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CISG CASE PRESENTATION

Russia 21 November 2005 Arbitration proceeding 42/2005 (Equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/051121r1.html]

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

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Case identification

DATE OF DECISION: 20051121 (21 November 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: 42/2005

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Ukraine (respondent)

BUYER'S COUNTRY: Russian Federation (claimant)

GOODS INVOLVED: Equipment


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 79 ; 81

Classification of issues using UNCITRAL classification code numbers:

79B [Impediments excusing part from damages];

81C [Effect of avoidance on obligations: restitution by each party of benefits received]

Descriptors: Exemptions or impediments ; 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): 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. 40 [322-326]

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 42/2005 of 21 November 2005

Translation [*] by Gayane Nuridzhanyan [**]

1. SUMMARY OF RULING

      1.1 Since Russia and Ukraine are Contracting States to the Vienna Convention of 1980 it is determined that relations of the parties to the international sale contract shall be governed by the Vienna Convention. Russian substantive law chosen by the parties is considered to be applicable as the subsidiary statute.

      1.2 Circumstances precluding the possibility of fulfillment by the [Seller] which have arisen after the expiration of the delivery term envisaged by the contract as well as lack of monetary funds of the [Seller] do not constitute a ground for exemption from liability and postponement of the return term of the prepayment received from the [Buyer] for non-delivered equipment.

      1.3 The [Seller]'s individual liability before the [Buyer] for the proper fulfillment of the obligation by the third party who the [Seller] has engaged into the fulfillment was acknowledged.

2. FACTS AND PLEADINGS

The claim was lodged by the [Buyer], a Russian firm, against the [Seller], an Ukrainian company, in connection with a non-delivery of goods within the term established by the international sale contract concluded by the parties on 28 March 2004.

The [Buyer] sought:

   -   Return of the advance payment sum;
   -   Payment of the contractual payment;
   -   Recovery of the expenses for the arbitration fee.

The [Buyer] referred to the fact that according to the conditions of the contract on 8 June 2004 it transferred to the [Seller] an advance payment. However, the delivery of goods was not carried out by the [Seller] within the term established by the contract (90 days from the date of the advance payment transfer). The [Seller] has not as well fulfilled the obligation to return the advance payment within 140 days from the date of its payment in case of non-delivery of goods foreseen by the contract.

The [Seller] did not acknowledge the action either in the presented statement of defense or at the hearings of the (hereinafter referred to as the "Tribunal"). The [Seller] referred to the non-correspondence between the copy of the contract presented by the [Buyer] and the original of the contract possessed by the [Seller] as well as to the impossibility of performance of the obligation due to the decision of the Regional Commercial Court of Ukraine to seize the equipment that the [Seller] was to deliver under the contract and the interdiction to pass the equipment to third parties. The [Seller] was not able to return the sum of prepayment before the sale of the equipment because of the lack of the monetary funds. The [Seller] petitioned for the suspension of the proceedings in the case until the passing of the decision by the Ukrainian court.

At the Tribunal's session, the representatives of the [Buyer] objected to the [Seller]'s arguments and made a statement according to which the [Buyer] lost the interest in the fulfillment of the contract in kind because of the delayed delivery.

3. TRIBUNAL'S REASONING

The award of the Tribunal contained the following basic points.

      3.1 Competence of the Tribunal

Para. 11.2 of the contract provides that "in case the parties fail to reach an agreement, disputed issues are to be adjudicated by the International Commercial Arbitral Tribunal at the Chamber of Trade and Commerce of Russian Federation in city of Moscow in accordance with the rules and procedure of the specified Tribunal whose award shall be final and binding upon both parties."

Taking into consideration the above and following arts. 16 and 17 of the Law of the Russian Federation "On International Commercial Arbitration" and para. 1 of the Rules of the Tribunal, the latter proclaimed its competence to adjudicate the present dispute.

      3.2 Applicable law

According to para. 11.2 of the contract, the applicable law is Russian substantive law.

Taking into consideration the abovementioned fact as well as the fact that the States of the contesting parties are Contracting States to the Vienna Convention of 1980, the Tribunal, following art. 28 of the Law of Russian Federation "On International Commercial Arbitration" and para. 13 of the Rules of the Tribunal, ruled that the provisions of the Vienna Convention shall apply to the relations of the parties to the present dispute. Issues not settled by the Vienna Convention shall be governed by the norms of the Russian law, including the Civil Code of the Russian Federation.

      3.3 Consideration of the case on the merits

The Tribunal finds that the [Buyer]'s claim for the recovery of the main sum in arrears shall be satisfied based on the following.

            3.3.1 Both parties acknowledged the fact of the conclusion of the contract. Having considered in that respect upon the [Seller]'s application the issue of the differences in the wording of the contract and supplements to it provided by the parties to the case the Tribunal stated that:

            The original copies of the contract presented by the parties at the Tribunal's session evidence complete identity of the wording except for the indication of the additional correspondent bank details for the currency transactions at the last page of the copy presented by the [Seller]. The differences in the supplement titles and some of the equipment items are of minor importance as stated by the [Seller]'s representative and the Tribunal's attention to that fact was drawn in the statement of defense only. Taking into consideration the above, the Tribunal found that [Seller]'s arguments do not affect the proper legal force of the contract presented by the [Buyer] and are not linked with the content of the lodged action claims.

            3.3.2 Materials of the case state and it is confirmed by both parties that [Buyer], in accordance with the signed contract, transferred to the [Seller] the sum of the advance payment for the first consignment of goods by Payment Order # 89 of 8 June 2004.

            3.3.3 The goods to the specified sum were not delivered within the term envisaged by para. 5.1 of the contract, i.e., within 90 days from the receipt of the advance payment by the [Seller], and as it follows from the [Seller]'s recognition expressed in the statement of defense and at the Tribunal's session the obligation to deliver goods could not be fulfilled due to the seizure of the goods and interdiction to dispose of the goods on the grounds of the resolution of the Regional Commercial Court of Ukraine of 15 March 2005 (Case # 7/23), of 25 July 2005 (Case # 9/233), of 26 July 2005 (Case # 9/233).

            3.3.4 Taking into consideration the above and the fact that according to para. 6.3 of the contract the advance payment shall be returned in case of the non-delivery of the goods within the term not exceeding 140 days from the date of its payment and that term has expired as well as the fact that contract validity term -- 31 January 2005 - at the time of the lodging of the action has also expired, the [Buyer] as a party who has performed the contract in part is entitled by virtue of art. 81(2) of the Vienna Convention to claim from the other party restitution of whatever it has paid under the contract.

            3.3.5 [Seller]'s arguments on the impossibility of repayment to the [Buyer] of the advance payment because of the lack of monetary funds before the sale of the equipment produced for the [Seller] by its counterpart -- another Ukrainian company under the contract of 22 June 2004 and seized under legal process on the grounds of the resolutions of the Regional Commercial Court of Ukraine of 15 March 2005, 25 July 2005 and 26 July 2005 cannot be taken into consideration since the [Seller] as the party who has engaged a third person to perform the obligations under the contract shall be liable for proper fulfillment of the obligation by the third person (art. 79 of the Vienna Convention). Moreover, the Tribunal takes into account that circumstances precluding the possibility of delivery of the goods referred to by the [Seller], in particular seizure of the produced equipment on the grounds of the resolutions of the commercial courts do not have a cause and effect relationship. The seizure of the equipment and interdiction to carry out its delivery to third parties took place in March and July 2005, whereas the [Seller] was obliged to fulfill its obligation with regard to the delivery not later than 9 September 2004, i.e., circumstances which in [Seller]'s opinion preclude performance of the obligations occurred six month after the term of the fulfillment of the obligations expired.

As to the general reference of the [Seller], debtor, to the lack of monetary funds for the payment to the [Buyer], creditor, this fact according to the direct provision of the law (art. 401(3) of the Civil Code of the Russian Federation) shall not serve as a basis exempting the debtor from liability.

Taking into account the above, the Tribunal holds that [Buyer]'s claim shall be subject to satisfaction.

      3.4 [Buyer]'s claim for the recovery of the penalty

      [Buyer]'s claim for the recovery from the [Seller] of the penalty for the equipment delivery delay shall be subject to satisfaction on the following grounds.

            3.4.1 The fact of non-fulfillment of the obligation with regard to the goods delivery by the [Seller] is established by the Tribunal (see para. 3 of the present Award) and is not contested by the [Seller].

            3.4.2 In case of delivery delay, paras. 6.1-6.2 of the contract foresee payment of a penalty in the amount of 0.5% of the cost of the goods not delivered in time for each complete week of the delay however not exceeding 5 % of the cost of the non-delivered goods.

            3.4.3 The [Buyer] has presented a penalty calculation which conforms to para. 6.2 of the contract and is not contested by the [Seller].

            3.4.4 The arguments adduced by the [Seller] as to the impossibility of the payment of the penalty for the goods in delivery delay are similar to the arguments advanced as grounds for the objections to the payment of the main sum in arrears and cannot be taken into consideration because of the facts presented in para. 3 of this Award.

            3.4.5 In view of the above, the [Seller] as the party who has failed to perform the obligations, shall pay the [Buyer] the penalty in the claimed amount.

      3.5 Recovery of the arbitration fee

      In accordance with para. 6(1) of the Regulations on Arbitration Expenses and Fees (Supplement to the Rules of Tribunal) reimbursement of the expenses on the payment of the arbitration fee by the [Buyer] shall be imposed on the [Seller].


FOOTNOTES

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

** Gayane Nuridzhanyan, junior associate at the law firm Danylko, Kushnir, Soltys & 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 August 31, 2007
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