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CISG CASE PRESENTATION

Ukraine 5 July 2005 Arbitration proceeding (Medical equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/050705u5.html]

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

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Case identification

DATE OF DECISION: 20050705 (5 July 2005)

JURISDICTION: Arbitration ; Ukraine

TRIBUNAL: Tribunal of International Commercial Arbitration at the Ukraine Chamber of Commerce and Trade

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Switzerland (respondent)

BUYER'S COUNTRY: Ukraine (claimant)

GOODS INVOLVED: Medical equipment


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 25 ; 30 ; 34 ; 49 ; 74 ; 81

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

30A [Obligations of the seller: delivery of the goods];

49A1 [Buyer's right to avoid contract (grounds for avoidance): fundamental breach of contract];

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

81C [Effect of avoidance: restitution of benefits received]

Descriptors: Avoidance ; Fundamental breach ; Delivery ; Damages ; Restitution

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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): Praktika of Mezhdunarodnogo kommercheskogo arbitrazhnogo suda pri TPP Ukraine. Vneshneekonomicheskie spory. [Practice of the International Commercial Arbitration Tribunal at the Ukraine Chamber of Commerce and Industry. Foreign Economic Disputes], Kyiv, published by Praksis (2006) Case No. 75 [614-624].

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

Tribunal of International Commercial Arbitration of the
Ukrainian Chamber Commerce and Trade

Award of 5 July 2005

Translation [*] by Gayane Nuridzhanyan [**]

The International Commercial Arbitral Tribunal at the Ukrainian Chamber of Commerce and Trade (hereinafter Tribunal) having considered the action brought by Claimant [Buyer], an Ukrainian company, against Respondent [Seller], a Swiss company, for the avoidance of Contract # 057 of 31 July 2003 and for the recovery of € 281,120 has decided the following.

The claim for the recovery € 281,120 included:

€ 195,000 of the main sum in arrears;

€ 8,612 of the losses incurred due to the payment of the penalty calculated by the tax authority constituting Claimant's expenses on preparation of the documents and participation in the proceedings of the economic courts of Ukraine in the cases connected with levy of the mentioned penalty;

€ 3,060 of the losses connected with payment of the container demurrage;

€ 1,882 of the losses connected with the payment for storing the cargo at the Odessa Trading Sea Port storehouse;

€ 1,499 of the losses connected with the location of the cargo under customs control;

€ 71,067 of lost profit.

The legal basis for the adjudication of the dispute by the Tribunal is para. 12.3 of Contract # 057 signed by the parties on 31 July 2003 according to which:

"Any disputes or disagreements under the present contract or arising in connection with it which cannot be settled by the mutual agreement of the parties shall be adjudicated by the International Commercial Arbitral Tribunal at the Ukrainian Chamber of Commerce and Trade, city of Kyiv, in accordance with its Rules. The Tribunal shall be composed of one arbiter. The arbiter shall be appointed by the claimant. The Tribunal's award shall be final and binding upon the parties."

According to the conditions of Contract # 057 of 31 July 2003, [Seller] undertook to sell on CIP Odessa (Ukraine) conditions and the [Buyer] undertook to accept and pay for medical equipment at the price of € 195,000. Payment for the equipment was to be executed by bank transfer in two stages: 10% of the contract sum was to be transferred seven days after the contract was signed and residual 90% was to be transferred at the moment when the equipment was ready to be delivered.

The equipment was to be delivered by air transport within 90 days from the receipt of the written order. The date of the delivery was regarded as the day when airway bill was issued. The following documents were to be enclosed when the equipment was delivered: consignment note, quality certificate, insurance policy, invoice and packing list.

Pursuant to obligations under Contract # 057 of 31 July 2003, the [Buyer] has paid to the [Seller] the full sum of the equipment cost amounting to € 195,000 having transferred € 19,500 on 6 August 2003 and € 175,000 on 28 August 2003. Right after this, on 28 August 2003, the [Buyer] sent to the [Seller] an order for the equipment delivery. However, equipment was received by the [Buyer] with certain damages and could not be used for its intended purpose. Accordingly, the [Buyer] lodged an action with the Tribunal in March 2005.

In its action, the [Buyer] informed that on 11 October 2003 the [Seller] passed the equipment to the transport operator for the delivery to Odessa. The equipment was delivered to a sea carrier which is confirmed by the shipped bill of lading of 11 October 2003, and not to an air carrier, as was envisaged in the Contract.

The equipment was loaded into a container and was delivered to the ship to the port of Piraeus, Greece. In the port, The container was taken off the ship and was opened. The equipment was loaded into another container # 13189 and to another ship for delivery to the Odessa Trading Sea Port of Istanbul, Turkey, which is confirmed by the shipped bill of lading of 21 November 2003 and bill of lading issued in Istanbul.

On 8 December 2003, the container with medical equipment was disembarked at the Odessa Trading Sea Port, which is testified by the stamp of Black Sea Regional Customs on the bill of lading, general act # 03/0542 and statement notice # 03/1038 of 11 December 2003 of the ship agent as well as the notice on the cargo delivery of the shipping company of 9 December 2003.

As it is stated by the [Buyer] in its action, on 28 October 2003, the [Seller] had sent via courier the original of the bill of lading, however, the insurance policy and quality certificate were not enclosed. Taking into consideration the arbitrary alteration of the transportation mode (sea transport instead of air transport) which entailed a longer transportation period, unloading of the equipment from one container and its loading to the another one, absence of the insurance policy and of the quality certificate as well as the necessity to accept the cargo in the Odessa port pursuant to the procedure envisaged in the Contract, the [Buyer] requested the [Seller] to present its written explanation and to send its representative for joint acceptance of the cargo and composition of the acceptance act.

However, according to the [Buyer], [Seller] sent no written explanations and [Buyer]'s telephone conversations and e-mail correspondence with [Seller] did not lead anywhere. On 8 April 2004, a customhouse broker acting under [Buyer]'s instruction conjunctly with the workers of the Black Sea Customs Service conducted customs inspection of the cargo located in the container, according to the result of which the Act of the customs inspection of the goods and other subjects was composed. After the conduct of this customs inspection, the customhouse broker informed the [Buyer] of damage to the equipment located in the mentioned container. On 30 April 2004, a surveyor inspection was conducted upon the request of the [Buyer] for the purpose of establishing the fact of the presence of the damage to the goods. According to the inspection, a Surveyor Act was composed of 5 May 2004, from which it follows that medical equipment was received with substantial damages and could not be used for its intended purpose.

According to the [Buyer], each time the [Buyer] contacted the [Seller] the [Buyer] requested the [Seller] to present evidence of the insurance of the cargo in favor of the [Buyer] for the subsequent application for the insurance recovery. However, the [Seller] sent contact information for the Swiss insurance company only on 19 July 2004 via e-mail, i.e., after the termination of the insurance contract.

On 14 July and 7 September 2004, the Central and Eastern Europe Sales Manager of the [Seller], with whom a verbal agreement was reached, came to Odessa. According to this agreement, the [Seller] undertook to take back the equipment for its subsequent repair. On 15 September 2004, the [Buyer] sent a letter dated 10 September 2004 with a suggestion to hold a three-party meeting of the [Buyer], [Seller] and the insurer for the settlement of the issues that had arisen. On 11 October 2004, the [Buyer] sent a complaint dated 8 October 2004 to the [Seller]. In its response to the complaint, the [Seller] informed the [Buyer] that the insurance company had refused to reimburse the losses due to the untimely notification of the insured accident. The [Seller] suggested sending the equipment to the address of the [Seller] at its expenses for the carrying out of an expertise examination and repair.

Repeated endeavors of the [Buyer] to fix verbal arrangements as written agreements did not lead to anything. The [Seller] has not signed the draft of the Additional Agreement of 17 December 2004 to the Contract prepared by the [Buyer]. Instead, [Seller] insisted on the shipping of the equipment without written formalizing of the procedure.

In the course of the pre-arbitration settlement discussions, the [Buyer] has suggested to the [Seller] to leave the money at its own disposal, to take back the damaged equipment at [Seller]'s expense and to replace it by delivering identical substitute equipment.

However, according to the Buyer, the [Seller] refused to sign the documents for the settlement of the dispute as suggested by the [Buyer]. Therefore, as the [Buyer] states in its action, [Buyer] did not accept the delivery of the equipment. The damaged equipment is located in the container under the customs control in the territory of the Odessa Trade Port.

By resolution of the Tribunal President of 25 March 2005, the Tribunal initiated proceedings in the case.

After the case was prepared for the hearings and after the Tribunal was composed, proceedings were appointed on 3 June 2005.

On 25 April 2005, the Tribunal received from the [Seller] a letter dated 14 April 2005 which notified that [Seller] had informed the Swiss insurance company about the damages that had been caused (letter of 27 October 2004, translation of which was enclosed). The letter of the insurance company was sent by the [Seller] to the [Buyer] with a request to return the goods; however, the goods have not been returned by the present moment.

The letter of the Swiss Insurance Company of 27 October 2004 notified of the results of the examination of the papers related to the cause of the damage sent by the [Seller]. Having analyzed the conditions of the contract, the Insurance Company has concluded that after the transfer of the goods in the port of Odessa, the recipient of the goods was obliged to accept the goods immediately.

At the moment of the acceptance, the risk of damage would shift to the recipient. Since the [Buyer] has slowed down the acceptance of the goods (regardless of the reasons), it is in delay of the acceptance. In case of the acceptance delay, the risk shifts to the recipient. The recipient in arrears in case of the damage causation is obliged to prove that damage was caused before the acceptance delay has begun.

In present case, the declared damage was established and documented approximately four months after the transfer of the goods in the Odessa port, i.e., at a time when the [Buyer] has exceeded the term of acceptance and when the liability risk was passed to the [Buyer].

Moreover, the Insurance Company has informed that according to the available information, two days after the container was delivered it was opened for two firms -- names of which are not available -- to accept goods transported in the same container. Considerable damages fixed by the photo materials in detail could not have been left unnoticed and undocumented by the representatives of these two firms or other attendants (customs, port administration). Therefore, according to the Insurance Company, the damage was not caused before the transferral of the goods and the [Seller] does not bear any liability to the [Buyer] for the damages of the goods. Since liability is absent, therefore, at the moment of the damage causation, the interest of the Swiss Insurance Company, which is an indispensable prerequisite for the recognition of the insured accident, does not exist.

The Swiss Insurance Company has stated that, according to the agreed CIP condition of the Contract, the [Seller] was obliged to provide transportation insurance in favor of the [Buyer]. There exists a possibility to cover the insurance according to the norms of English ICC (Institute Cargo Clauses) or German ADS (General Conditions of the Sea Insurance of German). According to these norms, the insurance of the cargo terminates at the latest in 60 days after the insured cargo is disembarked in the port of destination.

Since the damage was discovered two months after the termination of the insurance, there exists a high probability that damage was caused after termination of the insurance. According to the Insurance Company, [Buyer] is obliged to adduce evidence of the fact that the damage was caused during the validity period of the insurance.

In the correspondence with the [Buyer], the Insurance Company has indicated that provision of such evidence is a required prerequisite for the subsequent examination of the occurrence of the loss. [Buyer] has not responded by any means. However, in case such evidence would have been adduced, it should be examined as well to determine whether this damage has increased due to the [Buyer]'s negligent omission.

At the hearings of the Tribunal of 3 June 2005, [Seller]'s representatives stated that all the cover documents which according to Contract # 057 of 31 July 2003 the [Seller] was obliged to enclose while sending the equipment (in particular, the bill of lading, insurance policy and quality certificate) were delivered to the [Buyer] against the receipt. In confirmation of these words, the [Seller]'s representatives have presented to the Tribunal the corresponding hand receipt of 28 October 2003. However, the representative of the [Buyer] rejected the fact of the delivery of the mentioned documents, insisting that delay of the container opening to 8 April 2004 was caused exactly by the absence of these documents. [Seller]'s representatives have informed the Tribunal that during the location of the container under the customs supervision in the Odessa port, the Swiss Insurance Company which has insured the cargo has notified the [Buyer] of the fact of the container opening many times.

[Buyer]'s representatives had lodged a petition for postponement of the proceedings due to the necessity to present the evidences of the incurred damages claimed by the [Buyer] and to calculate lost profit and moral damage. Taking into consideration the abovementioned and following para. 7.5 of the Rules of the Tribunal by its Resolution of 3 June 2005, the Tribunal postponed proceedings till 5 July 2005.

At the proceedings of 5 July 2005, representatives of the [Buyer] confirmed the demands claimed in the action of 24 March 2005 and requested the Tribunal to satisfy them in full.

OPINION OF THE ARBITRAL TRIBUNAL

Taking into account that:

1. In accordance with Contract # 057 of 31 July 2003, the [Buyer] has paid for the medical equipment in the amount of € 195,000 having transferred € 19,500 to the [Seller] on 6 August 2003 and on € 175,000 on 28 August 2003, which is confirmed by the photocopies of the payment orders in foreign currency # 35 of 6 August 2003 and # 38 of 28 August 2003, with the bank notes available from the materials of the case.

2. On 11 October 2003, the [Seller] passed the equipment for the delivery to the Odessa port to the sea shipper which is confirmed by the photocopy of the bill of lading of 11 October 2003, available from the materials of the case and, not to the air transport operator, as was envisaged by Contract # 057 of 31 July 2003. The materials of the case confirm that, on its way, the equipment was reloaded from one container into another, from one ship to another ship.

3. The container with medical equipment was disembarked in the sea port of Odessa on 8 December 2003 (i.e., after termination of the delivery term stipulated by Contract # 057 of 31 July 2003) which is confirmed by the stamp of the seaport regional customs on the bill of lading, ship agent notification act of 11 December 2003 and shipping company notification agent of 9 December 2003 on the cargo arrival.

4. According to the [Buyer], non-delivery of the necessary shipping documents (in particular, the quality certificate) to the [Buyer] by the [Seller] made impossible the customs processing of the imported goods and acceptance of the equipment in the procedure foreseen in Contract # 057 of 31 July 2003.

The [Seller]'s representatives have declared at the hearings of the Tribunal of 3 June 2005 that all the shipping documents which the [Seller] according to the conditions of Contract # 057 was to attach to the equipment (in particular, bill of lading, insurance policy and quality certificate) were delivered to the [Buyer] against the receipt. However, the [Seller] had not presented at the hearing the [Buyer]'s receipt of 28 October 2003 upon the Tribunal's request set in its resolution on postponement of the proceedings of 3 June 2005. [Buyer]'s representatives alleged that on 28 October 2003, the [Seller] has passed to the [Buyer] only the original of the bill of lading, however, the insurance policy and quality certificate were not passed which caused [Buyer]'s failure to accept the cargo.

Therefore, according to the [Buyer], the cargo was not accepted by it At the moment it is in the container under the customs supervision in the territory of the Odessa trading port.

5. The [Seller] has not presented its statement of defense which would have explained its position with regard to the disputed subject. The [Seller] has presented only the letters of the Swiss Insurance Company of 27 October 2004 and of 23 June 2005 as well as an Equipment Examination Report of 30 November 2004 executed on order of the mentioned Insurance Company by the surveyor firm.

6. In the contract arbitration clause (para. 12.3 of Contract # 057), the parties have determined the substantive law of Switzerland as the applicable law.

Since Contract # 057 is an international sales agreement and the places of business of both parties are located in the States which are Contracting parties to the UN Convention on the Contracts of International Sale of Goods (Vienna, 1980), the provisions of the Convention apply to relationships of the parties. Furthermore, by virtue of art. 1 of the Switzerland Federal Code on Private International Law international legal agreements possess supremacy.

7. According to art. 30 of the Vienna Convention, the seller must deliver the goods, hand over any documents relating to them and transfer the property in the goods, as required by the contract and this Convention.

The [Seller], during the delivery of the goods, has committed a number of fundamental breaches of the contract conditions, in particular: [Seller] has unilaterally changed the type of transportation (sea transport instead of the air transport) which entailed longer term transportation and as a result breach of the goods delivery term (the delay composed twelve days), the [Seller] did not pass in time transportation documents envisaged in para. 6.5 of the Contract (insurance policy and quality certificate) absence of which (in particular, of the quality certificate) made it impossible to conduct import customs clearance of the goods and acceptance of the goods by the [Buyer] in the seaport of the Odessa according to the Contract conditions.

Since [Seller] has not properly fulfilled its obligations with regard to the delivery of the goods, the [Buyer], according to art. 49(1)(a) of the Vienna Convention, is entitle to declare the avoidance of the contract.

Consequently, [Buyer]'s claim on avoidance of Contract # 057 is admitted by the Tribunal as well founded and is to be satisfied.

8. According to art. 81(2) of the Vienna Convention, when the contract is avoided, the 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. Consequently, [Buyer]'s claim for recovery from the [Seller] of the prepayment transferred by the [Buyer] in the amount of € 195,000 is well-founded, is confirmed by the materials of the case and is to be satisfied.

9. In accordance with art. 81(1) of the Vienna Convention, avoidance of the contract releases both parties from their obligations under it, subject to any damages which may be due.

According to art. 97(1) of the Contract and Trade Law Code (Federal on Amendments to the Swiss Civil Code (Section Five: Contract and Trade Law Code) of 30 March 1911 (Regulation of 21 December 2004)), if obligations are not performed properly or are not performed at all, the obligor is to restitute the damages caused in case the obligor is not able to prove its non-culpability.

As it was mentioned in para. 4 of the present award, the [Seller] has not presented to the Tribunal the evidence of the delivery of the quality certificate and insurance policy regarding the shipped goods; consequently, [Seller] has not proved its non-culpability. Non-delivery of the abovementioned documents to the [Buyer] by the [Seller] made it impossible for the [Buyer] to conduct customs clearance of the goods and for the [Buyer] to accept the goods which, in turn, entailed calculation of the fine in the amount of 49,649.86 UAH by the tax authority for the breach of the Ukrainian currency legislation. The fine is to be levied upon the [Buyer] on the basis of Resolution of Economic Court of Appeal (Ukraine) of 22 February 2005.

In para. 10.2 of Contract # 057 of 31 July 2003, the parties have foreseen that in case of the delay of delivery of the goods for more than 90 days from the date of the payment for the goods by the [Buyer], the [Seller] is obliged to pay to the [Buyer] additionally, starting from the 91st day, 0.3% of the cost of the non-delivered goods per day in discharge of the fines levied upon the [Buyer] by the Ukrainian tax authorities.

Consequently, [Buyer]'s claim for recovery from the [Seller] of the losses in the amount of € 7,012 (which is equal to 46,649.86 UAH) is well founded and is to be satisfied.

10. Other claims of the [Buyer], in particular the claims for recovery of:

€ 1,600 constituting expenses of [Buyer]'s director in preparation of the documents and participation in the proceedings of the Economic Court of Ukraine in the cases related to the recovery of the mentioned penalty;

€ 3,060 of losses connected with payment for the container demurrage;

€ 1,882 of losses connected with the payment for the storage of the goods at the Odessa

Trading Port; as well as

€1,499 of losses caused by the location of the container under the customs control

are not subject to satisfaction, since the [Buyer] has not presented to the Tribunal factual evidence of these losses having been incurred.

[Buyer]'s claim for recovery from the [Seller] of the lost profit in the amount of € 71,067 was not satisfied as well since the calculation of the lost profit presented by the [Buyer] is not confirmed documentarily.

11. Hence, [Buyer]'s claim, on avoidance of Contract # 057 of 31 July 2003, for recovery from the [Seller] of € 195,000 of the main sum in arrears and € 7,012 of the penalty are well-founded and are subject to satisfaction.

The Tribunal has left without consideration claims on recovery of € 9,122 of the expenses on the payment of the legal services which were not included in the cost of the action and the arbitration fee for which was not paid.

The residual claims were rejected.

12. According to para. 2, S. V of the Regulations of Arbitration Fees and Expenses, the arbitration fee is imposed on the Respondent [Seller] in proportion to the amount of satisfied claims and on the Claimant [Buyer] in proportion to the rejected claims.

THE AWARD

Following provisions of Contract # 057 of 31 July 2003, arts 30, 49, 81 of the Vienna Convention, art. 1 of the Switzerland Federal Code on Private International Law, art. 97 of the Contract and Trade Law Code (Federal on Amendments to the Swiss Civil Code (Section Five: Contract and Trade Law Code) of 30 March 1911 (Regulation of 21 December 2004)), arts 7.4, 8.1, 8.4, 8.5, 8.7-8.9 of the Rules of the Tribunal, para. 2, S.V of the Regulations on Arbitration Fees and Expenses, the Tribunal has decided:

Residual action claims are rejected. This judgment is final.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Ukraine is referred to as [Buyer] and Respondent of the Switzerland 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 October 19, 2006
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