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CISG CASE PRESENTATION

Russia 19 October 2006 Arbitration proceeding 53/2006 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/061019r1.html]

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

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Case identification

DATE OF DECISION: 20061019 (19 October 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: 53/2006

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: United States (respondent)

BUYER'S COUNTRY: Ukraine (claimant)

GOODS INVOLVED: [-]


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 39 ; 40 [Also cites: Articles 6 ; 38 ]

Classification of issues using UNCITRAL classification code numbers:

39A2 [Requirement to notify seller of lack of conformity: buyer must notify seller within reasonable time];

40B [Seller's knowledge of non-conformity (seller fails to disclose known non-conformity): seller loses right to rely on articles 38 and 39]

Descriptors: Lack of conformity notice, timeliness ; Lack of conformity known to seller

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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. 32 [267-272]

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 53/2006 of 19 October 2006

Translation [*] by Alexander Shindler [**]

1. SUMMARY OF RULING

      1.1  The terms of the contract, written in two languages, are applied regarding which of the texts has the advantage if a discrepancy exists.

      1.2  As long as a single certificate of quality is issued for a few wagons of shipments, the date of the goods' arrival at the given station -- from which runs the period under the contract in which to file claims based on the quality of the goods -- is determined by the arrival date at the given station of the last wagon included in the shipment for which this certificate of quality is issued.

      1.3  It is ascertained that, even if the claim regarding the quality of the goods was filed late, by virtue of the 1980 Vienna Convention (Article 40), the [Seller] would not have had the right to invoke missing the period to file the claims because the [Seller] either knew or could not have been unaware that violation of the requirements under the contract for the quality of the goods follows directly from the certificate of quality issued by the manufacturer.

2. FACTS AND PLEADINGS

A Ukrainian [Buyer] filed a claim against a United States [Seller] regarding the delivery of goods of inadequate quality under a contract for the international sale of goods into which the parties entered on 31 May 2005. The [Buyer] demanded payment of the contractual penalty for delivering goods of inadequate quality and reimbursement of arbitration fees.

The [Seller] did not provide a response to the claim, and its representatives did not participate in the arbitration. From the correspondence between the parties that the [Buyer] provided, it followed that the [Seller] rejected the [Buyer]'s claim, relying on its having been filed at the expiration of the term provided under the contract. ?n independent expert organization, which the [Seller] proposed, was involved in checking the quality of the goods. The [Seller] refused to send its representative to participate in assessing the quality of the delivered goods.

3. TRIBUNAL'S REASONING

The MKAC's decision contained the following main provisions.

      3.1  Paragraph 9 of Contract No. 2917 of 31 May 2005, written in English and Ukrainian, provides for the resolution of disputes at the International Commercial Arbitration Court at the Russian Federation Chamber of Commerce in Moscow. The following is indicated in the English version, to which the Ukrainian version corresponds:

"9.1. The parties shall try to adjust the disputes and differences that arise from this Contract or in connection with it by means of negotiations and consultations.

"9.2. If there is no agreement, then the disputes shall be referred to the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the RF, Moscow in according to the Rules of that Court the decisions of which shall be binding for the Parties.

[...]

"9.4. The arbitration language shall be Russian."

Pursuant to Article 1(1) of the Rules of the MKAC, upon the agreement of the parties, disputes may be submitted to international commercial arbitration if they result from contractual and other civil law relationships arising in the course of foreign trade and other forms of international economic relations, provided that the place of business of at least one party is situated abroad, that is, outside of the Russian Federation. In this case, the parties, comprising of a Ukrainian and an American company, involved in foreign economic activity, agreed that the MKAC would review their disputes, which arise from or relate to the contract. Thus, in this case there are no procedural obstacles that would put the MKAC's competence in question relating to its authority to hear the dispute that is described in the [Buyer]'s claim.

Considering the above, the MKAC, guided by Article 1 of the Rules, recognizes its competence to review this dispute.

      3.2  Paragraph 9.3 of the contract provides:

"9.3. In other cases which are not stipulated hereto, the parties shall be guided by UNO Convention "About contract of international purchase and sale of the Goods" (Vine, 1980)."

Despite the obvious inaccuracies in the title of the international agreement, the reference on which paragraph 9.3 of the contract is based is indisputable, meaning the U.N. Convention on the International Sale of Goods (Vienna, 1980), a member of which is Ukraine just like is the U.S. Thus, pursuant to the parties' agreement, fixed in the contract, based on the provisions of Articles 28(1) and (3) of the Law of the Russian Federation "On International Commercial Arbitration," the Arbitral Tribunal believes that the provisions of the 1980 Vienna Convention are applicable to the given dispute.

In the given case, the need to set the subsidiary law is not determined.

      3.3  According to the documents available in the case file from the postal service of UPS, on 7 September 2006, the [Seller] received notice of appointment for an oral hearing of the case on 12 October 2006 (the MKAC's letter was sent on 5 September 2006). No petition to postpone the hearing was received from the [Seller]. Pursuant to Article 32(4) of the Rules of the MKAC, the failure of a party, properly notified of the time and place of the hearing, shall not interfere with the proceedings and making of an award. The [Seller] was duly notified about the holding of the arbitration and did not communicate to the MKAC any good cause for why the [Seller] could not participate in the oral hearing. Likewise, the [Seller] did not forward to the MKAC any objections regarding actual circumstances or legal arguments, set forth in the [Buyer]'s petition and documents that were annexed to it.

The [Buyer]'s representatives asked to review the case in the absence of the [Seller]'s representatives, and in the given situation the MKAC believes that this request should be satisfied.

      3.4  During the hearing, the [Buyer]'s representatives expressed support for their position, described in the [Buyer]'s petition, which the MKAC received on 7 June 2006 and which the [Seller] received on 10 July 2006. As was explained in the [Buyer]'s petition, on the basis of the decision of the general meeting of shareholders of 12 January 2006, the name of the company which finalized the contract with the [Seller] was changed, which the abstract of this company's bylaws also confirms, registered by the government registrar of the corresponding county of Ukraine on 17 January 2006. Respectively, the [Buyer]'s petition indicates the changed name of the [Buyer].

      3.5  There is a divergence in position of the parties regarding the period in which to file a claim regarding the quality of the goods based on the contract. The [Seller] has taken the position that this period is 30 days, while the [Buyer] alleges that it is 60 days.

This divergence in position of the parties, obviously, is based on the divergence of the English and Ukrainian texts of the contract. Paragraph 6.4 of the contract in English sets the period to file a claim at 30 days ("30 days"), while in Ukrainian it is 60 days ("60 days"). Because paragraph 13.2 of the contract clearly states that in case of variance between the Ukrainian and English texts the Ukrainian text will govern, the Arbitral Tribunal recognizes that according to paragraph 6.4 of the contract, the claim should have been filed within 60 days "of the date when the goods arrived at the assigned station."

Thus, to decide the issue of the timeliness of the [Buyer] filing its claim only on 16 January 2006, the time when the goods arrived at the assigned station will be determinative. Pursuant to paragraph 6.3 of the contract, the acceptance of the goods based on quality is carried out in respect to each shipment of the goods ("each lot of the Goods").

Given the available case file, it is found that the last wagon, in counting the shipments of the goods, covered by Certificate of Quality No. 1629 of 17 October 2005, arrived and was available to the [Buyer] only on 1 December 2005. This wagon, No. 66414335, referred to in the Certificate of Quality as No. 1629 of 17 October 2005, was included with shipment No. CH 242342 together with eleven other wagons, but was delayed en route. The fact that it was part of the shipment of the goods, shipped under the contract under Certificate of Quality No. 1629 of 17 October 2005, cannot be doubted.

Thus, the 60-day period to notify the [Seller] about the inadequate quality of the goods, according to paragraph 6.4 of the contract, when the [Buyer] filed a claim on 16 January 2006, could not have expired.

In addition, the MKAC believes that in the given situation the [Seller] totally lacks any right to voice objections about a late notice regarding the improper quality of the goods based on Articles 38 and 39 of the 1980 Vienna Convention. Based on Article 40 of the 1980 Vienna Convention, the [Seller] lacks this right "if the lack of conformity of the goods relates to facts of which he knew or could not have been unaware and which he did not disclose to the buyer." The MKAC arrives at the aforementioned conclusion based on the analysis of the following documents: Specification No. 6 to the contract, signed by both parties on 5 October 2005; Certificate of quality No. 1629 of 17 October 2005; Certificates of Sampling No. 4095 of 29 October 2005 and No. 4510 of 1 December 2005; and Certificate of Receiving Quality Products No. 44 of 1 December 2005.

According to paragraph 2.5 of the contract, the requirements for the quality of the goods are set forth in specifications that are compiled for this purpose and will be confirmed by Certificates of Quality, provided by the manufacturer of the goods. In Specification No. 6 to the contract, which the parties signed on 5 October 2005, the maximum level of one of the indicators is listed at 9.5%, at the same time that in Certificate of Quality No. 1629 of 17 October 2005, compiled by the manufacturer of the goods, this indicator's level is listed as average, and this same certificate also lists the maximum level at 10.5%. The [Seller], as the supplier of the goods under the contract, could not have been unaware that the maximum level for the indicator on which the [Seller] agreed with the [Buyer] was only equal to the average level, which the manufacturer of the goods calculated, and that the threshold listed in the Certificate of Quality No. 1629 of 17 October 2005 substantially exceeds the analogous indicator that was agreed with the [Buyer], according to Specification No. 6 in the contract, signed by the parties on 5 October 2005.

With this, according to paragraph 2.5 of the contract, the agreement for the quality of the goods is set out in the Specifications, not in the Certificates of Quality, which should merely verify in meaning the corresponding goods, which the parties agreed on in the Specifications.

In this situation, the analysis of the quality of the goods delivered, comprising Certificates of Sampling No. 4095 of 29 October 2005 and No. 4510 of 1 December 2005 and Certificate of Receiving Quality Pproducts No. 44 of 1 December 2005, compiled by the representatives of the [Buyer] with involvement from the representative of the independent laboratory, could not contain any information that would be unexpected to the [Seller]. Thus, by virtue of Article 40 of the 1980 Vienna Convention, the [Seller] had no right to voice an objection for the [Buyer]'s delay in giving notice about the improper quality of the goods, even if such delay occurred. It should also be noted that the [Seller] did not contest any of the [Buyer]'s conclusions about the improper quality of the goods and, contrary to [Seller]'s obligations, indicated in paragraph 6.2 of the contract, did not send its own representatives to be present during the holding of the analyses, which, however, were implemented by an independent expert, as the [Seller] indicated, and which led to the compilation of the documents, for which paragraph 6.3 of the contract provides.

Thus, the MKAC concludes that the goods that the [Seller] delivered under the contract were of improper quality, that the [Buyer] notified the [Seller] of this in a timely manner, and in general that the [Seller] knew in advance or should have known about the improper quality of the goods delivered under the contract for the goods.

      3.6  Paragraph 7.5 of the contract provides for the [Seller]'s payment to the [Buyer] of a 5% fine of the cost of the goods when a breach of contract regarding the quality of the goods occurs, set in accordance with the rules laid out in paragraphs 6.2 and 6.3 of the contract. Stated above is why the MKAC concluded that the [Buyer] did not breach its obligations to implement the acceptance of the goods and to notify the [Seller] of the improper quality of the goods, and that the [Seller], opposite the [Buyer], breached its obligation to deliver the goods, according to the specifications in the contract to which the parties agreed. The conditions for the [Seller] to pay a penalty upon the delivery of poor goods do not contradict any provisions of the 1980 Vienna Convention and do not violate any of its provisions that the parties may have changed by agreement (Article 6 of the Convention). The [Seller] does not contest the [Buyer]'s calculation of the fine.

The MKAC agrees with the [Buyer]'s calculation and believes that such requirements for payment of the fine are subject to satisfaction in full.

      3.7  Pursuant to Article 6(1) of the Schedule on Arbitration Fees and Costs, the [Seller] is responsible to reimburse the [Buyer] for what the [Buyer] paid for the arbitration.


FOOTNOTES

* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Ukraine is referred to as [Buyer], and Respondent of the United States 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 20, 2009
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