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CISG CASE PRESENTATION

Russia 29 September 2006 Arbitration proceeding 127/2005 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/060929r1.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20060929 (29 September 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: 127/2005

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Switzerland (respondent)

BUYER'S COUNTRY: Virgin Islands (claimant)

GOODS INVOLVED: [-]


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Article 81 [Also cited: Articles 7 ; 33 ; 35 ]

Classification of issues using UNCITRAL classification code numbers:

81C [Effect of avoidance on obligations (restitution by each party of benefits received): applied by analogy although there was no avoidance here]

Descriptors: Restitution

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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. 30 [257-262]

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 127/2005 of 29 September 2006

Translation [*] by Alexander Shindler [**]

1.   SUMMARY OF RULING

      1.1 The given meaning is insufficient to clearly define the terms of the contract regarding the applicable law, taking into account the true meaning of the language in the contract and the corresponding provisions of the 1980 Vienna Convention and the prescriptions of Russian law, which the parties chose to apply to their relations.

      1.2 Because the parties actually made calculations to deviate from the rules, for which the contract provided, in making its decision the court took into account those rules for payment that the parties actually adopted. 

      1.3 Considering that the Claimant [Buyer] prepaid for more goods, based on the Respondent [Seller]'s invoices, than those that the [Seller] actually delivered, the [Seller] is charged the difference between the prepaid sum and the actual price of the goods delivered.

      1.4 In deciding on the issues brought forth from the contract, the validity of which expired, the rules of the 1980 Vienna Convention are applied by analogy. The Tribunal looked to these rules to determine the consequences for breaching the contract, which seem reasonable, considering the similarity of the situation, taking place at the breach of the contract and its termination in situations in which one party carries out its obligations and the other party either wholly or partially does not carry out its obligations.

2.   FACTS AND PLEADINGS

A company from the British Virgin Islands [Buyer] filed a claim against a Swiss company [Seller] alleging delivery of fewer goods than the quantity for which the [Buyer]'s pre-payment called, based on a contract for the international sale of goods which the parties entered into on 24 March 2005.

As follows from the parties' correspondence, the [Seller] did not contest its obligation. [Seller] did not provide a response to the claim and its representatives were absent from the arbitration in which the claim was reviewed in substance.

3. TRIBUNAL'S  REASONING

The MKAC's decision contained the following main provisions.

      3.1 Regarding MKAC's competence to hear this dispute, the Arbitral Tribunal found the following. Paragraph 14.1 of the contract to which the parties entered on 24 March 2005 provides that "all disputes, differences or demands, arising from or relating to the given contract, as well as its execution, breach, termination or invalidity shall be settled by the International Commercial Arbitration Court at the Russian Federation Chamber of Commerce according to its rules comprising one arbitrator and substitute in the Russian language. The parties have designated the Chairman of the MKAC to determine the personal make-up of the arbitrators."

The MKAC also stated that the dispute between the parties concerns their contractual relationship, encountered in the implementation of foreign trade, that Claimant [Buyer]'s and Respondent [Seller]'s companies are located abroad, and that is why the given dispute fits under the types of disputes that the MKAC could decide, pursuant to the Law of the Russian Federation "On International Commercial Arbitration" as well as the Statute of the MKAC (Annex I to this Law) and the Rules of the MKAC.

Based on the above, pursuant to Article 16 of the Law of the Russian Federation "On International Commercial Arbitration," the MKAC at the Russian Federation Chamber of Commerce recognized itself competent to hear the given dispute.

Because the sole arbitrator, designated on 26 January 2006 by the Chairman of the MKAC, pursuant to paragraph 14.2 of the 24 March 2005 contract, refused to accept his role in the arbitration because of illness right when he received the order designating him as such, the Chairman of the MKAC, under § 26 of the Rules of the MKAC, elected another arbitrator from the list of arbitrators on 20 February 2006 to be the sole arbitrator.

Neither the [Buyer] nor the [Seller] made any comments regarding review of the case by a sole arbitrator.

      3.2 Having reviewed the issue of whether it can hear the case in the [Seller]'s absence, the MKAC believes the following.

The Respondent [Seller]'s representative received the claim papers on 22 February 2006, acting on a properly completed power of attorney, for which is contained a corresponding notation in the case file.

The [Seller]'s representatives were absent from the MKAC meeting on 6 June 2006, which was postponed because of the [Buyer]'s petition to change its demands.  The [Buyer]'s petition to change its demands and its notice of the MKAC's 12 July 2006 meeting were given to the [Seller]'s representative, acting on the power of attorney, on 7 June 2006.  Furthermore, the [Buyer], in turn, informed the [Seller] of the time and place of the MKAC's 12 July 2006 meeting, having forwarded to [Seller]'s representative a telegram and a certified letter.  Copies of the postal notifications, confirming delivery, are included in the case file.

In this way, the MKAC concluded that the [Seller] was duly notified of the time and place of the hearing for the given case.

The MKAC did not receive from the [Seller] any comments or any application to postpone hearing the case.

The [Buyer] did not object to review of the case in the [Seller]'s absence.

Considering the above and guided by Article 25 of the Law of the RF "On International Commercial Arbitration" and Article 28(2) of the Rules of the MKAC, the Arbitral Tribunal believes that the [Seller]'s absence does not prevent review of the case and reaching a decision.

      3.3 Regarding the issue of the applicable law, the MKAC found that in paragraph 14.3 of the 24 March 2005 contract the parties "agreed that the substantive law of the Russian Federation would be used to resolve their disputes, and if it would be contrary to the rules of international law, then the U.N. Convention for the International Sale of Goods would be used (Vienna, 1980)."

Given the certain peculiarity of paragraph 14.3, its meaning is not doubtful. Particularly, the reference to the use of Russian law and to the 1980 Vienna Convention, as one must understand, has the following meanings. According to Article 1 of this Convention, it applies if the places of business of the parties to the contract for the international sale of goods, that is, of the seller and of the buyer, are located in States each of which is a Contracting State, that is, a member of the Convention.  This rule, however, does not apply in the given situation because the British Virgin Islands, the legal entity in which the [Buyer]'s place of business is located, is not a member of the Convention, in comparison to Switzerland, in which the [Seller]'s place of business is located, and which is a Contracting State. Nevertheless, there is another rule in Article 1 of the Vienna Convention, according to which it also applies in the situation "when the rules of private international law lead to the application of the law of a Contracting State."

Paragraph 14.3 contains the parties' agreement  to use Russian substantive law; pursuant to Article 28 of the Law of the Russian Federation "On International Commercial Arbitration," the Arbitral Tribunal "shall decide the dispute in accordance with such rules of law as are chosen by the parties as applicable to the substance of the dispute."  Therefore, because the parties have chosen the law of the Russian Federation as the applicable law, which is the law of a Contracting State, that is, a member-state of the Vienna Convention, the latter applies in the given case.

As Article 7 of the Civil Code of the Russian Federation provides, Russian international contracts conform to the Constitution of the Russian Federation that is part of the legal system of the Russian Federation.

According to Article 7(2) of the Vienna Convention, questions that are not expressly settled in it are to be settled in conformity with the general principles on which it is based, or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.  As stated above, the applicable law is Russian substantive law.

      3.4 Turning to the substance of the demands that the [Buyer] had filed, MKAC found the following. The parties signed a contact on 24 March 2005 in accordance with which the [Seller] undertook to deliver to the [Buyer], under the terms stated in the contract, FCA railroad station, not fewer than a certain number of goods manufactured by a specific manufacturer (hereinafter "goods") from April to July of 2005, inclusive.

Pursuant to Article 11 of the contract, the [Buyer] should have made payment against the account that the [Seller] issued as well as against the certificates of quality, issued by the international independent inspection company, affirming that the goods conform to the terms of Appendix I to the aforementioned contract.

Nevertheless, according to the explanations of the [Buyer]'s representative, by mutual agreement between the parties, the [Buyer] made an advance prepayment of the goods on the [Seller]'s account in a Swiss bank. Payment was made in three parts based on three invoices that the [Seller] provided that, according to the explanations of the [Buyer]'s representatives, applied to the delivery of the goods under the contract (payment orders from 12, 22 and 26 April 2005). Copies of these payment orders are included in the case file. According to the explanations of the [Buyer]'s representatives, copies of the invoices were not provided to the MKAC because they are located in the bank.

The [Seller] did not contest receiving the aforementioned sum as prepayment either when the [Seller] received it or during the arbitration process. 

In this way, the MKAC recognized that the [Buyer] partially paid for the goods to be delivered under the contract.

The [Seller] delivered fewer goods than those for which the [Buyer] paid. The transportation documents and the customs declarations confirm that the delivery occurred.

In the [Seller]'s letter of 29 June 2005, sent in response to the [Buyer]'s claim of 17 June 2005, the [Seller] did not contest the [Seller]'s debt and promised to take steps to resolve it.

      3.5 According to the applicable regulations, a seller is obligated to deliver the goods in accordance with the quantity required in the contract, in the given period, particularly during "the period of delivery," if one is defined (Articles 33 and 35 of the Vienna Convention).   In the given situation, according to the contract, not fewer than the quantity of the goods indicated in the contract should have been delivered "from April to July of 2005, inclusive."   In fact, however, the [Seller] only delivered part of the goods, and, despite the [Buyer]'s demands, the [Seller] did not make any additional deliveries until the end of the stated period, that is, until 31 July 2005, on which date also this same contract terminated (except as, in part, it relates to payment) (paragraph 15 of the contract). The [Buyer]'s demand from the [Seller] represents the difference in cost between the advance paid and the actual price of the goods delivered.

This demand is subject to satisfaction.   As Article 81(2) of the Vienna Convention provides, a party who has performed the contract either wholly or partially may claim restitution from the other party of whatever the first party has supplied or paid under the contract. This provision is contained in Section V of the Convention, concerning the consequences of terminating a contract. Although in this case there is no reference to any statements about terminating the contract, the [Buyer] does have recourse to arbitration with a demand for a return of the price that the [Buyer] paid to cover the amount for which the [Seller] did not provide the appropriate quantity of goods, as Article 81(2) is applicable to this situation. One should also consider that, according to paragraph 15 of the contract, it terminated on 31 July 2005, except for issues related to payment. This conclusion is also consistent with the direct order of Article 466 of the Civil Code of the Russian Federation, if applying it subsidiarily. According to this article ("The Consequences of Breaching the Conditions for the Quantity of Goods"), if a seller delivered fewer goods than that specified in the contract, and if a buyer has paid for the goods, the latter may "demand return of the paid sum of money."

      3.6 The MKAC found that the [Buyer] paid for the arbitration upon filing its claim without considering that the case is being reviewed by a sole arbitrator.

Therefore, the MKAC, guided by Article 4(1) of the Schedule on Arbitration Fees and Costs, which is the Appendix to the Rules of the MKAC, decided that the [Seller] should return to the [Buyer] 15% of the total sum that the [Buyer] paid for the arbitration.

      3.7 Because the [Seller] did not perform its obligations under the 24 March 2005 contract, the [Buyer] was forced to turn to the MKAC to protect its violated rights, and because, under Article 6(1) of the Schedule on Arbitration Fees and Costs, registration and arbitration fees are imposed on the party against whom the decision was made, the [Buyer]'s demand to assign to the [Seller] the registration and arbitration fees is justified and is subject to satisfaction.


FOOTNOTES

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

** 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.  

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Pace Law School Institute of International Commercial Law - Last updated October 7, 2009
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