Russia 9 March 2004 Arbitration proceeding 91/2003 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040309r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 91/2003
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Russian Federation (respondent)
BUYER'S COUNTRY: Lichtenstein (claimant)
GOODS INVOLVED: Barter transaction
APPLICATION OF CISG: No. The Tribunal found that where there was a barter contract, which was governed by Russian substantive law in accordance with the parties’ agreement, and where such contract did not involve any monetary payments between the parties, the CISG was inapplicable. In the rationale of the case, the Tribunal also stated that the barter contract in controversy provided for the exchange of goods without any monetary transactions.
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (Russian): Rozenberg, Praktika of Mezhdunarodnogo kommercheskogo arbitrazhnogo suda pri TPP RF za 2004 g. [Practice of the International Commercial Arbitration Tribunal at the Russian Federation Chamber of Commerce and Industry for 2004] Moscow (2005) No. 11 [83-89]
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Queen Mary Case Translation Programme
Translation by Gayane Nuridzhanyan [*]
1. SUMMARY OF RULING
1.1 Since the contract of the parties (Claimant and the agent who concluded the contract in the interest of his principal) provides for the settlement of disputes before the ICA Tribunal (hereinafter: Tribunal), the Tribunal declares itself competent to adjudicate the dispute between the Claimant and agent. At the same time since evidence of conclusion of an arbitration agreement between the Claimant and the agent's principal are absent, the principal is not included as a Respondent in this proceeding.
1.2 By virtue of the norms of Russian civil law (art.1002 of the Russian Civil Code) rights and responsibilities of an agent under a contract with a third person concluded by the agent on the instruction of the principal are transferred to the principal only where the agent is declared bankrupt. The norm of the Russian Civil Code (art.1000) envisaging the obligation of the principal to release the agent from his obligations undertaken before third persons after fulfillment of the commission cannot serve as ground for acknowledgement of the principal as assignee under the contract, since this provision regulates internal relations between the principal and agent and not relations between the principal and third persons with whom the principal did not deal (art. 990 (2) of Russian Civil Code).
1.3 Reference of the third person to the conditions of the agency contract concluded between the principal and agent is regarded as incorrect, considering that this contract regulates internal relations of its parties and that contract contains a clause on confidentiality, which bars disclosure of its condition to the third persons, including the Claimant.
1.4 The Vienna Convention of 1980 is regarded as inapplicable to the barter contract between the parties that does not envisage monetary payments between the parties. The barter contract is regulated by Russian substantive law.
1.5 In view of conditions of the barter contract it is not clear in what amount and nomenclature the goods are to be delivered in exchange for the equipment supplied by the Claimant and in the absence of the evidences of realistic possibility of the delivery of these goods, the Tribunal has concluded that satisfaction of the Claimant's alternative claim for payment for the equipment delivered is valid.
1.6 The party to the barter contract, which has confirmed fulfilment of the obligations by the other party, is obliged to pay the cost of the equipment delivered.
1.7 The right of the Claimant to claim the payment of interest per annum on the grounds of art. 395 of the Russian Civil Code arises only from the moment when Claimants' demand acquires a monetary nature.
2. FACTS AND PLEADINGS
The claim was lodged by a Liechtenstein firm against two Russian companies in connection with violation of a barter contract concluded by the firm on 17 January 2003 with one of Russian the companies acting as agent. The Claimant states that the responsibility should be borne by the other Russian company (principal), on the instructions of which, under the agency contract, the agent has concluded the barter contract with Claimant.
In Claimant's opinion, by virtue of Russian civil law and conditions of the agency contract, the principal bears direct responsibility to the Claimant for the violation of the conditions of the barter contract.
The Claimant considers that by virtue of art. 1000 of the Russian Civil Code after fulfillment by the First Respondent (agent) of the commission given by the Second Respondent (principal) on the grounds of the agency contract concluded between them on 11 December 1997, the rights and obligations under the disputed contract were transferred to the Second Respondent (principal), and according to art. 13 of the contract all the disputes arising from the disputed contract are to be considered by the Tribunal.
Taking into account that the law does not ban the transfer of the procedural rights under a contract, contained in an arbitration clause, the claims of the Claimant against the Second Respondent in respect to the disputed contract are subject to consideration by the Tribunal.
Since the Claimant has delivered the equipment in full according to the conditions of the barter contract and the Respondent has not delivered the goods, he was obliged to deliver in exchange for the equipment, the Claimant demanded a decision binding the principal to deliver to the Claimant goods in kind, envisaged by the contract or, if impossible to fulfill the obligation in kind, to recover from the principal the cost of the equipment delivered, the valuation of which is in the contract.
Moreover, the Claimant demands to recover in his favor, on the grounds of art. 395 of the Russian Civil Code, interest per annum for the use of his funds till the day of the claim filing as well as the sum of the arbitration fee paid.
The First Respondent (agent) has not presented explanations and has not appeared at the hearings of the Tribunal.
The Second Respondent (principal) contested the Tribunal's competence to consider the claim in respect to him, since he had not concluded the arbitration agreement with the Claimant.
3. TRIBUNAL'S REASONING
The award of the Tribunal contained the following basic points.
3.1 The competence of the Tribunal
Para. 13(2) of the contract concluded on 17 January 2002 stipulates that all disputes and disagreements are to be considered in the Tribunal at the Chamber of Commerce and Industry of Russian Federation according to the Rules of the Tribunal.
Since the present dispute between the Claimant and First Respondent, which has concluded the contract with the Claimant, falls within the scope of the object and subject jurisdiction of the Tribunal, envisaged in para.1(2) of the Rules of the Tribunal, the Tribunal concludes that, according to para.1(3) of the Rules of the Tribunal and art. 7 of Law of the Russian Federation "On International Commercial Arbitration", the Tribunal is the body competent to consider the dispute between the Claimant and First Respondent (agent) that has arisen from the indicated contract.
For reasons of procedural and material law, the Tribunal did not regard as valid the arguments of the Claimant about the competence of the Tribunal to consider his claims against the Second Respondent (principal), which is the party to the agency contract concluded with the First Respondent.
Firstly, by virtue of art. 7 of Law of the Russian Federation "On International Commercial Arbitration", para. 2 of Regulations on International Commercial Arbitral Tribunal at Chamber of Commerce and Industry of Russian Federation, which is a Supplement to the indicated Law and para. 1(3) of the Rules of the Tribunal, to consider the dispute in the Tribunal, the presence of the arbitration agreement is necessary.
The Claimant has not presented any evidence confirming the conclusion of such an agreement between the Claimant and Second Respondent (principal). Nor has the Claimant presented any evidence that any document signed by the Second Respondent refers to the contract of the Claimant with the First Respondent (agent) containing the arbitration clause. Such a reference could have been interpreted as implying consent to this arbitration clause (art. 7(2) of Law of the Russian Federation "On International Commercial Arbitration").
Secondly, since the contract between the Claimant and the First Respondent (agent) provides for the application to their relations of the substantive law of Russian Federation, the statement of the Claimant that all the rights and responsibility under the contract, concluded by the Claimant with the First Respondent, were transferred to the Second Respondent (principal) is examined with due account of the norms of Russian substantive law.
According to art. 990 (2) of the Russian Civil Code, under an agreement concluded by an agent with a third person, the rights and obligations are acquired by the agent, although the principal was indicated in the agreement or has entered into direct relations with the third person with respect to the fulfillment of the agreement.
Section 2 of art. 993 of the Russian Civil Code foresees transfer of the rights under the agreement with the third person by the agent on request of the principal, in case of non-fulfillment by the third person of the agreement concluded with the agent.
Art. 1000 of the Russian Civil Code obliges the principal to accept from the agent all that has been executed under the agency contract and to release the agent after fulfillment of the commission from the obligations undertaken before the third person.
Art. 1002 of the Russian Civil Code envisages transfer to the principal of the rights and obligations under the agreements concluded by the agent for the principal, in the event the agent is declared bankrupt.
Therefore, by virtue of the norms of Russian Civil Code, the transfer to the principal of the rights and obligations under the agreement concluded by the agent with third person is envisaged only, in the event the agent is declared bankrupt. Art. 990(2) clearly fixes the absence of any legal relations between the principal and third person, with whom the agent has concluded the agreement for the principal. Art. 993 of the Russian Civil Code grants the principal the right to demand cession of the right in respect to third person. But Art. 1000 of the Russian Civil Code regulates internal mutual relations of the principal and agent and does not foresee the obligation of the principal to enter into direct legal relations with a third person, with whom the agent has concluded an agreement for the principal.
In this case, there are no evidence that First Respondent (agent) has been declared bankrupt. Hence, the Tribunal does not have grounds to consider the issue of application of the provision of art. 1002 of Russian Civil Code in the present case.
Thirdly, the Tribunal does not regard as correct the reference of the Claimant to the agency contract concluded by Second Respondent (principal) with the First Respondent (agent) on 11 December 1997 because this contract regulates internal relations between these companies as directly indicated in the text of the contract (para. 10.1), according to which the parties undertake during the period of the operation of the contract and three years from the date of its termination to keep confidential the terms of the contract and all information concerning the contract received prior to and in the process of its realization.
Considering the above and following articles 7 and 16 of the Law of Russian Federation "On International Commercial Arbitration", the Tribunal has concluded that it lacks competence in respect to the claims of the Claimant against the Second Respondent (principal).
3.2 Applicable law
The parties have agreed and have fixed this agreement in art. 13 of the contract that the contract is subject to the regulation by Russian substantive law. The Vienna Convention of 1980 by virtue of its international status is part of Russian substantive law, however, its provisions cannot apply in the present case since the relations of the parties are regulated by the terms of a barter contract that envisages the exchange of goods without any money payment and not by a purchase contract.
3.3 Non-appearance of the First Respondent
Considering the issue of the non-appearance of the First Respondent (agent) at the hearings of 10 February 2004, the Tribunal found that First Respondent had received the claim papers on 12 August 2003, objections to the claim of the Second Respondent (principal) on 22 December 2003 and notice of appointment of the hearings on 9 December 2003, which was confirmed by the postal notification. Notice of appointment of the hearing on 10 December 2004 directed to the First Respondent was sent to the same address as the other postings, however, it was returned with note: "Is not registered at the indicated address".
It follows from the above that First Respondent (agent) was notified about the proceedings carried against him but did not inform the Tribunal about his change of the address, did not present objections to the claim, and did not ask for adjournment of the proceeding due to the valid reason.
In connection with the above and considering that notice of the appointment on 10 February of 2004 was sent to the last known postal address of the First Respondent, the latter is considered to have received the notice of the hearings on 10 February 2004 and therefore, following art. 3(1) and art. 25 of the Law of the Russian Federation "On International Commercial Arbitration" as well as para. 28 of the Rules of the Tribunal, the Tribunal has concluded that the non-appearance of the First Respondent does not impede the proceedings on the case and passing the judgment.
3.4 Evaluation of reasonableness of Claimant's claim to recover from the First Respondent the price of the goods that were not delivered
As for the merits of the dispute between the parties to the contract (the Claimant and First Respondent), the Tribunal has come to the following conclusions.
The Claimant alleges the shipment of all equipment, in return for which the Respondent did not provide counter deliveries. According to the terms of the contract (para. 4.5), the date of the delivery of the equipment is the date of drafting of the acceptance-conveyance act at the destination place on the buyer's storage. The Claimant so acted only in respect to the first consignment.
At the hearings of the Tribunal on 10 February 2004 the Claimant presented the act of 14 October 2003 signed by the representatives of the Claimant and First Respondent, which confirms the fulfillment of the obligations under the contract of 17 January 2002 by the Claimant in respect to the delivery of all equipment subject of the claims stated.
Considering the indicated act as well as the fact that First Respondent did not present objections to the merits of the case and to the sum claimed, the Tribunal concludes that the Claimant fulfilled completely his obligation to the First Respondent in respect to the delivery of the equipment.
Though under conditions of the contract (para. 6.14) the price of the equipment includes training of the experts as well, which was not carried out by the Claimant, the First Respondent having not presented any objections to the sum of the claims, thereby admitted the validity of the sum claimed by the Claimant.
Having in view that contract (para. 3.7) provides possible correction of the quantity and nomenclature of the goods subject to delivery by the First Respondent in exchange for the equipment depending on the market conditions and Supplement #3 to the contract as well envisages such a possibility as agreed by the parties. However, such agreement was not presented and the Tribunal, having no arguments that these goods in fact can be delivered, considered it possible to admit the validity of the second alternative claim of the Claimant and for Claimant to recover from the First Respondent in monetary terms the cost of the equipment, set forth in the contract.
3.5 Evaluation of reasonableness of Claimant's demand to recover from the First Respondent interest per annum
The demand of the Claimant for interest on the ground of art. 395 of the Russian Civil Code is subject to dismissal, since by the terms of the barter contract the obligation of the Respondent consisted in fulfillment in kind and the Claimant himself as the first alternative claim insisted on its satisfaction in kind, i.e., on delivery of the goods. The right of demand of the Claimant for recovery of the interest for the use of another's monetary funds arises only after passing the decision about collection of the monetary funds, however such claim was not lodged.
3.6 Arbitration fee
According to para. 6(2) of the Regulations on Arbitration Expenses and Fees, which is a Supplement to the Rules of the Tribunal, in a partial satisfaction of claims, the arbitration fee is imposed on the Respondent proportionally to the amount of the satisfied claims and on the Claimant - proportionally to the part in which claim was not satisfied.
* Gayane Nuridzhanyan, junior associate at the law firm Danylko, Kushnir, Solltys & Yakymyak, Attorneys & Counselors at Law, Kyiv, Ukraine <http://www.dksylaw.com/>, student at Kyiv International University with major in private international law; participant of Canada-Ukraine Parliamentary Program, member of Ukrainian team at 2005 Telders International Moot Court Competition, The Hague.
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