Russia 21 December 2004 Arbitration proceeding 39/2003 (Automobile case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/041221r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 39/2003
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Germany (respondent)
BUYER'S COUNTRY: Russian Federation (claimant)
GOODS INVOLVED: Automobile
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:
25A [Definition of fundamental breach: substantial deprivation of expectation, etc.]; 30A [Seller's obligations: delivery, etc.]; 35A [Conformity of goods: quality, quantity and description required by contract]; 81C [Effect of avoidance on obligations: restitution of benefits received]
25A [Definition of fundamental breach: substantial deprivation of expectation, etc.];
30A [Seller's obligations: delivery, etc.];
35A [Conformity of goods: quality, quantity and description required by contract];
81C [Effect of avoidance on obligations: restitution of benefits received]
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. 48 [346-350]
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Queen Mary Case Translation Programme
21 December 2004 [Case No. 39/2003]
Translation [*] by Kirill Lebedyanskiy [**]
1. SUMMARY OF RULING
1.1 Inaccuracy in the name of the arbitration body in this case was not accepted as a justified reason for considering a lack of competence of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry (hereinafter -- RFCCI).
1.2 Taking into account that the contract did not stipulate the applicable law, the Tribunal stated that due to the fact that places of business of the parties were in Contracting States, the Vienna Convention of 1980 (hereinafter -- CISG) was applicable to the relations of the parties. In accordance with Article 1211 of the Civil Code of the Russian Federation (hereinafter -- CCRF), German law was stated to be applicable as a subsidiary law.
1.3 Lack of conformity of the goods with the conditions, as stipulated in the contract, was considered a fundamental breach of contract. As a result, the buyer's rejection of the goods, his claims for repayment (refund) of the sum he had paid, payment of contractual penalty and compensation of expenses incurred, were stated to be legitimate.
2. FACTS AND PLEADINGS
The claim was raised by a Russian firm [Buyer] against a German firm [Seller] with regard to the supply of a car, which was not confirmed with the contract of international sale of goods, concluded on 15 August 2003. The claims of the [Buyer] included repayment of the sum paid for the car with contractual penalty, compensation of the expenses incurred with regard to its transportation, and compensation of the arbitration fee.
The [Seller] contested the [Buyer]'s claim. He referred to the supplementary agreements and alleged that he fulfilled all the conditions of the contract.
The [Buyer] presented his plea in response to the [Seller]'s objections. He noted that one of the supplementary agreements, mentioned) by the [Seller] was concluded with regard to another contract. The Buyer insisted upon full satisfaction of all his claims and produced evidence that he kept the car in temporary custody.
3. TRIBUNAL'S REASONING
The decision of the Tribunal contained the following key theses:
3.1 The competence of the Tribunal
In accordance with section 5.5 of the contract (arbitration clause), the Tribunal is competent to consider the present case. The above-mentioned section states that "all contract disputes will be considered by The Arbitration Committee of the Russian Federation Chamber of Commerce and Industry, Moscow".
Although there were inaccuracies in the naming of the arbitrary body, the Tribunal notes that at the time when the contract was concluded, the Tribunal of International Commercial Arbitration at the RFCCI was the arbitration institution at the RFCCI, which was responsible for the examination of claims arising as a result of foreign trading operations in situations in which at least one of the parties had its place of business abroad. The grounds for this statement are the Law of the Russian Federation "On International Commercial Arbitration" and the Rules of the Tribunal. The Tribunal also noted that before 1993 the Tribunal had the name of "The Arbitration at the Russian Federation Chamber of Commerce". According to Article 4 of Enclosure ¹ 1 of the Law of the Russian Federation "On International Commercial Arbitration" it is the successor of the Arbitration at the RFCCI and the only arbitration institution of the RFCCI which examines cases arising as a result of international trade activities.
Considering questions of its competence, the Tribunal was guided by Article 7(2) of the Law of the Russian Federation "On International Commercial Arbitration". Pursuant to this Article, an arbitration agreement is deemed to be concluded if the parties have exchanged a claim and subsequent response to it; where one party claims that there is an arbitration agreement between parties, and another party does not object to this.
The Tribunal concludes that there was a good reason to believe that when the parties concluded the contract they believed that all their disputes must be considered by the arbitration institution authorized to examine them; i.e., by the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry.
Taking into account the above and pursuant to Articles 7, 16 of the Law of the Russian Federation "On International Commercial Arbitration" and para. 1(5) of the Rules of the Tribunal, the Tribunal declares itself competent to examine the present case.
3.2 Non-appearance of the Respondent [Seller]
On the question of the non-appearance of the [Seller] at the session, the Tribunal stated that the [Seller] was properly informed of the date and the place of the hearing in accordance with para. 23(1) of the Rules of the Tribunal and Article 3(1) of the Law of the Russian Federation "On International Commercial Arbitration". Thus, the Respondent [Seller] received a subpoena in the hearing dated 7 September 2004 and there is evidence of this in the notification of the international mail and messenger service, contained in the case papers.
Due to the above and considering that the Respondent [Seller] did not apply in writing for trial postponement and taking into account that the Claimant [Buyer] requested a hearing without the presence of the Seller, the Tribunal, in accordance with para. 28(2) of the Rules of the Tribunal, stated that non-appearance of the Seller, despite the fact that he was properly notified of the place and the date of hearing, could not be regarded as an impediment to the examination and resolution of the case.
3.3 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 Germany are Contractual States of the CISG and the places of business of the parties are located in these States, the Tribunal stated that norms of the CISG should be applied to the relations of the parties.
The Tribunal also stated that pursuant to Article 1211 of the CCRF, German law should apply to issues, which are not regulated by the CISG. (According to Article 1211 of the CCRF, where the parties have entered into a contract of purchase-sale and not having stipulated in the contract a governing law of the contract, the law of the State where the principal place of business of the seller is located, should apply.)
Due to the above, the Tribunal stated that the Vienna Convention of 1980 was primarily applicable to the relations between the parties. It also stated that, with regard to issues not determined by the CISG, German law (in particular the Bürgerliches Gesetzbuch 1900, with subsequent amendments) was said to be applicable as subsidiary law.
3.4 Assessment of the [Buyer]'s grounds with regard to his claim to recovering the primary debt
Having considered the claim of the Buyer, the Tribunal stated that according to the contract of 15 August 2003 and supplementary agreement of 27 August 2003, the Respondent [Seller] should supply the buyer with two vehicles, as named in the contract, which should not have been produced earlier than 1988, and some additional equipment (part. 2 of the contract).
All goods supplied were fully paid for as stated in the payment orders of 3 September 2003 and 5 September 2003. One of the cars was delivered in breach of the contract as it was produced in 1981. This fact is confirmed by Certificate No. G 7644434 and the letter from the Seller dated 18 September 2003, No. 017.03.
Pursuant to Articles 30 and 35(1) of the CISG, the seller must deliver goods which are of the quality required by the contract.
According to Article 25 of the CISG, a breach of contract committed by one of the parties is fundamental if it results in such detriment to the other party as substantially as to deprive him of what he is entitled to expect under the contract.
Furthermore, pursuant to Article 81(2) of the CISG, a party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has supplied or paid under the contract.
The Tribunal stated that the [Seller] committed a fundamental breach of the contract, because he supplied a vehicle produced in 1981, whereas a different period of production was specifically stipulated in the contract: the contract had specifically stipulated not earlier than 1988. Furthermore, the Tribunal took into account that according to the document provided by the Claimant [Buyer] to the Tribunal (customs declaration and acceptance report of 16 December 2003), the vehicle that was supplied was not used by the [Buyer] and was located in temporary custody.
Taking the above circumstances into account, in accordance with the above mentioned articles of the CISG, the Tribunal stated that the Claimant [Buyer] was entitled to the refund of the sum paid for the vehicle and also entitled to recover the costs of its transportation.
At the same time, the Tribunal concluded that the [Buyer] claimed the cost of the additional equipment without any grounds because it was duly supplied in conformity with the contract.
The Tribunal also concluded that the Claimant had incorrectly determined the cost of the transportation. According to the supplementary agreement of 4 September 2003, this was smaller for the transportation of two vehicles.
The Respondent's [Seller]'s arguments that he had fulfilled his obligations in full is not accepted as this cannot be proved. At the same time, the Tribunal noted that the Respondent [Seller[ had the right to deal as he saw fit with the goods, which were supplied in breach of the conditions of the conditions.
Taking the above into account, the Tribunal stated that the Claimant [Buyer] was entitled to the refund of the sum paid for the vehicle and its carriage. In all other respects, with regard to the sum of the primary debt, this claim was not satisfied.
3.5 Assessment of the [Buyer]'s grounds in regard to his claim to charge the [Seller] with the contractual penalty
Having considered the claim of the [Buyer] to charge the [Seller] with the contractual penalty, the Tribunal concluded that this claim should be satisfied in full.
According to clause 5.6 of the contract, if a party breaches the conditions of the contract, the other party is entitled to charge the breaching party a contractual penalty of 1% of the total contract sum. The total contractual sum was determined in the supplementary agreements of 27 August 2003 and 4 September 2003. Due to the fact that the Seller breached the contract, the Buyer is entitled to charge him with the contractual penalty.
3.6 Arbitration expenses and fees
The Tribunal, guided by para. 6(2) 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] in proportion to the amount of the satisfied claims of the Claimant [Buyer].
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the Russian Federation is referred to as [Buyer] and Respondent of Germany 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