Russia 19 May 2006 Arbitration proceeding 122/2005 (Used equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060519r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 122/2005
CASE HISTORY: Unavailable
SELLER'S COUNTRY: United States (respondent)
BUYER'S COUNTRY: Russian Federation (claimant)
GOODS INVOLVED: Used equipment
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:
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. 19 [177-180]
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 Andriy Kril [**]
1.SUMMARY OF RULING
1.1 The Vienna Convention of 1980 was recognized as applicable to the international sales contract, parties to which are situated in States party to this Convention. The parties' agreement to use the substantive law of the Russian Federation [RF] was recognized as the basis for the use of that law as a subsidiary statute.
1.2 The inability to use the equipment delivered by the [Seller] according to its intended purpose (which was proved by expert's examination) caused the non-performance of the lease agreement that the [Buyer] had concluded with a third party (lessee). As a result, the [Seller] was obliged to pay the damages, which included the penalties paid by the [Buyer] to the lessee for the non-performance of the lease agreement and the loss of profit.
2. FACTS AND PLEADINGS
The claim was lodged by the [Buyer], a Russian organization, against the [Seller], a USA firm, in connection with damages payment caused by improper execution of the contractual obligations, concluded by the parties on 19 November 2004. According to the contract, the [Seller] undertook to delivered used knitting equipment in working condition, set in accordance with the technical specification to the contract. The [Buyer] entered into lease agreement with a third party (lessee) involving the provision of this equipment to the lessee for one year. But the equipment delivered by [Seller] appeared to be in a workless condition. This fact was proved by the conclusion of the regional Chamber of Commerce of the RF. Because of it, the lessee avoided the lease agreement and turned to the arbitral tribunal which ruled to oblige the lessor to pay penalties provided for in the lease contract.
The [Buyer] sought:
The [Seller] did not present any pleadings under this claim and its representatives did not participate in the Tribunal's session.
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 The competence of the Tribunal
Having considered the question of competence of the Tribunal to adjudicate this case, the Tribunal established that its competence is based on the arbitration clause 18.1 of the sales contract which provides:
"Any disputes, disagreements or claims that may originate from or in connection with the following contract, including its execution, violation, termination or invalidity shall be submitted for adjudication at the International Commercial Arbitration Court at the Russian Federation Chamber of Commerce and Industry (in the City of Moscow), in accordance with the Rules and Procedures of the Tribunal, by a sole arbitrator."
The Tribunal established that the dispute between the parties arise from the contractual relationships that appeared during performance of their international economic relations. [Seller]'s organization is registered abroad; therefore, this dispute is covered by the competence of International Commercial Arbitration Court at the RF CCI according to RF Law on International Commercial Arbitration and the Rules and Procedures of the Tribunal.
Filing the claim by the [Buyer] and the absence of any objections to the Tribunal's competence by the [Seller] evidence that the parties truly intended to resolve probable disputes precisely by this arbitral body at the RF CCI.
Taking into consideration this, Article 7 and 16 of the Russian Federation Law on International Commercial Arbitration, the Tribunal ruled that it is competent to arbitrate this dispute.
The composition of the Arbitration Tribunal was established in accordance with the Rules and Procedures of the Tribunal and the provisions of the contract concluded by the parties. There were no objections to the composition of the Tribunal.
3.2 Absence of the [Seller]'s representatives
Considering the issue of hearing the case in the absence of the [Seller]'s representatives, the Tribunal established the following. The claim papers were enclosed with the letter sent to the [Seller] by the Secretariat of the Tribunal on 21 February 2006 and were delivered to it on 23 February 2006. This fact was proved by the post service's notice.
Summons with date and time of the hearing issued by the Secretariat of the Tribunal to the [Seller] on 23 March 2006 was delivered to the [Seller] on 27 March 2006. This fact was also proved by the post service's notice.
During the hearing of the case, the representative of the [Buyer] asked to examine the question of the absence of [Seller]'s representatives.
Having considered the facts stated above and following Article 28(2) of the Rules and Procedures of the Tribunal, according to which "failure by a party properly notified of the time and place of the hearing to appear at the hearing shall not interfere with the proceedings and making of an award, unless the defaulting party has requested in advance in writing that the hearing of the case be adjourned for a good reason", the Tribunal decided to continue the arbitration proceedings despite the absence of the [Seller]'s representatives.
3.3 Applicable law
Having considered the question of law applicable the parties' relations, the Tribunal stated that Article 19.4 of the sales contract concluded by the parties provides that:
"All the issues, not regulated by this contract, shall be resolved in accordance with the material law of RF and Incoterms 2000."
According to Article 7 CC of the RF, international agreements to which the RF is a party to are part of its legal system. The Russian Federation is a party to the Vienna Convention of 1980 (CISG). According to Article 1(1)(a) of the CISG, this Convention applies to contracts of sale of goods between parties whose places of business are in different States when the States are Contracting States. The commercial enterprise of the [Buyer] is situated in the Russian Federation; of the [Seller], in the USA which is also a State party to the CISG.
Being given the abovementioned, the relationships of the parties that appeared from the execution of the contract shall be regulated by the CISG and the issues, not covered or only partially covered by it, shall be regulated by the provisions of the CC of the RF.
3.4 Payment of the actual damages
Having considered the question of the [Buyer]'s claims, the Tribunal established that [Seller] violated Article 4.1 of the sales contract concluded by the parties on 19 November 2004 by delivering to the [Buyer] equipment in workless condition which could not be used for its original purpose. This fact is proved by the conclusion of the regional Chamber of Commerce of the RF dated 6 April 2005 and is contested by the [Seller]. The Tribunal considered the fact of the improper execution by the [Seller] of its contractual obligation as established.
On 1 April 2005, the [Buyer], acting as lessor, entered into an agreement leasing this equipment to a third party (lessee). However, since the [Seller] did not execute its obligations under the contract in a proper way, the [Buyer] violated its obligations under lease agreement to grant the equipment on lease.
On the basis of Article 7.4 of the lease agreement, the lessee lodged a claim before the Moscow Arbitration Tribunal requesting the payment of penalties according to Article 4.2 of the contract. The Moscow Arbitration Tribunal, in its award dated 5 September 2005, sustained lessee's claims in full. During the hearing, the [Buyer] presented a copy of the payment order proving the payment of penalties in accordance with the Moscow Arbitration Tribunal's award.
3.5 Payment of the loss of profit
The [Buyer] also claimed payment of damages in the form of the loss of profit. Calculations of the loss of profit in the form of non-received lease payment during the validity of the contract (one year) were presented by the [Buyer] and were recognized by the Tribunal as grounded.
The calculations presented by the [Buyer] were not contested by the [Seller].
According to Article 45(1)(b) of the CISG,
"If the seller fails to perform any of his obligations under the contract or this Convention, the buyer may claim damages as provided in articles 74 to 77."
Article 74 of the CISG establishes that:
"Damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach."
The Tribunal, following the provisions of Articles 45 and 74 of the CISG, found [Buyer]'s claims for the damages payment, including actual damage and the loss of profit, grounded and fair. Given the abovementioned, [Buyer]'s claims for the damages payment in presented amount shall be sustained in full.
3.6 Payment of the registration and arbitration fees
Since the claim was sustained in full, the Tribunal, following Article 6(1) of the Regulations on Arbitration Fees and Expenses, found [Buyer]'s claim to oblige the [Seller] to pay the arbitration fees reasonable and ruled to sustain it in full.
* 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 [Buyer] and Respondent of USA is referred to as [Seller].
** Andriy Kril, student at National University of "Kyiv-Mohyla Academy", paralegal at the law firm Kushnir, Yakymyak and Partners Attorneys & Counselors at Law, Kyiv, Ukraine.Go to Case Table of Contents