Russia 13 January 2006 Arbitration proceeding 137/2004 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060113r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 137/2004
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Russian Federation (claimant)
BUYER'S COUNTRY: Australia (respondent)
GOODS INVOLVED: [-]
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:
4B [Scope of Convention (issues excluded): penalty clauses]; 7C23 [Interpretation of Convention: gap-filling by domestic law]; 8A [Interpretation of party's statements or other conduct: intent of party making statement or engaging in conduct]
4B [Scope of Convention (issues excluded): penalty clauses];
7C23 [Interpretation of Convention: gap-filling by domestic law];
8A [Interpretation of party's statements or other conduct: intent of party making statement or engaging in conduct]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1322&step=Abstract>
CITATIONS TO TEXT OF DECISION
Original language (Russian): Muranov ed., Text on the CISG, Wolters Kluwer (2007) 214-222
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Case text (English translation) [second draft]
Queen Mary Case Translation Programme
Translation [*] by Gayane Nuridzhanyan [**]
1. PARTIES TO DISPUTE AND RELEVANT STATUTES AND RULES
The Claimant [Seller] is a state federal unitary enterprise with its place of business in the Russian Federation. The Respondent [Buyer] is a company located in Australia.
Legal instruments and rules related to the present dispute:
|-||Arts. 8, 53 and 78 of the UN Convention on Contracts for the International Sale of Goods
(hereinafter referred to as the "CISG" or "Vienna Convention of 1980");
|-||Art. 395 of the Civil Code of the Russian Federation;
|-||Paras. 12 and 28 of the Rules of ICA Arbitral Tribunal at the Chamber of Trade and Commerce of the Russian Federation (hereinafter referred to as "Tribunal").|
2. FACTS AND PLEADINGS
[2.1] [Seller]'s claims
The [Seller] has lodged with the Tribunal an action against the [Buyer] for the recovery of US $ ... and expenses incurred. The [Seller] based its claims on the Contract concluded by the parties in 2004, pursuant to which the [Seller] delivered goods to the [Buyer] on FCA Moscow terms in the total amount of US $ ....
|-|| The [Seller] contends that when the payment deadline came due, the [Buyer] did not pay for
the goods. As of the date of the action claim, the [Seller] alleges that the indebtedness for the
delivery of the goods amounts to US $ .....
|-||In addition to payment of the indebtedness for the goods, [Seller] also seeks to recover from the [Buyer] payment of a penalty in the amount of US $ ... for nonpayment of the indebtedness and interest for the use of another's monetary funds in the amount of US $ ...|
Considering its rights violated, the [Seller] addressed the Tribunal in order for the aforementioned sums be recovered from the [Buyer] by enforcement. Subsequently, the [Seller] has increased the sum of the action claims subject to interest twice.
[2.2] Particulars of the proceeding
The Tribunal invited the [Buyer] to select a principal arbiter and reserve arbiter within 30 days after receipt of the action claims. Since the [Buyer] had not selected an arbiter within the given term, in accordance with para. 20(2) of the Rules of the Tribunal, the principal and reserve arbiters were appointed by the Resolution of the President of the Tribunal. The Tribunal has not received any objections to this from the parties as to the aforementioned issue.
The Tribunal received a letter from Company N claiming to be the [Buyer] requesting the Tribunal to postpone the arbitration hearings for a period of three months since the company needed additional time to prepare the case. The Tribunal responded to the [Buyer] advising that it was not entitled to prolong the terms as requested.
The [Seller] has paid additional arbitration fees due to the increase of its action claims in rubles in the amount equivalent to US $ ... Further, [Seller]'s action claims were supplemented by claims for the compensation of the expenses for legal services in the amount of US $ ...
The Tribunal has considered the case on the merits with the representatives of the [Seller] taking part in the hearings. The [Seller] petitioned for the consideration of the case in the absence of the [Buyer]'s representatives. As of the date of the hearings of the case, the Tribunal has not received from the [Buyer] its statement of defense.
At the hearings, the [Seller] maintained its action claims referring to the arguments stated in its action as well as providing the Tribunal with the necessary explanations, in particular, as to the sums contained in the [Seller]'s action claims, calculating the amount due and presenting the grounds for recovery. In addition, the [Seller] stated that in the event the recovery of the interest per annum and the contract penalty are viewed as alternatives, the [Seller] prefers recovery of the penalty delay in payment of the price in the amount of US $ ... over the recovery of interest for the use of another's monetary funds in the amount of US $ .... Upon the termination of the consideration of the case, the Tribunal has announced its ruling and award.
3. EXTRACTS FROM THE RULING BY THE TRIBUNAL
3.1 Competence of the Tribunal
The [Buyer] is a legal entity incorporated under the legislation of Australia, i.e., a foreign legal entity, which determines the possibility to adjudicate the case in the Tribunal provided there is a respective agreement of the parties (arts. 1(2) and 7 of the Law of the Russian Federation "On International Commercial Arbitration" of 7 July 1993 # 5338-I and para. 1(2) of the Rules of the Tribunal).
The Contract concluded by the parties contains a provision according to which:
"All the disputes which may originate from the Contract or in connection with it in case the parties failed to settle them by negotiations or correspondence shall not fall within the jurisdiction of the general courts and shall be adjudicated by arbitration in City of Moscow according to the rules of the Arbitral Court at the Russian Chamber of Commerce by one or more arbiters appointed pursuant to the stipulated rules" (para. 8.1 of the Contract).
It follows from the wording of this clause that it directly excludes adjudication of the disputes by the state courts referring the disputes to the adjudication by the Arbitral Court. However, it does not contain a specific indication as to which arbitral court was chosen by the parties. Based on its interpretation of the arbitration clause, the Tribunal concludes that:
[a] The term "Russian Chamber of Commerce" implies the Chamber of Trade and Commerce of the Russian Federation since the latter is all-Russian non-state non for profit organization uniting Russian companies and Russian entrepreneurs (art. 1(1), arts. 14-16 of the Law of Russian Federation "On Chambers of Trade and Commerce in the Russian Federation" of 7 July 1993 # 5340-I) and is the only one to carry out the functions of "Russian Chamber of Commerce".
[b] Moreover it shall be taken into consideration that at the Chamber of Trade and Commerce of the Russian Federation there are four arbitral courts:
1) The International Commercial Arbitral Tribunal at the Chamber of Trade and Commerce of the Russian Federation (it adjudicates disputes arising from contractual and other civil and legal relations which originate in the course of external trading and other types of international economic activity, provided the place of business at least of one of the parties is located abroad, as well as disputes involving companies with foreign investments and international organizations and associations created on the territory of the Russian Federation, inter partes, disputes between their members as well as disputes between the aforementioned parties and other parties subject to Russian Federation law);
2) The Maritime Arbitration Commission at the Chamber of Trade and Commerce of the Russian Federation (adjudicates civil and legal disputes connected with commercial navigation);
3) The Arbitral Court at the Chamber of Trade and Commerce of the Russian Federation for the adjudication of commercial disputes (disputes arising from civil legal relationships in the course of the entrepreneurial activity and other commercial activity by legal entities and individual entrepreneurs registered in the Russian Federation or other countries that are members of the CIS [Commonwealth of Independent States]);
4) The Court of Arbitration for Sports at the Chamber of Trade and Commerce of the Russian Federation (disputes related to the property rights and interests of participants in sports activities).
The Tribunal states that among the aforementioned arbitral courts only the International Commercial Arbitral Tribunal [hereinafter the "Tribunal"], is competent to adjudicate the dispute at stake on the merits. Thus, the Tribunal believes that when the parties concluded the Contract containing the above quoted arbitration clause, the parties could only have implied the Tribunal as the sole competent arbitral court for the consideration of the dispute at stake.
[c] Moreover, neither during the preparation of the case to the hearings nor in the letters sent to the Tribunal by the [Seller] or the [Buyer] nor in the course of the hearings before the Tribunal was the competence of the Tribunal objected by the parties.
[d] In view of the above, the Tribunal finds that consideration of the dispute at stake falls within its competence.
3.2 Applicable law
The respective States (Russia and Australia) where the places of business of the parties are located are Contracting States to the Vienna Convention of 1980. Thus, the Vienna Convention of 1980 shall be applicable to the relations of the parties by virtue of art. 1(1)(a) thereof. At the same time, by virtue of art. 7(2) of the Vienna Convention of 1980, issues which are not directly settled by the Convention and cannot be settled based on its general principles shall be governed by the provisions of the national law determined by the norms of private international law.
According to art. 28(1) of the Law of the Russian Federation "On International Commercial Arbitration" and para. 13(1) of the Rules of the Tribunal, the Tribunal shall decide the disputes based on the applicable provisions of the substantive law determined by the consent of the parties. However, the Tribunal found that the Contract concluded by the parties did not contain any clause related to the applicable law. In view of that, the Tribunal determined the subsidiary applicable law based on the conflict-of-laws norm which it believed to be applicable, in particular, art. 1211 of the Russian Civil Code. The law to be thereby applied subsidiary to the Vienna Convention is the law of Russian Federation, as the law of the [Seller] under the Contract (art. 1211(3) of the Russian Civil Code).
3.3 Consideration of the dispute in the absence of the [Buyer]
Considering the possibility of case examination in the absence of the [Buyer], the Tribunal took into account the following circumstances. The summons for the hearings accompanied the letter of the Tribunal sent to the [Buyer] at the [Buyer]'s address which was indicated by the [Seller] in its action and which was used by the Tribunal for the correspondence with the [Buyer]. This letter, however, was sent back to the Tribunal with the following note: "the addressee is not found at the indicated address" (notification of the courier service). The [Buyer] has not notified either [Seller] or the Tribunal about change of its address. On the basis of para. 12(5) of the Rules of the Tribunal, written notices sent to the last known location of the [Buyer] are considered to be received by the [Buyer], i.e., the [Buyer] shall be regarded as having been duly notified of the date, time and place of the case hearings.
According to para. 28(2) of the Rules of the Tribunal, non-appearance of a party which was duly notified of the date, time and place of the hearings, shall not impede consideration of the case and passing of a judgment, provided the party which failed to appear has not lodged a petition for postponement of the case due to a valid reason. Since the [Buyer] has not lodged such a petition and the materials of the case are sufficiently complete for the adjudication of the disputes on the merits, the Tribunal, having considered the [Seller]'s opinion on the issues, found it possible to adjudicate the case in the absence of the [Buyer].
3.4 Merits of the case
The Tribunal notes that, with its letter, Company N from Australia stated that it was successor of the [Buyer], however, it did not provide any evidence proving such succession. Since as of the date of the present award the Tribunal was not provided with the evidences proving succession of [Buyer]'s obligations by Australian Company N, the Tribunal regards the [Buyer], rather than Company N, as the proper party to the dispute.
As follows from the materials of the case and explanations given by the [Seller], the relations of the parties as to the payment of the debts are based on the provisions of the Contract concluded by the [Seller] and the [Buyer]. The Contract foresaw delivery of the goods by the [Seller] to the [Buyer]. The Tribunal found that in pursuance of the Contract conditions and Supplements # 1 and # 2 to the Contract, the [Seller] delivered to the [Buyer] goods to the amount of US $ ...on the terms FCA Moscow.
The [Seller] submitted proper evidence of the complete fulfillment of its obligations as to the goods delivered in compliance with the Contract provisions.
According to para. 3 of Supplement # 2 to the Contract, the [Buyer] was obliged to pay for the delivered goods by means of prepayment in the amount of 50% of the price of the placed order. The final payment for the delivered goods was to be carried out by the [Buyer] not later than within 30 days after the delivery date (para. 6 of Supplement # 2 to the Contract).
The [Buyer] made a partial prepayment in the amount of US $ ... which was accounted by the [Seller] as fully paid 50% prepayment. The Tribunal does not find any reasons to acknowledge these actions of the [Seller] as ill-founded.
The parties set forth in para. 3.2 of the Contract that "the delivery date is the date of the bill of lading (air bill of lading, road waybill and other documents depending on the transport type)."
The [Buyer] has not transferred to the [Seller] any other monetary funds except for those mentioned above for the delivered goods. In that regard, as of the date of the present award, the [Buyer] has a debt in the amount of US $ ... before the [Seller] (the Contract price is US $ ...; the prepayment is US $ ...).
On the basis of art. 53 of the Vienna Convention of 1980, the [Buyer] was obliged to pay the price of the goods in accordance with the requirements of the Contract and Vienna Convention of 1980. In accordance with art. 61 of the Vienna Convention of 1980, the [Seller], in case of the [Buyer]'s failure to fulfill this obligation, is entitled to demand from the [Buyer] payment of the price of the goods as is provided by art. 62 of the Vienna Convention of 1980. Since the price of the delivered goods was not paid by the [Buyer] voluntarily it shall be subject to recovery from the [Buyer] by means of enforcement.
The [Seller] also claims recovery from the [Buyer] of the penalty for the delay in the payment of the cost of the goods in the amount of US $ .... The [Seller] alleges that the penalty should be accrued based on para. 7 of Supplement # 2 to the Contract which sets forth that, in case of delay of payment for the goods the [Buyer], shall pay a penalty in the amount of 0.1% of the total cost of the delivered goods for each day of payment delay, however, not more than 10% of the mentioned sum. Moreover, the [Seller] states that according to the wording of para. 7 of Supplement # 2 to the Contract, the penalty for the payment delay shall be accrued based on the total cost of the delivered goods.
Considering [Seller]'s claim for the recovery of the penalty foreseen in para. 7 of the Supplement # 2 to the Contract, the Tribunal, with due regard to the provisions of the Contract and art. 330 of the Russian Civil Code which entitles a party to recover a contractual penalty and following art. 8 of the Vienna Convention of 1980 and general principle of reasonableness on which the Vienna Convention of 1980 is based, concluded that the penalty may be recovered only in relation to the delayed sums and not based on the total cost of the delivered goods as was contended by the [Seller]. Moreover, the Tribunal notes that the maximum permissible amount of penalty stipulated by the parties in the amount of 10% of the cost of all delivered goods shall be applicable.
According to the [Seller]'s calculation of the penalty sum accrued on the cost of the non-paid goods, this penalty sum should have constituted US $ ... which exceeds the maximum permissible penalty amount of 10% of the cost of all delivered goods - US $ ... Therefore, the [Seller]'s claim for the recovery from the [Buyer] of the penalty shall be subject to satisfaction only in the amount of US $ ... (10% of the cost of the delivered goods).
Having examined the reasonableness of the [Seller]'s claim for recovery of interest for the use of another's monetary funds in the amount of US $ ... (with due regard of the [Seller]'s petition for the specification of the action claims) the Tribunal held as follows.
The claim on the recovery of interest for the use of another's monetary funds (based on art. 78 of the Vienna Convention of 1980 and subsidiary applicable art. 395 of the Russian Civil Code) in the amount of US $ ... has been lodged by the [Seller] in addition to its claim for the recovery from the [Buyer] of the penalty for the delay of payment for the goods in the amount of US $ ... set forth by the Contract. However, the Tribunal believes that having set forth the limit of the penalty subject to recovery in case of the payment delay calculated based on the total cost of the delivered goods and not based on the non-paid sums the parties intended to confine the amount of the compensation paid by the [Buyer] to the [Seller] for the payment delay by the specified limit.
Taking into account this arrangement of the parties, the Tribunal concludes that the [Seller]'s claim for the recovery of the interest per annum for the use of the monetary funds of another above the sum of awarded contractual penalty shall not be satisfied. At the same time, the Tribunal took into consideration that clause 6 of the Resolution of the Plenary Assembly of the Supreme Court of the Russian Federation and Plenary Assembly of the Supreme Arbitral Court of the Russian Federation of 8 October 1998 # 13/14 "On the Practice of the Application of the Provisions of the Russian Civil Code on Interest for the Use of Another's Monetary Funds" sets forth that if the parties by consent fixed the obligation of the debtor to pay the penalty in case of the delay in fulfillment of the pecuniary liability, the court shall assume that the creditor is entitled to claim application only of one of the measures (either recovery of the interest for the use of another's monetary funds or recovery of the penalty) not having to prove the very fact and amount of the losses incurred by the creditor due to the non-fulfillment of the pecuniary obligation unless otherwise directly envisaged by the law or contract. At the hearings of the Tribunal, the [Seller]'s representatives stated that as between the alternative approaches to satisfaction of the claim on recovery either of penalty or interest per annum applicable, the [Seller] would wish recovery of the contractual penalty from the [Buyer].
3.5 Expenses on protection of interests through legal representatives
[Seller]'s claim to impose on the [Buyer] expenses incurred by the [Seller] in connection with protection of its interests through legal representatives is in accordance with para. 9 of the Regulations on Arbitration Expenses and Fees (Supplement to the Rules of the Tribunal). The Tribunal has examined the contract and the supplements to the contract confirming rendering of legal services to the [Seller]. In view of the sum of the action claims, the time necessary for the preparation of the case, number of hearings held, and the degree of complexity of the case, the Tribunal finds it reasonable to satisfy this claim of the [Seller] in the amount of US $ ... (30% of the claimed amount).
3.7 Payment of arbitration fee
The [Seller] had paid the arbitration fee in relation to the present case in rubles, total amount of the payment being equivalent to US $ .... Division of the expenses on the payment of the arbitration fee for the proceedings before the Tribunal between the Parties shall be carried out based on para. 6 of the Regulations on Arbitration Expenses and Fees (Supplement to the Rules of the Tribunal). According to para. 6.2 of the Regulations on Arbitration Expenses and Fees (Supplement to the Rules of the Tribunal), in case an action is satisfied in part, the arbitration fee shall be imposed on the respondent in proportion to the amount of satisfied action claims and on the Claimant in proportion to the amount of action claims left without satisfaction. Thus, the arbitration fee in the amount of US $ ... shall be imposed on the [Buyer].
Based on aforementioned and paras. 38-40 of the Rules of the Tribunal, the Tribunal decided:
* 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 [Seller] and Respondent of Australia is referred to as [Buyer].
** 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.Go to Case Table of Contents