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CISG CASE PRESENTATION

Russia 12 March 2004 Arbitration proceeding 55/2003 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040312r1.html]

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

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Case identification

DATE OF DECISION: 20040312 (12 March 2004)

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: 55/2003

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Germany (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 7 ; 53 ; 61 ; 62

Classification of issues using UNCITRAL classification code numbers:

Unavailable

Descriptors: Unavailable

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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): 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. 12 [90-96]

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 55/2003 of 12 March 2004

Translation [*] by Gayane Nuridzhanyan [**]

1. SUMMARY OF RULING

     1.1 An inaccuracy in the name of arbitration institution referred to in the arbitration clause of the contract does not impede a declaration of the competence of the ICA Tribunal (hereinafter: Tribunal), considering the clarity of intent that both parties meant the Tribunal. This is confirmed by their behavior: Claimant [Seller] lodged its claim with the Tribunal and Respondent [Buyer] presented to the Tribunal its objections to the merits of [Seller]'s claim.

     1.2 The parties' contract does not specify the applicable law. The Tribunal determined that relations under the contract are governed by the Vienna Convention of 1980, considering that the places of business of the parties are located in Contracting States to this Convention, and subsidiarily - by the norms of Russian civil legislation. The subsidiary statute is determined based on part 3 of the Russian Civil Code, taking into account that the contract was concluded after its coming into effect. A reference by Respondent [Buyer] to the "Foundations of Civil Legislation of USSR and Republics" of 31 May 1991 (hereinafter: FCL of 1991) was incorrect, as the FCL of 1991 was not in effect when the parties concluded their contract.

     1.3 The possibility of giving retroactive force to the agreements of the parties concluded after realization of the deliveries involved in the dispute was not admitted.

     1.4 In the absence of evidence to support either [Buyer]'s allegations of breach of contract by the [Seller] or [Buyer]'s claims with respect to violations not declared in accordance with the procedure provided by the contract, the Tribunal concludes that the [Buyer] was not entitled to suspend fulfillment of its obligations on payment of the goods and that [Seller] was entitled to recover from the [Buyer] the main sum in arrears with the contract penalty added thereto.

2. FACTS AND PLEADINGS

The claim was lodged by [Seller], a Russian company, against [Buyer], a German firm, for non-payment of the goods under four consignments according to the contract of international sale and purchase concluded by the parties on 25 May 2002 on the condition FCA St.-Petersburg (INCOTERMS 1990). The [Seller] claimed the recovery of the sum in arrears and the contract penalty provided for the delay of the payments, as well as reimbursement of the arbitration expenses.

The [Buyer] objected and alleging violations of the conditions of the contract by the [Seller] concerning the quality of the goods and terms of the delivery; [Buyer] alleged losses, contested the validity of an addendum to the contract presented by the [Seller], and submitted the results of an the expert examination carried out in the USA in respect to the goods delivered to Germany.

The [Seller] raised objections to all of the arguments of the [Buyer].

3. TRIBUNAL'S REASONING

The award of the Tribunal contained the following basic points.

     3.1 The competence of the Tribunal

In compliance with para. 2 of the Tribunal Regulations and para. 1(2) of the Rules of Tribunal, parties can, by consent, bring before the Tribunal disputes arising from contractual or other civil relations emerging during the realization of foreign trade or other forms of international economic ties where the business enterprise of at least of one of the parties is located abroad. The Tribunal concludes that the contract entered into on 25 May 2002 by the [Seller] and [Buyer] was an international sale and purchase contract and that the parties to it were Russian company - [Seller] and a German firm - [Buyer].

The arbitration clause in art. 8 of the contract provides that:

"All disputes arising from the present contract or in connection with it shall be settled by means of negotiation. If the parties fail to settle disputes by negotiation they are subject to adjudication before the International Commercial Arbitration at the Chamber of Commerce and Industry of the Russian Federation".

According to para. 1(3) of the Rules of the Tribunal, the Tribunal is entitled to consider disputes based on written agreements between the parties on the submission of disputes. Based on art. 8 of the contract, the Tribunal concludes that there exists such a written agreement between the [Seller] and the [Buyer]. The Tribunal also takes into account the fact that:

   -    The [Seller] has lodged its claim and presented all subsequent documents to the ICA Tribunal at the Chamber of Commerce and Industry of the Russian Federation;
 
   -    The [Buyer] has filed with the ICA Tribunal at the Chamber of Commerce and Industry of the Russian Federation objections to the [Seller]'s claim;
 
   -    Representatives of both parties participated into the oral hearings of the case and did not state any objections to the competence of the present Tribunal.

In Tribunal's opinion, this confirms that at the time of the conclusion of the contract the parties meant solely the Tribunal at the Chamber of Commerce and Industry of the Russian Federation; this is also proved by the correct name of the organ at which the Tribunal is established, the Chamber of Commerce and Industry of Russian Federation. Inaccuracy in the way of writing of the name of the court does not influence the substance of the arbitration clause in which, by mutual consent, the parties chose the place of the consideration of the disputes and the arbitration institution competent to consider the disputes.

Considering the above, according to art. 8 of the contract, para. 1 of the Rules of the Tribunal and taking into account the provisions of art. 7 of the Law of Russian Federation "On International Commercial Arbitration", the Tribunal adjudges itself competent to consider the present dispute.

     3.2 Applicable law

The applicable law is not specified in the parties' contract. In these circumstances, as the [Seller] alleged, and as it was reflected in its application of 11 February 2004, the issue of applicable law according to the para. 13 of the Rules of the Tribunal was to be decided by the Tribunal.

In [Buyer]'s opinion, as stated in its objections to the [Seller]'s claim, the relations of the parties to the dispute are to be regulated by the norms of the Vienna Convention of 1980 and by virtue of art.166 of FCL of 1991, art. 28 of the Law of Russian Federation "On International Commercial Arbitration" and para. 13 of the Rules of the Tribunal, the subsidiary law is Russian civil legislation.

The Tribunal agrees with position of the parties on this issue on the following grounds:

   -    According to art. 1(1)(a) of the Vienna Convention of 1980, the CISG is applied to contracts of sale and purchase of goods between parties whose places of business are located in different States if these States are Contracting States. Since the places of business of the [Seller] and [Buyer] are located correspondingly in Russia and Germany and these States are parties to this Convention, its norms are to be applied during the consideration of the present dispute.
 
   -    In compliance with art. 7(2) of the Vienna Convention of 1980, issues subject to the regulation by the Convention and not resolved in it directly, are to be resolved, in particular, according to the law applicable by virtue of the norms of private international law.

The reference of the [Buyer] to art. 166 of the FCL of 1991 in the present case is, however, incorrect, since by virtue of art. 3 of the Federal Law of Russian Federation "On bringing into effect of the third part of Civil Code of Russian Federation" of 26 November 2001 #147-FL, chapter VII "Legal capacity of foreign citizens and legal persons. Application of civil laws of the foreign states and international treaties" of the FCL of 1991, including art. 166, are not to be applied in the territory of the Russian Federation after 1 March 2002.

Considering that the contract was concluded between the [Seller] and the [Buyer] on 25 May 2002, i.e., after the coming into effect of the third part of the Russian Civil Code, the Tribunal found it possible, following art. 1211(3)(1) of the Russian Civil Code, to apply subsidiarily to the contract, Russian law as the law of the [Seller]'s country in the contract of sale and purchase.

     3.3 Evaluation of reasonableness of [Seller]'s claim to recover from the [Buyer] the sum in arrears for the goods delivered

Having considered the claim of the [Seller] for recovery from the [Buyer] of the main sum in arrears, the Tribunal has found that, according to the conditions of the contract, the [Seller] has delivered to the [Buyer] on the term FCA St.-Petersburg (INCOTERMS 1990) four consignments of goods: 12 November 2002 - first consignment, 26 November 2002 - second consignment, 9 December 2002 - third and fourth consignments. This is confirmed by the documents in the materials of the case: orders of the [Buyer], quality certificates, Cargo Customs Declarations, consignment notes CMR, instructions on the shipment of the export goods, bills of lading.

The invoices issued by the [Seller] (of 6, 19, 20 and 23 November 2002) were not paid by the [Buyer]. The [Buyer], in spite of reiterated requests of the [Seller] up to the present moment, has not transferred the funds for the goods delivered. Thus, debts of the [Buyer] to the [Seller] constitute the sum in US dollars claimed to be recovered by the [Seller].

The grounds for non-payment stated by the [Buyer] and indicated in the objections to the claims and objection filed by the representatives of the [Buyer] and developed at the hearings of the Tribunal on 13 February 2004 cannot be taken into account by the Tribunal because of the following.

With respect to the [Buyer]'s statement on the invalidity of Addendum #1 of 20 December 2002 to the contract of 25 May 2002, the Tribunal held that:

     First, the [Buyer] has not presented to the Tribunal any arguments that this addendum was not signed by the [Buyer], i.e., to support his allegation that it was falsified.

     Second, in any event, the date of the conclusion of this addendum should be regarded as 20 December 2002 (the date indicated in the versions of the addendum presented by the [Seller] and by the [Buyer]). The delivery was realized on 12 and 26 November and 9 December 2002. This addendum was thus concluded after the deliveries of the goods in dispute. Consequently, it is not applicable to the relations of the parties in respect to those deliveries.

In its objections, [Buyer] referred to non-fulfillment by the [Seller] of the conditions of the contract in respect to the delivery terms and quality of the goods. However, without justified explanation, the [Buyer] presented its pleadings on this objection much later than the 45-days term fixed by para. 19(2) of the Rules of the Tribunal, which is confirmed by the notification of the messenger service about delivery of the writ to the [Buyer] on 24 June 2003 as well as by the notice of the Tribunal's secretary of 18 December 2003 confirming the receipt of the objections to the writ by the Tribunal.

The statement by the [Buyer] that the [Seller] did not fulfill its obligations in respect to other orders of the [Buyer] (violated the terms of the delivery), as a result of which the [Buyer] alleged losses as expressed in the invoice of 27 December 2002 issued to the [Buyer] by the [Buyer]'s client in the sum in US dollars consisting of the difference in the prices that arose because the [Buyer]'s client had to buy similar goods at higher prices, cannot be admitted by the Tribunal on following grounds.

     First, the [Buyer] did not present to the Tribunal any documents confirming the cause-effect relation between the non-delivery of the goods by the [Seller] under the present contract and losses incurred by the [Buyer].

     Second, as was stated by the representatives of the [Buyer] at the hearings, the indicated sum was not de facto paid by the [Buyer] to its customer;

     Third, the sum was not claimed by the [Buyer] as an independent claim (counterclaim) and the arbitration fee was not paid, in view of which the Tribunal is deprived of the possibility of considering this claim of the [Buyer] at these hearings.

As for the statement of the [Buyer] in respect to the non-conformity of the goods with the quality requirements of the contract, the Tribunal has stated that the [Buyer], referring to the non-conformity of the goods delivered to him with the quality requirements of the contract, did not present the claims to the [Seller] in accordance with the procedure set forth in art. 7 of the contract, which was confirmed by the representatives of the [Buyer] at the hearings of the Tribunal.

And the results of the expert examination submitted by the [Buyer] cannot be taken into consideration by the Tribunal as well, since as it was stated by the representatives of the [Seller], and representative of the [Buyer] did not object to it, the expert examination was conducted with respect to a consignment of goods that was not involved in this dispute.

The [Seller] contended that the expert examination to which the [Buyer] referred:

     First, was not independent since it was initiated and conducted by the [Buyer]'s client and thus, its results cannot be regarded as impartial;

     Second, the expert examination was conducted in the USA whereas the goods were delivered by the [Seller] to Germany;

     Third, the results of the expert examination were dated 9 November 2002 at a time when part of the goods consigned to the [Buyer] had not yet been dispatched by the [Seller] and, with respect to the other part of the goods, at the time when the customs registration was conducted;

     Fourth, the documents do not contain any indication of the producer of the goods.

These arguments of the [Seller] were not refuted by the [Buyer] and the [Buyer] did not present to the Tribunal any documents proving the opposite. Under such conditions, the Tribunal held that results of the expert examination presented by the [Buyer] cannot be used in the present proceedings, since they are irrelevant to the substance of the present dispute.

With due account of the above, the Tribuanl considered that the [Buyer] was not entitled by implication of Vienna Convention and art. 328(2) of the Russian Civil Code to suspend the fulfillment of his obligations under the contract, i.e., not to pay for the goods delivered by the [Seller], since the [Buyer] did not prove that the [Seller] had violated its obligations in respect to the delivery of the disputed consignment of the goods.

The Tribunal regards [Buyer]'s conduct as a unilateral refusal by the [Buyer] to fulfill the obligations of payment for the goods delivered, envisaged by the contract and the Vienna Convention of 1980.

The receipt of the goods is not contested by the [Buyer]. The Tribunal also takes into account that, according to the statement of the representative of the [Buyer], [Buyer] at the present time has the goods.

On the above grounds, following articles 53, 61 and 62 of the Vienna Convention and based on articles 4, 6 and 7 of the contract, the Tribunal finds the claim of the [Seller] for recovery of the main sum in arrears well-founded and subject to satisfaction in full.

     3.4 Evaluation of reasonableness of [Seller]'s claims to recover from the [Buyer] the penalty

Para. 4 of art. 6 of the contract provides a penalty for failure to pay in time in the amount of 0.1 % of the cost of the goods for each overdue day.

The [Seller] has charged this fine for each of four periods of the payment delays in respect to each consignment of the goods, in particular: for the period of the payment delay on the first consignment of the goods from 15 November 2002 till 31 March 2003, for the period of the payment delay on the second consignment of the goods from 29 November 2002 till 31 March 2003, and for the period of the payment delay on the third and fourth consignments of the goods from 12 December 2002 till 31 March 2003. The [Seller] has capitalized the penalty as of 31 March 2003 and thus, defined the general sum of the penalty.

These penalty calculations were accepted by the Tribunal as well-founded. The representative of the [Buyer] at the hearings of the Tribunal on 13 February 2004, while objecting to the merits of the [Seller]'s claims, agreed to [Seller]'s calculation of the penalty.

Considering the above and the fact that monetary funds for the payment of the goods have not been transferred to the [Seller] by the [Buyer] up to the present moment, the Tribunal guided by para. 4 of art. 6 of the contract and articles 330 and 331 of the Russian Civil Code found the claim of the [Seller] for recovery from the [Buyer] of the penalty well-grounded and subject to the satisfaction in the US dollars in the amount claimed.

     3.5 Evaluation of reasonableness of [Seller]'s claims to recover from the [Buyer] the arbitration fee

Having considered the claim of the [Seller] to recover from the [Buyer] the sum of the arbitration fee paid by the [Seller], the Tribunal, following the para. 6(1) of the Regulation on Arbitration Expenses and Fees (Supplement to the Rules of the Tribunal at the Chamber of Commerce and Industry of the Russian Federation), found it valid for [Seller] to recover from the [Buyer] on the indicated grounds the sum of the arbitration fee paid by the [Seller].


FOOTNOTES

* 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 Germany is referred to as [Buyer].

** 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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Pace Law School Institute of International Commercial Law - Last updated February 3, 2006
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