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CISG CASE PRESENTATION

Russia 12 November 2004 Arbitration proceeding 174/2003 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/041112r1.html]

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

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Case identification

DATE OF DECISION: 20041112 (12 November 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: 174/2003

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: [-]

BUYER'S COUNTRY: [-]

GOODS INVOLVED: [-]


Classification of issues present

APPLICATION OF CISG: [-]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 7 ; 8 ; 53 ; 71 ; 74 ; 80

Classification of issues using UNCITRAL classification code numbers:

Unavailable

Descriptors: Unavailable

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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. 45 [326-338]

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

International Commercial Arbitration Court at the Russian Federation Chamber of Commerce

Date of Decision: November 12, 2004

Translation [*] edited by Yaroslava Sorokhtey, Dmytro Galagan [**]

The Tribunal recognized alternative arbitration clause that provides the choice to the parties between several arbitration institutions, taking into account that one of them was the ICAC.

Since commercial entities of the parties are situated in countries that are members of the Vienna Convention of 1980, the Tribunal recognized their agreement to apply the Vienna Convention of 1980 as the main law and Russian law as the subsidiary law. It is emphasized that rules of the main and subsidiary laws regarding the provisions of the agreement cannot be applied at the same time.

As there is no agreement between the parties regarding application of UNIDROIT Principles and one of the parties objected to its application -- the tribunal decided not to apply those principles in this particular dispute.

It was recognized that the refusal of the [Seller] to perform its obligation under the Contract was lawful. It was also taken into account that due to the delay of the payments by the [Buyer], the [Seller] lawfully suspended performance of the contract under Article 71 of the Vienna Convention of 1980 and to guarantee performance, offered to change the terms of payment for the goods, but the [Buyer] rejected the offer.

Since the [Buyer] fundamentally breached the Contract, the [Seller] had the right to terminate the contract; therefore, the Tribunal rejected the [Buyer]'s claims to compensation for the loss of future profit resulting from non-delivery of goods by the [Seller].

The tribunal decided that there were no grounds for the [Buyer] to delay payment; [Buyer] failed to prove that those delays were due to the non-delivery of the goods by the [Seller].

Therefore, the Counterclaim filed by the [Seller] was satisfied and the [Buyer] should pay the [Seller] the price of the goods including the contract penalty, the amount of which is reduced due to the provisions of art. 333 Civil Code of the Russian Federation.

The claim of the [Seller] to compensation for wasted overheads connected with the protection of its interests by its representatives was satisfied and for an amount which was recognized by the Arbitral Tribunal as reasonable.

The claim was filed by the Russian Organization [Buyer] against the Hungarian Entity [Seller] for compensation of lost profit due to [Seller]'s refusal to perform its obligations to deliver the goods under the main contract for the international sales of goods, which was signed on December 2, 2002. As it was pointed out by the [Buyer], the [Seller] agreed to perform the contract only if the terms of payment would be changed.

The [Seller] defended against the Claim and in turn submitted a Counterclaim for payment of the [Buyer]'s debts for the goods delivered charging an additional contract penalty and the costs of arbitration plus expenses for the legal representatives connected with this case.

The [Seller] proved the reasonableness of its actions by the rights given to him by the Contract and the Vienna Convention of 1980. The seller also had comments on the calculations of the [Buyer]'s requests.

The [Buyer] did not recognize the [Seller]'s arguments.

The Parties also did not agree on the application of the UNIDROIT principles, provisions of the Vienna Convention of 1980 and the Civil Code of the Russian Federation.

The decision of ICAC is stated below.

1. Under the para.1(3) of the ICAC Rules, the Tribunal has jurisdiction to arbitrate disputes if there is an arbitration agreement between the parties concluded in writing to send their future or current dispute to the tribunal. The tribunal referred to the contract and found that art. 9 of the Contract states that:

"All the disputes in connection with this contract or with the breach, cancellation or annulment of this contract should be referred on the choice of the Claimant:

a)    To the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation in accordance with the ICAC Rules with obligatory regulation of the dispute by the means of negotiations or using the complaint procedure.
 

Russian Law should be applicable to the merits of the case.
 

b)    Or to the International Commercial Arbitration Court in compliance with the UNCITRAL Rules, the tribunal should be constituted by Bundeskammer der Gewerblichen Wirtschaft (Federal Economic Chamber) - A-1045, Wien, Wiedner Hauptstrasse 63.
 

The number of the arbitrators -- 3; Austrian law should be applicable to the merits of the case.
 

The decision of the Arbitral Tribunal should be final and binding for the parties. Parties agreed to enforce the decision of the tribunal voluntarily."

After becoming aware of the content of Article 9 of the Contract, the ICAC made a conclusion that there is an agreement between the Claimant and the Respondent, concluded in writing, that their disputes regarding the Contract will be resolved by arbitration.

The parties agreed on the institutions that have the right to resolve disputes between them: The International Commercial Arbitration Court at the Russian Federation Chamber of Commerce (para. "a" of Article 9 of the Contract) and The International Commercial Arbitration Court governed by the UNCITRAL Rules (para. "b" of Article 9 of the Contract). When a dispute arises it is the Claimant who decides which of the aforementioned institutions it will be referred to. (The first abstract of Article 9 of the Contract).

Since the Claimant [Buyer], regarding the initial dispute, referred its claim to the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation, in accordance with Article 9 of the Contract -- the ICAC at the Chamber of Commerce and Industry of the Russian Federation has jurisdiction to rule over this dispute.

The Respondent of the initial dispute [Seller] submitted the Counterclaim in accordance with Article 33 of the ICAC Rules, justifying ICAC' s at Chamber of Commerce and Industry of the Russian Federation competence to resolve the dispute since the Counterclaim is connected to the initial dispute and the arbitration agreement also covers the Counterclaim.

Taking these facts into account, and in accordance with Article 9 of the Contract, under Article 7 of the Law of Russian Federation "On International Commercial Arbitration" and in accordance with subpara. 2, 3, 5 of para. 1 of the ICAC Rules -- ICAC ruled that it has jurisdiction to resolve the initial dispute and the Counterclaim.

2. Regarding the applicable law, ICAC ruled that under para. "a" of Article 9 of the Contract, the parties agreed that, in the event that the dispute is referred to the ICAC at the Chamber of Commerce and Industry of the Russian Federation, Russian Law should apply.

Taking into account the fact that the parties of the dispute are the residence of States which are parties to the Vienna Convention on the International Sales of Goods 1980 -- ICAC decided that under Article 1 of the Vienna Convention 1980 this Convention should be applicable to the merits of the case.

Under Article 7(2) of the Vienna Convention 1980, 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

After investigating the pleadings of the parties ICAC found that the [Seller] pleaded that the Vienna Convention, the Civil Code of the Russian Federation and UNIDROIT principles apply, assuming that they should all apply as internationally recognized legal standards and have a strong influence as legal custom, but the [Buyer] was against its application.

Taking into account the fact that the parties did not agree on the application of UNIDROIT principles, and since one party clearly stated that it is against its application, ICAC decided, following Article28(1) of the Law of the Russian Federation "On International Commercial Arbitration" and para. 13 of the ICAC Rules, those UNIDROIT principles are not applicable in this case.

3. After investigating claims by the [Buyer] to the [Seller] regarding the initial dispute ICAC decided the following.

3.1.    The [Buyer]'s claim to oblige the [Seller] in a reasonable time to deliver the goods on requests from August 6, 2003, and September 16, 2003, was dismissed without hearings on the merits since para. 16(g) and para.18 of the ICAC Rules was breached and arbitration fees were not paid, which was supported by the representatives of the [Buyer] on the hearing of September 2, 2004.

Taking into account stated above the Arbitral Tribunal found it unnecessary to investigate the [Seller]'s counter-arguments regarding the mentioned claim.

3.2.    After considering the [Buyer]'s claim of action of debt from the [Seller] because of the loss of expected gain, which the [Buyer] asked to have added to the amount of its debt before the [Seller], the Arbitral Tribunal found that:

  1)    The [Buyer] asked the tribunal to collect from the [Seller] the damages, which were the loss of expected gain that he could have had if the Contracts No 69/03 from March 5, 2003, March 14, 2003 and April 17, 2003, concluded by him with his 3 contractors were performed.

The performance of the mentioned Contracts became impossible for the [Buyer] since the [Seller] refused to perform the requests of the [Buyer] of August 6, 2003 and September 16, 2003 on previous terms which were agreed by the parties.

In order to perform the Contract the [Seller] demanded changing the terms of the conditions of the payment and the [Buyer] refused to accept it.

The [Seller] did not agree with the demands of the [Buyer] and stated that its refusal to perform the contract was lawful and based on legal grounds, since it was caused by the [Buyer]'s breach of the terms of the payment and the [Seller] exercised its rights under p.3.2 of the Contract. Intending to save the contractual relationship the [Seller] offered to change the conditions of payment which would be the guarantee of the performance of their obligations.

Since the [Buyer] could not give such guarantees - the [Seller], acting in accordance with Article 71(3) of Vienna Convention 1980, did not resume its obligations under the Contract.

Arguing against the demands of the [Buyer] to recover the loss of expected gain the [Seller] argues the method of calculation of the losses stating that it cannot be calculated from the general sum of the cost of the delivery for all 3 contracts -- it should be calculated from the sum of the [Buyer]'s requests under the contract of August 6, 2003, and September 16, 2003, and it also argues the amount claimed by the [Buyer];the [Seller] states that the amount claimed cannot achieve more than 10 % of the average margin on the Russian market of the same goods. The seller believes that the Contracts presented were drafted specifically to refer to arbitration, it is not stated in the Contract that the subject-matter of the dispute are all the goods produced by the [Seller]; it states that some of the requests of the [Buyer] do not fall within the specifications of the Contract and that is why they were rejected.

Therefore the issue of this dispute between the parties is to identify:

-    If the [Seller] lawfully rejected to perform its obligation before the [Buyer] and if it had legal grounds to change the conditions of the payment of the installments;

-    If the fact of the lost gain and the quantity of lost gain requested by the [Buyer] can be proven.

While proving unlawful actions of the [Seller], the [Buyer] does not object to the fact that it delayed the payment and that under para. 3.2 of the Contract the [Seller] has the right to suspend the transaction if the [Buyer] does not provide payment on time; but nevertheless the [Seller] missed the deadline for such suspension under para. 3.2, since the deadline passed on August 8, 2003, when the [Buyer] made the delinquent payments and re-established integrity of the performance.

Besides that, the [Buyer] states that the reasons for the delay of payment were included into the sphere of commercial risks; therefore, the [Buyer] is not guilty of the delay, it happened only once, was not longer that one month and did not lead to any financial losses for the [Seller]. In the [Buyer]'s opinion this breach was not fundamental.

The [Buyer] did not agree with the [Seller]'s grounds for the suspension of performance of the Contract under Article 71 of Vienna Convention stating that the [Seller] could not prove that there were grounds to expect further non-compliance with its obligations by the [Buyer] in the future. The [Buyer] believes that the [Seller] breached Article 71(3), which requires immediate notification of suspension of the Contract because the [Seller]'s notification about changes to the conditions of the payment could not be considered immediate.

To justify its actions the [Seller] referred to para. 3.2 of the Contract, Article 71 of Vienna Convention and Article 328 of the Civil Code of the Russian Federation. The [Seller] argues that it had a right to refuse to perform the contract under para. 3.2 of the Contract since the [Buyer] already delayed payments before, but the last delay was much longer than previous ones and that is why the [Seller] decided to use its right under the Contract.

The Seller believes that its actions were conducted in accordance with Article 71 of the Vienna Convention since this article does not require one party to conduct a fundamental breach in order to give the right to the other party to suspend the contract.

After all the delays in payments conducted by the [Buyer] it was reasonable for the [Seller] to have doubts about the financial creditworthiness of the [Buyer]. The fact that the [Buyer] did not pay the debt stated by the [Seller] in the Counter-claim can be seen as evidence of the reasonableness of such doubts regarding [Buyer]'s creditworthiness.

The [Seller] believed that it was sufficient, and in accordance with article 71(3) of Vienna Convention 1980, to provide notice, in its answer to the [Buyer]'s order, that it would refuse to renew delivery of the goods without an additional guarantee of performance.

2)    For evaluation of the evidence provided by the parties and pleading before the tribunal during the hearings on 02.09.2004 regarding the arguments about legality of the actions of the [Seller] the ICAC first of all referred to the interpretation of the conditions of the contract, particularly of para. 3.2.

It is stated in para. 3.2 that "the [Seller] only delivers the goods to the [Buyer] in case it perfectly meets the conditions/deadlines of the payment under the contract. The [Seller] has the right without any notice and without any consequences to refuse to perform the contract and also to demand 5 % value from the total price of the Contract (since it is forced to unpack the goods) in case non-compliance with the conditions of the payment becomes apparent after the notice about the goods being ready for the delivery/shipment was sent to the [Buyer] by the [Seller]."

On the basis of the rules of interpretation set out in Article 8 of the Vienna Convention and Article 431 of the Civil Code of the Russian Federation, the ICAC came to the conclusion that by agreeing on favorable terms of payment for the goods to the [Buyer], the Parties in paragraph 3.2 of the Contract provided the [Seller] with the right to refuse to complete this transaction in the event of a breach of the terms of payment and (or) delay in payment regardless of guilt of the [Buyer] in the delay in payment, the fact whether there was a delay in payment for one or more batches of goods, whether such delay caused losses to the [Seller], and whether it can be classified as a material breach.

Thus, the interpretation of para. 3.2 of the Contract suggests that the [Seller] had the right to refuse to complete the transaction due to the mere fact of delay of payment by the [Buyer], without any additional conditions. This right of the Seller is not limited in time, and is not revoked when the [Buyer] repays its indebtedness.

The ICAC notes that para. 3.2 of the Contract provides for the right to suspend the execution of the transaction, but not the right to terminate the Contract. This conclusion follows from para. 1.2 of the Contract, which provides that specific sale and purchase transactions are to be stipulated in separate Annexes for Supply and Supplements (accordingly) to this General Contract, and the Parties in the process of their drafting shall determine and agree upon the conditions, obligations, conditions, etc., which are not regulated by the General Contract.

Considering that, in support of its legal position, the [Seller] refers to para. 3.2 of the Contract, Article 71 of the Vienna Convention of 1980 and Article 328 of the Civil Code of the Russian Federation, the ICAC noted that those sources cannot be applied simultaneously or in parallel. On the basis on the fact that the Russian law, as it has been found above, applies only subsidiary, the ICAC focused on the correlation between application of para. 3.2 of the Contract and Article 71 of the Vienna Convention of 1980, and found the following.

Article 71 of the Vienna Convention of 1980 contains a provision, common for both parties to a contract, granting a right to suspend the performance of his obligations in the event of a foreseeable breach by the other party, based on an assessment of his ability to perform.

Suspension of performance is possible only when it becomes apparent that the other party will not perform a significant part of its obligations. A party suspending performance must immediately give notice of the suspension to the other party and must continue with performance if the other party provides adequate assurance of its performance.

Para. 3.2 of the Contract provides for the right to suspend performance by the [Seller] in a particular case -- in the event of a breach of terms of payment and (or) delay in payment by the [Buyer], and has some differences from the provisions of Article 71 of the Vienna Convention of 1980. This particular case for suspension of performance does not require the assessment of the ability of future performance, but only the fact of the delay, does not require immediate notification, and specifically provides that such a refusal is possible without a warning.

Since provisions of the Vienna Convention of 1980 are dispositive, because, according to Article 6 of the Convention, the parties may exclude the application of this Convention or, subject to Article 12, derogate from or vary the effect of any of its provisions, this provision of the Contract shall prevail over the provisions of the Convention that govern the same matter.

Proceeding from the above, the ICAC finds that the [Seller]'s right to suspend the performance of its obligations under the Contract is determined in paragraph 3.2 of the Contract, according to which the Seller was entitled to refuse the performance "under this transaction" of obligations, by which the General Contract was performed, due to the mere fact of delay in payment by the [Buyer], without notification.

Since para. 3.2 of the Contract does not provide for the consequences of such a refusal for future relations under the Contract, which remains to be non-terminated, in this part Article 71(3) of the Vienna Convention of 1980 applies to the relations between the Parties, which provides that a party that has suspended the performance must continue with performance if the other party provides adequate assurance of performance of its obligations.

The ICAC finds that the rejection of orders for supply on the same terms, and offer of supply on the terms of prepayment or provision of a bank guarantee, i.e. on new terms, may be regarded as a request to provide additional assurance of performance.

Because the [Buyer] refused to provide such assurance, the [Seller], as follows from Article 71(3) of the Vienna Convention of 1980, was not required to continue performance.

Given the above, and based on para. 3.2 of the Contract, as well as Article 71(3) of the Vienna Convention of 1980, the ICAC considered that there was no breach of the Contract by the Seller.

3)    While analyzing the conditions for damages in the form of lost profits, the ICAC proceeds from the fact that Article 74 of the Vienna Convention of 1980 provides that damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. Such damages may not exceed the loss which the party in breach foresaw or ought to have foreseen at the time of the conclusion of the contract as a possible consequence of the breach of contract.

Since the Vienna Convention of 1980 does not give a definition for loss of profits, the ICAC referred to Article 15 of the Civil Code of the Russian Federation, which defines loss of profits as the revenues that a person would have received under ordinary business conditions, if its right had not been violated. Thus, the breach of the Contract is reviewed under the Vienna Convention of 1980 and the Civil Code of the Russian Federation as the main criterion for the recovery of lost profits.

Since, as it has been already established, there was no breach of the Contract by the [Seller], under such circumstances the main condition to meet the requirements for granting the [Buyer] damages for lost profits is lacking.

In this case, the ICAC notes that even if the breach of the Contract by the [Seller] had been established, the request for damages could not be granted because the [Buyer] failed to provide sufficient evidence of the amount of lost profits.

The ICAC notes that the [Buyer], while determining the amount of lost profits, based it on the amount of supply shortfalls under the Contract, but its amount could be calculated only on the basis of the value of goods that were not supplied under the orders of the [Buyer] on August 6, 2003 and September 16, 2003, which is 4.6 times lower.

This conclusion is based on the fact from the provisions of the Contract (paragraphs 1.1, 1.2, 2.3, 3.1) and practice established between the [Buyer] and the [Seller]; it follows that the annual volume of specification is not required to be ordered and delivered. The fact that the [Buyer] has always chosen less than half of the annual volume of specification is evidenced by the table showing the amount of the Contract specifications and actually purchased goods for each year from 1998 to 2003.

In addition, out of three contracts, which show evidence of lost profits, no orders and no advance payment were made under two of them; therefore, the [Buyer] has not suffered any losses under these contracts. Under one contract, an order was made by the [Buyer] to the [Seller], an advance payment was made by the [Buyer]'s Russian counteragent on September 23, 2003 and its refund by the [Buyer] to the counteragent on September 24, 2003, which is evidenced by documents. However, it took place after the [Seller] refused to fulfill orders under the same terms of payment, i.e. when the [Buyer] was aware of the situation in which he could not fulfill his obligations.

The Tribunal deems it to be proven by the [Seller] that specifications of this Contract do not fully match the orders directed to the [Seller] (every third position, as the [Seller] evidences, does not match), also the share of the goods produced by the [Seller] is not stipulated directly in the contract between the Buyer and its counteragent, which indicates the possibility of replacing them with similar products from other manufacturers. Taking into account the above, the ICAC finds that this contract also cannot serve as conclusive proof for the purposes of calculation of the amount of lost profits requested by the [Buyer].

Given the foregoing and being guided by Articles 71 and 74 of the Vienna Convention of 1980, Article 15 of the Civil Code of the Russian Federation, the ICAC reached the conclusion that the [Buyer]'s request for recovering lost profits from the [Seller] shall not be granted.

4. Having considered the [Seller]'s counter-claim against the Buyer, the Tribunal found the following.

4.1.    Under the terms of the Contract and the [Buyer]'s order, the [Seller] delivered to the [Buyer] the goods in the amount specified in the statement of claim, which is confirmed by documents available in the case file. The invoice done by the [Seller] on June 17, 2003 for payment for the aforementioned goods has not been paid by the [Buyer].

While acknowledging the debt owed to the [Seller] for the aforementioned amount, the [Buyer] explained that non-payment of the debt is a security measure that was necessary due to the fact that the [Seller] refused to fulfill two orders, forcing the [Buyer] to abandon earlier agreements. It has already caused damages to the [Buyer], and in the future it will result in paying fines to its Russian counteragents.

To legally substantiate its position, the [Buyer] had initially referred to Articles 359 and 360 of the Civil Code of the Russian Federation, explaining that he was forced to resort to the uses of security measures in the way of retention of the amount of money intended for payment for the previous delivery. However, subsequently the [Buyer] rejected the qualification of non-payment of the required amount of money as retention, which was confirmed at the arbitration hearing.

In the explanations of June 30, 2004, the [Buyer] asserted that, guided by Article 80 of the Vienna Convention, he, being in a situation critical for him, was forced to resort to legal remedies provided for in Article 71(1)(b) of the Vienna Convention of 1980, as well as in paragraph 2 of Article 328 and paragraph 2 of Article 488 of the Civil Code of the Russian Federation.

The ICAC does not consider to be grounded the [Buyer]'s reference to Article 80 of the Vienna Convention of 1980, which provides that a party may not rely on a failure of the other party to perform, to the extent that such failure was caused by the first party' s act or omission. In this case, there was no violation committed by the [Seller], so non-payment of the invoice for goods supplied by the [Seller] was not due to the [Seller]'s omission.

Further, the ICAC considers the reference to article 71(1)(b) of the Vienna Convention of 1980 and found that it also cannot be a proof of legality of non-payment, since this Article provides for the right to suspend performance in the event of anticipatory breach by the other party. Here, the suspension of performance by the [Seller] is a legitimate action based on its right under the Contract, and cannot be regarded as an anticipated breach of the Contract.

The ICAC does not consider the [Buyer]'s references to paragraph 2 of Article 328 and paragraph 2 of Article 488 of the Civil Code of the Russian Federation to be reasonable, since these provisions of the Civil Code of the Russian Federation address the suspension of a reciprocal obligation, whereas the obligation to pay for the goods supplied was not a reciprocal in respect to the unfulfilled orders, but a reciprocal to the obligation fulfilled by the [Seller], and it should have been fulfilled.

On the basis on the above and being guided by Article 53 of the Vienna Convention of 1980, which establishes the obligation of a buyer to pay the price for the goods and take delivery of them as required by the contract, the ICAC considers that the [Seller]'s request for recovery of the principal amount from the [Buyer] is well grounded and should be satisfied.

4.2.    Having considered the [Seller]'s claim for recovery from the [Buyer] of the fine for late payment for the goods, the ICAC found that Annex No. 3 to the Contract provides for a fine for violation of the terms of payment for the goods by the [Buyer], in amount of 0.1% of the unpaid amount for each calendar day of delay.

Since the Vienna Convention of 1980 does not address the recovery of fines and this issue cannot be resolved on the basis of general principles on which it is based, the relevant provisions of the Civil Code of the Russian federation shall be applicable to the issue of recovery of the fine.

Paragraph 1 of Article 330 of the Civil Code of the Russian Federation provides for payment of default interest, as set in a contract, by the debtor for the benefit of the creditor in the event of non-performance or improper performance of obligations, particularly in the case of delay in performance.

Delay in payment is proven and is not disputed by the [Buyer.]

According to the materials of the case and to the explanations made by the representative of the Seller on September 2, 2004 at the arbitration hearing on calculation of fines, the [Seller] accrued a fine for the period from September 29, 2003 (the day following the date when the [Buyer] had to, in accordance with Annex No. 3 to the Contract, pay for the goods delivered) till January 29, 2004 (the date of the suit was filed) on the value of the goods unpaid. The ICAC found that the calculation of the amount of fine is in full compliance with Annex No. 3.

The [Buyer] requested to deny the claim for recovery of the fine, referring to the fact that the delay in payment was forced, given its current difficult (critical) economic situation.

The ICAC found that such statement by the [Buyer] may not constitute grounds for denial of the request for recovery of fines.

However, following the provisions of Article 333 of the Civil Code of the Russian Federation that the default interest to be levied can be reduced in its amount if it is clearly disproportionate to the consequences of the breach, the ICAC decided that the amount of the penalty should be reduced to the amount determined by the arbitral tribunal.

5. Having considered the request of the [Buyer] (the plaintiff in the original claim) and of the [Seller] (the plaintiff in the counterclaim) for the reimbursement of costs with respect to the arbitration fee, the arbitral tribunal, on the basis of paragraph 6 of the Rules on Arbitration Costs and Fees, annexed to the Rules of the ICAC, considered that the [Buyer] should compensate the [Seller] for its expenses related to the payment of the arbitration fee on the counterclaim in proportion to satisfied claims of the counterclaim, and cost of the Buyer with respect to the arbitration fee shall not be reimbursed.

6. Having considered the request of the [Buyer] to collect from the [Seller] the costs incurred by the [Buyer] in connection with its participation in the present case through legal representatives, and additional costs (photocopying, transportation, post and fax correspondence, etc.), the ICAC, given the fact that claims of the [Buyer] were refused, and guided by paragraph 9 of the Rules on Arbitration Costs and Fees, decided that the [Buyer]'s request for the recovery of the above costs from the [Seller] shall not be granted.

7. Having reviewed the [Seller]'s request for the recovery from the [Buyer] of expenses incurred by the [Seller] in this case in connection with protection of his interests through legal representatives, taking into account the fact that the requests of the [Seller] made in his counterclaim were mostly granted, the ICAC, guided by paragraph 9 of the Rules on Arbitration Costs and Fees, pointed that the reasonable costs incurred by the [Seller] in connection with the arbitration proceedings should be awarded in the amount determined by the Tribunal.

Member of the Presidium
and arbitrator of the ICAC at the CCI of the Russian Federation,
Professor,
Doctor of Laws
M.H.Rozenberh


FOOTNOTES

* All translations should be verified by cross-checking against the original text.

** Dmytro Galagan is an intern at the Association for International Arbitration. He can be reached at <dmytro.galagan@hotmail.com>. Yaroslava Sorokhtey is an intern at the Association for International Arbitration. She can be reached at <ysorokhtey@gmail.com>.

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