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CISG CASE PRESENTATION

Russia 28 December 2005 Arbitration proceeding 82/2005 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/051228r1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20051228 (28 December 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: 82/2005

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Ukraine

BUYER'S COUNTRY: Russia

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 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): 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. 48 [366-369]

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 82/2005 28 December 2005

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

The International Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industry, by its decision of 28 December 2005 for the case N 82/2005MKAC, satisfied a claim regarding the execution of a levy upon the principal balance of debt, pecuniary fine and arbitration fee expenses paid by the Claimant. The claim arose from a contract between the parties requiring delivery of goods, however, the Respondent did not discharge its debt for payment and refused to partially compensate losses incurred by the Claimant since neither the Contract nor the applicable law provides for ensuring the payment which exceeds the amount of contract penalty.

The International Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industry (hereinafter – ICAC) received the Statement of Claim filed by the Firm whose place of business is Ukraine (hereinafter – Claimant) with a demand of debt recovery in USD dollars from the limited liability company whose place of business is Russia (hereinafter – Respondent).

The Statement of Claim provides that the Contract for the delivery of goods between the Claimant and the Respondent was concluded on March 2, 2005. It was agreed that the goods should be delivered in installments, therefore quantity, price, basis and terms of delivery should have been agreed in the appendix to the Contract.

In accordance with the conditions of the Contract and its appendix N1, concluded on March 2, 2005, the Claimant shipped the goods on March 29, 2005, as evidenced by the cargo customs declaration and railroad waybills.

Based on the Contract the Respondent was obliged to pay for the goods within the next 20 calendar days from the moment of the shipment of goods. However, the Respondent only paid partially.

By its letter the Respondent accepted the Claimant’s breach of the terms of payment and notified the Claimant that it is ready to consider the possibility of paying the fine sanctions in accordance with the current breach.

The Contract states that in the case of a breach of the terms of payment, the Buyer (Respondent) is obliged to pay a fine/penalty to the Seller (Claimant) to the amount of 0.5% of the sum of the unpaid goods per day of the delay. Taking into account the period of delay the Claimant calculated the penalty including the amount of principal and asks the tribunal to exact payment from the Respondent.

The Claimant introduced a motion to the ICAC to increase the amount of the claims based on the fact that in accordance with the Foreign Exchange Control Law of Ukraine, the tax inspection charged him with a penalty since hard currency proceeds for the goods delivered to the Respondent were not received; the Claimant asks the Respondent to cover those expenses as well.

The Statement of Claim and supplement documents were received by the Respondent, which is proven by the delivery services. The Respondent failed to file to ICAC Statement of Defense within the time set by the documents.

The Arbitration Tribunal was constituted in accordance with pp. 20 of the ICAC Rules and the parties did not give any comments on the members of the Tribunal.

Notices regarding setting the day of hearing were sent to the parties and were served to them within the time set by the Rules, which is proven in the materials of the case by the receipt of the delivery services.

The Respondent was not represented at the hearings.

In accordance with sub-paragraph 5 of paragraph 12, and sub-paragraph 2 of paragraph 28 of the Rules if a party, duly notified under these Rules about the date, time and place of the hearings fails to appear at a hearing, the arbitral tribunal may proceed with the arbitration, unless the party made a request in writing to postpone the hearing showing sufficient cause for such failure to appear.

Since the Respondent was duly notified about the date, time and place of the hearings and did not file a Request to postpone the hearings due to justifiable reasons, the Tribunal, taking into account the Claimant’s opinion, made the decision to proceed without representatives of the Respondent.

Considering the merits of the case the Claimant’s representative confirmed the claims brought in the Statement of Claim and request to increase the amount of Claim and he also asked the Tribunal to fix the Respondent with arbitration fees costs which were paid by the Claimant. To prove the fine paid to Tax Authorities for the hard currency proceeds that were not received, the Respondent submitted Act of Tax Inspection, Tax Notice and statement from the bank account.

After examining the merits of the case and explanations of the Claimant’s Representative ICAC made the following conclusions:

1. Based on the Contract dated March 2, 2005 any controversy which is not regulated by negotiations shall be settled by International Commercial Arbitration Court at the Russian Federation Chamber of Commerce, city of Moscow.

Following this agreement of the parties and taking into account the subjective status of the participants of the dispute and their international business relations, ICAC, according to sub-paragraphs 1-3 and 5 of paragraph 1of the Rules ruled on its jurisdiction over this case.

2. In deciding on the law applicable to the relations between the parties, the ICAC proceeded from the following.

The contract concluded between the parties does not specify the applicable law. Organizations, which are parties to the case at hand, are both located in countries that are parties to the United Nations Convention on Contracts for the International Sale of Goods (the Vienna Convention), the Agreement on General Conditions of Delivery of Goods between Organizations of the Member States of the Commonwealth of Independent States of 20 March 1992, and the Agreement on the Procedure for Resolution of Disputes Relating to Entrepreneurial Activity of 20 March 1992

According to Article 90 of the Vienna Convention, the Convention does not affect any international agreement which contains provisions concerning the matters governed by this Convention, provided that the parties have their places of business in States parties to such agreement.

Article 11 (Subitem "e") of the Agreement on the Procedure for Resolution of Disputes Relating to Entrepreneurial Activity, which Russia and Ukraine are parties to, provides that the rights and obligations of the Parties to the transaction (within the CIS) are governed by the law of the execution of the transaction, unless the agreement between the parties provides otherwise.

The Contract, which gave the rise to the dispute, was concluded within the territory of the Russian Federation and does not include any other terms regarding the applicable law; therefore, the substantive law of Russia is the national law applicable to the relations between the parties.

3. The fact of delivery of goods by the Claimant to the Respondent in performance of the Contract of 2 March 2005 is confirmed by the materials of the case, including duplicates of railway waybills submitted by the Claimant.

The Respondent, by its letter, acknowledged receipt of goods and arrears in payment for them. The Respondent did not state any objections to the amount of debt.

Under these conditions, the Claimant's request for recovery of principal debt from the Respondent should be granted.

4. For late payment for the goods during the period from 18 April 2005 to 9 June 2005, the Claimant, under the provisions of the Contract, requested the Claimant to pay penalty interest (0.5% for each day of delay), which is more than 40 per cent of the principal amount of debt.

In its letter, the Respondent, recognizing arrears in payment for goods delivered, informed the Claimant of the Respondent’s willingness to consider the issue of paying to the Claimant penalties in compensation for the loss incurred and penalties related to the expiration of the period for obtaining foreign currency earnings.

During the discussion of the buyer's responsibility for the delay in payment for the goods, the Claimant's representative indicated that the delay in repayment of the debt by the Respondent forced the Claimant to obtain a loan. The loan was conditioned upon payment of 23% annual interest and 3% of the amount of the loan for its processing, which constitutes Claimant’s loss. The Claimant also classifies as loss the fine levied against him by the tax authority for the late receipt of foreign currency earnings. The Claimant did not submit proof of any other losses caused by the delay in payment for goods received by the Respondent.

Considering the above circumstances, the ICAC finds that the amount of penalty interest (forfeit) required by the Claimant, accrued at the rate of 0.5% for each day of delay (equal to 182.5% per annum), is clearly disproportionate to the consequences of the breach, and considers it appropriate to reduce it by half on the basis of Article 333 of the Civil Code of the Russian Federation.

The reduced amount of penalty interest exceeds losses incurred by the Claimant. The possibility to recover damages in excess of forfeit is not provided either by the terms of the Contract concluded between the parties or by the applicable law (see Article 395 of the Civil Code of the Russian Federation). Therefore, the Claimant's request for recovery from the Respondent of damages, caused by the fine for the late receipt of foreign currency earnings, in excess of the amount of penalty interest (forfeit) cannot be granted.

5. In accordance with the provisions of paragraph 6 of the Regulation on Arbitration Costs and Fees (Appendix to the Rules of the ICAC), in case of a partial satisfaction of a claim, the payment of arbitration fee is imposed on the Respondent in proportion to the satisfied claims. However, in case of reduction of the amount of the penalty interest (forfeit) to be paid by the Respondent due to application of Article 333 of the Civil Code of the Russian Federation, the Respondent should bear the cost of the payment of the arbitration fee based on the amount of the penalty interest (forfeit) claimed by the Claimant under the terms of the contract. Under these conditions, the Respondent should reimburse the Claimant the costs of payment of the arbitration fee.

On the basis of the foregoing and guided by paragraphs 39 and 40 of the Rules of the ICAC, the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation levied from the Limited Liability Company, which is located within the territory of Russia, in favor of the Company, which is located within the territory of Ukraine, the principal amount of debt, penalty interest, and the amount of money in compensation of the costs of the Claimant for the payment of the arbitration fee.

With respect to the part on the recovery of damages, the request is denied.


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 [bio to be added].

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Pace Law School Institute of International Commercial Law - Last updated October 19, 2012
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