Russia 2 November 2004 Arbitration proceeding 188/2003 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/041102r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 188/2003
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Russian Federation (respondent)
BUYER'S COUNTRY: United States (claimant)
GOODS INVOLVED: [-]
APPLICATION OF CISG: Yes [Article 1(1)(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
25B ; 25B1 [Definition of fundamental breach: substantial deprivation of expectation; Foreseeability test]; 26A [Notification of avoidance: effective declaration of avoidance]; 47A [Buyer's right to fix additional final period for performance]; 49A [Buyer's right to avoid contract: grounds for avoidance]
25B ; 25B1 [Definition of fundamental breach: substantial deprivation of expectation; Foreseeability test];
26A [Notification of avoidance: effective declaration of avoidance];
47A [Buyer's right to fix additional final period for performance];
49A [Buyer's right to avoid contract: grounds for avoidance]
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. 43 [310-313]
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Case text (English translation) [second draft]
Queen Mary Case Translation Programme
2 November 2004 [Case No. 188/2003]
Translation [*] by Kirill Lebedyanskiy [**]
1. SUMMARY OF RULING
1.1 Taking into account that the contract did not stipulate the applicable law, the Tribunal stated that due to the fact that the places of business of the parties were in Contracting States, the Vienna Convention of 1980 (CISG) was applicable to the relations of the parties. Subsidiary law was determined on the basis of the Russian conflict of law rule which was effective at the time when the contract was concluded.
1.2 The fact that the Respondent [Seller] did not fulfill its obligation to deliver the goods prepaid by the Claimant [Buyer] within the additional period of time fixed by the [Buyer] was considered as a basis for the latter to declare the contract avoided and claim the refund.
1.3 The [Seller]'s arguments with reference to Article 25 of the CISG that he breached the condition regarding the time of delivery due to circumstances it could not foresee at the time, when the contract was concluded (reorganization of the goods' distribution at the factory-producer) were regarded as groundless, both in their essence and form.
2. FACTS AND PLEADINGS
The claim was raised by a US firm [Buyer] against a Russian firm [Seller] with regard to the failure to supply the goods, which were prepaid in full according to the contract of the international sale of goods, concluded on 17 December 1998.
The [Seller] contested the [Buyer]'s claim and stated that it had not committed a fundamental breach of contract, because at the time when it was concluded [Seller] could not foresee that the factory producer would refuse to supply the goods due to reorganization of the goods' distribution at the holding company, of which the factory was a part.
3. TRIBUNAL'S REASONING
The decision of the Tribunal contained the following key points:
3.1 The competence of the Tribunal
In accordance with section 10 of the contract (arbitration clause) concluded on 17 December 1998, the Tribunal is competent to consider the present case. The above-mentioned section states that all contract disputes, claims and disagreements arising out of or in connection with this agreement, in particular disputes regarding the execution of the contract, its repudiation and validity will be considered by the Tribunal of International Commercial Arbitration at the RFCCI in accordance with its Rules. This dispute falls within the subject competence of the ICCA under the Rules of ICCA and its Regulations. Taking into account the above and pursuant to paras. 1(2), 1(3), 1(5) of the Rules of the Tribunal, the Tribunal declares itself competent to examine the present case.
3.2 Applicable law
Considering the question of applicable law in this case, the Tribunal stated that this was not determined in the contract. Due to the fact that both Russia and USA are Contracting States of the CISG and the parties' places of business are located in these States, the Tribunal stated that the norms of the CISG should be applied to the relations of the parties, according to its Article 1(1)(a).
According to Article 7(2) of the CISG, questions concerning matters governed by the 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.
For the application of a subsidiary law, the Tribunal was guided by Article 28(2) of the Federal Act of the International Commercial Tribunal, according to which in the absence of the parties' directions the Tribunal should apply the law according to applicable conflict of law rules.
Due to the above, the Tribunal stated that the conflict of law rule, provided by Article 166 of FSL 1991, which was effective at the time when the contract was concluded (17 December 1998) should apply. As a result, with regard to issues not determined by the CISG, Russian law was said to be applicable as the subsidiary law.
3.3 Assessment of the [Buyer]'s claim to recover the prepayment
Having considered the claim of the [Buyer] regarding recovery of prepayment, the Tribunal stated that according to section 5 of the contract the Buyer made a prepayment of 100% of the purchase price of the goods, but the [Seller] did not supply the [Buyer] with the goods. This is confirmed by the Report of the mutual payments revision dated 1 September 2003.
According to Article 49(1) of the CISG, the buyer may declare the contract avoided:
"(a) if the failure by the Seller to perform any of his obligations under the contract or this Convention amounts to a fundamental breach of contract; or
"(b) in case of non-delivery, if the seller does not deliver the goods within the additional period of time fixed by the Buyer in accordance with paragraph (1) of Article 47 or declares that he will not deliver within the period so fixed."
As can be seen from the letter of 19 November 2003 the [Buyer] according to Article 47(1) fixed a reasonable additional period of time for the [Seller] to perform its obligation (i.e., till 1 December 2003). It was stated in the letter that the contract would be avoided if the [Seller] failed to supply the good within the above period of time.
Taking the above circumstances and the fact that the [Buyer] declared the contract avoided in accordance with Article 26 of the CISG into account, the Tribunal concluded that the contract should be deemed avoided.
As a result, the [Buyer] has a right to claim the recovery of prepayment according to Article 81 of the CISG.
The [Seller]'s arguments that [Seller] breached the condition regarding the time of delivery due to the circumstances which [Seller] could not foresee at the time, when the contract was concluded (reorganization of the goods' distribution at the factory-producer) and that this breach cannot be regarded as fundamental according to Article 25 of the CISG were regarded as groundless due to their inconsistency with the essence of this Article, according to which this is a final result (not circumstances) which is fundamental.
Although the contract was signed by the consignor of the goods not by the Respondent, it was the Respondent who was called "Seller" in the contact and received payment. Hence, it is only the Respondent who had obligations under this contract and it is the Respondent [Seller], who should be liable if these obligations are not fulfilled.
Taking the above into account, pursuant to Articles 47, 49, 81 of the CISG, the Tribunal stated that the Respondent [Seller] should pay the Claimant [Buyer] the sum claimed.
3.4 Arbitration expenses and fees
The Tribunal, guided by para. 6(1) of the Regulations on Arbitration Expenses and Fees (Supplement to the Rules of the Tribunal), holds that the arbitration fee is due to be paid by the Respondent [Seller] and that the [Seller] should compensate the [Buyer] with the appropriate arbitration fee.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of the United States is referred to as [Buyer] and the Respondent of the Russian Federation is referred to as [Seller].
** Kirill Lebedyanskiy is a qualified lawyer in Russia. He is a graduate of the Faculty of Law, Moscow State Social University (2000), and is currently an LL.M. candidate at Queen Mary College, University of London.Go to Case Table of Contents