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CISG CASE PRESENTATION

Ukraine 15 April 2004 Tribunal of International Commercial Arbitration, Ukrainian Chamber of Commerce & Trade [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040415u5.html]

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

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Case identification

DATE OF DECISION: 20040415 (15 April 2004)

JURISDICTION: Arbitration ; Ukraine

TRIBUNAL: Tribunal of International Commercial Arbitration at the Ukrainian Chamber of Commerce & Trade

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: [-] (claimant)

BUYER'S COUNTRY: Ukraine (respondent)

GOODS INVOLVED: Counter purchase, goods for goods


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 3 ; 4 [Also cited: Articles 6 ; 47(1) ; 71 ; 73 ; 76 ; 79 ; 80 ; 84 ]

Classification of issues using UNCITRAL classification code numbers:

3C ["Sale of goods": exchanges, barter];

4B [Scope of Convention (issues excluded): statute of limitations]

Descriptors: Sale, definition of ; Barter transactions ; Scope of Convention ; Statute of limitations

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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

English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1104&step=Abstract>

CITATIONS TO TEXT OF DECISION

Original language (Russian): Newspaper "Advocatura" , # 19 of 27 October 2004 and # 20 of 19 November 2004

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

Tribunal of International Commercial Arbitration at
the Ukrainian Chamber of Commerce and Trade

Award of 15 April 2004

Translation [*] by Mykhaylo Danylko [**]

The Tribunal of International Commercial Arbitration at the Ukrainian Chamber of Commerce and Trade (hereinafter Tribunal) heard at the hearing of 15 April 2004 the case arisen from an action of Claimant [Seller], a foreign company, against Respondent [Buyer], a Ukrainian company, to recover the sum of US $711,650.13, constituting the losses for partial non-delivery of the goods for the sum of US $458,537.89 plus the penalty for the delay of delivery in the sum of US $253,112.24. [Seller] also requested compensation of the arbitration fees.

The legal base for arbitration of this case by the Tribunal is Clause 8 of Contract # 99 of 1 February 1999, according to which all disputes and misunderstandings, arising from or in connection with this contract, if they cannot be solved by mutual negotiations between the parties, should be arbitrated exclusively by the Tribunal in Kiev by one arbiter according to the Rules of the Tribunal with application of Ukrainian substantive law; the language of arbitration process should be Russian.

Having reviewed the materials of the case and heard the arguments of the parties' representatives the Tribunal found:

Under Contract # 99 of 1 February 1999, the [Seller] undertook an obligation to deliver to the [Buyer] during February - November 1999 on the terms DAF - Ukrainian-Russian border the goods in the quantity, classification and at the price according to Specification # 1 (with further amendments according to Agreements # 3 of 1 April 1999, # 4 of 1999 (no date), # 7 of 17 August 1999) for the total sum of US $2,988,700.00. In his turn, the [Buyer] undertook an obligation to make during February - December 1999 counter-deliveries of his goods ([the counter-deliveries had to be done] by railroad transportation) according to Specification # 2 (with amendments as per additional agreements # 5 of 25 June 1999 and # 6 of 29 June 1999) for the same sum considering the barter equivalent set in the contract (para. 2.3.) with a condition that the [Buyer should make] his counter-deliveries within ten days from the delivery of goods [from the Seller] for the sum of the goods delivered [by Seller]. In case of breach of this term for more than ten days, the [Buyer] should pay to the [Seller] a penalty in the amount of 0.3 % of the price of non-delivered goods for each day of delay.

Performing his obligations under the contract, the [Seller], during year 1999, delivered to the [Buyer] goods for the total sum of US $1,620,909.89; the [Buyer] during the same time made his counter-deliveries of goods only for the total sum of US $1,162,372.00.

Therefore, the [Buyer] accumulated a debt under the Contract # 99 of 1 February 1999 in the amount of $458,537.89. The [Seller]'s claim letter of 17 June 1999 requesting payment of the debt and penalty for the delay was left without satisfaction. As a result, in January 2004, the [Seller] brought to the Tribunal an action requesting recovery from the [Buyer] the sum of US $711,650.13 of the losses for partial non-delivery of the goods and the penalty for breach of the delivery terms.

The Tribunal sent a letter to [Seller] on 10 January 2004 stating that within thirty days from receipt of the letter the [Seller] should pay the arbitration fees in accordance with Tribunal Rules on Arbitration Fees and Expenses, and proposing to agree with [Buyer] on selection of the arbiter. The Tribunal also warned that until the arbitration fees are paid, the case materials will be will not move forward.

Along with the letter, the Tribunal sent to [Seller] the package of the Tribunal's documents: Rules of the Tribunal, and Recommended List of Arbiters.

The case was taken into proceedings by the decision of the Head of the Tribunal on 13 February 2004.

On 18 February 2004, the Tribunal forwarded to the [Buyer] the copies of the action materials, Rules of the Tribunal and Recommended List of Arbiters with proposal to provide within thirty days a statement of defense and to choose the arbiter in agreement with the [Seller].

On 19 February 2004, the Tribunal received [Buyer]'s letter of 16 February 2004 stating the name of the arbiter agreed with [Seller]. The [Buyer] attached his correspondence with [Seller] regarding this issue.

Arbitration of the dispute was set for 15 April 2004.

On 22 March 2004, the Tribunal received [Buyer]'s statement of defense in which he:

   -    Informed that according to the ruling of the Dnipropetrovsk Region Arbitration Court of 22 September 2003, a bankruptcy proceeding against the [Buyer] is in progress and that there is a moratorium set on satisfaction of creditors' claims (a copy of the ruling was attached);
 
   -    Stated, that since the proceedings in progress (the hearing in Arbitration Court was appointed on 15 April 2004), the claims of [Seller], as well as any other creditor, should be ruled on exclusively in the bankruptcy proceedings, which is in competence of the state arbitration court; the arbitration of this case by the Tribunal should be terminated;
 
   -    Alleged, as to the merits of the claims, that they cannot be granted due to expiration of the limitation period which according to Ukrainian laws is three years.

This statement of defense was forwarded by the Tribunal to the [Seller] on 24 March 2004.

In the hearings, the [Seller]'s representatives supported the claims in full, insisted on arbitration of the present dispute by the Tribunal on the basis of the clause in Contract # 99 of 1 February 1999; they presented to the Tribunal the [Seller]'s comments on the [Buyer]'s statement of defense, copy of which was turned to the [Buyer]'s representative during the hearings.

In his comments, the [Seller] did not agree with [Buyer]'s position, stating that:

   -    The present dispute is in the Tribunal's competence, therefore, it should be heard by this Tribunal, since the matter of the present dispute is not a case to find the [Buyer] a bankrupt, but the particular claims of the [Seller] arising from commercial relations under the international sales contract, which makes the dispute a matter eligible for arbitration before the Tribunal.
 
   -    The Law of Ukraine "On Bankruptcy" does not include a rule according to which cases similar to the present dispute should not be instigated or those already instigated should be terminated in case the respondent is in a bankruptcy proceeding; the explanations of the Supreme Arbitration Court of Ukraine, to which referred the [Buyer]'s concern to application by state arbitration courts of Art. 79 of the Commercial Procedural Code, do not extend to the Arbitration Tribunal, which should arbitrate the disputes in accordance to the procedure as the parties to the contract have agreed.
 
   -    The [Seller] brought an action to the Tribunal within the three-year limitation period, provided by Art. 74 of the Ukrainian Civil Code, since according to Additional Agreement # 8 to Contract # 99 of 1 February 1999, the term of the contract in part of payment of the debt by [Buyer] was prolonged until 31 December 2000, i.e., the parties have set a new term for [Buyer] to perform his obligation to pay for the goods delivered to him by [Seller], the limitation period on which started to run from 1 January 2001, and the action was brought to the Tribunal on 29 December 2003, i.e., within the limitation period provided. The [Seller] attached copies of DHL air waybills with a notice of receipt of the package to the addressee.

[Buyer]'s representatives disputed the action, maintained their position stated in the statement of defense that the case is not in the competence of the Tribunal, therefore, in their belief, the proceedings should be terminated. They presented addendums to their statement which were handed to [Seller]'s representative at the hearings. In the addendums, the [Buyer], stressing the limitation-period issues in this case, confirmed his statement that the [Seller] did not satisfy the Art. 71 Ukrainian Civil Code three-year limitation period for the alleged claims.

In support of his position, the [Buyer] stated:

   -    In accordance with Art. 76 Ukrainian Civil Code, the running of the limitation period starts from the day, when the person has knowledge of or had to become knowledgeable about the breach of his right; since according to para. 2.5. of Contract # 99 of 1 February 1999, within ten days from delivery of goods by [Seller], the [Buyer] had to make a counter-delivery of goods for the same sum as the goods delivered by the [Seller], calculation of the limitation period should be made for each particular unpaid lot of goods after expiration of ten days following the date of [Seller]'s delivery; unpaid by counter-deliveries. Twelve lots of goods were delivered by [Seller] to [Buyer] on various dates from 9 June 1999 to 23 November 1999; the terms of counter-deliveries run out on various dates from 19 June to 3 December 1999; thus the limitation period ran out on respective dates - up to 4 December 2002. The date of the [Seller]'s action before the Tribunal is January 2004.
 
   -    The conclusion between the parties of Additional Agreement # 8 of January 2000, which by its essence is a provision by [Seller] (creditor) of an additional reasonable term for [Buyer]'s (debtor's) performance of his obligations under the contract (until 31 December 2000), in no way influenced the procedure of calculation of the limitation period in the present case.
 
   -    In accordance with Art. 5.1 of the Rules of Tribunal, the day of bringing the action to the Tribunal is a day of its actual handing to the Tribunal, when by mail - date of post office seal at the place of sender; the action documents were sent by courier (handed to courier on 29 December 2003, delivered to the Tribunal on 8 January 2004); [Buyer] alleged that courier service cannot be considered as a post service and the signature of the courier's representative is not adequate to the seal of post service; in such situation should be applicable the general rule of determination of the date of bringing of the action to the Tribunal - the date of handing of the action materials to the Tribunal, i.e., 8 January 2004; therefore, notwithstanding the date from which running of limitation period will be calculated, it was defaulted by the [Seller].
 
   -    Expiration of the limitation period for the principal claim of the [Seller] (recovery of losses) implies also its expiration for the additional claim (recovery of penalty).

Taking into attention the matter of this case, the Tribunal found reasonable to start with identification of the general issues that have essential meaning for solving the present dispute, in particular:

  1. The Tribunal's belief that the [Buyer]'s statement that this case is out of Tribunal's competence due to incompetence of a state arbitration court since the [Buyer] is in the bankruptcy procedure, and also, connected to this [Buyer]'s motion to terminate the proceedings for the abovementioned reasons are not reasonable, because:

    -    According to Art. 38 Law of Ukraine On International Business Activity, disputes, arising during the course of international commercial activity should be arbitrated by courts, arbitration tribunals and by other authorities chosen by the parties to the dispute, if such does not directly contradict Ukrainian laws or provisions of international treaties to which Ukraine is a party;
     
    -    In the present dispute, the parties have chosen the Tribunal as an arbitration authority, having fixed this in the arbitration clause of Contract # 99 of 1 February 1999 (clause 8);
     
    -    The fact that the [Buyer] is in the bankruptcy procedure does not make this clause void: the Law of Ukraine on Bankruptcy, in spite of [Buyer]'s allegation, does not bar arbitration of separate claims to the debtor, against whom the procedure of bankruptcy is in progress, beyond this procedure, as well as does not contain the statement that all the claims to the debtor in bankruptcy should be heard within the bankruptcy procedure; by meaning of this Law, the bankruptcy procedure comprises only claims submitted to the state arbitration court, but not all the claims upon the debtor;
     
    -    The moratorium on barring the grant of the claims of creditors, set by the Dnipropetrovsk Region Arbitration Court of 22 September 2003, providing for suspending payment of [Buyer]'s obligations, term of performance of which has occurred prior to the day of setting the moratorium, does not make the Tribunal's arbitration of this case unreasonable, since barring recovery of sums on the basis of orders and executive writs as well as barring the calculation of penalties and other sanctions for breach of financial obligations (Art. 12(4) Law of Ukraine on Bankruptcy) does not exclude other judicial remedies, in particular declarations of right (Art. 6 Ukrainian Civil Code);
     
    -    The [Buyer]'s reference to the explanation of the Supreme Arbitration Court of Ukraine # 02-5/444 para. 25 of 18 November 1997 does not have any grounds since this explanation is only a consultative document, addressed to state arbitration courts, which under the law have competence to hear bankruptcy cases, and in no event does it extend over the jurisdiction of the Tribunal.
     
           On the basis of the above, taking into account the position of [Seller] that this case is in the Tribunal's competence, being guided by Arts. 16(1) and 32(2) of the Law of Ukraine on the Tribunal of International Commercial Arbitration, the Tribunal declared its jurisdictional competence to arbitrate the present dispute, denied [Buyer]'s motion to terminate the proceedings of this case, and continued the hearings of the dispute.

  2. The parties to Contract # 99 of 1 February 1999 have agreed on the application of Ukrainian substantive law to the disputes arising from this contract.

    In this connection, the Tribunal found necessary to note that in this case Ukrainian laws, effective for the period of conclusion and performance of the contract should be applied, in particular, the Civil Code of Ukraine of 18 July 1963 with further amendments.

    [...]

    The UN Convention on Contracts for the International Sale of Goods (1980) (hereinafter CISG), ratified by Ukraine on 3 January 1990 (entered into force on 1 February 1991) is applicable to the present relations since by virtue of Art. 1(1) CISG it is applicable to the contracts of sale (which is the present contract) between the parties, commercial companies which are located in different States, if, inter alia, according to the rules of international private law the law of a Contracting State to CISG is applicable to the dispute, which is the situation in the present case.

  3. United Nations Convention on the Limitation Period in the International Sale Of Goods (New York, 14 June 1974) could not be applied to the present relations, since the State of the [Seller] is not a Contracting State to this Convention. Ukraine signed and ratified this Convention on 14 July 1974 in the first redaction, which provided for application of the Convention only in the events the commercial companies of the parties to the international sales contract at the moment of entering into the contract are located in Contracting States (Art. 3(1)).

Taking into attention that:

  1. The [Seller], performing his obligations under Contract # 99 of 1 February 1999, during the year 1999 has delivered to the [Buyer] on the term DAF - Ukrainian-Russian border the goods as per specification # 1 to the mentioned contract for the total sum US $1,620,909.89

  2. The [Buyer] has accepted the goods delivered by [Seller] in full, but has paid for it only in part by counter-deliveries of goods in the sum US $1,162,372.00.

  3. As a result, the [Buyer] is in debt under Contract # 99 of 1 February 1999 in the sum of US $458,537.89.

  4. The abovementioned circumstances are confirmed with verification certificate of 24 December 1999 under Contract # 99 of 1 February 1999 and are not disputed by the parties.

  5. As seems from the case materials and is proved by the parties, the [Buyer] did not pay for lots of goods ## 17-28.

  6. Under the contractual terms (clause 2.5.), the [Buyer] had to pay for each lot of [Seller]'s goods by counter-deliveries of his goods within ten days from the date of [Seller]'s delivery, which is under the DAF Incoterms 1990 in this case the date of delivery of the goods to the Russian border.

  7. The Tribunal does not have documents confirming the dates of delivery of the abovementioned lots of goods, and the parties' representatives could not provide such documents since a long time went by. However, there are date stamps on the railroad waybills with dates of customs clearance of the goods at the place of the shipper. The railroad waybill # 664703 (lot # 28), besides a stamp with the date 19 November 1999, has a stamp of the Ukrainian customs - Russian-Ukrainian border, with the date 23 November 1999.

    The Tribunal found it possible to accept this date as a date of delivery of twenty-eight lot of goods by [Seller] and considers that the time needed to transport the goods from the place of shipper to the Ukrainian-Russian border is at least four days.

    Under such circumstances, the Tribunal agrees with -- as provided by [Seller] and sustained by [Buyer] -- dates of delivery of the 17th to 27th lots of goods, which were delayed for 4-7 days from the dates on the stamps of the Russian customs, namely: 9 June 1999, 12 June 1999, [...].

  8. According to the above-mentioned, the [Buyer] was obliged to make counter-deliveries of the goods not later than: 19 June 1999, 22 June 1999, [...] accordingly.

  9. Art. 71 Ukraine Civil Code provides for a three-year limitation period for claims resulting from non-delivery of goods, which starts to run from the day the party got knowledge of or had to become knowledgeable about the breach of his right (Art. 76 Ukraine Civil Code). In the present case, the last day of the counter-delivery of the goods by [Buyer] ends by virtue of Art. 87 Ukraine Civil Code on the according day and month of the last year of the period - in the present case, the year 2002, namely: 19 June 2002, 22 June 2002, [...].

  10. Since the [Buyer] had not made the above-mentioned counter-deliveries, the [Seller] had to bring action not later than the above dates of running out of the limitation period.

  11. [Seller]'s allegation that the "parties have set new term for [Buyer]'s performance of his obligations to pay for the delivered goods in Additional Agreement # 8 of 1 January 2000 to Contract # 99 of 1 February 1999 and that the limitation period would start to run on 1 January 2001" could not be accepted by the Tribunal since:

    -    By this additional agreement, the parties did not change the essence of [Buyer]'s obligation to pay for the goods by counter-deliveries of the goods, nor the procedure of the payment, but only provided for an additional term for performance by [Buyer] of his already breached obligation (in the meaning of Art. 47(1) CISG);
     
    -    This circumstance cannot be a basis for suspension of the limitation period, since according to Art. 79 Ukraine Civil Code running of the limitation period in the disputes between the companies might be suspended by bringing an action to the court;
     
    -    Art. 73 Ukraine Civil Code forbids agreements changing the limitation period or changing the order of its calculation.

  12. The [Seller] brought action against the [Buyer] essentially later than the above-mentioned dates of ending of the limitation period for the claims to recover losses (in this event, without regard to the disputed issue about which day should be the day of submitting the materials to the Tribunal: 29 December 2003 as [Seller] believes or 8 January 2004 as [Buyer] believes), the [Seller] defaulted the limitation period for his claims.

  13. By virtue of Art. 84 Ukraine Civil Code, which states that with the running out of the limitation period for the principal claim, also runs out the limitation period for additional claims (penalty, bail, etc.); therefore [Seller]'s claim to recover from [Buyer] the penalty for delay of counter-deliveries of goods is also overridden.

  14. Since, by virtue of Art. 80 Ukraine Civil Code the running out of the limitation period before the action is brought is a basis for rejecting the action, the [Seller]'s claims caused by [Buyer]'s non-delivery of the goods for the sum of US $458,537.89, penalty for delay of delivery of the goods for the sum of US $253,112.24, in total US $711,650 could not be granted due to running out of the limitation period.

  15. In accordance with para. V(1) of the Rules of Tribunal on Arbitration Fees and Expenses, the arbitration fees in this dispute are put on the party, against which the judgment is rendered, i.e., on [Seller].

AWARD

Being guided by the terms of Contract # 99 of 1 February 1999; CISG, Arts. 6, 71, 73, 76, 79, 80, 84; Ukraine Civil Code, Law of Ukraine On Bankruptcy, Art. 38; Ukraine Law On International Business Activity, Arts. 16(1), 31, 32(2); Ukraine Law on the Tribunal of International Commercial Arbitration, Incoterms 1990 DAF; Arts. 8(4), 8(5), 8(7)-8(9), 8(12) of the Rules of Tribunal, para. V(1) of the Rules of Tribunal on Arbitration Fees and Expenses, the Tribunal rules:

   -    To deny the action of the [Seller] to recover US $711,650.13 due to the running out of the limitation period.
 
   -    To put the arbitration fees on the [Seller].

The judgment is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant is referred to as [Seller] and Respondent of Ukraine is referred to as [Buyer].

** Mykhaylo Danylko is a partner with the law firm Danylko, Kushnir, Soltys & Yakymyak, Attorneys & Counselors at Law, Kiev, Ukraine <http://www.dksylaw.com>. He holds a Master of Laws (European Studies Program) from the Law School of International Business Science and Technology University, Kiev, Ukraine (July 2000); a Master of Management in Business of the Business School of International Science and Technology University, Kiev, Ukraine (June 2002); and has received his LL.M. in International and Comparative Law at the Pace University School of Law.

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