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CISG CASE PRESENTATION

Russia 9 March 2006 Arbitration proceeding 37/2005 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060309r1.html]

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

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Case identification

DATE OF DECISION: 20060309 (9 March 2006)

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: 37/2005

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (claimant)

BUYER'S COUNTRY: Bulgaria (respondent)

GOODS INVOLVED: [-]


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 7 ; 14 ; 18 ; 62 ; 63

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 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. 10 [94-103]

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 37/2005 of 9 March 2006

Translation [*] by Andriy Kril [**]

1. SUMMARY OF RULING

      1.1 Since the agreement foresees the obligation to keep the pre-arbitration order of presentation of claims, the Tribunal examines the question of plaintiff's observance of the relevant contractual provisions before the adjudication of the substantive issues.

      1.2 Where the international sales agreement, concluded by the parties, whose places of business are in States party to the Vienna Convention of 1980, has a direct provision that the Russian legislation is recognized as applicable to disputes under the agreement, the contractual relationships shall be regulated by the Vienna Convention of 1980 and Russian law, chosen by the parties as the subsidiary law. This conclusion of the Tribunal is grounded on the fact that neither in the agreement nor during the court sessions have the parties directly denied the applicability of this Convention.

      1.3 Considering the disputed question of agreement on a price reduction for the goods delivered, the Tribunal took into consideration the following main premises:

            1) The agreement establishes the procedure for changing the price, which is the basis for the settlement of the dispute;

            2) According to the agreement, drawn up in two languages, the Russian text shall prevail;

            3) In case of discrepancies between the texts of two documents signed on behalf of the parties, the Tribunal took into account, in particular, the dates when they were drawn up, the proof of powers delegated to the signatories, and the language in which they were drawn up;

            4) Correspondence of the parties identifying their positions when drawing up these documents;

            5) Compliance of the procedure for the conclusion of the agreement, which changed the price of the goods, with the provisions of the Vienna Convention of 1980;

            6) [Buyer]'s non-observance of the provisions establishing the conditions under which the [Seller] shall agree to change the price;

            7) The inability of the [Buyer] to prove the authenticity of the [Seller]'s letter, which in the [Buyer]'s judgment proved [Seller]'s agreement to perform calculations on the basis of the reduced price.

      1.4 Though the right of the [Seller] to demand the payment of the demurrage for the delay in unloading of the particular ships was recognized by the Tribunal, the [Seller]'s claim was rejected since the proof provided by the [Seller] was not considered sufficient to confirm the fact of payment of demurrage by the [Seller] to the owners of the ships.

      1.5 The excessive payment of the arbitration fee was paid back to the [Seller].

2. FACTS AND PLEADINGS

The claim was lodged by the [Seller], a USA company, against the [Buyer], a Bulgarian organization, under an international sales agreement concluded by the parties on 1 November 2004 for the delivery of the goods on terms of CIF to Burgas in accordance with Incoterms 2000. The [Seller] claimed that the [Buyer] did not pay in full for two consignments of goods delivered.

The [Seller] sought:

   -    Payment of the debt by the [Buyer];
 
   -    Payment of contractual penalties for the delay in payment;
 
   -    Payment of the demurrage for delay in unloading and of expenses for the arbitration fee.

The [Buyer] contested the [Seller]'s claims, alleging that the goods were paid by the [Buyer] in full as the parties had agreed to reduce the contractual price of the goods. In the [Buyer]'s judgment, the carrier has the right to claim the payment of demurrage, not the [Seller]. Moreover, the [Buyer] disputed the evidentiary validity of the documents provided by the [Seller] to support the demurrage payment.

The [Seller] contested the [Buyer]'s statements, claiming that the price change, agreed by the parties, covered only future deliveries, but not the deliveries at issue in this proceeding.

The parties provided documents which, in their judgment, confirm their positions.

The parties presented contrary opinions on the question of demurrage payment.

3. TRIBUNAL'S REASONING

The award of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry [MKAC] contained the following basic points.

      3.1 Competence of the Tribunal

      The arbitration clause in Article 9.1 of the agreement concluded by the parties provides that the MKAC shall have the right to adjudicate all the disputes arising from this agreement. Since this dispute originates from contractual relations which appeared as a result of carrying out international economic relations, and the commercial enterprises of the plaintiff and defendant are situated abroad, it comes within the category of disputes which, pursuant to Article 1(2) of the Russian Federation Law on International Commercial Arbitration and Article 1(2) of the Rules and Procedures of the Tribunal, can be examined by the MKAC. Taking into consideration this and Article 1(3) of the Rules and Procedures of the Tribunal, the Tribunal ruled that it is competent to arbitrate this dispute.

The Tribunal also established that the arbitration clause in Article 9.1 of the agreement foresees an obligatory observance of a procedure for filing claims, and Article 9.3 of the agreement provides a procedure for pre-arbitration settlement of disputes. Having established that]: [1)] the [Seller]'s reclamations were filed in written from, included documentary proved claims with proper calculations, on 1 February 2005; [2)] they were filed within the 90-day term from the date when the [Seller] learned about the infringement of the term of payment for the goods (since 28 November 2004); [3)] they were sent with the registration of date of delivery (10 February 2005); and [4)] the [Buyer] did not present an answer to the claim within the 30-day term established by Article 9.3.3, the Tribunal concluded that the [Seller] observed the requirements of Articles 9.1 and 9.3 of the Agreement on pre-arbitration settlement of disputes.

      3.2 Applicable law

      Having examined the question of the applicable law, the Tribunal established that in Article 9.1 of the agreement the parties agreed to the application of the current legislation of the Russian Federation to disputes arising during the performance of the agreement. Taking into account that at the moment of signing of the agreement the enterprises of the plaintiff and the respondent were situated in States parties to the Vienna Convention of 1980 and that the subject of their agreement is an international sale of goods which does not fall under the restrictions established in Articles 2 and 3 of this Convention, the Tribunal recognized the CISG as applicable to the parties' dispute.

Having established that the parties have not referred to the application of the CISG in their contractual relations, but neither in the agreement nor during the hearing of the case have they directly excluded its application, the Tribunal, pursuant to the Article 1(1)(a) of the CISG, concluded that the CISG is applicable to the present dispute.

In accordance with Article 7(2) of the CISG, the Tribunal ruled that questions not covered by the Convention should be settled in accordance with the subsidiary statute, the norms of Russian Federation law.

      3.3 Recovery of the underpayment

      Having considered the [Seller]'s claim against the [Buyer] to recover the underpayment, the Tribunal found the following.

            [1)] According to the bills of lading included in the case which, pursuant to the Article 7.2 of the agreements are the basis for the calculations, and taking into account the correction of the mistake in the claim made by the representative of the [Seller], the [Seller] delivered the goods to the [Buyer] in two consignments (by ship, which was ready for unloading on 29 November 2004, and by ship which was ready for the unloading on 4 December 2004) in quantities which were not disputed by the [Buyer].

            [2)] For the goods delivered, the [Seller] sent the following invoices to the [Buyer]: for the first consignment - No. 8 of 25 November 2004 and for the second consignment û No. 10 of 1 December 2004. The amount of payment in the invoices was calculated in accordance with the price provided in Article 2.1 of the agreement.

            [3)] According to the statements of the [Seller]'s account, which were not disputed by the [Buyer], the invoices were not paid in full. The [Seller] demanded payment of the main debt. It is taken into account that the [Seller] reduced the amount of the debt during the hearing of the case in connection with the mistake in [Seller]'s calculations in [Seller]'s statement of claim.

The Tribunal established that the [Buyer] did not pay the demanded sum because, in [Buyer]'s opinion, the parties had agreed to reduce the contractual price after the two abovementioned deliveries and the underpayment claimed by the [Seller] is actually the difference between the old and new prices for the goods. The [Seller] disagreed with such arguments.

Having considered the positions of the parties and their correspondence during the period from 30 November till 23 December 2004 on the price for the deliveries of these two consignments, and also concerning the conditions of two additional agreements to the agreement dated 1 November 2004 in English and Russian (agreement No. 1 and additional agreement No. 1), the Tribunal established the following.

Pursuant to Articles 11.6 and 11.7 of the agreement dated 1 November 2004, all further arrangements of the parties on price changes, which shall become an integral part of the agreement, shall be drawn up in written form as additional agreements, signed by the authorized representatives of the parties. It is possible to come to such agreement through the exchange of notices using technical equipment with further exchange of original copies. The parties agreed that they recognize as acceptable the use of reproductions of seals and signatures of the authorized representatives through technical copying. Article 1.10 of the Agreement provides that the Russian text of the agreement shall prevail in case of any discrepancies between Russian and English versions of the agreement. This condition is applicable to additional agreements duly drawn up as integral parts of the main agreement.

Among the documents provided by the parties, only agreement No. 1 in the Russian language, dated 8 December 2004, complies with the abovementioned requirements. In Articles 1 and 2 of this agreement, the parties agreed to reduce the price of the contractual goods in relation only to future consignments. The Tribunal came to this conclusion because of the following.

            [1)] Agreement No. 1 is drawn up in written form, signed by the authorized representatives of the parties: on behalf of the [Seller], by the signatory of the agreement, whose authority is proved by the materials of the case (powers of attorney dated 10 May 2004 and 12 April 2005); on behalf of the [Buyer], by the director of the [Buyer]'s organization. The Tribunal noted that the [Buyer]'s representative voiced doubts about the authenticity of the signature of the director of its organization, but in response to the Tribunals' offer to conduct a handwriting identification refused to file the relevant application and confirmed his right to sign the agreement.

            [2)] Relying on the [Seller]'s letter No. 129 of 10 December 2004 in which the [Seller] notified the [Buyer] about the agreement No. 1, sent to [Buyer] to be signed, the Tribunal established that agreement No. 1 was concluded by forwarding the public offer by the [Seller], which complied with the requirements of Article 14(1) of the CISG, since such an offer is sufficiently definite and indicates the intention of the offeror to be bound in case of acceptance by the [Buyer] (becomes integral part of the agreement).

            [3)] This offer was accepted by the [Buyer] in accordance with the provisions of Article 18(1) of the CISG through the signing of additional agreement No. 1 by the director of the [Buyer]'s organization, attachment of the [Buyer]'s seal and sending of the signed copy to the [Seller] by fax, which is confirmed by the fax number on the text of agreement No. 1. It contains the date (13 December 2004), time (2.22 PM), and number of the fax machine, which matches the numbers of the [Buyer]'s fax machine on other faxes sent to the [Seller] (No. 5396? dated 30 November 2004, No. 5577? dated 23 December 2004) and the name of the sender.

            [4)] This acceptance came into force, in the Tribunal's judgment, in accordance with the Article 18(2) of the CISG at the moment the indication of assent reached the offeror, notably 13 December 2004. Such interpretation does not contradict Article 3 of agreement No. 1, providing, first, that agreement No. 1 shall came into force from the moment of its signing, and, second, establishing that this agreement shall not apply to the conditions of the main agreement before its signing.

Agreement No. 1 dated 8 December 2004 which came into force on 13 December 2004 was concluded later; additional agreement No. 1 in English was signed by the parties, according to the text of the agreement itself, on 8 December 2004 and, according to the parties' explanations during the hearing, on 9 December 2004. Moreover, as it follows from the [Seller]'s letter No. 129 dated 10 December 2004 and from the text of additional agreement No. 1 itself, the [Seller] was represented by an unauthorized person, referred to as the Chief Executive Officer of the [Seller], though he did not hold that position. Having considered the arguments of the [Buyer]'s representative that this person, in [Buyer]'s judgment, was authorized to conduct legal and factual acts on behalf of the [Seller] since all of [Buyer]'s correspondence was made in the name of this person, the Tribunal concluded as follows.

The absence in the materials of the case of any documents, confirming the powers of the named person to represent the interests of the [Seller], including the right to sign the additional agreement No. 1 in English, means that, according to Article 34(1) of the Rules of the Tribunal, the [Buyer] has not proved the lawfulness and, therefore, the reasonableness of its claims to consider this persons as authorized to represent the [Seller].

This conclusion of the Tribunal is also proved by the analysis of the parties' correspondence during the period before the entry into force of agreement No. 1 on 13 December 2004. This correspondence, in the Tribunal's judgment, is necessary for the ascertainment of the true will of the parties in accordance with Article 431(2) of the Economic Code of the RF. The analysis provides sufficient grounds to presume that the [Seller] not only rejected all the offers to change the contractual price of the goods in the letters of the [Buyer] No. 5396? dated 30 November 2004, and No. 5409? dated 2 December 2004, but also permanently objected to changing the price for the goods delivered and demanded payment at the contractual price ([Seller]'s letters No. 124 and 125 dated 1 December 2004, No. 128 dated 2 December 2004, and No. 130 dated 13 December 2004).

The analysis of the parties' correspondence after the entry into force of agreement No. 1 on 13 December 2004 ([Buyer]'s letters No. 5534A dated 17 December 2004, No. 5577A dated 23 December 2004, [Seller]'s replies in letters No. 164 dated 17 December 2004, No. 132 dated 21 December 2004) does not provide grounds for the Tribunal to agree with the statements of the [Buyer]'s representative that the result of this correspondence was the change in price, provided in agreement No. 1.

      First, this correspondence does not comply with the formal requirements for amendments to the agreement, stated above.

      Second, though the amount of payments in [Buyer]'s schedule was calculated basing on the reduced price (letter No. 5534? dated 17 December 2004), the [Seller], as follows from its letters (No. 164 dated 17 December 2004, No. 132 dated 21 December 2004) agreed with such a price provided that the [Buyer] will make all the payments in accordance with the above-mentioned schedule. The [Buyer] did not deny that it failed to comply with this schedule. Moreover, this schedule, offered by the [Buyer], was signed by the person, not possessing powers to introduce changes to the agreement -- by the import manager. Still, the Tribunal noted that the fixing by the [Seller] of an additional period of time for performance by the [Buyer] -- the payment for the goods already delivered (Article 63(1) of the CISG) -- is recognized as reasonable and, therefore, supportable behavior by the [Seller] under the existing circumstances.

      Third, the format of the [Seller]'s letter No. 164 dated 17 December 2004, based on which the [Buyer] drew the conclusion that the [Seller] agreed with the schedule and amount of payment offered by the [Buyer], causes the Tribunal to have doubts as to its authenticity. The format of the letterhead is different from the letterheads of all the other letters of the [Seller] in the case; outcome number (164) does not comply with the numeration of other letters sent during the same period (No. 130 dated 13 December 2004; No. 132 dated 21 December 2004); and the signature under the name of the [Seller]'s representative does not resemble his other signatures on other documents in the case.

Taking into consideration these circumstances, the Tribunal did not find adequate support for the [Buyer]'s statements that the parties for the second time agreed to change the price. The Tribunal concludes that the goods delivered by the [Seller] in these two consignments, shall be paid by the [Buyer] at the contractual price.

Taking into account the stated circumstances and provisions of Article 62 of the CIGS, the Tribunal finds the [Seller]'s claim for the payment of the debt reasonable and ruled that it is sustained.

      3.4 Payment of the penalty

      Considering the question of payment of the penalty by the [Buyer] for the delay in payment for the goods delivered at the rate of 0.1% per day for the price of the unpaid goods up to 1 December 2005 in accordance with Article 8.2 of the agreement, the Tribunal took into account the following.

The parties did not dispute the date which is considered to be the starting day for the calculation of the delay in payment by the [Buyer] for both consignments. The parties also did not dispute the quantity of goods delivered by the [Seller] with these consignments. As established, pursuant to Article 5.2.1 of the agreement and according to the parties' explanations during the hearing:

      [1)] 80% of the cost of goods had to be paid two banking days before the unloading, therefore, the last day of payment for the first consignment was 27 November 2004, for the second it was 1 December 2004.

      [2)] The remaining 20% had to be paid during the five banking days after the completion of the unloading in Burgas port starting from the moment when the draft survey was made. The draft survey of the first ship was made on 11 December 2004; therefore, the payment had to be made before the 17 December 2004. The draft survey for the second motor ship was made on the 19 December 2004, but taking into consideration that the 24 December 2004 was the official holiday in Bulgaria (see [Buyer]'s letter No. 5577? dated 23 December 2004); therefore, this payment had to be made before 26 December 2004.

That there was a delay in payment for both consignments was not disputed by the [Buyer]. As follows from the materials of the case and the parties' explanations during the hearing, the dispute arose over the amount of payment which shall be the basis for the calculation of the penalties. As was established by the Tribunal in article 3.3 of this decision, the [Buyer]'s debt to the [Seller], which is the basis for the calculation of penalties, amounts to the sum indicated in article 3.3 of this decision and consists of debts for the two consignments. According to additional calculations of penalties provided by the [Seller] until 1 December 2005: the [Buyer] on 16 December 2004 paid its debt for the second consignment, and the [Seller] applied this sum towards the [Buyer]'s debt for the first consignment. Therefore, 17 December 2004 was the last day to charge the penalty for the first consignment. Taking into consideration that the contractual obligation to pay according to Article 5.3 of the agreement, is considered to be fulfilled from the date when the money entered into [Seller]'s account, the Tribunal found the [Seller]'s calculations of the penalty for the first consignment correct and ruled to sustain them.

The [Seller]'s calculation of penalty for the second consignment was corrected by the [Seller] during the hearing in connection with the mistake in the statement of claim on the general weight of the goods delivered by the second ship. Therefore the amount of the claim was reduced by the [Seller].The penalty was calculated in this manner.

Taking into account the provisions of Article 8.2 of the agreement and Article 330 of the Economic Code of the RF, the Tribunal found that the [Seller]'s claims to recover the penalties for the delay in payment for the goods are reasonable and ruled to sustain them.

      3.5 Recovery of the demurrage

      Considering the question of [Seller]'s claims to oblige the [Buyer] to pay the expenses in Burgas port, connected with the demurrage payment for the excess standing by of the ships, the Tribunal established the following.

According to Article 3.3 of the agreement, the demurrage shall be paid by the [Buyer]. Taking into account the above-stated conclusions of the Tribunal, the demurrage of the ships was caused by the [Buyer]'s actions, and the [Seller] has the right to ask the [Buyer] for the demurrage payment. The Tribunal cannot recognize [Buyer]'s objections to this claim, based on the statement of the [Buyer] that the carrier, not the [Seller] has the right to claim the payment of demurrage. But having evaluated the evidence submitted by the [Seller] to confirm its payment of the demurrage, the Tribunal noted the following.

As it follows from the calculation provided by the port agent of the [Buyer] for the first ship, the owner of the ship is a specific Maltese company, and in the calculation for the second ship another Maltese company was indicated as owner. Invoice No. 1 dated 21 December 2004, included in the materials of the case, was made by a third company, while the demurrage in Burgas port was drawn up for the companies indicated in the documents as the owners of the corresponding ships.

The [Seller] did not present evidence that the company which sent the invoice to it was authorized to perform such actions on behalf of the companies that own the ships.

Moreover, to prove its expenses the [Seller] presented a statement of its account in the form of a printout of the bank's electronic database which includes the indication of the payment of demurrage for invoice No. 1 dated 8 February 2005 for the agreement dated 15 November 2004 (for the first and the second ships).

Having examined the materials of the case and [Buyer]'s arguments for the recognition of the existing evidence as unacceptable, as well as the inability of the [Seller] to provide any additional explanations or other evidence of payment of the demurrage, the Tribunal established the following.

Invoice No. 1 of the third company does not contain references to the agreement with the [Seller] which oblige the [Seller] to pay the demurrage. Such a reference to the agreement dated 15 November 2004 is present only in the statement of account. But neither in the case materials nor in the written evidence adjoined later, nor during the hearing had the [Seller] submitted its agreement with the company which sent the invoice.

The statement of account of the [Seller] which was the basis for the [Seller]'s claims for the demurrage payment was submitted in the form of a photocopy, certified with the seal of the [Seller] and the signature of its representative. Taking into consideration that there was no bank seal and no signature of an authorized bank employee, the Tribunal established that this statement cannot be regarded as sufficient evidence of the demurrage payment made by the [Seller]. Proceeding from the there, the Tribunal concluded that the [Seller] did not properly prove the lawfulness of its claims for the demurrage payment and therefore such claims should not be sustained.

      3.6 Recovery of the expenses for the payment of the arbitration fee

      Resolving the question of [Seller]'s claims to oblige the [Buyer] to pay for [Seller]'s expenses for the arbitration fee the Tribunal established the following.

            3.6.1. The [Seller] paid the arbitration fee for the initial price of the claim.

After the re-calculation of the penalties for the delay in payment for the goods made by the [Seller] and the increase of the amount of the claim, the [Seller] was notified with the letter sent by the Tribunal on 11 November 2005 about the necessity to pay the remainder of the arbitration fee. After the payment was made by the [Seller], it re-calculated the amount of penalties at the same day (11 November 2005), and, as the result, the price of the claim was reduced. By the Tribunal's letter dated 14 November 2005, the [Seller] was notified about the reduction of the arbitration fee. Therefore the Tribunal ruled to pay back the excessive arbitration fee to the [Seller].

            3.6.2. Pursuant to Article 6(2) of the Regulations on Arbitration Fees and Expenses, the arbitration fees and expenses of the [Seller] must be paid by the [Buyer] in proportion to the claims sustained.


FOOTNOTES

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

** Andriy Kril, student at National University "Kyiv-Mohyla Academy", trainee at the law firm Kushnir, Yakymyak and Partners Attorneys & Counselors at Law, Kyiv, Ukraine.

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