Russia 17 June 2004 Arbitration proceeding 186/2003 (Barter transaction) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040617r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 186/2003
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Cyrus (claimant)
BUYER'S COUNTRY: Russian Federation (respondent)
GOODS INVOLVED: Barter transaction
APPLICATION OF CISG: Yes [Article 1(1)(b)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
3C2 ["Sale of goods": exchanges, barter]; 74A ; 74A1 ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Includes loss of profit ; Outer limits of damages: foreseeability of loss]; 77A [Obligation to take reasonable measures to mitigate damages]; 78B [Rate of interest]
3C2 ["Sale of goods": exchanges, barter];
74A ; 74A1 ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Includes loss of profit ; Outer limits of damages: foreseeability of loss];
77A [Obligation to take reasonable measures to mitigate damages];
78B [Rate of interest]
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. 31 [231-244]
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Queen Mary Case Translation Programme
17 June 2004 [Case No. 186/2003]
Translation by Gayane Nuridzhanyan [*]
Edited by Alexander Morari [**]
1. SUMMARY OF RULING
1.1 Since the claim was based on an agreement of the parties that did not contain a clear arbitration clause but which covered their relations arising out of a number of contracts, the Tribunal considered the question of its jurisdiction over the present dispute on the basis of provision of each of these contracts.
Keeping in mind that the dispute settlement clause in the three mentioned contracts is worded so vaguely that it is impossible to determine the arbitration court chosen by the parties for the settlement of their disputes (even proceeding from the fact that they actually agreed on the settlement of the disputes in a court of arbitration) and taking into account the objections of the Respondent to the competence of the Tribunal to arbitrate the disputes related to these contracts, the Tribunal terminated the arbitration proceedings with regard to the claims arising from these contracts and concluded that it lacks jurisdiction to consider such claims.
1.2 However, due to the fact that insolvency proceedings were commenced against the Respondent, the Tribunal rejected Respondent's application to terminate the proceedings in relation to the third contract and a separate agreement, both documents containing an arbitration clause referring disputes to the Tribunal's jurisdiction. Rejection of Respondent's application is based on art. 63(1) of the Law of the Russian Federation "On Insolvency (Bankruptcy)".
1.3 In the absence of the agreement of the parties on the applicable law in both documents containing an arbitration clause providing for dispute settlement in the Tribunal, the Tribunal considered that issue in respect to each of the documents individually, taking due account of the different types of contractual relations covered by the documents and taking into account the agreement of the parties reached in the course of the hearings with respect to one of the documents and the disagreement in respect to the other.
The parties agreed on Russian law as the law applicable to their contract for the international sale of goods. Therefore, in accordance with art. 15 of the Constitution of the Russian Federation 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 is applied to the relations of the parties to the contract and Russian law is applied as a subsidiary statute.
However, the Cyprian law as the law of the creditor's country is applicable to the loan contract by virtue of the conflict of laws rules of the Fundamentals of Civil Legislation of the USSR, 1991 [hereinafter Fundamentals 1991].
1.4 The Tribunal rejected Respondent's application to rule that the party to the contract which brought this action is improper claimant due to the assignment of receivables to a third person since the assignment agreement was cancelled by the assignor and the assignee, of which the Respondent was duly notified.
1.5 The circumstances relating to the business activity of the Respondent itself are not considered as grounds excluding liability.
1.6 Considering Respondent's application that the action should be rejected in view of the expiration of the limitation period, the Tribunal takes into account specific circumstances related to the moment when its calculation should be commenced (taking into account the extension of the delivery term by consent of the parties) and admission of the debt within the limitation period, which was calculated from the starting date of the extended term for performance.
1.7 On the basis of art. 78 of the CISG and art. 395 of the Civil Code of the Russian Federation, interest for the use of monetary funds of another is calculated from the date when the obligation to deliver goods [under Contract No. 196 of 2 July 1998] was transformed to a pecuniary obligation. The interest rate is determined on the basis of the certificate issued by a Cyprian bank - the bank of the creditor's country.
1.8 On the basis of the evidence submitted by the Claimant, the loss of profit is recovered for the part [of the claims], which exceeds the amount of the granted claim for recovery of interest.
1.9 The receipt of an interest-free loan does not release the debtor from the payment of the interest in case of payment delay. In the calculation of the interest, the provisions of the Cyprian legislation relating to the moment of its calculation are taken into consideration.
1.10 On basis of the advisory opinion of a Cyprian law firm, while applying the law of the Republic of Cyprus, into account is taken its legislation on suspension of the limitation period due to the situation caused by the Turkish invasion.
2. FACTS AND PLEADINGS
The action was brought by Claimant, a Cyprian organization, against Respondent, a Russian organization, in connection with the outstanding debt in the amount determined in an agreement of the parties concluded on 15 January 2003. The said agreement covers relations of the parties with regard to a number of different contracts (a works contract, barter of goods contract, loan contract).
2.1 Claimant's claims included:
|-||Payment of the indebtedness,|
|-||Payment of interest,|
|-||Reimbursement of loss of profit, expenses on arbitration fees, and costs connected with the proceedings.|
2.2 The Respondent objected to the granting of these claims. The Respondent contested the jurisdiction of the Tribunal in respect to three contracts, which were a basis for bringing of the action by the Claimant since these contracts did not contain an arbitration clause providing for the choice of the Tribunal as the arbitration court competent to settle disputes between the parties. As for the other two contracts, the Respondent requested to terminate the proceedings in view of the fact that insolvency proceedings were commenced in respect to the Respondent. With reference to one of these contracts, the Respondent also pointed out that the Claimant is not entitled to bring the action since the latter assigned the receivables to a third party.
As for the merits of the claims under the mentioned two contracts, the Respondent alleged that the Claimant missed the limitation period, which did not take place under one of the contracts as the Respondent also alleged. In addition, the Respondent alleged that the Claimant failed to prove the amount of the claims for recovery of loss of profit and that Claimant's claims for the recovery of interest under the loan contract are groundless.
2.3 The Claimant presented objections in respect to all arguments of the Respondent.
3. TRIBUNAL'S REASONING
The ruling of the Tribunal contained the following main points.
3.1 [The jurisdiction of the Tribunal]
The subject of the action is a number claims arising from a single document - Agreement No.292 of 15 January 2003, though the Agreement itself is based on several contracts between the parties. Since the Agreement does not contain an arbitration clause, the jurisdiction issue is to be considered in respect to each of the contracts individually.
The Tribunal states that the provisions that refer the disputes to an arbitration body in Moscow which are contained in clause 8 of Contract No. 2/RUS of 14 March 1995, clause 7 of Contract No.6/RUS of 28 August 1997, and clause 6 of Contracts No.8/RUS of 12 August 1999, are worded so vaguely that it is not possible to determine the specific arbitration body the parties might have implied even despite the reservation about the exclusion of the jurisdiction of the general courts (which in Tribunal's opinion is evidence of the parties' intention to settle their disputes by arbitration).
In such circumstances and taking into account the objection of the Respondent to the consideration by the Tribunal of claims under these contracts, the Tribunal concludes that it lacks jurisdiction to consider the claims under these contracts. Guided by art. 16(3) of the Law of the Russian Federation "On International Commercial Arbitration" and sections 1 and 45 of the Rules of the Tribunal, the Tribunal rules to terminate the arbitral proceedings in relation to claims under these contracts.
However, the arbitration clauses that refer the disputes to the Tribunal which are contained in section 7 of Contract No. 196 of 2 July 1998 and in Agreement No. 1/240699 of 20 June 1999 (hereinafter - Contract No. 1/240699) comply with all the requirements and are not contested by the parties. The Tribunal rules that it has the jurisdiction to consider claims arising from these contracts.
3.2 [Insolvency proceeding as a ground to terminate the arbitration proceedings]
Granting of the Respondent's application and termination of the proceedings in the Tribunal due to the commencement of the insolvency proceedings would lead Tribunal's violation of the basic principles of the activity of international commercial arbitration:
|-||Independence of the arbitration court;
|-||The right of the parties to choose international commercial arbitration for the settlement of their
disputes as an alternative (arbitral) body with exclusion of the competence of national courts;
|-||The obligation of the Arbitration Tribunal (in the presence of the arbitration clause duly provided for by the parties) to admit and to consider the merits of a dispute which falls within its jurisdiction.|
Also, it should be noted that the application of the Respondent for the termination of the arbitral proceedings does not correspond to the provisions of the Russian legislation on insolvency. Art. 63(1) of the Law of the Russian Federation "On Insolvency (Bankruptcy)" provides that cases connected with recovery of money from the debtor can only be suspended (and not terminated). Moreover, the suspension is possible only upon the application of the creditor itself and not the debtor. In the present case, the Claimant is the creditor, and not the Respondent, and the Claimant did not submit any application for suspension of the proceedings in connection with the commencement of the insolvency proceedings (in the form of supervision) in respect of the debtor. Taking into account the above, the application of the Respondent is rejected; the claims are to be considered on the merits.
Taking into account the above, the application of the Respondent is rejected and the claims are to be considered on the merits.
At the same time, the Tribunal notes that consideration of the dispute in the international commercial arbitration and making of the corresponding award on the merits of the dispute in respect of the debtor, who is undergoing the insolvency proceedings, does not affect the rights and interests of other creditors. The award to be made by the Tribunal merely establishes and states the existence or absence of a corresponding substantive (civil) right of claim, and when the claims are granted the award is a document serving as a justification and confirmation of the corresponding claim subject to execution according to the procedure of the enforcement proceedings. From this point of view, the award of the Tribunal does not give any advantages over the judgments of the national arbitration courts.
As for the actions of the arbitration court in respect of the consideration of the claims of the creditors pursuant to art. 71 of the Law of the Russian Federation "On insolvency (bankruptcy)", they constitute a system of state confirmation of validity and amount of the creditors' claims including those based on the award of the international commercial arbitration.
3.3 [Applicable law]
The Tribunal stated that the parties did not determine the applicable law either in Contract No. 196 or Contract No. 1/240699. At the same time, in its statement of defense, the Respondent made references to the provisions of the Russian law- arts. 196, 199, 206, 207 of the Russian Civil Code- and the application of the provisions of the Russian Civil Code relating to the limitation period by the Arbitration Court of the Russian Federation.
At the arbitration hearing, the representatives of the Respondent maintained their position with regard to the application of the Russian law to the disputes arising from the two mentioned contracts. The Claimant agreed on the application of the Russian law in respect to the disputes under Contract No. 196, however, the Claimant insisted on application of the Cyprian law in respect to the disputes under Contract No. 1/240699.
Considering the fact that the parties reached mutual consent concerning the law applicable to Contract No. 196, the Tribunal, in accordance with Article 28(1) of the Law of the Russian Federation on International Commercial Arbitration and Clause 13(1) of the Rules of Tribunal, found that the Russian law is applicable to Contract No. 196.
The Russian Federation is a State party to the CISG and since, pursuant to art. 15 of the Constitution of the Russian Federation, international treaties are a component part of its legal system, the Tribunal finds the CISG applicable to the relation of the parties under Contract No. 196, whereas provisions of the Russian civil law are applicable to issues not regulated by the CISG.
As for the law applicable to Contract No. 1/240699, taking into account a disagreement between the parties on this issue which was not settled during the arbitration hearing, following art. 38(2) of the Law of the Russian Federation "On International Commercial Tribunal", which provides that in the absence of the agreement of the parties as to the applicable law the Tribunal shall apply the law which is determined according to the conflict of laws rules which the Tribunal considers applicable, the Tribunal found the Russian conflict of laws rules applicable as the law of the country in which the arbitration of the dispute takes place [lex fori].
In the sense of art. 166(1) and 166(5) of Fundamentals 1991 (in force at the time of the conclusion of the Contract No. 1/240699) the law of the country where the party responsible for the performance under the contract of crucial significance for the content of the contract has its main place of business is applicable to the relations arising from a loan contract where the lender acts as the creditor.
In the dispute arising from Contract No. 1/240699, this country is the Republic of Cyprus where the Claimant, the creditor in respect to the Respondent, has its main place of business. In the light of the above, the Tribunal rules that the law of the Republic of Cyprus is applicable to Contract No. 1/240699.
3.4 [Recovery of the main sum in arrears under Contract No.196]
Having considered the merits the claim of the Claimant for recovery of the main sum in arrears under Contract No. 196, the Tribunal finds it subject to granting in full based on the following.
The indicated sum of Respondent's debt to the Claimant is fixed in Agreement No. 292 of 15 January 2003 signed by both parties; the debt under this Agreement was later confirmed by the Respondent on two occasions in its letters of 24 July and of 20 October 2003. According to art. 401(3) of the Russian Civil Code, the Tribunal cannot take into consideration the arguments presented by the Respondent in these letters as justification for the impossibility of the observance of the debt liquidation schedule agreed by the parties -- and in particular, impossibility of the delivery of the goods on account of the absence of raw materials needed for its production, since the circumstances invoked by the Respondent are related to its own business activity.
As for the arguments of the Respondent presented in the statement of defense and maintained by its representatives during the hearings, they are rejected as well since the Tribunal found them groundless.
The Tribunal cannot accept the allegation of the Respondent that the action was brought by an improper claimant considering that, in the course of execution of Agreement No. 292 of 15 January, the Claimant and a third party concluded an Agreement of assignment of receivables on 2 June 2003, which included the assignment of the receivables under Contract No. 196 and Contract No. 1/240699.
At the hearings of the Tribunal, the Claimant submitted the evidence confirming that the Agreement on assignment of the receivables was afterwards (on 14 October 2003) cancelled by mutual consent of the parties, the Claimant and the third party, and the right to claim receivables passed back to the Claimant, of which the Respondent was notified by a letter of 21 October 2003 received by the office of the Respondent. The fact of the receipt of such notification is not contested by the Respondent either. Therefore, Respondent's allegations that the action was brought by an improper claimant do not correspond to the facts of the case.
As for Respondent's argument that in its opinion the Agreement of 14 October 2003, apparently, was not composed at all since it was not submitted by the Claimant at the first hearing of the Tribunal, the Tribunal finds that this argument is of speculative nature which the Respondent failed to prove with any written evidence whatsoever.
The Respondent's recourse to the statutory limitation defense is not confirmed by the materials of the case as well, since Agreement No. 292 of 15 January 2003, which is considered by the Claimant as an evidence of the recognition of the debt, took place after the expiration of the limitation period and, therefore, cannot serve as a ground for the interruption of the limitation period.
As it was pointed out by the Claimant in its reply to the statement of defense, the Respondent does not take into consideration, among other things, that Contract No. 196 concluded by the parties is a barter contract and that the method of payment for the goods delivered by the Claimant is a counter-delivery of goods by the Respondent.
With the purpose of the delivery of the goods by the Respondent, the parties concluded Supplement to the contract No. 3 on 19 January 2000, which prolonged the validity of the contract up to 31 June 2000. However, by the end of the validity of the contract the Respondent had not delivered the goods in the amount claimed for recovery.
The Claimant considers that, taking into account provisions of art. 511(1) of the Russian Civil Code, the Respondent was obliged to deliver non-delivered goods by 30 June 2000 and, hence, it is only starting from 1 July 2000 that the Respondent is considered to have violated its obligations in respect to the payment. Therefore, Agreement No. 292 of 15 January 2003 was concluded by the parties within the term of the limitation period.
Assessing the positions of the parties with due account of the materials of the case, the Tribunal concludes that the Claimant's position fully corresponds to the circumstances of the case.
Indeed, it follows from the materials of the case (Respondent's letter of 28 March 2000) that as of 31 December 1999 the Claimant performed its obligations completely, yet, since the Respondent still had to make a counter-delivery, the parties concluded Supplement No. 3 which prolonged the term of validity of Contract No. 196 up to 30 June 2000 (it is mistakenly indicated in the text of the Supplement "up to 31 June 2000" whereas June has 30 and not 31 days).
On 22 March 2000, the Respondent carried out the last two counter-deliveries of goods which was the basis for the drafting of the Accounts Verification Certificate 28 March 2000 confirming the reciprocal delivery of the goods by the parties on a balanced basis.
However, it was established at the hearings that one of the deliveries of goods by the Respondent, namely the delivery of 19 July 1999 by CCD [cargo customs declaration] 11901/19079/013214 in the amount claimed for recovery by the Claimant was executed by the Respondent as its unilateral offset No. 93/04 of 22 July 1999 in performance of its obligation under another contract (No. 2/ RUS). As a result, Respondent's indebtedness appeared in the amount of the indicated sum. Nevertheless, the Respondent, being aware of the indebtedness, had not liquidated it before the expiration of the contract validity term.
According to Supplement No. 3, after termination of the validity term of the contract the non-performed obligation to deliver the goods transformed to a pecuniary debt and from that moment, i.e. 1 July 2000, the limitation period for its recovery started to run. This period (of three years according to art. 196 of Russian Civil Code) had not expired at the time of the conclusion of Agreement No. 292 of 15 January 2003. Therefore, the Agreement, as an evidence of the recognition of the debt, interrupts the limitation period of action (art. 203 of Russian Civil Code).
In the course of the hearings, along with the arguments about expiration of the period of action for the recovery of the main sum in arrears under Contract No. 196, the representatives of the Respondent alleged that the indebtedness as such is non-existent, which is evidenced in their opinion by the Accounts Verification Certificate of 28 March 2000.
Thus, during the Tribunal's hearing, the position of the Respondent changed:
In its statement of defense, the Respondent referred to the Claimant's missing of the limitation period of action for the recovery of the main sum in arrears under Contract No. 196 (the existence of the said sum in arrears was not contested in the statement of defense)
Later at the arbitration hearings, the Respondent denied the very existence of this debt.
There being an obvious inconsistency in the Respondent's position with regard to this issue, the Tribunal concludes that the Accounts Verification Certificate of 28 March 2000 was composed by the parties without consideration of the fact that the delivery of the goods by the Respondent on 19 July 1999 was offset by itself in performance of its obligations under another contract and, accordingly, it cannot be considered as part of the total sum of the Respondent's obligations. This fact is established and the Tribunal has no doubt in this respect.
Besides, it is necessary to take into account that Agreement No. 292 of 15 January 2003 expressly confirms the existence of the Respondent's debt in the amount claimed for recovery by the Claimant and, as it was composed later than the Accounts Verification Certificate, it has superior legal force.
Based on the above, the Tribunal concludes that the indebtedness of the Respondent in the amount claimed by the Claimant under Contract No. 196 is completely proved by the materials of the case and according to arts. 53, 61(1) and 62(1) of the CISG, the Respondent is obliged to pay to the Claimant the indicated sum in arrears (without the VAT, the recovery of which is denied).
3.5 [Recovery of the interest]
The claim of the Claimant for recovery of interest is to be granted in the amount determined by the Tribunal based on the following:
|-||The Claimant's right to the recovery of interest is based on art. 78 CISG, since, keeping in mind that
the existence of the main sum in arrears is proved in the present case, the Claimant is entitled to interest on
the indicated sum;
|-||According to the adjusted calculations of the Claimant, the interest is calculated for the period from
22 May 1999 to 28 May 2004; since, as it was established above, Claimant's right to the monetary
payment with regard to the main indebtedness arose starting from 1 July 2000, the Tribunal finds that
Claimant's claim for the recovery of the interest is to be granted only for the period from 1 July 2000 to 28
|-||According to art. 395 of the Russian Civil Code, the bank rate for the calculation of the interest is
confirmed by the Claimant by means of the relevant certificate issued by the Cyprian bank as the bank of
the creditor's country in the amount of 8%.
In all other respects, this claim is to be dismissed.
3.6 [Recovery of the loss of profit]
Having considered Claimant's claim for recovery of the loss of profit, the Tribunal finds that it is to be granted in the amount determined in accordance with the following:
|-||Claimant's right to the reimbursement of the damages in the form of loss of profit is founded on art. 74 CISG;
|-||The amount of the damages indicated in the calculations of the Claimant is evidenced with relevant documents;
|-||According to the calculation of the Claimant, the damages are charged for the period from 22 May 1999 to 28 May 2004; since, as established above, the Claimant's right to monetary payment of the main sum in arrears arose only from 1 July 2000, the calculation of the Claimant is to be duly adjusted, in particular for the period from 1 July 2000 to 28 May 2004, which constitutes 15.82[-day] monetary capital turnover [cycle], not 20.32[-day] turnover [cycle] as defined in the calculations.|
Having considered the objections to the claims for recovery of the damages submitted by the Respondent's representatives in the arbitral proceedings, the Tribunal finds them unconvincing.
Respondent's statement about inconsistency between the methods (mode) of the damage calculation applied by the Claimant and the usual practice of Russian organizations cannot be taken into account due to the following reasons:
First, because Russian legislation does not bind the claimant's right to the reimbursement of damages with the methods of the calculation of the damages, which implies that the claimant Claimant is entitled to use any methods; it is only necessary to prove existence of the damages and to present the evidence of their amount.
Second, as follows from the calculation of damages and from the documents presented by the Claimant as foundation for their recovery, the usual methods of calculation were used that resulted in calculation of the amount of the profit which would have been obtained by the Claimant from the realization of its commercial activity under the normal conditions if the Respondent had properly and timely performed its obligation to pay.
For this purpose, the Claimant submitted the calculation of:
a) expenses on the purchase of the goods to be delivered to the Respondent;
b) revenue received from sale of the goods to its buyers;
c) the amount of the profit per ton of the goods sold;
d) the term of monetary capital turnover cycle (term of sale of the goods)
e) the sum of the profit which could have been gained by the Claimant in the presence of the above mentioned factors of commercial activity.
All the mentioned factors of Claimant's commercial activity are supported by relevant evidence: contracts with its clients; bank payment documents and other documents which verify the pricing of the delivered and purchased goods in an entirely reliable manner, terms of sale of the goods, sum of the revenue (profit) received per one cycle of turnover of monetary funds (capital), quantity of possible number of monetary capital turnover cycles during the period of the delay by the Respondent, and the general sum of the non-gained revenue (profit).
Objections of the Respondent's representatives in respect to the Claimant's failure to prove the need of its customers in the amount of the goods which was fixed in the Claimant's calculation were rejected by the Claimant which presented at the hearing of the Tribunal correspondence with its customer (see the letter of 16 April 2001 and Claimant's reply of 18 April 2004) evidencing the presence of the demand for the goods sold by the Claimant.
The Tribunal cannot accept Respondent's arguments that the Claimant failed to prove that it had taken appropriate measures for the prevention or mitigation of loss. Indeed, art. 77 CISG contains a provision that a party who relies on a breach of contract must take such measures as are reasonable in the circumstances to mitigate the loss, including loss of profit, resulting from the breach.
Having considered the conduct of the Claimant with regard to the observance of the mentioned provisions of the CISG, the Tribunal finds that the materials of the case do not contain any complaints as to the conduct of the Claimant.
The Claimant performed its obligations to deliver the goods to the Respondent in a timely and complete manner (taking into account the prolonged term of the contract's validity), whereas the Respondent failed to perform its cross obligations.
Taking into consideration that the Respondent acknowledged its debt in Agreement No.292 of 15 January 2003 and that later on, the Claimant was entitled to expect not only that the Respondent would perform its obligations in good faith and in accordance with the agreed schedule but also to receive the monetary fuds necessary for further use in its commercial activity.
The Respondent itself by its execution of Agreement No. 292 of 15 January 20003 put the Claimant in the position of a contracting party waiting for the performance for which, accordingly, it could undertake nothing but wait for the Respondent's payments relying on its good faith; yet the Respondent abused Claimant's trust and failed to perform the obligation to pay.
Taking into consideration the above as well as the fact that the Respondent failed to indicate what exact measures, in its opinion, were not taken by the Claimant in order to mitigate the amount of the loss of profict, the Tribunal rejects Respondent's arguments.
As for the amount of the Claimant's claim for recovery of the loss, the Tribunal states that their purpose is the compensation of the damages caused by the non-performance of the payment obligations by the Respondent. Violating its obligations, the Respondent could not have been unable to foresee the possible consequences of the violations during the conclusion of the contract and, especially, during the execution of the contract.
The Respondent knew for sure that since by virtue of the barter nature of the contract the performance of the payment obligation is to be carried out by means of the counter-deliveries of the goods to the addresses of the Claimant's customers (which is confirmed by clause 2.21 of the contract), the violation of the payment obligation will inevitably result in non-performance of Claimant's obligations towards its customers and as a consequence it will result in the impossibility of the Claimant to receive the expected revenue.
Thus, Claimant's claim for recovery of the loss complies with the provisions of art. 74 CISG with regard to the ability of the Respondent foresee the possible consequences of its breach of the contract.
3.7 [Recovery of the main sum in arrears under Contract No. 1/240699]
Having considered the Claimant's claim for recovery of the main sum in arrears under Contract No. 1/240699, the Tribunal finds it subject to be granted in full. It is established that the Claimant, according to clause 2 of the contract granted the Respondent a loan in the indicated sum with the repayment term not later than 180 days from the date when the loan was granted. The receipt of the loan is not contested by the Respondent.
Also, it is established that this sum was not returned by the Respondent not only within the fixed 180 day term but also up to the moment of the dispute consideration.
The Respondent alleged that its payment of the sum of the loan is confirmed by the Accounts Verification Certificate of 28 December 1999. Yet, this allegation is contrary to the bilateral Agreement No. 292 of 15 January 2003 concluded between the parties, which established the existence of the debts of the Respondent.
Additionally, the Tribunal takes into account that the Respondent, which alleged complete liquidation of the debts, failed to present to the Tribunal any bank documents confirming the payment.
Further, the Tribunal dismisses Respondent's arguments that, according to Supplement to the contract No. 1 of 1 December 1999, the repayment of the loan was carried out by the shipment of the goods to an Irish firm during the period from 22 April to 5 May 1999, since the Claimant denied the fact of receipt of foreign currency earnings from the mentioned firm and the Respondent failed to present any evidence of Claimant's receipt of the price of this consignment of goods.
The Respondent's arguments set forth in its statement of defense of 28 May 2004 about omission of the three-year limitation period with reference to art. 196 of the Russian Civil Code cannot be taken into account, since the Tribunal held that the Cyprian law is applicable to the present contract. According to the advisory opinion of 3 June 2004 issued by a Cyprian law firm submitted by the Claimant, the law of the Republic of Cyprus presently in force does not restrict the general limitation period. The Law on Limitation of Actions of 1964-1982 suspended the proceeding of limitation period because of the situation caused by the Turkish invasion. The Law 110(I)/2002 which came into force from 1 June 2005 introduced the limitation period anew.
Considering the above, the claim of the Claimant for the recovery of the sum in arrears is to be granted.
Also, the Tribunal finds that Claimant's claim for recovery of the interest on the overdue sum of the loan is valid, yet not in the amount claimed by the Claimant. Here, the Tribunal takes into consideration that the amount of the interest is calculated for the period from 20 June 1999 to 28 May 2004 whereas, according to the advisory opinion in compliance with the Law on Courts 14/1960 (with amendments), the interest must be calculated from the date of the bringing the action. Therefore, the interest is calculated for the period starting from 28 November 2003 to 28 May 2004 at the rate of 8% (in accordance with art. 32(2) of the Law on Courts 14/1960, the mentioned rate is applied if the contract does not provide a different interest rate).
The arguments of the Respondent's representatives presented at the hearings that, according to Supplement No. 1 to Contract No. 1/240699, the loan granted was interest-free cannot be taken into account since this Supplement cancelled the provision of clause 2 of the contract concerning the payment by the Respondent of 6% interest for use of the loan within the limits of the Contract validity term (during 180 days), whereas in the present action the Claimant claims the payment of the interest for the use of the monetary funds after the expiration of the loan repayment term.
The Tribunal finds that Claimant's claim for recovery of the sum of the loss of profit resulting from the non-performance by the Respondent of its obligation to timely repay the loan is also to be granted since, according to the Advisory Opinion, the Cyprian law allows recovery of the loss of profit.
However, the amount of the claimed loss of profit is to be adjusted with due account of the following: the Claimant claims recovery of the loss of profit for the period from 20 June 1999 till 28 May 2004, whereas, according to the Contract, the term of the loan repayment expired on 20 December 1999. Therefore, the date of the breach of the obligation to repay the loan and, accordingly, the moment which determines the Claimant's right to the reimbursement of the loss of profit is 20 December 1999, and not 20 June 1999.
3.8 [Recovery of the loss of profit resulting from the shortage in counter-delivery]
In respect to the Claimant's claim for recovery of the debts which arose as a result of shortage of goods delivered by the Respondent and loss of profit because of this shortage, the Tribunal states that since the Claimant failed to substantiate under which specific contract these claim is submitted, according to section 45 of the Rules of Tribunal, the arbitration hearings of this claim are subject to discontinuance.
3.9 [Arbitration fee]
According to section 18 of the Rules of Tribunal and section 6 of the Rules of Arbitration Expenses and Fees (Supplement to the Rules of Tribunal), the Respondent is obliged to reimburse Claimant's expenses on payment of the arbitration fee in proportion to the amount of the satisfied claims.
3.10 [Legal expenses]
Claimant's claim for reimbursement of the legal expenses from the Respondent is to be granted in accordance wtih section 9 of the Rules of Arbitration Expenses and Fees. However, the Tribunal believes that it is possible to impose Claimant's legal expenses on the Respondent in the amount which is admitted by the Tribunal as reasonable.
* 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 in Canada-Ukraine Parliamentary Program, member of Ukrainian team at 2005 Telders International Moot Court Competition, The Hague.
All translations should be verified by cross-checking against the original text.
** 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