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CISG CASE PRESENTATION

Russia 20 April 2004 Arbitration proceeding 115/2003 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040420r1.html]

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

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Case identification

DATE OF DECISION: 20040420 (20 April 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: 115/2003

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Cyprus (respondent)

GOODS INVOLVED: [-]


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(b)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 4 ; 6 ; 62 [Also cited: Articles 7(2) ; 53 ; 59 ]

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): penalty clauses];

6B [Agreements to apply Convention: choice of law of Contracting State];

62A [Seller may compel performance of any of buyer's obligations: payment of price]

Descriptors: Scope of Convention ; Penalty clauses ; Choice of law ; Price

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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. 19 [139-143]

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 115/2003 of 20 April 2004

Translation [*] by Gayane Nuridzhanyan [**]

1. SUMMARY OF RULING

     1.1 Provided that there exists agreement of the parties to the contract of international sale and purchase about regulation of their relations by the norms of Russian law, the Tribunal has concluded that by virtue of the Constitution of the Russian Federation (art. 15(4)), the Russian Civil Code (art.7(1)) and the Vienna Convention of 1980 (art. 1(1)(b)), the relations of the parties (notwithstanding that a State in which the enterprise of one of the parties is located is not a Contracting State to the Vienna Convention) are regulated by the Vienna Convention of 1980, with norms of Russian substantive law as subsidiary law.

     1.2 Determination procedure of the fine amount for payment delay envisaged by the contract corresponding to the determination procedure of the amount of interest per annum for use of another's monetary funds usually used in international sales (LIBOR + indicated interest), does not affect, in Tribunal's opinion, the qualification of the [Seller]'s claim, admitted as a penalty under provisions of the Russian Civil Code.

2. FACTS AND PLEADINGS

The claim was lodged by a Russian company [Seller] against a Cyprian firm [Buyer] in connection with non-payment for goods delivered under international sale and purchase contract concluded by the parties on 26 February 2003. As basis for its claims [Seller] has presented evidence of delivery of the goods as well as an "Accounts Revise Act" of 21 April 2003. The [Seller] seeks payment of debts, payment of the contract penalty for delay in payment, and reimbursement of arbitration expenses.

[Buyer] has not presented explanations and his representatives have not appeared at the hearings of the Tribunal.

Since [Buyer], who has appointed as an arbiter a person whose permanent residence is not at the place where Tribunal's hearings are conducted, did not pay an advance of his participation in arbitration proceedings and did not respond to the questions directed by the Tribunal's Secretariat, the President of the Tribunal has appointed main and reserve arbiters for him, about which [Buyer] was informed.

3. TRIBUNAL'S REASONING

The award of the Tribunal contained the following basic points.

     3.1 The competence of the Tribunal

Art. 13 of the contract envisages that "all disputes, disagreements and claims arising from the present contract or in connection with it, including those relating to fulfillment, violation, termination or invalidity, in case if they are not settled by means of negotiation of the parties, are to be adjudicated at the International Commercial Arbitral Tribunal at Chamber of Commerce and Industry of Russian Federation (Moscow, Russia) in accordance with its Rules, decision of which are final and binding on both parties".

Based on the above wording of the arbitration clause and the absence of objections of either party to the consideration of the dispute at the Tribunal, the latter has adjudged itself competent to consider the present dispute.

     3.2 Non-appearance of the [Buyer]

In connection with the non-appearance of the [Buyer], the Tribunal has stated that [Buyer] was properly notified about the date and place of the hearings on the case. According to para. 28(2) of the Rules of the Tribunal "non-appearance of the party properly notified about date and place of the hearings does not impede the adjudication of the case and passing of judgment on the case unless the party which failed to appear has applied for adjournment of the proceedings for a valid reason". The [Buyer] has not applied for adjournment of the proceedings in written form. The representative of the [Seller] has stated that it is possible to consider the dispute in the absence of the [Buyer]'s representatives.

Based on the above and following para. 28(2) of the Rules of the Tribunal, the Tribunal concluded that non-appearance of the [Buyer] does not impede adjudication of the case and passing judgment on the case.

     3.3 The applicable law

Art. 13 of the contract provides that norms of Russian law are to be applied to the contract. In the course of the proceedings on 22 March 2004, the representative of the [Seller] pointed out that, in its opinion, relations of the parties under the contract are to be regulated by the Vienna Convention of 1980, and subsidiary by civil legislation of Russian Federation in respect to the issues not regulated by the Vienna Convention.

The Tribunal states that [Seller] and [Buyer] have chosen the applicable law on the grounds of the autonomy of will principle. This principle is one of the most widely recognized norms of private international law and, in particular, is reflected in art. 1210 of the Russian Civil Code. Russia is a Contracting State to the Vienna Convention, which by virtue of art. 15(4) of the Russian Constitution and art. 7(1) of the Russian Civil Code is a component of Russian law system.

According to art. 1(1)(b) of the Vienna Convention it is applicable when the rules of private international law lead to the application of the law of a Contracting State.

In our particular case on the basis of the norm of private international law about the possibility of the parties to the contract to choose the applicable law, the law of Russia, a Contracting State in terms of Vienna Convention, is applied. This results in application of the Convention as part of Russian law for the regulation of the rights and obligations of the parties to the present dispute.

By virtue of art. 7(2) of the Vienna Convention of 1980 and with due account of the existing agreement of the parties on the choice of law, Russian substantive legislation is applied as the subsidiary law.

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

Considering the claims of the [Seller] on recovery of the main sum in arrears, the Tribunal concludes that [Seller] has fulfilled his obligations in respect to the delivery of the goods. The fact of the delivery of the goods to the [Buyer] is confirmed by the railway-bills, cargo customs declarations, and bills of lading. Cost of the goods delivered to the [Buyer] by the [Seller] is confirmed by the Accounts Revise Protocol of 21 April 2003 and the Accounts Revise Act of 21 April 2003. [Buyer] has not presented to the Tribunal objections in respect to the main sum in arrears claimed by the [Seller].

According to art. 53 of the Vienna Convention, [Buyer] must pay the price for the goods as required by the contract and Vienna Convention. In accordance with art. 59 of the Vienna Convention [Buyer] must pay the price on the date fixed by or determinable from the contract and Vienna Convention without the need for any request or compliance with any formality on the part of the [Seller].

The right of [Seller] to require the [Buyer] to pay the price for the goods delivered is provided by art. 62 of the Vienna Convention.

Based on above, the Tribunal concludes that [Seller]'s claim on recovery from the [Buyer] of cost of the goods delivered but not paid for in full is well-founded and subject to satisfaction.

     3.5 Evaluation of reasonableness of [Seller]'s claim to recover from the [Buyer] the contract penalty

[Seller] has set up a claim on recovery of the contract penalty. The right to recover the penalty is foreseen in paras. 10.1 and 10.2 of the contract according to which in case of payment delay the [Buyer] will pay to the [Seller] a fine in the amount of market rate London Interbank Offered Rate (LIBOR) plus 2.5 % -- as of the date at which the payment was to be made under the contract -- of the sum in arrears for each overdue day. For the purpose of the contract, LIBOR is applied for one-month deposits in US dollars published by the Reuters agency at the LIBOR page at 11 a.m. London time in NatWest Bank.

At hearings on 22 March 2004, the representatives of the [Seller] confirmed that they regard the present conditions of the contract as conditions for payment of the contract penalty (fine for payment delay).

Addressing the issue about legal qualification of the present claim, the Tribunal states that Vienna Convention does not regulate questions on recovery of penalties, however, it does not deprive the parties to an international sale and purchase contract of the possibility to reach an agreement on payment of a contract penalty. This sort of agreement on payment of contract penalties is to be regulated by the subsidiary applicable Russian civil legislation.

According to art. 330(1) of the Russian Civil Code a "penalty (fine) is a monetary sum fixed by the law or contract which is to be paid by the debtor to the creditor in case of non-fulfillment or improper fulfillment of the obligations, in particular delay in fulfillment. In respect to the claim for payment of the penalty creditor is not obliged to prove caused losses".

The text of the contract does not indicate directly that the sum which is to be paid by the [Buyer] to the [Seller] in case of payment delay is a penalty. The intent of the parties to include in the contract specifically condition about payment of the penalty is confirmed by the representatives of the [Seller] in the course of the hearings on the case.

With due account to the above, in the Tribunal's opinion, the indication on payment of the interest should be regarded as the parties' determination of the calculation procedure of the amount of the contract penalty for payment delay.

The amount of the penalty is confirmed by the calculation enclosed by the [Seller] to the writ. This calculation is composed by the [Seller] with due account of the delivery dates of different consignment of the goods and payment terms fixed by the contract.

The amount of the penalty is calculated by the [Seller] for the period from the date of the beginning of the payment delay for the goods till the date of the writ (24 July 2003). As basis for the LIBOR used in the calculation of the penalty, [Seller] has presented a bank reference (letter of OJSC "Joint-Stock Commercial Bank BIN" of 28 April 2003, initial no. 06/2138). [Buyer] has not presented to the Tribunal any objections in respect to the calculation of the penalty.

Following art. 330 of Russian Civil Code, the Tribunal finds [Seller]'s claim on recovery of the penalty from the [Buyer] in the amount determined by the [Seller] well-founded and subject to satisfaction.

     3.6 Evaluation of reasonableness of [Seller]'s claim to recover from the [Buyer] of arbitration fee

[Seller] claims to recover from the [Buyer] expenses on payment of arbitration fee. According to para. 6(1) of the Regulation on Arbitration Expenses and Fees (Supplement to the Rules of the Tribunal), "if parties have not agreed on different, arbitration fee is imposed on the party against which arbitral award was passed". Tribunal does not have any information about existence of the agreement of the parties about different distribution of the expenses on the payment of the arbitration fee between the parties.

With due account of the Tribunal's conclusion and satisfaction of the [Seller]'s claims, [Buyer] is obliged to reimburse expenses on payment of the arbitration fee incurred by [Seller].


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Russia is referred to as [Seller] and Respondent of the Cyprus 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 March 13, 2006
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