim these contracts i.e., deliveries are not encompassed by the current Statement of Claim.

[Seller] further stated that the contracted goods were regularly delivered to [Buyer], by the sort (type), in the amount and quality as was provided by the contract and specifications, and [Seller] confirmed this with evidence of deliveries and commercial invoices. [Seller] alleges that [Buyer], however, even though it promised to, did not pay for the received goods. [Seller] had, as it asserts, continued with the deliveries and delayed legal suit in an effort to preserve the business cooperation with the foreign buyer, especially having in mind [Buyer]'s verbal and written promises that the debt will be paid.

In support of its assertions, [Seller] submitted, besides the written contracts, the commercial invoices for the delivered goods, stamped with an official seal of the Customs Authority, which proves that customs duties were paid for the goods and that they were transported to the [Buyer]. [Seller] also submits the correspondence regarding the attempt of payment of the debt, and the letter to [Buyer], undated, in which it called upon [Buyer] to amicably settle the dispute.

Apart from the notice regarding the insolvency, [Buyer] did not state its position regarding the [Seller]'s Statement of Claim. From the correspondence which was submitted by [Seller], it can be concluded that [Buyer] partially disputed [Seller]'s claim. In its letter dated 22 April 1999, [Buyer] stated that in resales of the received iron cases to its customers it had received objections in the amount of Italian lira [Itú] 169,630,000. From the submission, it comes out that problems emerged between the parties related to the discontinuation of deliveries which was caused by the bombing of the Federal Republic Yugoslavia.

In its letter of 23 April 1999, also enclosed, [Seller], besides giving a notification related to the current state of debt, acknowledged [Buyer]'s expenses for customs duties (Itú 37,520,000), and with respect to the objections, left for later determination the exact value of the goods which were the subject of objections, and calculation of the debt with respect of the sums which were subject to objection.

Finally, from the submitted delivery notes and commercial invoices, it can be seen that [Seller] continued with the deliveries for some time, however, there is no evidence that an agreement was reached regarding the question of the objections.

Throughout the proceedings, [Seller] maintained its original position, i.e., claimed the debt for the delivered goods in its entirety.

6. Legal issues

From the record, it is undisputed that the parties had engaged in a business relationship for a long period of time, that they regulated their relationship with a number of general (main) and specific contracts and that, based on these contracts, [Seller] delivered, and [Buyer] received the deliveries of cast iron, which [Seller] manufactured. It is also undisputed that [Buyer] did not pay for the delivered goods.

As [Buyer], through its assigned procurator which performs the duty of the insolvency representative, on two occasions instead of giving its defense to the [Seller]'s Statement of Claim only warned of the insolvency procedure which was initiated against the debtor, regarding which the Tribunal already had decided in the statement of reasons for this award, the Tribunal assumed that [Buyer] contested the Statement of Claim.

Therefore, the disputed legal issue for deciding in this case was the question of complaints regarding the delivered iron cases, i.e., the effect that the objection which was given regarding the quality had on the existence and amount of [Seller]'s claim.

7. Evidence and evaluation of evidence

[Seller] submitted the factual basis and evidence of importance for deciding this dispute.

From the contract, commercial invoices and correspondence it was proved that [Seller] delivered the ordered iron cases, and that [Buyer], even though it received the delivery, did not pay for it. Factually, only [Buyer]'s objections may be disputable. From the record, the Tribunal determined:

      1. That the contract provided that the control of quality should be conducted in the seat of the [Seller], and if this is not possible, the [Buyer] is obliged to send its written notice of lack of conformity within eight days, while when lack of conformity is not immediately apparent or the faults that occurred in the process of production the time limit is six months from the date of the delivery.

      2. That the [Buyer] on 22 April 1999 confirmed in writing the complaint for the delivered goods, previously made over the telephone, referring to the complaints of its customers, with the specification of the value of the non-conforming goods (total value Itú 169,630,000), that [Buyer] marked in which warehouse the non-conforming goods were placed and stocked to order of the [Seller], from which it can be seen that it called upon the [Seller] to examine and take them.

      3. In so doing, the [Buyer] had also acted according to the [Seller]'s request, from the correspondence on 16 April 1999, in which [Seller] reaffirms that it is familiar with the complaint, requesting a specification, evidence of the complaints of the end-user and that the goods be stocked so that the [Seller] can determine the justification of the complaints and so it can resolve them.

      4. In its letter of 23 April 1999, [Seller] confirmed the position ser forth in its previous letter, and requested from the [Buyer] payment of the undisputed part of the debt, i.e., reduced for the price of the delivery for the quality of which was contested, leaving precise determination of the amount of goods with a non-conformity for later determination.

      5. In its letter dated 23 June 1999, [Seller] states that conditions for the continuation or business cooperation are fulfilled, calling [Buyer] to a meeting in which, among other questions, the means of resolving the complaints will be determined.

      6. Finally, in an undated letter, which, unlike the others was not written on [Seller]'s memorandum, and which [Seller] in its Statement of Claim qualifies as an invitation for amicable dispute resolution, provided by the contract, [Seller] calls for an agreement on out-of-court settlement.

[Seller] did not provide any other evidence regarding the further development of the matter of the objection on quality of the contracted goods.

Taking into account the aforementioned evidence, the Tribunal especially had in mind that the delivery had occurred in exceptional circumstances, in a state of war, but that after the end of the NATO bombing, as [Seller] itself stated in its letter, conditions to determine the factual basis with respect to the objections on quality were met, and that nothing was done, except for [Buyer]'s invitation to [Seller] to meet for negotiations.

8. Applicable law

In the contract the parties did not determine the applicable substantive law. Therefore, pursuant to Article 46 paragraph 2 of the Rules of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce (hereinafter the Rules), the Tribunal found that the most appropriate primary source in the case is the UN Convention on Contracts for the International Sale of Goods (hereinafter CISG) which was ratified by the countries of the seats of both parties. Pursuant to Article 19 of the Law on Resolution of Conflict of Laws, which was in force in the Federal Republic of Yugoslavia, the applicable law for issues which are not addressed by the CISG is the law of the seat of the seller.

9. Legal holding accepted in the Award

By concluding that it is undisputed that [Seller] delivered the goods according to contract and that [Buyer] received the goods (and further disposed of them), the Tribunal concluded that [Buyer] is obliged to pay for the goods, pursuant to the contracted prices. As such, the Tribunal accepted the [Seller]'s claim in its foundation.

The Tribunal had in mind that [Buyer] made an objection to the quality of a part of the sent goods, and decided that this objection is justified.

Article 39 CISG provides that a buyer of non-conforming goods is obligated to send a notice of lack of conformity to the seller within a reasonable time, and under the threat of loss of his right to rely on the lack of conformity. The CISG does not specify the form of the notice, but from the fact that it needs to be sent and from its contents, the most logical is the written form. It is a standard in contracts of foreign trade that objections are stated in the written form, or that notices made in verbal communication are without delay reiterated in written form. According to the Law on Contracts and Torts (of the FR Yugoslavia, i.e., Serbia) which pursuant to the Law on Resolution of Conflict of Laws is to be applied to fill in the gaps of the CISG, notice of non-conformity which contains the description of the non-conformity has to be sent via registered letter, telegram, or by other reliable way.

[Buyer]'s fax letter form 22 April 1999 according to the Tribunal's understanding represents a notice of an objection made in an appropriate way.

[Buyer] had at the same time clearly stated that it is declaring the contract avoided in the part in which the non-conforming delivery was made (Article 494 Law on Contracts and Torts), requesting a reduction of the invoiced price for the value of the non-conforming delivery.

[Buyer] had at the same time placed the non-conforming goods at [Seller]'s disposal, in the manner which was requested by [Seller]. (This circumstance confirms the authenticity of [Buyer]'s assertions that the end-users had made complaints and had returned part of the delivery).

Even though [Seller] did not expressly and entirely accept the objection to the quality, the partial avoidance of the contract and its consequences, it did not refuse the objection, requesting only that the quantity of the non-conforming goods be determined precisely, provisionally calculating in its correspondence the undisputed part of the price for the conforming delivery, therefore, as if the objection was justified in whole.

Based on the available evidence, the absence of further action by the parties cannot be understood as something for which [Buyer] is responsible. [Seller] did not examine further the stocked non-conforming goods, nor did it change its order regarding the handling of these goods. Its invitation for a talk at [Seller]'s seat, therefore, at the place where the delivery began, and not in the place where the stocked non-conforming goods were, does not have this character.

The Tribunal also had in mind that, in all correspondence, [Seller] had made it seem to the supplier that a resolution for these goods will be found, making it known that the objection to the quality has been accepted in principle, so it can be assumed that [Buyer] acted in good faith.

Having this in mind, the Tribunal decided to only granting the [Seller]'s Statement of Claim partially, in the part in which the goods were conforming, refusing the part of the claim for the amount which according to the delivered written specification amounts to Itú 169,630,000.

Deciding to grant the main claim, the Tribunal applied the rules on mandatory conversion of German Marks (DM) into Euros, and the conversion was carried out according to the prescribed exchange rate of 1.9557 DM / EUR. Previously, with respect to the part of the delivery for which the claim was not granted, and for which [Buyer] made the specifications and calculations in Italian liras, the exchange rate of the lira to the German Mark at the moment of these calculations (22 April 1999), which amounted to Itú 989,194 / DM on that day (pursuant to the list of exchange rates no. 076 of 21 April 1999) was applied, and therefore the claim was refused for the part of the price of the goods that had complaints, which amounts to DM 171,483.04, and granted for the part of the delivery which was conforming, therefore the price for the amount of DM 467,742.90, which, when converted totals to EUR 239,189.04.

With respect to the interest, the [Seller] had requested interest from the moment of submitting the Statement of Claim (not from the moment the debt was due), until payment, and so the Tribunal accepted this claim for the amount stated in the operative part of the award. Having in mind the conversion which was made, the Tribunal had determined the interest in relation to the Euro, i.e., it accepted that it should be determined at the rate equal to the discount rate of the Central European Bank.

The decision on the costs of the proceedings was made based on [Seller]'s specifications of 17 February 2004 and the Rules of the Foreign Trade Court of Arbitration in Belgrade. As it was decided in [Seller]'s favor so that its claim was partially granted, albeit in the substantial part of the claim, pursuant to Article 149 paragraph 2 of the Civil Procedure Act, the Tribunal decided to order [Buyer] to compensate [Seller] for its costs proportionally to the part in which it succeeded in its Statement of Claim. As the expenses according to [Seller]'s accepted specification amounted to Serbian dinar [DIN] 565,061.00, and DIN 441,321.00 for the paid arbitration costs, DIN 91,950.00 for representation at the hearings, and DIN 18,390.00 for the tax on the representation expenses, proportionally to [Seller]'s success, [Buyer] is ordered to pay DIN 401,193.00.

Pursuant to Article 478 paragraph 1 of the Civil Procedure Act and Article 54 paragraph 1 of the Rules of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce, this arbitral award is final and is not subject to appeal.

In Belgrade, 23 February 2004

Presiding Arbitrator ______; Members of the Arbitral Tribunal ______ and _______

[Signed]


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Serbia is referred to as [Seller] and Respondent of Italy is referred to as [Buyer]. Amounts in the former currency of Germany (Deutsche Mark) are indicated as [DM]; amounts in the former currency of Italy (Italian lira) are indicated as [Itú]; amounts in the currency of Serbia (Serbian dinar) are indicated as [DIN].

** Ivana Nincic is a graduate of the University of Belgrade Faculty of Law where she is currently attending Master studies in European Integration.

*** Prof. Vladimir Pavic is an Associate Professor in Private International Law and Arbitration. Milena Djordjevic, LL.M. (U. of Pittsburgh) is a Lecturer in International Commercial Law at the University of Belgrade Faculty of Law.

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