Russia 26 January 2006 Arbitration proceeding 53/2005 (Medicine case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060126r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 53/2005
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Germany (claimant)
BUYER'S COUNTRY: Russian Federation (respondent)
GOODS INVOLVED: Medicine
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:
80A [Failure of performance caused by other party (party causing non-performance): loss of rights]
80A [Failure of performance caused by other party (party causing non-performance): loss of rights]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (Russian): M.G. Rozenberg, Praktika of Mejdunarodnogo Kommercheskogo Arbitrazhnogo Suda pri TPP Za 2006 g. [Arbitration decisions rendered by the International Commercial Tribunal at the Russian Federation Chamber of Commerce and Industry in 2006], published by "Statut" (2008) No. 3 [47-50]
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
1. SUMMARY OF RULING
1.1 Whereas under the contract for the international sale of goods of the parties, whose places of business are in Contracting States of the 1980 Vienna Convention, the Convention and the subsidiary German law were applied on the basis of Article 7(2) of the Convention and of Article 1211 of the Civil Code of the Russian Federation.
1.2 The terms of the contract, according to which each party agreed to receive permission and all necessary licenses from the competent authorities of their respective countries for wholesale or retail and for the export and import of goods, state that the appropriate party shall take measures, provided for under domestic legislation, to receive such licenses and permission. This implies that the second party must cooperate with the first party, giving it the necessary documents to contact the competent authorities of its country.
1.3 The Claimant [Seller]'s failure to provide proper support to the Respondent [Buyer] resulting in the inability of the [Buyer] to receive permission to import the goods and, respectively, the breach of the contract, leads to the conclusion that the main reason for the breach of the contract was the [Seller]'s inaction. In addition, it is important to note that the [Buyer] sent the [Seller] a request to provide the necessary documents with meaningful delay. Therefore, it is recognized that the resulting damages from the breach of the contract should be divided between the parties based on how much the action (inaction) of each of them would have affected the enforcement of their obligations.
2. FACTS AND PLEADINGS
A German [Seller] filed a claim against a Russian [Buyer] for damages for breach of contract pursuant to their obligations under a contract for the international sale of goods, which the parties executed on 2 September 2004. The [Seller] demanded termination of the contract and recovery of damages arising from the decline in price for the goods, the cost to store the goods, payment of interest for the delay in fulfilling the monetary obligations, as well as recovery of the arbitration fees for having to defend its interests through a legal representative.
According to the [Seller]'s statement of claim, the [Buyer] did not fully fulfill its obligation to prepay for the goods ([Buyer] only transferred 10% of the contract price), which is why delivery was not implemented.
In its reply to the statement of claim, although not objecting to termination of the contract, the [Buyer] did not recognize the [Seller]'s demands for recovery of damages and for payment of other amounts. The [Buyer] alleges that the contract failed because of the [Seller]'s non-performance of the [Buyer]'s demands regarding the granting of documents necessary to clear import of the medicine into Russia according to current Russian legislation, which made executing the contract impossible.
During consideration of the dispute, both parties agreed that, because the term of the contract had expired, the issue of its termination was immaterial.
Objecting to the [Buyer]'s arguments, the [Seller]'s representatives, particularly, noted that the [Buyer]'s demands for granting the documents that [Buyer] requested were made only on 7 October 2004, that is, after the expiration of the contract's monthly period for payment for the goods, calculated according to the date of the contract's signing.
The [Buyer] admitted that it allowed the delay in directing the inquiry, which is why [Buyer] agreed to accept part of the [Seller]'s damages in the amount of the actually paid prepayment.
3. TRIBUNAL'S REASONING
The MKAC's decision contained the following main provisions.
3.1 Paragraph 9.2 of the parties' contract provides that the MKAC will consider all disputes that arise between them. Based on this, and also considering the subjective views of the participants to the dispute and their foreign economic nature, the MKAC acknowledges its competence to review this case.
3.2 The contract does not provide for the law that governs the relations of the parties. Because the [Seller] and the [Buyer] are organizations located in Contracting States of the 1980 Vienna Convention, under Article 1(1) of this Convention, the CISG should be applied to decide the relations of the parties. Under Article 7(2) of the CISG and under Articles 1211(1), (2) and (3) of the Civil Code of the Russian Federation, the applicable law for subsidiary questions, which the Convention does not regulate, is governed by the principal place of business of the [Seller], which is German law in this case.
The required rules of Russian legislation regulate the implementation of measures of State control for the import of medicine into the Russian Federation, as well as its quality and safety.
3.3 Based on the specific properties and function of medicine, its import into the territory of the country and implementation is allowed only with the permission of the competent authorities of the appropriate countries. The contract provides that each side guarantees receipt of permission and all necessary licenses from the authorities for the wholesale and/or retail trade of delivered goods for their export and import (paragraphs 11.1.1, 11.2 of the contract). The list of documents which must be submitted to receive permission for the import of medicine into the territory of the Russian Federation and for clearance is defined by Federal Law No. 86-F3 of 22 June 1998, "About Medicine," and adopted on its basis by the Provisions for the Import into and Export from the Russian Federation of Medicine and Pharmaceutical Substances (approved by the Russian government). Included in this list are documents that the [Buyer] demanded for presentation from the [Seller]. From the case materials and the explanations of the [Seller]'s representative in the arbitration proceeding, it follows that the [Seller] had the opportunity to provide the necessary documents, but, despite the [Buyer]'s repeated requests, did not do so, preventing the import of the goods into the Russian Federation, and in this way it became one of the main reasons for the non-performance of the contract.
However, the MKAC notes that according to Article 80 of the Vienna Convention, one party cannot rely on the failure of the other party in fulfilling its obligations when such failure is caused by the acts or omissions of the first party.
And the Arbitral Tribunal found that the [Buyer] also breached the terms of the contract. Having accepted the obligation to prepay payment for the goods within a month, that is, by 2 October 2004, the [Buyer] first requested the [Seller] to provide the documents necessary to clear the import of the goods only on 7 October 2004.
Under these conditions, the MKAC believes that the adverse effects in failing to fulfill the contract obligations should be apportioned between the parties based on how much each of their action (inaction) could have affected the performance of delivery.
The Arbitral Tribunal, based on the above, justly charges the [Buyer] for damages in the sum of the [Seller]'s previously paid advance, comprising 10% of the price for the goods to be delivered. The [Seller] must accept the remaining part of the damages from non-performance of the contract, having permitted more significant violations. Because the sum of damages attributable to the [Buyer] is credited to the [Seller] in determining the amount of the [Seller]'s claim, the [Seller]'s demands to recover from the [Buyer] an additional sum as damages is not compensable.
3.4 Because of the non-performance of obligations under the contract, outlined above, the Arbitral Tribunal cannot find any grounds to meet the [Seller]'s demands from the [Buyer] for interest for the delay in paying for the goods. Failure to prepay for the goods during the agreed upon period could have led to the application of sanctions on the [Buyer] if the [Seller] had not committed violations, which obstructed the import of the goods into Russia.
3.5 Based on § 10 of the Schedule on Arbitration Fees and Costs (the Appendix to the Rules of the MKAC) and taking into account the specific circumstances of this dispute, the Arbitral Court directs the [Buyer] to bear the costs of the arbitration in an amount proportional to the amount of damages conferred upon the [Buyer]. The [Seller] bears the remaining costs of the arbitration.
3.6 Pursuant to § 9 of the aforementioned Schedule, the Arbitral Tribunal recognizes that the [Buyer] should recover the [Seller]'s costs, related to defending its interest through legal representatives, in the sum that the Arbitral Tribunal deems just.
* 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].
** Alexander Shindler is a Research Assistant for Professor Albert Kritzer; he is also a 2009 graduate of Pace University School of Law where he obtained a Certificate in International Law and where he was the President of the International Law Society.Go to Case Table of Contents