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CISG CASE PRESENTATION

Ukraine 13 February 2006 Tribunal of International Commercial Arbitration, Ukrainian Chamber of Commerce & Trade [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060213u5.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20060213 (13 February 2006)

JURISDICTION: Arbitration ; Ukraine

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

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: Unavailable

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Ukraine (respondent)

BUYER'S COUNTRY: UK (claimant )

GOODS INVOLVED: [-]


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 74 ; 77 ; 80

Classification of issues using UNCITRAL classification code numbers:

74A1 [Includes loss of profit];

77A13 [Effect of right to recover for loss of profit];

80A [Party causing non-performance: loss of rights]

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): Unavailable

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [first draft]

Queen Mary Case Translation Programme

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

Award of 13 February 2006

Translation [*] by Andriy Kril [**]

The International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (hereinafter Tribunal) considered the claims of the [Buyer], a British company, against the [Seller], a Ukrainian company, for the recovery of USD 10,346,539.37 (lost profit).

The legal basis for the hearing of the dispute by the Tribunal is found in para. 10 of the sales contract No. XXX of 22 December 2003, according to which all disputes and controversies arising out of the sales contract that are not resolved by means of negotiations shall be submitted for adjudication to the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (city of Kyiv) in accordance with the Rules of the Court. The parties agreed on applicability of the Ukrainian law to their relationships.

Having considered the materials of the case the Tribunal established the following:

1. FACTS AND PLEADINGS

The [Seller] and the [Buyer] concluded sales contract No. XXX on 22 December 2003. The contract was valid until the parties fulfill their obligations under it in full and allowed its automatic prolongation for the year 2005.

Under the sales contract the [Seller] undertook to deliver to the [Buyer] 1,787,750 tons (dry weight) of the goods for the approximate total amount of USD 34,720,377.05. The goods had to met certain quality characteristics and be delivered by the railway. The [Seller] had to deliver the agreed amount of goods according to the [Buyer]'s monthly orders. In turn, the [Buyer] undertook to provide the [Seller] with monthly orders that had to be delivered to the [Seller] no later than on the 5th day of the month preceding the month in which the goods had to be delivered. The [Buyer] also undertook to take the deliveries and pay for the goods within 40 days after the goods were delivered to the railway station.

From 1 January 2004 till 5 September 2005 the [Seller] delivered 1,275,947.548 tons (dry weight) of the goods, which is 511,802.452 tons less than provided for by the contract.

The [Buyer] claimed that because of the short delivery it was unable to perform its obligations under contracts concluded with its buyers, namely:

  Contract No. XXX of 12 November 2003 (the buyer - a Hungarian company);
  Contract No. XXX of 15 December 2003 (the buyer - an Austrian company);
  Contract No. XXX of 15 December 2003 (the buyer - a British company-2).

As the result, the [Buyer] suffered a loss of profit which amounted to USD 10,346,539.37 according to the [Buyer]'s calculations.

In October 2005 the [Seller] brought an action to the Tribunal seeking recovery of the losses in the amount of USD 10,346,539.37 allegedly resulting from the violation of the contract by the [Seller].

The proceedings in the case were commenced by virtue of the Resolution of the Tribunal's Vice President of 7 October 2006. After the preparation of the case for the consideration and composition of the Tribunal the hearing of the case was appointed for 13 February 2006.

During the hearing representative of the [Buyer] maintained its claim, and representative of the [Seller] presented statement of defense. In its statement the [Seller] recognized that it has violated the contractual obligations by failing to deliver 511,802.452 tons of the goods for the total amount of USD 10,839,961.52.

2. TRIBUNAL'S REASONING

2.1. Failure of the [Seller] to deliver goods for the period from October 2004 till December 2005

Under sales contract No. XXX of 22 December 2003 the [Seller] had an obligation to deliver to the [Buyer] 1,787,750.00 tons (dry weight) of the goods within the term of the contract, i.e. from 22 December 2003 till 31 December 2005. The goods were delivered according to the [Buyer]'s orders presented to the [Seller] no later than on the 5th day of the month preceding the month in which the goods had to be delivered.

The [Buyer] failed to present evidences that such orders were delivered to the [Seller] for the period from October till December 2004 and from January until December 2005. Moreover, according to the [Buyer]'s representative these orders were not prepared by the [Buyer] at all.

Since the [Buyer] did not perform actions which were the prerequisite for [Seller]'s execution of its obligation to deliver the goods, according to art. 613(1) of the Civil Code of Ukraine the [Buyer] is in default. Therefore, pursuant to art. 80 of the CISG the [Buyer] is precluded from relying on the failure of the [Seller] to perform from October 2004 till December 2005.

Consequently, [Buyer]'s claims for recovery of the loss of profit for this period is unlawful and shall not be sustained.

2.2. Failure of the [Seller] to deliver goods in August-September 2004

In its decision of 26 August 2005 the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry awarded the plaintiff in that case (the British party) the fine in the amount of USD 382,877.02 for short delivery of the goods. The dispute arose out of sales contract No. XXX of 22 December 2003 and certificates of monthly deliveries No. X and X (without dates) in which the parties agreed on the volume of August and September deliveries. The price of the anticipated August and September deliveries amounted to USD 4,254,202.24.

In annex No. X to the contract No. XXX of 22 December 2003 the parties agreed on terms of transportation. The parties indicated the following destination points as consignees: (a) Polish factory; (b) Polish company; (c) Hungarian factory; (d) port Ismail (for re-forwarding to Serbia and Montenegro, port Smederevo for a Serbian metallurgical plant). The same consignees were indicated in additional agreement of 5 April 2004 to sales contract No. XXX of 22 December 2003.

In support of its claim for recovery of losses (lost profits), the [Seller] submitted sales contracts concluded by the [Seller] with its clients, namely:

  Contract No. XXX of 15 December 2003 with the British company. The Tribunal stated that the contract of 15 December 2003 bears no legal connection with the contract No. XXX of 22 December 2003 since it does not contain any references to contract of 22 December 2003, and the British side is not named among the consignees in contract No. XXX of 22 December 2003;
 
  Contract No. XX of 15 December 2003 with the Austrian side, which also has no legal connection with the contract No. XXX of 22 December 2003; it does not contain references to contract No. XXX of 22 December 2003; and contract No. XXX of 22 December 2003 does not mention the Austrian side as one of the consignees.
 
    Thus, both these contracts cannot serve as an adequate evidence of the [Buyer]'s losses resulting from the [Seller]'s breach of contract No. XXX of 22 December 2003. [Seller]'s claims based on these documents are not subject to the satisfaction due to the lack of evidence;
 
  Contract No. XXX of 12 November 2003 concluded with the Hungarian factory cannot serve as a basis for recovery from the [Seller] the [Buyer]'s lost profits because the contract was concluded much earlier that contract No. XXX dated 22 December 2003. At the moment of conclusion of the contract No. XXX of 12 November 2003 the [Buyer] has not had the necessary guarantees of receipt of goods from the [Seller]. The [Buyer] did not rule out the possibility that performance of its obligations to the Hungarian factory would be made from the other sources of supply, and therefore assumed all risks of possible breach of obligations to the factory. Therefore, profits lost by the [Buyer] as a result shall not be recovered from the [Seller];
 
  Contract No. PL of 16 December 2002 with the Polish company, initially valid in the course of 2003, which was extended by annex No. X of 16 December 2003 to this contract until 31 December 2004. Though contract No. PL was concluded prior to signing of the contract No. XXX of 22 December 2003, the [Buyer] had certain guarantees of [Seller]'s performance since even before conclusion of the contract No. XXX of 22 December 2003 the [Buyer] was actively negotiating conclusion of the contract No. XXX with the [Seller], which on 12 December 2003 entered into commission agreement with the Ukrainian consignor of the production of this plant. In contract No. XXX of 22 December 2003 the Polish company is indicated as a consignee under this contract.
 
    Under the contract No. PL delivery of the goods was made in accordance with the agreed schedule subject to 100% prepayment for at least one route and presence of a schedule of prepayments under the supply plan for the next month (para. 4.3). The [Buyer] did not present to the Tribunal these schedules. As a result, it is not possible to determine the quantity of goods which the [Buyer] was obliged to deliver to the company in August and September 2004. Hence, it is impossible to determine the amount of the lost profits connected with the short supply of goods in these months.

Therefore, the lost profit under this contract cannot be recovered in view of the uncertainty of its amount.

2.3. Mitigation of losses

According to art. 77 CISG, the [Buyer] had an obligation to take measures reasonable in the circumstances to mitigate its losses, including the loss of profit, resulting from the [Seller]'s breach. In case of failure of the [Buyer] to take such measures the [Buyer] was at risk that its losses would be reduced by the amount by which the loss could have been mitigated.

The [Buyer] failed to submit to the Tribunal evidences of any mitigation measures. Moreover, the [Buyer] concluded with the [Seller] additional agreement No. X of 12 July 2004 to the contract No. XXX of 22 December 2004 in which the parties agreed to add a Polish company to the list of consignees. Under this additional agreement almost all shipments of goods with iron content of 60% were addressed to the Polish company without changing the total amount of goods to be delivered and amount of goods already shipped to other consignees. As the result, the [Buyer] substantially complicated the shipping process for the [Seller] and artificially increased the amount of [Buyer]'s losses allegedly resulting from the breach of the contract.

In view of the above-said, [Buyer]'s claims for recovery of the lost profit from the [Seller] shall not be sustained due to their groundlessness.

Since the [Buyer]'s claims were rejected in full, the arbitration fee is charged to the plaintiff pursuant to art. V(1) of the Schedule on arbitration fees and costs.

Following provisions of the contract No. XXX of 22 December 2003, articles 77, 80 of the UN Convention on Contracts for the International Sale of Goods, article 613 of the Civil Code of Ukraine, article 31 of the Law of Ukraine "On International Commercial Arbitration," articles 8.4-8.9 of the Rules of the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry, article V(1) of the Schedule on Arbitration Fees and Costs, the Tribunal has decided:

To reject [Buyer]'s claims for the recovery of USD 10,346,539.37 of lost profit from the [Seller] due to their groundlessness.

To charge the [Buyer] with the full amount of the arbitration fee.

The decision is final.


FOOTNOTES

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

** Andriy Kril is a graduate of the Kyiv-Mohyla University (Kyiv, Ukraine), currently working towards his LL.M. degree at the University of Pittsburgh (Pittsburgh, USA).

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