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CISG CASE PRESENTATION

Russia 3 September 2004 Arbitration proceeding 128/2002 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/040903r1.html]

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

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Case identification

DATE OF DECISION: 20040903 (3 September 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: 128/2002

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (respondent)

BUYER'S COUNTRY: United States (claimant)

GOODS INVOLVED: Goods


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 74 [Also cited: Articles 7 ; 61 ]

Classification of issues using UNCITRAL classification code numbers:

74A [General rules for measuring damages: loss suffered as consequence of breach]

Descriptors: Damages

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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. 39 [286-293]

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 128/2002 of 3 September 2004

Translation [*] by Gayane Nuridzhanyan [**]

1. SUMMARY OF RULING

      1.1 The objections of the [Seller] to the competence of the ICA Arbitral Tribunal (hereinafter: Tribunal) to the case with reference to an inaccuracy in the arbitration clause of the contract and its alleged cancellation by the contract concluded later were rejected. An expert examination established that the signature of the director of the [Buyer]'s organization on the alleged contract cancellation document to which [Seller] referred was forged and the imprint of the seal of that organization does not respond to the presented samples. Moreover, it follows unambiguously from the arbitration clause (regardless of the inaccuracy) that the Tribunal was chosen by the parties to settle their disputes.

      1.2 The provision in the arbitration clause that disputes are to be settled where possible by means of negotiations cannot be equated with the establishment of the procedure for extrajudicial settlement of claims in anticipation of an action in court non-fulfillment of which results in absence of the claimant's right to bring an action.

      1.3 Since the commercial enterprises of the parties to this contract for the international sale of goods are located in Contracting States to the Vienna Convention of 1980 (CISG) (USA and Russia), the Convention applies, with Russian legislation applicable as a subsidiary statute (as a result of the use of conflict of laws criteria).

      1.4 As the [Buyer] did not present the satisfactory proof of the validity of his determination of the demurrage cost, this claim of the [Buyer] was denied.

      1.5 The Tribunal ruled in favor of the [Buyer]'s claim for the payment of the dead freight as a result of the underloading of the vessel by the [Seller]. The agreement between the parties on the closure of the works under the contract was not taken into account, considering that this agreement was concluded after the violation committed by the [Seller] and was not retroactive.

      1.6 In accordance with art. 394 of the Civil Code of Russian Federation, expenses for the delay in delivery not covered by the contract penalty clause are recoverable by [Buyer].

2. FACTS AND PLEADINGS

This is a claim by a US firm [Buyer] filed against Respondent [Seller], a Russian organization, alleging the improper fulfillment of obligations under a contract for the international sale of goods concluded between the parties on 25 October 2000.

According to the claim of the [Buyer], the following violations took place:

   -    Demurrage costs;
   -    Underloading that led to the payment by the [Buyer] for dead freight; and
   -    Delay in delivery.

The [Buyer] demanded:

   -    Recovery of the penalty as provided in the contract's penalty clause;
   -    Recovery of the expenses to the extent not covered by this clause; and
   -    Recovery of the expenses connected with the defense of his interests through representatives, and payment of the arbitration fee.

The [Seller] contested the competence of the Tribunal to consider the case alleging that:

   -    First, the arbitration clause of the contract contained an inaccuracy;
   -    Second, the arbitration clause of the contract was cancelled by the agreement of the parties.
   -    Third, the [Buyer] did not present the complaint to the [Seller] which did not give him the right to apply to the arbitration.

The [Buyer] objected to these allegations indicating in particular that the agreement on the changing of the arbitration clause of the contract was not signed by him. In light of this, [Buyer] petitioned for an expert examination of the original agreement that was presented by the [Seller]. [Buyer]'s petition was satisfied. The expert examination report supported [Buyer]'s position.

In the course of the proceedings, the [Buyer] specified the amount of his claims and the [Seller] presented his objections both to the merits of the [Buyer]'s claim and to its amount.

3. TRIBUNAL'S REASONING

The award of the Tribunal contained the following basic points.

      3.1 The competence of the Tribunal

First of all the arbiters examined the question of the competence of the Tribunal. The conclusion of the expert of the State establishment of the Russian Federation, i.e., the Center of the Legal Expertise of 12 February 2004 contained the following:

"1) The signature on behalf of the director of the [Buyer]'s firm in the Agreement of 5 May 2001 between the names of the organizations of the [Buyer] and the [Seller] in the chapter 'On behalf of the buyer' to the right of the word 'director', was not made by the director of the [Buyer]'s firm but by another person with the imitation of his signature.

"2) The signature indicated in para.1 of the CONCLUSIONS and the signature on behalf of the director of the [Buyer]'s located on the third page of the contract of 25 October 2000 in the chapter 'The Buyer' after the word '(Signature)' were apparently made by different people."

The expert's report also indicated on 2 December 2003 that:

"1) The imprint of the round seal in the Agreement that was concluded between the [Buyer] and the [Seller] on 5 May 2001 was not made with the seal of the [Buyer]'s firm, the experimental imprints samples of which were presented to the expert examination.

"2) The establishment of the date of the signatures appendence in the Agreement of 5 May 2001 is not possible".

The conclusions of the expert examination provide reasons to consider that the agreement on the alteration of the jurisdiction over the dispute was not reached by the parties. Consequently, the arbitration clause contained in the contract is preserved. This clause states that:

   -    "All disputes and disagreements which can arise from the contract and on its ground are to be settled by means of negotiations between the parties if possible.
 
   -    "In case the parties are not able to come to an agreement, all disputes and disagreements, excluding those which fall under the jurisdiction of general courts, are to be settled by the International Commercial Arbitration at the Chamber of Commerce and Industry of Russian Federation in Moscow consisting of three arbiters and in accordance with its Regulations."

It follows unambiguously from this clause that disputes are to be settled by the International Commercial Arbitration at the Chamber of Commerce and Industry of Russian Federation located in Moscow but not the Commercial Arbitration at Moscow Chamber of Commerce and Industry (as it was called at the moment of the contract conclusion). The present case can be the object of consideration of the Tribunal, the competence of which includes disputes from contracts and other civil relations which arise during execution of foreign trade or other international ties if the commercial enterprise of at least one of the parties is located abroad (para. 1(2) of the Rules of the Tribunal).

Contesting the competence of the Tribunal, the [Seller] referred also to the fact that the [Buyer] had not presented any complaints before the claim was presented which contradicts the arbitration clause to which the [Buyer] refers.

The Tribunal recognized the validity of the [Seller]'s objection contained in his letter of 25 December 2002. The letter says in particular: the contract indicated that all disputes between the parties are to be settled if possible by means of negotiations between them. However, this provision of the contract cannot be equated with the establishment of the obligation to follow the procedure for extrajudicial settlement of claims in anticipation of an action in the court.

Based on the abovementioned and following paras. 2, 3, 5, part 1 of the Rules of the Tribunal, the Tribunal adjudges itself competent to consider the present case.

      3.2 Applicable law

The contract concluded by the parties does not contain any provision indicating the law applicable to their relations.

According to its content, this is a contract for the international sale of goods in which the obligations of the parties are defined: the name, the quantity and quality characteristics of the goods subjects to delivery, terms of the delivery, conditions of the payment for the goods and other conditions, with provisions on the responsibilities of the parties in the event of non-fulfillment of obligations or delay

According to art. 1(1)(a) of the Vienna Convention, the CISG applies to contracts for the sale of goods between parties whose places of business are in different States and when the States are Contracting States. Since the places of business of the disputing parties at the time of the conclusion of the contract were located in Contracting States to the Convention (Russian Federation and the USA), their relations under the contract are to be regulated by the provisions of the Convention.

In compliance with art. 7(2) of the Vienna Convention, questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.

Based on art. 28 of the Law of Russian Federation "On the International Commercial Arbitration" in the absence of any instructions of the parties regarding the applicable law, the court of arbitration applies the law in conformity with the conflict of laws norms which it considers applicable. In accordance with the abovementioned, the Tribunal turned to the conflict of laws norm of art. 166 of the "Foundations of the Civil Legislation" of 1991, which was valid on the time of the contract conclusion, under which the law of the State of the [Seller] is to be applied. Therefore, Russian legislation is to be applied subsidiary to the relations between the parties.

      3.3 Evaluation of reasonableness of the [Buyer]'s claim for the recovery from the [Seller] of the fine for the demurrage

The [Buyer] seeks recovery of the fine for the demurrage of the chartered ship. The [Buyer] calculated the cost of this demand on the following data: 1) time of demurrage: 307.5 hours; 2) average expenses for the vessel and crew maintenance.

The [Seller] did not deny the fact of demurrage but did not agree with the [Buyer]'s calculation of the demurrage time. The [Seller] also contested the rate for the calculation of the fine which he considers overpriced.

The contract concluded by the parties foresees the possibility of fine recovery (demurrage) for the violations of norms and the conditions of shipment. However, the amount of fine was not agreed between the parties. Art. 132 of the Code of Merchant Shipping of the Russian Federation (hereinafter CMS) envisages:

"The amount of payment due and owing to the shipper during the demurrage is to be defined by agreement between the parties; if agreement is absent, according to the customary rates established in the relevant port. In the case of absence of such rates, the amount of the payment for demurrage is to be defined according to the expenses for the vessel and crew maintenance."

According to this norm, the [Buyer] unilaterally defined the designated expenses based on the certificate of the shipping company. In the opinion of the arbiters, this sum cannot be recognized as the fine rate for the demurrage.

   -    First, the norm of art.132 included in chapter VII of the CMS "The contract on the shipping of cargo" regulates the relations between the freighter of the ship and the shipper. The dispute at hand between the parties arose out of the contract of the sale of goods and these relations cannot be considered as similar to those which arise out of the contract for sea transportation.
 
   -    Moreover while calculating the average daily expenses for the vessel and crew maintenance, the shipping company also took into consideration the foreign currency account in ports of Greece, expenses connected with the transition through the Bosporus, Kerch-Enikal channels, the daily fuel consumption in running order. However the vessel for the demurrage of which the fee is presented was at the port of Azov and did not go out of it during the time of demurrage.
 
   -    In addition, the certificate of the shipping company added to the file of the case is signed by a person without indication of his position.

The abovementioned allows the conclusion that the amount of the fine rate for the demurrage was not agreed by the parties and is not well-grounded by the [Buyer]. Therefore, it is impossible to define its overall amount. Under such conditions, the Tribunal came to the conclusion that the demand of the [Buyer] for the recovery of the fine for the demurrage in the sum presented by him is not subject to satisfaction.

      3.4. Evaluation of reasonableness of the [Buyer]'s claim for the recovery from the [Seller] of the penalty for delivery delay

According to the conditions of the contract in case of the late delivery of goods, the [Seller] is to pay to the [Buyer] a penalty at the rate of 0.1% of the cost of the consignment of goods on the ship for each overdue day. While calculating the fine for the delay in delivery of goods the [Buyer] initially based its calculations on the defined rate per metric ton.

At the arbitral hearing on 4 August 2004, the representative of the [Seller] specified the [Buyer]'s claim for the recovery of the penalty for the delay in delivery of goods based on the reduced rate per metric ton taking into account the changing of the price of the goods as agreed by the parties. As a result, the new amount of the fine made up a lesser amount then was indicated in the statement of claim. However, taking into consideration that the [Seller] agreed with the proposed sum, the Tribunal decided that the demand of the [Buyer] on the recovery of the fine is to be satisfied.

The [Buyer] demands expenses to be recovered in part not covered by the penalty that appeared:

a)  in connection with the delay in delivery of goods; and
b)  in connection with the underloading of the ship by the [Seller]

According to the conditions of the contract, the [Buyer] freighted the ship for the transportation of the goods, signing the charter-party with the ship-owner (FIKCHA RICAP # 241 on 21 November 2000).

As the [Buyer] informed of the result of the delay in delivery of the goods to the board of the ship according to the bill of lading of 20 January 2001, which led to the involuntary demurrage, the ship-owner required from the [Buyer] the payment for the demurrage based on the charter-party signed with him (demurrage calculation of 25 January 2001).

The fact of the violation of the delivery terms was recognized by the [Seller]. According to arts. 61 and 74 of the Vienna Convention, the [Buyer] has a right to recover the damages that he suffered because of the [Seller]'s violations of his obligations under the contract. Taking into account that the [Seller] has admitted this amount of the damages suffered by the [Buyer], the Tribunal considers the demand of the [Buyer] for the recovery of the expenses in the sum presented by the [Buyer] and connected with the delay in the delivery of the goods by the [Seller] to be subject to satisfaction.

According to the conditions of FIKCHA RICAP of 21 November 2000, the minimal quantity of the cargo is defined and the amount of the freight minus the commission of 3.75%. In fact, as it follows from the bill of lading of 20 January 2001, the quantity of the goods loaded by the [Seller] on the ship was less then the minimal quantity. The [Buyer] paid the total price of the freight of this consignment. The sum of the damages in connection with the underloading of the ship by the [Seller] (the dead freight) calculated by the [Buyer] composed the amount claimed by the [Buyer].

The [Seller], while not contesting this amount, did not agree as a matter of principle with this demand of the [Buyer], referring to the additional agreement #3 of 1 February 2001 according to which the parties agreed to make changes in the contract in the chapters "Quantity" and "Total Price of the Contract". Para. 3 of this document envisages as well that the parties came to an agreement to close the works under this contract. On this basis. the [Seller] considers his obligations of the delivery of goods fulfilled in corpore and therefore [Seller] regards the demands of the [Buyer] for the recovery of the expenses connected with the underloading of the goods as groundless.

   -    In accordance with the claim of the [Buyer] that was not contested by the [Seller], the ship was freighted and the goods were loaded by 1 February 2001, i.e., before the conclusion by the parties of additional agreement #3.
 
   -    Based on this, the Tribunal established that the [Buyer] did not violate his obligations connected with the freighting of the ship for the transportation of the delivered goods which was envisaged by the contract concluded on 25 October 2000 and paid the freight envisaged by the FIKCHA RICAP # 241 of 21 November 2000. The corresponding acts were fulfilled before the additional agreement #3 of 1 February 2001 was concluded.
 
   -    From the content of paras. 1 and 2 of that agreement. it does not follow that the envisaged changes of the chapters on "Quantity" and "Total Price" have retroactive force. As for the para. 3 that refers to the closure of works under this contract, the arbiters interpret it in the following manner: the parties cannot require later the fulfillment of any additional obligations which are not envisaged by the contract.
 
   -    This, however, does not exclude demands for the fulfillment of the obligations under the contract which were not changed by the additional agreement #3 of 1 February 2001 as well as it does not exclude the requirements of the recovery of the damages for its improper fulfillment. This is based in particular on the final part of the agreement that says: "As for the rest, the contract remains without changes".

Based on the above, the Tribunal establishes that the demands of the [Buyer] for the recovery of the damages connected with the underloading of the ship (dead freight) in the sum presented by the [Buyer] are to be satisfied.

According to art. 394 of the Civil Code of Russian Federation, the expenses following to the common rule are to be recovered in part not covered by the penalty. Since the fine for the delay of the delivery is adjudged as damages due to the [Buyer], it is to be recovered from the [Seller] to the extent not covered by the penalty.

      3.5 Evaluation of reasonableness of [Buyer]'s claims to recover from the [Seller] the sum of the arbitration fee.

According to para. 6.1 of the Regulations on Arbitration Expenses and Fees, the [Buyer] is to recover from the [Seller] the arbitration fee paid by him.

Based on para. 9 of the Regulations on Arbitration Expenses and Fees, the Tribunal considers that the expenses connected with the defense of its own interests through the legal representatives in the sum presented by the [Buyer] are reasonable and the demand of their recovery from the [Seller] is subject to satisfaction.


FOOTNOTES

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

** Gayane Nuridzhanyan, junior associate at the law firm Danylko, Kushnir, Solltys & Yakymyak, Attorneys & Counselors at Law, Kyiv, Ukraine <http://www.dksylaw.com/>, student at Kyiv International University with major in private international law; participant of Canada-Ukraine Parliamentary Program, member of Ukrainian team at 2005 Telders International Moot Court Competition, The Hague.

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Pace Law School Institute of International Commercial Law - Last updated May 17, 2006
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