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CISG CASE PRESENTATION

Russia 20 March 2006 Arbitration proceeding 71/2005 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060320r1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20060320 (20 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: 71/2005

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: [-]

BUYER'S COUNTRY: [-]

GOODS INVOLVED: [-]


Classification of issues present

APPLICATION OF CISG: [-]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 53 ; 54

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. 11 [104-109]

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

Russian Federation arbitration proceeding 71/2005 of 20 March 2006

Translation [*] by Andriy Kril [**]

1. SUMMARY OF RULING

1.1 The Tribunal has recognized its jurisdiction over the dispute on the basis of the plaintiff's text of the agreement, duly signed and sealed by both sides. Respondent's objections on this matter, justified by referring to the text of the initial version of this agreement, were rejected.

1.2 Since the states in which commercial enterprises of the parties are situated (the Russian Federation and Ukraine) are parties to the Vienna Convention of 1980, the CISG was recognized as applicable to the relations under the international sales contract.

1.3 Terms of the contract were taken into account to resolve the difference in parties' interpretation of the contract's wording concerning the applicable law. According to the contract, its provision is valid unless otherwise stipulated by an international agreement. Being given this, the subsidiary statute was determined on the basis of the Kyiv Agreement of 1992 on the Procedure of Settlement of Disputes Related to the Implementation of Economic Activities, to which both states are party to.

1.4 The Tribunal established validity of assignment of the claim by plaintiff to another organization was established on the basis of subsidiary statute (Russian law).

2. FACTS AND PLEADINGS

The claim was lodged by a [Seller], a Russian firm, against the [Buyer], an Ukrainian organization, on the basis of the international sales contract, concluded by the parties on 24 February 2004, because of the underpayment for the goods delivered.

The [Seller] sought:

Payment of the debt;
Payment of the contractual fine for the delay in payment;
Recovery of the arbitration fees.

The [Seller] argued that the MKAC has jurisdiction in this case on the basis of additional agreement of the parties which modified the arbitration clause of the contract. According to the [Seller], a Russian law is applicable to the parties' relations as the law of the seller's country.

The [Buyer] challenged the jurisdiction of the MKAC claiming that the contractual arbitration clause has not been changed. In its opinion, law of Ukraine is applicable to the parties' relations since it is the law of the defendant.

In connection with the assignment of rights under the contract to another Russian organization (assignee), the assignee has entered into the process instead of the original plaintiff.

Representatives of the [Buyer] did not appear in the arbitration proceedings.

3. TRIBUNAL'S REASONING

The award of the MKAC contained the following basic points.

3.1 The competence of the Tribunal

With respect to the competence of the MKAC to adjudicate this case, the Tribunal found that in order to change provisions of the arbitration clause contained in para. 9.3 of the parties' contract from 24 February 2004 (as was argued by the [Seller], because of its vagueness), the parties in its additional agreement No 1 of 16 March 2004 to the contract have agreed that:

"In case of impossibility to resolve disputes in accordance with contractual procedure they shall be subject to review by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation, in the city of Moscow, in accordance with its Rules and Procedures".

The [Seller], referring in its statement of claim to this arbitration clause, lodged a claim to the MKAC at the CCI of the RF. In accordance with the Rules and Procedures of the MKAC the [Seller] paid the arbitration fee, chose an arbitrator, provided arguments in support of the claim and participated in the hearing on 22 December 2005.

The [Buyer] was duly notified of the claim. In its letter of 23 August 2005 the [Buyer] claimed that the Tribunal lacks competence to hear the case. The [Buyer] alleged that the additional agreement No 1 to the contract, referred to by the plaintiff, has made changes only to para. 6.2 of the contract, while para. 9.3 of the contract in the agreement was not mentioned at all. Thus, the [Buyer] denied that the parties changed the arbitration clause (para. 9.3) of the contract. According to the [Buyer], pursuant to para. 9.1 of the contract the dispute shall be adjudicated by the International Commercial Arbitration Court at the Chamber of Commerce and Industry of Ukraine, and the law of Ukraine shall be applied as the law of the defendant.

Having considered the arguments of the parties and assessed the available evidence in the case, the Tribunal recognized as unfounded [Buyer]'s statements about the lack of competence of the MKAC to adjudicate this dispute. The [Buyer] erroneously referred to the initial version of the additional agreement No 1 to the contract, which contained incomplete text of the agreement. However, as it follows from the record, on 16 March 2004 the parties signed another variant of the additional agreement No 1. New version contained a different wording of both para. 6.2 and para. 9.3 of the contract (arbitration clause), extending jurisdiction of the MKAC over the disputed between the parties. This agreement was signed by both sides and sealed; moreover, the [Buyer] assured by its signature and seal also the amendment made by it to the text of the agreement. All these facts should have been known by the [Buyer]. Under these circumstances, the Tribunal found that the additional agreement No 1, signed by the parties, is an evidence that confirms the expression of both [Seller]'s and [Buyer]'s will to resolve their disputes in the MKAC at the CCI of the RF.

In connection with the above-mentioned, following Art. 16 (1) of the RF Law "On International Commercial Arbitration," the MKAC recognized its competence to review the case.

3.2 Applicable law

Since the commercial entities of the [Seller] and the [Buyer] were at the time of signing of the contract of 24 February 2004 and are currently situated in the states-parties to the Vienna Convention of 1980, the Tribunal recognized on the basis of Art. 1 (1) (a) of the Convention that provisions of this Convention shall apply to the relations of the parties.

In determining the national law subject to subsidiary application to the parties' relations, the Tribunal found that the parties in clause 9.1 of the contract agreed on the following:

"In all cases not provided for by the parties in this contract, the law of the Party in whose territory the incident occurred which is the source of the arising liabilities shall apply, unless otherwise stipulated by an international agreement."

While each of the parties in determining the applicable law referred to the cited provision of the contract, their views on the issue diverged. The [Seller] in the statement of claim named the Russian law as an applicable, the [Buyer] in a letter of 23 August 2005 named the law of Ukraine.

The above-mentioned para. 9.1 of the contract provides for resort to the international agreement, if any.

Commercial entities of the [Seller] and the [Buyer], which are business entities, are situated in the states - participants of the Commonwealth of Independent States (CIS). Therefore, the MKAC found that in order to resolve the disagreement between them on this subject, provisions of the Agreement on the Procedure of Settlement of Disputes Related to the Implementation of Economic Activities (city of Kyiv, 1992) shall be applied.

Article 11 (e) of this Agreement provides that rights and obligations of the parties to the contract shall be defined in accordance with the law where such contract was concluded. Since the contract from 24 February 2004 was concluded by the parties in Russia (city of Perm), as is explicitly indicated on page 1 of the text of the contract, the MKAC found that the Russian law, i.e. the Civil Code of the RF, applies to the parties' relations as the law of the country of the contract.

3.3 Admissibility of the assignment of rights (cession)

On 12 December 2005 the [Seller] concluded an agreement on the assignment of rights under the contract of 24 February 2004 with another Russian organization. This organization filed a motion received by the Tribunal on 12 January 2006 soliciting to intervene in the arbitration proceedings as a new plaintiff. In view of this the Tribunal found it necessary to consider the question of admissibility of the cession under the mentioned contract.

The Tribunal found that:

the contract from which the dispute arose does not prohibit the transfer of the [Seller]'s claims without the consent of the [Buyer];
 
assignment agreement defined the subject and content of the assigned claims, and assigned rights did not fall under the category of rights that cannot be passed to another person in accordance with Art. 382 (1) (2) (the recourse) and Art. 383 (rights inseparably linked with the person of the creditor) of the Civil Code of the RF.

Therefore, the Tribunal recognized that rights (claims) of the [Seller] to the [Buyer] were assigned to another Russian organization by the [Seller] in accordance with the applicable Russian law. Moreover, the assignment agreement provides that the new creditor was assigned "other rights, associated with the right to claim under the contract of 24 February 2004". Accordingly, the arbitration clause contained in para. 9.3 of this contract on the jurisdiction of the MKAC is binding on the assignee under the agreement of assignment. This is proved by the sustainable and published practice of the Supreme Arbitration Court of the RF and the MKAC.

The Tribunal also took into account that the [Buyer] was notified about the assignment of the [Seller]'s rights to the assignee by a registered letter of 19 December 2005 with an enclosed copy of the agreement of assignment. This fact is proved by a copy of receipt from the post office. No objections were raised by the [Buyer] concerning this issue.

Considering the assignment of claims under the contract of 24 February 2004 as lawful and transfer of the rights under the contract to a new creditor as completed, the Tribunal recognized the assignee as a proper plaintiff in this case. Assignee, justifying his motion for intervention to the process supported claims listed in the original statement of claim.

3.4 Preliminary claims to the party at fault

The Tribunal recognized as ungrounded [Buyer]'s reference in his letter of 23 August 2005 to the fact that no claims were made to it directly in advance. The record includes copies of the claim send by the [Seller] on 17 December 2004 and the receipt from the post office confirming its dispatch to the [Buyer]. Furthermore, pursuant to applicable Russian law, as well as law of other states, undeclared claims under the sales contract do not deprive the injured party of the right to turn to the court to protect its interests.

3.5 Debt recovery

Having considered the [Seller]'s claim for the recovery of the principal debt from the [Buyer], the Tribunal found it reasonable.

Case materials (in particular, copies of the invoice CMR ? 608209 from 6 May 2004, GTD ? 10411070/060504/0003349, invoice ? 8662 of 5 May 2004) confirm delivery by the [Seller] to the [Buyer] goods in the amount indicated by the [Seller]. According to copies of payment orders ? 132 of 22 September 2004, and ? 954 of 28 October 2004, the [Buyer] only partially paid to the [Seller]. The remaining unpaid amount of debt is proved by copies of acts of accounts' reconciliation of 10 December 2004 and 21 July 2005.

Pursuant to Art. 53 and 54 CISG the [Buyer] is obliged to pay to the [Seller] the price for the goods received, but this obligation was not duly fulfilled.

The [Buyer] was notified about the claim and had copies of the claim records, including supporting documents sent to it in connection with the assignment of rights. However, the [Buyer] did not present to the Tribunal any objections or explanations concerning [Seller]'s claims. Despite the fact that the [Buyer] was duly notified of the appointment of a hearings on 22 December 2005 and 22 February 2006 it did not send a representative to participate in the sitting of the arbitration. In this situation the Tribunal has reasons to believe that the [Buyer] does not contest the fact of the goods' delivery to it and the amount of its debt to the [Seller].

Consequently, [Seller]'s claim for the recovery of debt from the [Buyer] shall be sustained.

3.6 Payment of the fine

[Seller]'s claim to recover a fine from the [Buyer] is based on para. 7.4 of the contract, under which the buyer shall pay a fine in the amount of 0,1% of the unpaid amount for each day of delay in case of a delayed payment for goods starting from the 20-th day after the shipment. According to this contractual clause, the amount of fine in any case shall not exceed 8% of the amount of debt.

Calculation, presented by the [Seller], shows that the amount of fine was determined by the [Seller] in the amount of 8% from the amount of debt in accordance with the terms of the contract. The calculation erroneously defined 21 May 2004 as a starting date for the fine accrual; however, because the fine shall be accrued starting from 26 May 2004, i.e., 20 days after the shipment made on 6 May 2004. Nevertheless, this inaccuracy did not influence on the amount of the fine, charged in a maximum amount.

Based on the above-mentioned, the penalty shall be recovered from the [Buyer] in the amount calculated by the [Seller].

3.7 Payment of the arbitration fees and expenses

Following Art. 6 (1) of the Regulations on Arbitration Fees and Expenses (Appendix to the Rules and Procedures of the MKAC), the arbitration fee shall be paid by the party, against which the decision was made.


FOOTNOTES

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

** Andrii 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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Pace Law School Institute of International Commercial Law - Last updated December 2, 2011
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