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CISG CASE PRESENTATION

Russia 19 May 2004 Arbitration proceeding 100/2002 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040519r1.html]

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

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Case identification

DATE OF DECISION: 20040519 (19 May 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: 100/2002

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: India (respondent)

BUYER'S COUNTRY: Russian Federation (claimant)

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 78 ; 84 [Also cited: Articles 7 ; 49 ]

Classification of issues using UNCITRAL classification code numbers:

78A ; 78B [Interest on delay in receiving price or any other sum in arrears; Rate of interest];

84A [Seller bound to refund price must pay interest}

Descriptors: Interest

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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=1079&step=Abstract>

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. 24 [162-169]

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
Russian Chamber of Commerce and Industry

19 May 2004 [Case No. 100/2002]

Translation [*] by Alexander Morari [**]

1. SUMMARY OF RULING

      1.1 Although the action was brought and the dispute was arbitrated after Part Three of the Russian Civil Law Code came into force, and since the parties did not agree on the law to be applied to their relations, the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry [hereinafter Tribunal] determined the applicable law on the basis of a conflict-of-law rule provided for in the Fundamentals of Civil Legislation of the USSR, 1991 [hereinafter Fundamentals 1991], in view of the fact that the contract was concluded before Part Three of the Russian Civil Law Code came into force.

The contract was concluded as a result of a tender carried out by a Russian agency of State administration. In accordance with art. 166(4) Fundamentals 1991, Russian law was applied to the dispute as the law of the country in which the tender took place.

Subject to art. 15(4) of the Russian Constitution and art. 1(1)(b) of the Vienna Convention 1980 [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG], the CISG was applied to the relations of the parties since it is a component part of Russian legal system, and provisions of the Russian Federation Civil Code [hereinafter Russian Civil Code] were applied as the subsidiary statute for matters not expressly settled by the CISG in conformity with the general principles on which the CISG is based.

      1.2 In respect of the claim that the [Seller] must refund the price of non-delivered goods, the provision of art. 84(1) CISG was applied, which provides that the [Seller] must also pay interest on the price to be refunded starting from the date on which the price was paid. To calculate the interest rate and determine the procedure of the calculation, art. 395 of the Russian Civil Code was applied having in mind that the CISG does not settle this matter. Taking into consideration that:

      -    the price was paid in Indian rupees, and that
      -    the Tribunal's ruling imposes on the [Seller] an obligation to refund the price in this currency, and that
      -    in Russia (creditor's place of business), there is no interest rate in Indian rupees,

the Tribunal made a recourse to an international practice established in such situations and which is reflected in Principles of International Commercial Contracts, 1994-Unidroit (hereinafter Principles Unidroit). In accordance with this internationally established practice, the Tribunal applied the average bank short-term lending rate to prime borrowers prevailing for the currency of payment in the State of the currency of payment, that is in India. For this matter, the Tribunal made use of Reserve Bank of India's relevant publications on its Internet site.

      1.3 According to art. 395 of the Russian Civil Code, if a payment in rubles is overdue, the interest for making use of another company's monetary funds can only be recovered from the date on which the [Seller] received the monetary funds to the date on which the [Seller] performed the payments, that is for the actual period of time during which the [Seller] made use of [Buyer]'s monetary funds. While calculating the interest to be paid, the Tribunal took into account the refinancing interest rate fixed by the Bank of Russia for the day on which the [Seller] effected partial payments. [Seller]'s violation of its contractual obligation in relation to advance payment, even if the contract does not contain any provision concerning property sanctions for untimely advance payment, cannot lead to an obligation to pay interest for the period before the date on which the [Seller] received the monetary funds from the [Buyer], that is, for the period when the [Seller] did not have an opportunity to make use of these funds.

2. FACTS AND PLEADINGS

The action was brought by the [Buyer], a Russian company, against the [Seller], an Indian company, in connection with non-performance by the [Seller] of its obligation to deliver a consignment of goods, for which the [Seller] received an advance payment, as well as in connection with delay in payment of an amount agreed by the parties as a compensation of [Buyer]'s expenses related to its payment of the amounts included into the price of the goods instead of the [Seller].

      2.1 [Buyer]'s claims included:

      -    recovery of the price paid for the goods that were not delivered with interest on the price to be calculated in accordance with the refinancing interest rate fixed by the Bank of Russia;
 
      -    recovery of the interest in connection with delay of the refund of compensation amount in rubles for the period of time starting from the date, which was stipulated by the contract between the parties, to the date of its actual payment. The interest must be calculated with application of the corresponding refinancing interest rate fixed by the Bank of Russia;
 
      -    recovery of the expenses connected with legal representation and payment of arbitration fee.

      2.2 In its statement of defense, the [Seller] referred to the fact that the delivery could not be performed because the [Buyer] had not obtained an import license. As to the [Buyer]'s claims concerning delay in payment of the compensation, the [Seller] made no submissions.

3. TRIBUNAL'S REASONING

The ruling of the Tribunal contained the following main points.

      3.1 [Jurisdiction of the Tribunal]

      The Tribunal's jurisdiction to arbitrate all disputes between the parties is provided for in clause 12.2 of the contract of 6 July 1999, containing a provision that should the parties fail to reach an agreement, their dispute shall be referred to the Tribunal to be considered in accordance with its rules and usages. The agreement between the parties of 6 July 1999 is an integral part of the said contract.

The object and subject-matter of the dispute fall within Tribunal's jurisdiction established in the Tribunal's Regulations and in the Rules of Tribunal.

Based on the above and clauses 2, 3, and 5 of the Rules of Tribunal, the Tribunal found that it has jurisdiction to arbitrate the present dispute.

      3.2 [Change of Seller's name]

      Having considered [Buyer]'s application concerning change of [Seller]'s name, the Tribunal established that this application is confirmed by the relevant documentation (Certificate of Change of Name No. 04-1590 of 6 February 2001), as well as by the [Seller] itself in its statement of defense of 10 May 2004, which the Tribunal received on 19 May 2004.

Therefore, the Tribunal decided that the [Seller] is the Respondent in the present case. [Seller]'s name and place of business are indicated in submitted official documents.

      3.3 [Change of Buyer's name]

      Having considered [Buyer]'s application concerning its own change of name, the Tribunal established that this application is confirmed by a document submitted by the [Buyer] (the Certificate of Entry into the Unified Registry of Ukrainian Enterprises and Organizations of 5 May 2004) and, based on the document presented, decided to regard [Buyer]'s name as changed.

      3.4 [Applicable law]

      Turning to the matter of law applicable to the relations under the contract between the parties, the Tribunal found that in their contract of 6 July 1999 as well as in an agreement of the same date there is no reference to an applicable law. The Tribunal decides that the Russian law is applicable to the merits of the case in accordance with a conflict-of-law rule in art. 166(4) Fundamentals 1991. Fundamentals 1991 came into force on the territory of the Russian Federation starting from 3 August 1992 and were in force up to 1 March 2002, that is, during the period when the parties concluded both the contract and the agreement.

According to this conflict-of-law rule, should the parties fail to agree on the applicable law, to relations out of a contract concluded as a result of an auction, tender or at an exchange is applied the law of the country in which the said auction or tender took place or the exchange is situated. The contract of 6 July 1999 was concluded between the parties as a result of a tender carried out by a Russian agency of State administration. The agreement of 6 July 1999 is an integral part of the said contract. Therefore, the Tribunal found that Russian law is applicable to the relations between the parties.

Art. 15(4) of the Russian Constitution provides that international agreements of the Russian Federation are a component part of its legal system. If an international agreement of the Russian Federation contains provisions other than provisions of its national law, the provisions of the international agreement shall be applied.

The contract between the parties, in its legal nature, is a contract for the international sale of goods. The Russian Federation is a State party to the CISG. According to art. 1(1)(b) CISG, the CISG is applicable to contracts for the international sale of goods when the rules of international private law lead to the application of the law of a Contracting State (that is a State party to the CISG).

Therefore, by virtue of provisions of the CISG, the relations between the parties based on the contract, out of which the dispute arose, are to be settled by provisions of the CISG. At the same time, the Russian law is applied to matters not expressly settled in the CISG and that cannot be settled with application of general principles on which the CISG is based [art. 7 CISG].

Based on the above, the Tribunal concluded that the dispute between the parties shall be considered with application of the CISG as the primary statute and the Russian law as the subsidiary statute.

      3.5 [The merits of the action against the Seller]

      Turning to the merits of the claims by the [Buyer], the Tribunal takes into consideration the fact the [Buyer] performed in full its obligations under the contract of 6 July 1999 and the agreement of the same date, which is confirmed by a notification from Vneshekonombank [a Russian bank] concerning opening of a letter of credit on 27 September 1999 as well as by primary payment-related documents and which is not contested by the [Seller] in its statement of defense. The amount that was paid to the [Seller] on the basis of the letter of credit included the price of the goods which were not delivered by the [Seller].

The [Seller] stated that it was ready to deliver the goods any time, but the [Buyer] did not have the license necessary for an additional consignment of goods. Yet, this objection made by the [Seller] cannot be taken into account by the Tribunal. In accordance with art. 41 of the Russian Customs Code 1993 (in force in the period of conclusion and performance of the contract of 6 July 1999), the goods could be delivered by the [Seller] and stored in customs warehouse in keeping with special customs regime, under which the imported goods are stored under customs supervision without application to them of measures of economic policy (among other things, without license). The Tribunal notes that clause 4.4 of the contract of 6 July 1999 provides for possibility of application of customs warehouse regime. For that reason, the Tribunal concluded that the [Seller] had no valid reason not to perform its obligation to deliver the goods under the contract of 6 July 1999.

Also, the [Seller] stated that the [Buyer] received the goods from a third party (at a price equal to the price of the goods that the [Seller] had to deliver). The Tribunal cannot take this statement into account as it is not confirmed by any evidence. [Buyer]'s representatives denied receiving any goods from a third party as performance of the contract of 6 July 1999.

The Tribunal takes into consideration the fact that the [Buyer], in its statement of action and in its submissions at the hearing, does not demand specific performance of contractual obligations, that is, delivery of the goods, but rather demands recovery from the [Seller] of the price for the non-delivered goods.

Accordingly, based on art. 49 CISG, the Tribunal rules that the [Seller] must pay to the [Buyer] the price of the non-delivered goods in Indian rupees.

      3.6 [Interest]

      As for [Buyer]'s demand to recover from the [Seller] interest for making use of its monetary funds paid for the non-delivered goods, the Tribunal takes into account art. 84 CISG, which provides that the [Seller] must pay interest on the price to be refunded starting from the date on which the price was paid.

The Tribunal established that the total price of the contract of 6 July 1999, including the price of non-delivered goods (subject matter of the present dispute), was paid to the [Seller] on 25 November 1999.

During the arbitral proceedings on 19 May 2004, the [Buyer] demanded to recover from the [Seller] interest up to the date of arbitration award made by the Tribunal on 19 May 2004. Thus, the interest must be recovered starting from the date of payment of the price, that is 25 November 1999 to the date on which the arbitral proceedings took place, that is 19 May 2004 (1,633 days in total).

In respect of interest rate to be applied, the Tribunal stated that the CISG does not does provide for interest rate nor for the method of its calculation (art. 78 CISG). Art. 395 of the Russian Civil Code provides that the interest rate is to be determined with respect of bank-rate in the country of the creditor's place of business on the day on which the payment was performed. When making a ruling on the recovery of the debt, the Tribunal can grant creditor's claim taking into account either the bank-rate on the day of bringing the action or on the day of making an award. [Buyer]'s representatives insisted on application of the bank-rate fixed on the day of bringing the action, that is, 5 July 2002. The Tribunal granted [Buyer]'s request.

As in Russia, creditor's ([Buyer]'s) place of business, there is no interest rate in Indian rupees, the Tribunal made a recourse to an international practice established in such situations and which is reflected in the Unidroit Principles (art. 7.4.9(2)). In accordance with this practice, "[t]he rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment".

Based on the above, the Tribunal applied to this dispute the interest rate used by the Reserve Bank of India in relation to short-term lending rate to prime borrowers in accordance with this bank's publications on the date of brining the action (5 July 2002) in the amount of 12.8 percent (Reserve Bank of India's report for 2001-2002 found on its official site in the Internet: www.rbi/org/in).

Based on this reasoning, the Tribunal determined the amount of the recoverable interest in Indian rupees.

When calculating the amount to be recovered from the [Seller], the Tribunal takes into consideration that the arbitration fee paid by the [Buyer] fully covers [Buyer]'s claims.

      3.7 [Recovery of customs-related expenses]

      Turning to [Buyer]'s demand to recover from the [Seller] interest on the compensation amount in rubles paid by the [Buyer] for customs-related expenses, the Tribunal applied art. 395 of the Russian Civil Code and established that the contract of 6 July 1999 stipulates that this amount was to be paid by the [Seller] within 10 days from the moment of conclusion of the contract. The [Seller] actually performed this obligation by effecting a number of partial payments (16 July 1999, 23 September 1999, 20 October 1999, 16 November 1999, 30 November 1999, 18 February 2000 and 4 December 2000), yet with a delay in six out of seven payments. The [Seller] does not deny the delays in its statement of defense. Moreover, neither did the [Seller] present any objections or submissions as to the amount of [Buyer]'s claim in this respect.

In view of art. 78 CISG providing that if a party committed a delay in payment of the price or any other sum that is in arrears, the other party is entitled to interest on it, the Tribunal takes into consideration that the [Seller] must pay the interest to the [Buyer] for the period of delay committed by the [Seller]. This interest is to be calculated on the sum that is determined in the contract as compensation of expenses incurred by the [Buyer] in respect to customs-related payments. Since the CISG does not settle the interest rate, the Russian law is applied (art. 395 of the Russian Civil Code).

Taking into consideration that the total price of the contract of 6 July 1999 was transferred to the [Seller] on 25 November 1999 as well as [Buyer]'s application to recover the interest to the date on which the Tribunal makes an award (19 May 2004), the Tribunal ruled that the [Seller] must recover interest for making use of another company's monetary funds during the period of delay in payments.

However, since the parties did not stipulate any property sanctions for [Seller]'s delay in payment of the advance and since the [Buyer] submitted a claim to recover interest for [Seller]'s making use of its monetary funds, this claim is to be granted only starting from the date when the [Seller] received the monetary funds on the basis of the letter of credit up to the date of the payments effected by the [Seller], that is for the actual period of time during which the [Seller] made use of these funds. Consequently, the interest cannot be recovered on the amounts paid by the first four transfers, as for the amount of the fifth transfer [the interest is to be applied] only in part (for three days). The delay in the sixth payment amounts to 85 days, and in the seventh payment 369 days. As for the interest rate, in full compliance with art 395(1), it is to be determined as of the date on which the pecuniary obligation or a corresponding part thereof is performed. Accordingly, in relation to the amount of the fifth payment the interest rate is settled at 55 percent, the sixth payment -- 45 percent, and the seventh payment -- 25 percent.

While determining the amount of the interest, the Tribunal takes into consideration that all payments were effected by the [Buyer] in rubles in the territory of the Russian Federation and that the contract provided that refunds by the [Seller] to the [Buyer] had to be made in rubles as well. Accordingly, the Tribunal applied the refinancing interest rate of the Central Bank of the Russian Federation for short-term lending in rubles on the date on which the [Seller] actually effected partial payments. With this in mind, the Tribunal determined in rubles the amount of interest to be recovered from the [Seller] to the [Buyer].

Taking into consideration [Buyer]'s application that the amount to be recovered from the [Seller] shall be established in Indian rupees, and since the [Seller] does not have any monetary funds, movable or real property on the territory of the Russian Federation, the Tribunal decided to nominate the amount to be recovered from the [Seller] in Indian rupees. Converting of rubles into rupees is done in compliance with clause 3 of the agreement of 6 July 1999, which reads:

"cross-rate USD/RUR [Russian ruble]/INR [Indian rupee] [shall be established] according to quotations of the Reserve Bank of India (INR/USD) and of the Central Bank of the Russian Federation (USD/RUR) on the date of payment"

On the date of making the arbitration award by the Tribunal, that is on 19 May 2004, the cross-rate INR/USD/RUR as quoted by the mentioned banks was fixed at: 1USD = 45.29 INR, 1 USD=28.988 RUR

Based on this reasoning, the Tribunal determined the amount of interest in Indian rupees to be recovered from the [Seller] to the [Buyer].

      3.8 [Recovery of Expenses of Legal Representation]

      Turning to [Buyer]'s claim to recover from the [Seller] the expenses of legal representation, the Tribunal considers that this claim is to be granted in full. For the reasons given by the Tribunal in section 3.7, this amount is to be paid by the [Seller] to the [Buyer] in Indian rupees at the rate fixed on the day on which the present award is made.

      3.9 [Arbitration Fee]

      As for the question of recovery from the [Seller] of the arbitration fee duly paid by the [Buyer], the Tribunal states that in accordance with the Rules of Arbitration Costs and Expenses, the arbitration fee is to be paid in US dollars. The [Buyer] paid the arbitration fee for the amount initially included into its statement of action as well as for the amount of supplementary claims.

Since [Buyer]'s claims are granted in part and pursuant to section 6(2) of the Rules of Arbitration Costs and Expenses, the Tribunal imposes on the [Seller] an obligation to repay to the [Buyer] the amount of arbitration fee paid by the [Buyer] in US dollars, though in proportion of the granted claims. Whereas the outstanding part of the arbitration fee is imposed on the [Buyer].


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 [Buyer]; Respondent of India is referred to as [Seller].

** Alexander Morari, born in the Republic of Moldova; has taken part in a number of international moot courts as a member of Moldovan Team and as the coach of Russian Team.

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Pace Law School Institute of International Commercial Law - Last updated October 10, 2006
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