Russia 9 April 2004 Arbitration proceeding 129/2003 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040409r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 129/2003
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Russian Federation (respondent)
BUYER'S COUNTRY: Germany (claimant)
GOODS INVOLVED: [-]
APPLICATION OF CISG: Yes [Article 1(1)(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
6A [Primacy of the contract]; 8A [Intent of party making statement or engaging in conduct]; 14A1 [Criteria for an offer: definiteness of key conditions]; 74A [General rules for measuring damages: loss suffered as consequence of breach]; 79C [Impediment excusing party from damages: non-performance attributable to third-party contractor]
6A [Primacy of the contract];
8A [Intent of party making statement or engaging in conduct];
14A1 [Criteria for an offer: definiteness of key conditions];
74A [General rules for measuring damages: loss suffered as consequence of breach];
79C [Impediment excusing party from damages: non-performance attributable to third-party contractor]
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. 17 [130-135]
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Queen Mary Case Translation Programme
9 April 2004 [Case No. 129/2003]
Translation [*] by Gayane Nuridzhanyan [**]
Edited by Alexander Morari [***]
1. SUMMARY OF RULING
1.1 Submission of the application by the [Seller] for the joinder of the goods producer as a third party (for which the producer of the goods gave its consent) was recalled by the [Seller] in view of [Buyer]'s objections referring to the fact that the party to the contract which must be held liable for violation of the contract is the [Seller] and not the producer of the goods.
1.2 Since the places of business of the parties to the international sales contract are located in Contracting States to the Vienna Convention 1980 [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG] (Russia and Germany), the CISG is applicable to their relations. The subsidiary statute is determined on the basis of the conflict-of-law rules of the Russian law (art. 1211 of the Russian Civil Code).
1.3 The [Seller]'s arguments that it did not conclude an international sales contract but an agreement of intent were rejected. It was taken into account that the agreement contains all of the essential elements of a sales contract.
1.4 However, an indication in the agreement that a certain clause (a clause about the price) is to be agreed within a settled period of time (yet, it was not agreed), served as a foundation for the declaration that the contract was not concluded for the following period and accordingly, the claims of the [Buyer] for recovery of loss caused by the non-performance of the obligations assumed by the [Seller] for that following period were rejected. In making this decision, the Tribunal followed provisions of the CISG (arts. 4, 12 and 55) as well as the Russian Civil Code (arts. 424, 432 and 485).
1.5 Reference by the [Seller] to the production difficulties suffered by his supplier, the producer of the goods, was not admitted as a foundation for release of the [Seller] from its responsibility for the delay in delivery.
1.6 Contract penalties for the delay in delivery are recovered from the [Seller] for the period up to the day of the [Buyer]'s declaration of the repudiation [avoidance] of the contract.
1.7 [Buyer]'s claim for recovery of loss of profit in connection with non-performance of the obligations under the contract by the [Seller] was rejected since the evidence of the amount claimed by the [Buyer] was not in causal relation to [Seller]'s violation of its obligations.
1.8 On the basis of the counter-action brought by the [Seller], the sum of [Buyer]'s underpayment for the delivered goods with addition of the penalty provided by the contract was recovered from the [Buyer].
1.9 [Seller]'s consent to offset [Buyer]'s claims deprives the [Seller] of the right to recover the loss caused by the payment of an administrative fine based on the decision of the customs authorities of the Russian Federation for violation of the of the procedure of crediting of the proceeds from the sale of exported goods for foreign currency back to the exporter's account in an authorized bank.
2. FACTS AND PLEADINGS
The action was brought by [Buyer], a German organization, against [Seller], a Russian organization, in connection with its violation of the obligation to deliver the goods under the agreement and the contract concluded by the parties on 22 July 2002. In view of non-performance of the obligations by the [Seller], the [Buyer] declared the contract avoided on 7 February 2003.
2.1 [Buyer]'s claims included:
|-||Payment of the contract penalty; and|
|-||Recovery of the loss (loss of profit), not covered by the penalty; as well as|
|-||Recovery from the [Seller] of the arbitration fee.|
2.2 The [Seller] acknowledged that the contract concluded by the parties contains an obligation to pay to the [Buyer] a contract penalty in connection with partial non-delivery of the goods, but objected to the payment of the contractual penalty on the grounds of the agreement of intent signed by the parties.
The [Seller] also alleged that the non-delivery of the goods was caused by production difficulties of the producer of the goods, circumstances for which the [Seller] cannot be held responsible. The [Seller] also contested the evidentiary effect of the documents presented by the [Buyer] as a basis for [Buyer]'s claim for recovery of the loss of profit.
2.3 In its turn, the [Seller] brought a counter-action containing the following claims:
|-||Recovery from the [Buyer] of the sum of the underpayment for the delivered goods with the addition to it of the contract penalty for the delay in payment;|
|-||Recovery from the [Buyer] of the loss caused by the payment of an administrative fine based on the decision of the customs authorities of the Russian Federation for violation of the procedure of crediting of the proceeds from the sale of exported goods for foreign currency back to the exporter's account in an authorized bank.|
In connection with [Buyer]'s objections, the [Seller] recalled its application for the joinder as a third party of the producer of the goods, which gave its consent to participate in the proceedings.
2.4 At the Tribunal's hearings, the [Buyer] insisted on satisfaction of its claims from the original action. In its opinion, the fact that the agreement provides that the price for certain periods is to be fixed later on does not imply that the contract -- which is in compliance with the provisions of the CISG and the Russian Civil Code -- was not concluded by the parties, since the CISG (arts. 6 and 55) and the Russian Civil Code (arts. 424 and 485) admit conclusion of a contract without fixing the price. Hence, the agreement contains all the elements essential for a sales contract.
The fact that the agreement provided for the conclusion of [individual] contracts for monthly deliveries and that such a contract was concluded only for a certain period does not release the [Seller] from performance of the fixed obligation assumed under the agreement even in the absence of such contracts for the subsequent periods.
As for the [Seller]'s claims included into the counter-action, the [Buyer], acknowledging its obligation to pay the sum in arrears for the delivered goods, objected to the [Seller]'s claim for recovery of the loss. The [Buyer] explained that the [Seller] gave its consent to offset the corresponding sum as payment of [Seller]'s debt arising from the penalty clause for the failure to perform its obligation to deliver the goods. This statement was confirmed by the corresponding evidence.
3. TRIBUNAL'S REASONING
The ruling of the Tribunal contained the following main points.
3.1 [The competence of the Tribunal]
The Tribunal's competence to arbitrate the present dispute is determined in art. 10 of the agreement between the parties concluded of 22 July 2002 and art. 11 of the contract of 22 July 2002, in which the parties agreed that all disputes and differences arising from the said agreement and contract are subject to settlement at the International Commercial Arbitration Tribunal in Moscow at the Chamber of Commerce and Industry of the Russian Federation [hereinafter Tribunal] in accordance with the Rules of Tribunal.
Based on the above and on par. 1 of the Rules of Tribunal, the latter acknowledged its competence to arbitrate the present dispute.
3.2 [Applicable law]
Taking into consideration that the parties to the dispute have their places of business in States parties to the CISG, the provisions of the CISG are to be applied to the relations of the parties.
Taking into account provisions of the conflict-of-law rules contained in art. 1211 of the Russian Civil Code, the Tribunal found it justified to apply the Russian law as subsidiary statute.
3.3 [An agreement of intent with all essential elements equals to a sales contract]
The agreement of 22 July 2002 concluded by the parties to the present case determines the specific obligations of its parties in respect of the delivery of the goods: the name of the goods, the quantity and quality of the goods to be delivered, terms (periods) of delivery, terms of payment and other conditions of performance of the obligations, as well as liability of the parties for non-performance or delay in the performance of the obligations. In view of this, the agreement is to be considered as a sales contract and not as an agreement of intent.
Art. 3 of the agreement determines the fixed price of the goods; its term of validity is limited to three months: July, August, and September 2002. According to the same article, the price of the goods for the three subsequent months (October, November, December 2002) was to be agreed by the parties before 20 September 2002, however, it was not agreed. The present circumstances give grounds to find that the contract (agreement of 22 July 2002) was concluded for the period of the first three months.
The Tribunal cannot admit [Buyer]'s statement that art. 55 of the CISG allows conclusion of a sales contract under the indicated conditions without determining the price of the goods and that in such a case the price shall be that which was generally charged for such goods at the time of the conclusion of the contract.
Art. 6 of the CISG entitles the parties to derogate from any of its provisions (subject to art. 12 CISG) or to vary the effect of any of its provisions. According to art. 432 of the Russian Civil Code, which is the subsidiary law applicable to the relations of the parties, a contract is considered concluded if the parties, in due form as appropriate, have reached an agreement in respect to all the essential elements. Essential elements are those which provide the subject of the contract, elements that are determined by the law or other legal acts as essential or required for such kind of contracts as well as all the elements in respect of which an agreement is to be reached upon request of at least one of the parties.
The fact that the parties included in art. 3 of the agreement of 22 July 2002 a provision regarding the necessity to fix the price for the goods to be delivered in the period from October to December 2002 at a later moment, implies that the parties regarded this element as essential. The absence of such a provision for the period from October to December 2002 is considered to be a basis for finding that no sales contract was concluded for that period.
Along with the agreement of 22 July 2002, the parties concluded a contract for delivery of the first installment of the goods, provided for by the agreement (in the period from July to August 2002), specifying the quantity of the goods to be delivered during that period. Supplement to the contract No. 1 of 26 August 2002 extended the term of delivery of the first installment of the goods up to 31 October 2002. With due account to the above, to determine the volume of the delivery and the quantity of the non-delivered goods relating to the first installment of the goods, it is necessary to apply the terms of the contract; whereas in respect of the September installment- the terms of the agreement.
3.4 [Recovery of the contractual penalty]
On 16 October 2002, the [Seller] delivered to the [Buyer] some 101,762 kg out of 200 tons of the goods that had to be delivered under the contract. Thus, the amount of the non-delivered goods under the contract was 98,238 kg.
According to art. 9 of the contract, in case of delay in delivery of the goods of more than fourteen days, the [Seller] is obliged to pay to the [Buyer] contract penalties at 15 % per annum of the price of the goods not delivered in due time. Based on the above, the [Seller] is obliged to pay to the [Buyer] contract penalties for the non-delivered goods in the amount of 98,238 kg for the period from 15 November 2002 to 7 February 2003, the date of the [Buyer]'s declaration of repudiation [avoidance] of the contract.
In compliance with the agreement of 22 July 2002, the [Seller] was obliged to deliver 150 tons of goods in September 2002. Since this obligation was not performed, in accordance with art. 9 of the agreement, the [Seller] is obliged to pay to the [Buyer] the contract penalties in the amount of 15 % per annum of the price of the non-delivered goods for the period from 15 October 2002 to 7 February 2003.
The circumstances referred to by the [Seller] as a justification for non-performance of the obligation to deliver the goods (supplier's production difficulties), cannot be considered as a justification for release of the [Seller] from the liability.
3.5. [Recovery of loss of profit]
[Buyer]'s claim to recover from the [Seller] the loss of profit is not to be granted since the [Buyer] failed to prove that there is a direct causal relationship between the [Seller]'s partial non-performance of the obligations under the agreement and the contract of 22 July 2002 on the one hand, and [Buyer]'s failure to execute deliveries of the goods to the indicated firm, on the other hand. Since contractual relations with the indicated firm were established by the [Buyer] much earlier than the contract and agreement concluded with the [Seller], the [Buyer], while establishing these relations, had no guarantees of the receipt of the goods from the [Seller] for the subsequent delivery to this firm and, therefore, did not exclude the possibility of making use of other sources of supply to perform the obligations to the indicated firm.
The supplementary materials presented at the session of the Tribunal are nothing but usual business correspondence of a company executing intermediary functions with its potential suppliers of the goods, and, therefore, do not have any direct connection with [Seller]'s relations with the [Buyer].
3.6 [Seller's counter-action]
[Seller]'s counter-action against the [Buyer] is to be partially granted. The materials of the case confirm and the [Buyer] does not contest the fact of partial non-payment of the goods received from the [Seller] in the amount of 2 % of their price.
According to art. 7 of the contract, 2 % of the price of the delivered goods was to be paid within 10 days from the date of the delivery in accordance with weighing results at the point of destination, however, no later than 15 days from the shipment date. Since the goods were shipped on 16 October 2002, the term of payment of this sum expired on 31 October 2002.
Pursuant to art. 9 of the contract, in case of delay in payment for the goods for a period exceeding 14 days, the [Buyer] is obliged to pay to the [Seller] a contract penalty at 15 % per annum of the non-paid sum.
The [Seller] claims the recovery of the contract penalty for the delay in payment for the period from 15 November 2002 to 11 March 2004 (see supplement to the statement of counter-action of 24 February 2004).
The Tribunal finds that [Seller]'s claims for recovery of the sum in arrears and the penalty for the delay in payment are to be granted.
However, the Tribunal does not find grounds for satisfaction of the [Seller]'s claim to recover from the [Buyer] the loss incurred by the fine paid by the [Seller] according to the decision of the State Customs Committee of Russian Federation of 27 January 2004 for violation of a customs procedure of crediting of the proceeds from the sale of exported goods for foreign currency back to the exporter's account in an authorized bank.
By its letter of 11 March 2003, the [Seller] notified the [Buyer] that it accepted [Buyer]'s proposition to set off the non-paid part of the price of the goods and the sum of the sanctions for the short delivery of the goods.
By its letter of 20 March 2003, the [Seller] reiterated its consent to such an offset assuming that the Russian legislation (art. 410 of the Russian Civil Code) allows the offset of the similar claims only, which the indicated claims are not, and, besides, the [Seller] was aware of the obligation to credit the proceeds from the sale of exported goods for foreign currency back to the exporter's account in an authorized bank.
Hence, the violation committed by the [Seller] was its own fault.
3.7. [Arbitration fee]
In accordance with section 6(2) of the Rules of Arbitration Expenses and Fees (Supplement to the Rules of Tribunal), each party to the present case must reimburse to the other party expenses on the arbitration fee in proportion to the amount of the granted claims (i.e. the sum recovered from it).
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Germany is referred to as [Buyer] and Respondent of the Russian Federation is referred to as [Seller].
** 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.
*** Alexander Morari, born in the Republic of Moldova, has taken part in a number of international moot courts as a member of the Moldovan Team and as the coach of a Russian team.Go to Case Table of Contents