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CISG CASE PRESENTATION

Russia 15 November 2006 Arbitration proceeding 30/2006 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/061115r2.html]

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

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Case identification

DATE OF DECISION: 20061115 (15 November 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: 30/2006

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Austria (claimant)

BUYER'S COUNTRY: Russian Federation (respondent)

GOODS INVOLVED: [-]


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 4 ; 53 ; 78 ; 79 ; 81 [Also cited: Articles 7 ; 61 ; 62 ]

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): statute of limitations];

53A [Buyer's obligation to pay price of goods];

78B [Rate of interest];

79A [Impediments excusing party from damages: financial constraints resulting from inability of buyer's customers to make payments due to severe drought held not to excuse party from damages];

81B1 [Contract clauses not terminated by termination of contract: clauses on settlement of disputes (arbitration)]

Descriptors: Scope of Convention ; Statute of Limitations ; Price ; Interest ; Exemptions or impediments

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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. 36 [295-303]

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 30/2006 of 15 November 2006

Translation [*] by Andriy Kril [**]

1. SUMMARY OF RULING

1.1 Termination of the contract before lodging of a claim does not influence the legal force of the arbitration clause and cannot be considered as a ground for regarding the MKAC as incompetent to adjudicate the dispute that arose during the execution of this contract.

1.2 Respondent [Buyer]'s arguments that the statement of claim was signed by an unauthorized signatory were rejected since the power of attorney issued by the Claimant [Seller] to that person included such a power and was duly drawn up.

1.3 The Vienna Convention of 1980 (CISG) and the Russian Civil Law were recognized as applicable to the parties' relations under the international sales contract since the contract, parties of which are situated in States parties to the Vienna Convention, provides that it shall be regulated and interpreted according to the legislation of the RF and also expressly provides that the parties agreed to apply the Vienna Convention of 1980.

1.4 Since the Respondent [Buyer] did not agree to the third parties' participation in the process, as was solicited by the Claimant [Seller], according to the Rules and Procedures of the Tribunal the [Seller]'s solicitation could not be sustained.

1.5 [Buyer]'s allegations that the [Seller]'s claim was barred because it fell outside the term of the limitation of actions were also not sustained.

1.6 [Seller]'s claim to oblige the [Buyer] to pay annual interest on the main debt was partially sustained. The Tribunal took into account that, in its statement of claim, the [Seller] used the wrong interest rate and the [Seller] presented new calculations on the basis of LIBOR that was considered as applicable to this claim by the Tribunal.

2. FACTS AND PLEADINGS

The claim was lodged by the [Seller], an Austrian firm, against the [Buyer], a Russian organization, in connection with the underpayment for goods delivered under an international sales contract concluded by the parties on 20 December 2000.

The [Seller] sought:

-    Payment of the indebtedness;
-    Interest payment for the use of another's monetary funds; and
-    Recovery of the expenses for the arbitration fees.

The [Seller] solicited involvement of third parties to the process.

The [Buyer] submitted a statement of defense in which it raised objections to the satisfaction of the claim, although it recognized the fact of its indebtedness.

      First, according to the [Buyer], the contract was signed not with the [Seller], but with three companies. The [Seller] acted as their representative. Correspondingly, the right to bring this claim before the Tribunal belongs to the companies represented, but not to their representative.

      Second, the statement of claim was signed by an unauthorized person.

      Third, the arbitration clause in the contract was already invalid when a claim was lodged, because by that time the contract has already expired.

      Fourth, the [Seller] defaulted the term of the limitation period.

      Fifth, in calculating the amount of interest the [Seller] applied the wrong rate and charged the interest inaccurately.

      Sixth, the [Buyer] objected to the involvement in the process of third parties.

Representatives of the [Buyer] did not participate in the hearings of the Tribunal. Representatives of the [Seller] responded to most of the [Buyer]'s statements. Also, [Seller]'s representatives presented a new calculation of the annual amount of interest, that foresaw a considerable reduction of the amount of interest.

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 Absence of the [Buyer]'s representatives

Having considered the question of the absence of the [Buyer]'s representatives during the hearings of the Tribunal, the Tribunal established that a copy of the statement of claim together with documents attached to it were handed to the [Buyer] on 10 July 2006. This is proved by the postal notice.

Notice of the hearing of the case was handed to the [Buyer] on 8 August 2006, which is also proved by the postal notice.

Though the [Buyer] was aware of the contents of the statement of claim and was timely notified about the time and date of the hearing, it did not participated in the hearing and did not requested in writing to adjourn the hearing of the case for a good reason.

Given this, following Articles 12(5) and 28(2) of the Rules and Procedures of the Tribunal, as well as opinion of the [Seller]'s representatives on this issue, the Tribunal decided to continue the arbitration proceedings despite the absence of the [Buyer]'s representatives.

3.2 The competence of the Tribunal

The competence of the MKAC to adjudicate this dispute is foreseen by the arbitration clause, included in Art. 10.2 of the contract, which reads as follows:

"If the parties are not able to resolve their dispute by means of amicable negotiations, the dispute 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 (MKAC). The dispute shall be resolved by a sole arbitrator in accordance with the Rules and Procedures of the Tribunal. Languages of the hearing shall be English and Russian."

Pursuant to Art. 2 of the Statute of the MKAC, which is Appendix No. 1 to the RF Law "On International Commercial Arbitration", the competence of the MKAC covers disputes that arise out of contractual or other legal civil relationships that appear during the execution of foreign-trade and other types of international economic relations, if the commercial entity of at least one of the parties is situated abroad.

The Tribunal cannot agree with the [Buyer]'s argument that the MKAC has no competence to adjudicate this case because the sales contract expired before the claim was lodged. Expiration of the contract does not influence the legal force of the arbitration clause and is not a ground for the Tribunal to rule that it has no jurisdiction. According to Art. 16 of the RF Law "On International Commercial Arbitration", an arbitration clause that is a part of the contract shall be interpreted as an agreement which does not depend on the other clauses of the contract.

Pursuant to Art. 1(3) of the Rules and Procedures of the MKAC, the Tribunal is competent to settle disputes subject to an agreement in writing between the parties to refer a dispute that has arisen, or may arise, between them to the MKAC, if the parties are entities that are situated in different states. Since:

-    This dispute arose out of a foreign-trade transaction, the parties to which are situated in different states (Austria and the Russian Federation);
 
-    The subject of this dispute is covered by Tribunal's jurisdiction; and
 
-    The [Seller] lodged a claim to the MKAC and the [Buyer] did not challenge the contents of the arbitration agreement;

this Tribunal, following Articles 7 and 16 of the RF Law "On International Commercial Arbitration" and Art. 5(1) of the Rules and Procedures of the MKAC, established that it is competent to adjudicate this case.

The Tribunal was formed in accordance with the Rules and Procedures of the MKAC and Art. 10(3) of the sales contract dated 20 December 2000. The parties did not make any remarks concerning composition of the Tribunal.

3.3 Applicable law

Having considered the question of applicable law, the Tribunal ruled that, according to Art. 10(1) of the sales contract, it shall be regulated and interpreted pursuant to the legislation of the Russian Federation. In addition, in Art. 11 of the sales contract, the parties agreed on the application of the CISG.

4. PROCEDURAL ISSUES

4.1 Right of the [Seller] to bring a claim before the Tribunal

The [Buyer] did not challenge the fact that parties entered into the sales contract dated 20 December 2000.

After studying the contract, the Tribunal established that the preamble of the contract provides that it was concluded by the Claimant, referred to as the [Seller], and by the Respondent, referred to as the [Buyer]. The same organizations were indicated in Art. 13 ("Legal Addresses of the Parties") of the contract as the seller and the buyer together with their addresses. The contract was sealed on behalf of the seller with a seal on which the name of the company, indicated in the preamble and Art. 13 of the contract, can be read.

Given this, the [Seller] had the right to lodge a claim for the payment of the indebtedness incurred because of the non-performance of the [Buyer] of its obligations under the sales contract, and is a proper Claimant in this case.

4.2 Authority of the [Seller]'s representatives

Having considered the question of authority of the signatory of the statement of claim, raised by the [Buyer] in its statement of defense, the Tribunal established the following.

During the hearing, representatives of the [Seller] presented duly drawn up powers of attorney:

-    Power of attorney dated 7 March 2006, empowering the first representative to sign the statement of claim; and
 
-    Power of attorney dated 27 September 2006, authorizing the second representative to conduct all necessary actions to represent [Seller]'s interests in regard to the indebtedness of the [Buyer], including the right to sign the statement of claim, partially withdraw the claim, reduce the amount of claim, to delegate his authorities to another person and to participate in hearings in all courts at the territory of Russia, including arbitral tribunals.

According to Art. 1209 of the Civil of the RF, the form of a power of attorney shall be governed by the law of place of its conclusion.

The power of attorney empowering the signatory of the statement of claim was given in the United Kingdom, drawn up in English, certified by a Notary Public of England with an apostil, as required by the Hague Convention of 5 October 1961. The Russian text of the power of attorney contains an inaccuracy in the translation of the word "debt", which is translated as "____" ("loan"). The word debt should be translated into Russian as "________". This inaccuracy in the Russian translation does not cause the power of attorney to be invalid.

The original copy of the power of attorney provides that the [Seller] authorizes the named person with the powers to perform actions to recover the debt from the [Buyer], registered in Russia under the address stated in the power of attorney. The indebtedness of the [Buyer] was incurred on the basis of two sales agreements, not on the basis of the loan agreement.

Given this, the arguments of the [Buyer] about the absence of authority of the signatory of the statement of claim cannot be taken into account.

4.3 Expiration of the term of limitation of actions

After consideration of the question of the expiration of the term of the limitation of actions by the [Seller], as was alleged by the [Buyer] in its statement of defense, the Tribunal ruled as follows.

According to Art. 196 of the Civil Code of the RF, the general term of the limitation of actions is laid down as three years. Pursuant to Art. 200(1) of the Civil Code of the RF, the term of the limitation of actions shall start from the day when the person has learned, or should have learned, about the violation of his right.

According to Art. 7.2 of the contract, the [Buyer] had to pay for the goods no later than 180 calendar days after the date when the invoice is issued. According to Art. 1 of Annex No. 2 to the contract dated 16 March 2002 and Art. 1 of Annex 3 dated 20 December 2002, the price for the goods had to be paid in full before 1 October 2002 and 1 March 2003, correspondingly. Therefore, the term of the limitation of actions is from 2 March 2003 till 1 March 2006.

The materials of the case prove that the [Seller] lodged a claim on 28 February 2006, as is indicated in receipt of the express post service DHL No. 563 9059 565. At the same time, the [Seller] paid the registration fee, as required by Art. 18(1) of the Rules and Procedures of the Tribunal, which entered into account of MKAC on 28 February 2006. According to Art. 14(2) of the Rules and Procedures of the Tribunal, the filing date of the statement of claim is the date of the postmark of the post office from which it has been mailed. The Secretary of MKAC established that the claims arose out of two independent, though similar, contracts and therefore offered to divide them in two different claims. The [Seller], after eliminating inaccuracies in the statement of claim that was sent to MKAC on 28 February 2006, split the claim into two.

This dispute, according to the MKAC Secretariat's letter No. 1800-4/497, dated 3 March 2006, is covered by the Rules and Procedures of the Tribunal dated 1994, approved by the order of the Chamber of Commerce and Industry of the RF dated 8 December 1994 No. 96, with amendments and additions. Given this, the MKAC found that the statement of claim was filed in a prescribed manner and the date of its filing is 28 February 2006.

According to Art. 203 of the Civil Code of the RF, the term of the limitation of actions is interrupted by the filing of a claim in conformity with the established order, and also by the obligator's performance of actions which acknowledge his admittance of the debt; after the interruption, the term of the limitation shall start anew; and the time that has expired before the interruption, shall not be included in the new term.

The materials of the case also prove that the parties were in correspondence concerning the payment of the debt by the [Buyer] for a long time. The MKAC established that the [Buyer]'s letters presented by the [Seller], dated 27 September 2002 No. 102, 7 August 2003 No. 88, and 18 June 2004 No. 91, that included payment schedules for the goods delivered and were addressed to the representative office of the [Seller] in Russia (which is confirmed by the [Buyer] in its statement of defense) shall be considered as admittance of the debt by the [Buyer]. Moreover, in [Buyer]'s letter dated 10 December 2003 No. 128 it has stated: "… we cannot pay the debt according to the schedule, established before (letter No. 88 dated 27 August 2003) before the end of 2003 …". The above-mentioned letters of the [Buyer] were sent during the term of limitation of actions, stated hereby.

[Buyer]'s arguments that these letters cannot be recognized as a basis for the interruption of the term of the limitation of actions since they do not distinguish between two contractual indebtednesses and do not indicate corresponding contracts, cannot be taken into consideration since the materials of the case prove that the parties did not enter into any other contracts except the two sales agreements, according to which the [Seller] can recover the amount owed to it by means of the arbitration proceeding. Consequently, the indebtedness of the [Buyer] to the [Seller] could not have been incurred other than from these sales contracts.

It does not follow from the wording of Art. 203 of the Civil Code of the RF that admittance of the debt must be expressed in a concrete sum.

On the basis of the above, the MKAC rules that the [Seller] is not barred by the term of the limitation of actions, foreseen in Art. 196 of the Civil Code of the RF.

4.4 Involvement of the third parties

Considering the question of participation of Belgian and English companies in the arbitration process as third parties, the Tribunal established, that according to Art. 35 of the Rules and Procedures of the Tribunal, a third party may only be joined in the arbitral proceedings with the consent of the parties in dispute and the third party itself. Since the [Buyer] in its statement of defense objected to the involvement of the third parties to the arbitral proceeding and the [Seller] during the hearing of the case on 4 November 2006 agreed with the objection of the [Buyer], the MKAC established that these companies cannot be joined in these arbitral proceedings as third parties.

5. SUBSTANTIVE ISSUES

5.1 Recovery of the purchase price

Considering the claims on the merits, the Tribunal found that the [Seller] complied with its obligations under the contract and delivered the goods to the [Buyer] for the sum indicated in the statement of claim. The [Buyer] did not report any claims concerning the quality or quantity of the goods. The fact of the goods' delivery is not disputed by the [Buyer]. However, the [Buyer] has not fulfilled its contractual obligation to pay in full for the goods delivered. The [Buyer] has not paid invoice number 27/43239966 of 13 June 2001, and invoice no. 27/43238290 of 26 April 2001 was only paid by the [Buyer] in part. The debt of the [Buyer] for goods received amounts to the sum filed by the [Seller] for recovery.

Acknowledgment of the [Buyer] of its debt is proved by Appendix No. 2 to the contract dated 18 March 2002 and Appendix No. 3 of 20 December 2002 on an agreement on 100% payment for the goods delivered prior to 1 October 2002 and 1 March 2003, respectively, as well as by letters of the [Buyer] available in the file, which indicate schedules of payment for goods delivered. The [Buyer] has not submitted to the Tribunal objections to the [Seller]'s statement of claim that refute the [Seller]'s right to recover the indebtedness. Financial straits invoked by the [Buyer] in a letter dated 10 December 2003 No. 128, resulting from the inability of its customers to make payments for goods because of the severe drought of the 2003 season in the stipulated terms are not grounds for excluding [Buyer] from responsibility.

Since the [Seller] delivered the goods in accordance with the terms of the agreement between the parties, the [Buyer] by virtue of Art. 53 CISG and Art. 486 of the Civil Code shall pay the price for the goods, and the [Seller] is entitled to demand from the [Buyer] payment of that price in accordance with Arts. 61 and 62 CISG.

Based on the above, the Tribunal, following Articles 53, 61 and 62 CISG and Arts. 309, 314, 454 and 486 of the Civil Code of the RF, recognized [Seller]'s claim for the recovery from the [Buyer] the price of the delivered but unpaid goods as reasonable and ruled to sustain it.

5.2 Annual interest payment

Considering the [Seller]'s claims for the recovery from the [Buyer] of the annual interest payment for the use of another's monetary funds, the Tribunal came to the following conclusions.

This requirement is based on Art. 78 CISG, under which, if a party fails to pay the price or any other sum that is in arrears, the other party is entitled to interest on it. Since the amount of interest is not defined in the CISG, the Tribunal referred to Art. 395 of the Civil Code of the RF.

Due to the fact that the presence of the principal debt of the [Buyer] was shown in the present case, the [Seller] is entitled to payment of interest on that amount. The [Buyer] in its statement of defense did not contest the [Seller]'s demand to pay interest for the use of another's monetary funds, but objected to the application by the [Seller] of the rate of refinancing when calculating the interest and to the order of [Seller]'s calculations.

According to Art. 395(1) of the Civil Code of the RF, the interest rate shall be defined by the discount rate of the bank interest, existing by the date of the discharge of the pecuniary obligation or of the corresponding part thereof at the place of the creditor's location. If the debt is exacted through the court, the court may satisfy the creditor's claim, proceeding from the discount rate of the bank interest on the date of filing the claim or on the date of its adopting the decision.

According to the practice of applying Art. 395 of the Civil Code of the RF while performing a calculation in foreign currency, if there is no official discount rate of the bank interest on currency credits at the day of execution of the pecuniary obligation in the creditor's location, the interest rate is determined on the basis of publications in the official sources of information concerning average discount rates of the bank interest on short-term currency credits in the creditor's location. (Art. 52 of the Joint Resolution No. 6/8, adopted by the Plenums of the Supreme Court and Supreme Commercial Court of the RF dated 1 July 1996).

If there is no such publication, the amount of the percentage to be collected is established on the basis of a certificate of a leading bank at the location of the creditor, presented by the plaintiff as a proof to support the rate on short-term foreign currency loans applied by it.

At the hearing of 4 October 2006, the [Seller], which is located in Austria, while calculating the amount of interest used the available data of the London Interbank interest rate on loans (LIBOR), published on the official website of British Banking Association www.bba.org.uk, which is often used in the practice of international payments.

The Tribunal found that calculations of interest for the use of another's monetary funds, submitted by the [Seller], for the period from 2 March 2003 to 4 October 2006 (the date of decision) using the LIBOR rate effective on the date of filing a claim (28 February 2006) in the amount of 5.15% correspond to the requirements established by Art. 395(1) of the Civil Code of the RF. The [Seller] took the number of dates equal to 360 while making the calculations.

In calculating the amounts to be paid by the [Buyer], MKAC took into account the fact that the amount of the arbitration fee paid by the [Seller] covered the amount of the claim in full.

Given the above and following Art. 78 CISG and Art. 395 of the Civil Code of the RF, the MKAC ruled that the [Buyer] shall be obliged to pay in favor of the [Seller] interest for the use of another's monetary funds.

5.6 Payment of the arbitration fees

In accordance with Art. 6(2) of the Regulations on Arbitration Fees and Expenses, which are annexed to the Rules and Procedures of the MKAC, the Tribunal ruled to charge the arbitration fee to the [Buyer] in proportion to claims satisfied.


FOOTNOTES

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

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

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Pace Law School Institute of International Commercial Law - Last updated May 4, 2010
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