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CISG CASE PRESENTATION

Russia 23 March 2005 Arbitration proceeding 126/2004 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050323r1.html]

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

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Case identification

DATE OF DECISION: 20050323 (23 March 2005)

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: 126/2004

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Germany (claimant)

BUYER'S COUNTRY: Russian Federation (respondent)

GOODS INVOLVED: [-]


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 50 [Also cited: Articles 37 ; 48 ; 53 ; 54 ; 78 ]

Classification of issues using UNCITRAL classification code numbers:

50C1 [Reduction of price: buyer may not reduce price when seller remedies failure to perform]

Descriptors: Reduction of price, remedy of

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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): M.G. Rozenberg, Praktika Mezhdunarodnogo kommercheskogo arbitrazhnogo suda pri TPP RF 3a 2005 z.. [Arbitration decisions rendered by the International Commercial Tribunal at the Russian Federation Chamber of Commerce and Industry in 2005], published by "Statut" (2006), Case No. 152 [134-137]

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 126/2004 of 23 March 2005

Translation [*] by Sophie Tkemaladze [**]

1. SUMMARY OF RULING

      1.1 The places of business of the parties to the international sales contract are in countries signatory to the Vienna Convention 1980. The Convention shall therefore apply to their relationships. The subsidiary law, based on the conflict of law norms of the OGZ [*] 1991, which were in force at the time of conclusion of the contract, is determined to be German law, as the law of [Seller]'s country.

      1.2 According to the provisions of the Vienna Convention 1980, in cases of delivery of defective goods, the buyer may not reduce the price if the seller remedies his failure to perform his obligations.

      1.3 Expenses for payment of customs fees which have been incurred in relation to the replacement of the defective goods shall be borne by Claimant [Seller], all the more that this obligation derives from the provisions of the contract.

      1.4 Since the Respondent [Buyer] has not filed a counterclaim, [Buyer]'s requests for reimbursement of other expenses arisen out of the delivery of non-conforming goods, which were presented as a response to [Seller]'s claim, have not been considered. In addition, it has been noted that the [Buyer] has failed to present documentary evidence of its requests as per the terms of the contract.

      1.5 [Seller]'s claim for annual interest has not been considered since the applied interest rate does not correspond to the provisions of German law.

2. FACTS AND PLEADING

An action has been filed by a German firm [Seller] against a Russian organization [Buyer] regarding partial non-payment for goods shipped under an international sales contract concluded between the parties on 21 November 2000. [Seller]'s requests included: offset of debt, payment of annual interest as well as reimbursement of arbitration fees.

[Buyer] protested against satisfaction of [Seller]'s requests, arguing that part of the delivered goods appeared to be defective and their replacement by the [Seller] has caused expenses for the [Buyer], which exceed the unpaid sum owed to the [Seller]. In its arguments, [Buyer] relied on art. 50 of the Vienna Convention which, in its judgment, gives the [Buyer] the right to reduce price in cases of delivery of defective goods.

At the arbitral proceeding [Seller]'s representative objected to most of the [Buyer]'s arguments, agreeing only to carrying customs expenses incurred as a result of replacement of the defective goods. In this regard, [Seller] has reduced the amount of its claim in proportion to such expenses.

3. TRIBUNAL'S REASONING

The award of the MKAC Arbitral Tribunal (hereinafter: the Tribunal) contained the following main provisions:

      3.1 Section "b" of art. 9 of the contract concluded between the parties on 21 November 2000 provides that disputes arising out of the contract shall be settled in the Court of International Commercial Arbitration attached to the Chamber of Commerce and Industry of Russian Federation, in accordance with its Regulations. The Tribunal thereby is competent to resolve the present dispute.

      3.2 From the case papers, it has been determined that the Russian organization which signed the contract of 21 November 2000 was reorganized into a public company, against which the present claim has been filed. This is proved by the Articles of this company, approved on 30 June 2004 and Registration Certificate dated 15 July 2004. Considering the issue of succession proven, the Tribunal has found the public company, against which the claim has been filed, to be the proper Respondent [referred to herein as Buyer], which is not contested by the parties.

      3.3 At the time of conclusion of the contract dated 21 November 2000, the places of business of the [Seller] and the [Buyer] were and still are in countries signatories to the Vienna Convention 1980. The Tribunal, based on art. 1(1)(a) of the Convention, therefore found the Convention to be applicable to the relationships between the parties.

Since the parties in their contract have not determined the national law applicable on a subsidiary basis, the Tribunal, guided by section 2 of art. 28 of the Law of the Russian Federation "On International Commercial Arbitration" came to conclusion that based on the conflict-of-law norms of section 1 art. 166 of OGZ [*] 1991, in force at the time of conclusion of the contract dated 21 November 2000, German law shall be the subsidiary applicable law, as the law of [Seller]'s country.

      3.4 The case papers (namely, copies of international way bills dated 22 May 2001 No. b/n, 22 May 2001 No. 010203, 19 September 2001 No. 13105/250901/014657/001, 18 October 2001 No. 11201/301001/0001068, 30 January 2002 No. 10319060/040702/000348/001, with customs marks at [Buyer]'s place on delivery of goods) evidence shipment of the equipment by [Seller] to [Buyer] in accordance with the contract in the amount noted in the statement of claim.

[Buyer], in written explanations on the claim and at the arbitral hearing confirmed acceptance of the equipment as well as its cost and has acknowledged partial payment for it.

[Buyer]'s assertion that, based on art. 50 of Vienna Convention, it has the right to reduce the price of the delivered goods because part of the goods appeared to be defective, in this case is not well-founded. This provision of the Convention, along with authorizing a buyer to reduce the price in cases of non-conformity of goods, at the same time provides, that if the seller remedies its failure to perform its obligations in accordance with article 37 or article 48 of the Convention, the buyer may not reduce the price.

The case papers show that the [Seller] has replaced the defective equipment with new equipment. This fact is not contested by [Buyer]. Under such conditions, [Buyer] may not reduce the price for delivered goods, while [Seller] has the right to claim the unpaid part of the price for the goods.

In determining the amount of the principal debt subject to collection by the [Seller], [Buyer]'s expenses related to payment of customs fees upon delivery to Buyer of the new equipment in replacement of defective equipment should be excluded. According to the terms of the contract and circumstances of the case such expenses were to be paid by the [Seller], which was admitted by [Seller] at the Tribunal's hearing.

Other expenses and losses, listed by [Buyer] in contradiction to the [Seller]'s claim, which [Buyer] considers to be losses arisen out of [Seller]'s failure to duly perform its obligations under the contract, cannot be admitted. Existence of these losses is not documented and, in asserting the inevitability of their reimbursement, [Buyer]'s application does not take into account contractual provisions which limit the liability of the [Seller] (art. 6, section "g" of art. 10 of the Contract). Moreover, the request for reimbursement of such losses accompanied by appropriate evidence could have been filed by the [Buyer] independently or by filing a counterclaim, which [Buyer] failed to do.

In view of the abovementioned and based on arts. 53 and 54 of Vienna Convention 1980, the Tribunal recognizes [Buyer]'s obligation to pay to the [Seller] the principal amount of the debt with the deduction of the above noted customs fees.

      3.5 [Seller] failed to present evidence, proving the reasonableness of [Seller]'s claim on the amount of annual interest for delay in payment. The applied annual rate of 9.13% is in contradiction with the existing German civil legislation. As a result of this, the Tribunal leaves the claim in this part without consideration.

      3.6 Under section 2 6 of the Regulation on Arbitral Fees and Expenses, the arbitration fee shall be levied on the [Buyer] in proportion to the amount of satisfied claims.


FOOTNOTES

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

Translator's note on abbreviations: OGZ = the abbreviation for Fundamentals of Civil Legislation of the USSR and the Republics 1991.

** Sophie Tkemaladze, LL.M. Central European University, Budapest , Hungary; Lecturer at Tbilisi State University; Coach of the TSU team for the Willem C. Vis International Commercial Arbitration Moot.

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Pace Law School Institute of International Commercial Law - Last updated June 28, 2007
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