Russia 29 December 2006 Arbitration proceeding 54/2006 (Equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/061229r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 54/2006
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Germany (claimant)
BUYER'S COUNTRY: Russian Federation (respondent)
GOODS INVOLVED: Equipment and spare parts
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:
53A [Obligations of the buyer: buyer's obligation to pay price of goods]; 74A [General rules for measuring damages: loss suffered as consequence of breach]; 78B [Rate of interest]
53A [Obligations of the buyer: buyer's obligation to pay price of goods];
74A [General rules for measuring damages: loss suffered as consequence of breach];
78B [Rate of interest]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1461&step=Abstract>
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. 47 [352-356]
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 Taking into account that the commercial enterprises of the parties of the disputed agreement are situated in States party to the Vienna Convention of 1980 (Germany and Russian Federation) this Convention is recognized as applicable to the parties' relations. The subsidiary law (German law) is determined taking into consideration the provisions of the Vienna Convention, the Russian Federation Law on International Commercial Arbitration and Article 1211 of the Civil Code of RF.
1.2 The [Seller] is entitled to recovery of the underpayment from the [Buyer] (of the Russian Federation) for goods that were delivered in accordance with the conditions of the contract and corresponding provisions of the Vienna Convention.
1.3 Taking into account the provisions of the German law, the claims of the [Seller] to satisfy its requirements to pay the costs of the replaced parts of the equipment for which a guarantee was provided by the [Seller] were denied as the damages caused by the non-returned defective parts of the equipment were not proved.
1.4 Claims of the [Seller] for interest payment from the [Buyer] for the use of monetary funds [Seller] was entitled to were satisfied taking into consideration the provisions of the Article 78 of the Vienna Convention with the determination of interest and the procedure of recovery of interest set in accordance with the provisions of German Civil Code (inasmuch as the Vienna Convention does not include corresponding guidelines on this issue).
2. FACTS AND PLEADINGS
The claim was lodged by the [Seller], a German firm, against the Respondent, a Russian organization (the [Buyer]) to recover the underpayment for equipment delivered under an international sales contract concluded by the parties on 1 July 2004. According to the contract's conditions, the [Buyer] was obliged to pay for the goods in two money transfers in terms determined by the contract. However, after the first payment which covered 60% of the cost of the goods, the [Buyer] did not make the second payment.
The [Seller] sought:
|-||Repayment of the debt by the [Buyer] together with interest payment for the use of another's monetary funds;
|-||Payment of the costs of parts that were replaced as a result of their being defective because of non-return of defective parts, with interest payment;
|-||Recovery of the expenses for the arbitration fee and [Seller]'s expenses for the protection of its interests with the help of legal representatives.|
The [Buyer] has not presented its statement of defense and its representatives did not participate in the Tribunal's session.
3. TRIBUNAL'S REASONING
The award of the Arbitration Court at the Moscow Chamber of Commerce and Industry contained the following basic points.
3.1 The competence of the Tribunal
Having considered the question of competence, the Tribunal established that, in accordance with Para. 12 of the contract of 1 July 2004, the parties determined that:
"All disputes that may originate from or in connection with the following contract shall be submitted for adjudication in the City of Moscow, at the Arbitration Court at the Moscow Chamber of Commerce and Industry (MKAC), in accordance with the Rules and Procedures of the Tribunal."
Pursuant to Article 2 of the Regulations of Commercial Arbitration at the MKAC, and Appendix 1 to the Russian Federation Law on International Commercial Arbitration, the Court of Commercial Arbitration at the MKAC is qualified to settle disputes arising from contractual and other kinds of civil relations which appear in connection with foreign trade or other international economic activities if at least one of the commercial enterprises is situated abroad.
In spite of inexactitude in the arbitration clause of the contract (which used the name of the Arbitration Court, whose successor is the MKAC), the Tribunal concluded that there is no doubt that the implied intent of the parties is the settlement of disputes arising from the contract by Commercial Arbitration at the MKAC.
Since the dispute originated from an external economic transaction, parties to which are situated in different States (Germany and the Russian Federation) and taking into account that the [Seller] registered its claim in the Court of Commercial Arbitration at the MKAC and that, from the [Buyer]'s side, there were no objections about the competence of the Tribunal, taking into consideration Art. 7 of the aforesaid Russian Federation Law on International Commercial Arbitration, the Tribunal ruled that it is competent to arbitrate this dispute.
3.2 Absence of the [Buyer]'s representatives
Having examined the question of the absence of the [Buyer]'s representatives, the Tribunal ascertained that the [Buyer] was sent the claim papers in July 2006 and that they were delivered on 4 August 2006. The [Buyer] was duly notified about the time and place of the hearing of the case. The timely notice of 23 October 2006 that the proceeding was scheduled for 7 December 2006 was sent to the [Buyer] in accordance with the provisions of Article 32(2) of the Rules of Procedure. The Tribunal received no motions from the [Buyer] concerning circumstances that might preclude the arbitration of the dispute.
Pursuant to Article 32(2) of the Rules of Procedure, non-appearance of a party which was duly informed about the time and place of the hearing of the case does not impede the proceedings in the case and passing of the award, assuming the non-appearing party did not submit in written form a motion for remand for good reasons. Since such a motion was not provided by the [Buyer] and the [Seller] insisted on the hearing of the case, the Tribunal found it possible to arbitrate the present dispute in the absence of the [Buyer]'s representative.
3.4 Applicable law
Turning to the issue of the applicable law, the Tribunal noted that the contract of 1 July 2004 contained no provision on the applicable substantive law for settlement of disputes arising from this contract.
Taking into account that commercial enterprises of the [Seller] and the [Buyer] are situated in States party to the Vienna Convention of 1980 (hereinafter "CISG") at the present time and were situated there as of the date of the contract, the Tribunal, pursuant to Article 1(1)(a) of the Convention, recognizes the CISG as applicable to the parties' relations.
Based on Article 7(2) of the CISG, Article 28 (1) of Russian Federation Law on International Commercial Arbitration, Article 26(1) of the Rules of the Tribunal, and Article 1211 of the Civil Code of RF, the Tribunal ruled that questions not covered by the Convention and which cannot be resolved in accordance with its general principles should be settled in accordance with the subsidiary statute, the norms of German civil law.
3.5 Recovery of the underpayment
Upon review of the [Seller]'s claims against the [Buyer] to recover the underpayment in Euros for the goods delivered, the Tribunal found the [Seller]'s claims reasonable and ruled that they should be so paid in full.
The materials of the case evidence the delivery of the goods together with spare parts (hereinafter referred to as the "goods") in accordance with the conditions of the contract of 1 July 2004. The goods were delivered on the terms CIP to place of destination (according to Incoterms 2000). Delivery was proved by the custom declaration for the goods and the international consignment note.
The price of the goods was only partially paid by the [Buyer]. The amount of underpayment was calculated by the [Seller] excluding payment already made by the [Buyer].
Taking into consideration the stated circumstances which were proved by the materials of the case and the fact that the [Buyer] did not object to the merits or to the amount of the claim, the Tribunal finds the [Seller]'s claim for the payment of the debt reasonable. Inasmuch as the [Seller] delivered the goods in accordance with the conditions of the contract, the [Buyer] is obliged to pay for the goods in accordance with Article 53 of the CISG and the [Seller] has a right to call for payment pursuant to Articles 61 and 62 of the CISG.
Taking into consideration the abovementioned, the Tribunal found the claim of the [Seller] for the payment of the debt reasonable and ruled that the [Seller]'s claim for such a payment should be sustained.
3.6 Payment for the replaced parts of the equipment
Upon review of the [Seller]'s claim for payment for parts of the equipment replaced by the [Seller], the Tribunal ruled that this claim cannot be sustained.
The [Seller] based this claim on [Buyer]'s non-return of the defective parts in spite of the direct request for this which was sent to [Buyer] by the [Seller]. The [Seller] states that non-return of the defective parts deprived the [Seller] of its chances to ask the manufacturer for a refund. Articles 346-348 of the German Civil Code (GCC) were recognized as the legal basis for such a claim. In response:
First, the [Seller] does not object that the replacement of the defective parts was performed as its obligation according to the contract guarantee. Pursuant to Article 443 of the GCC, the contract guarantee implies that the defect, which was discovered during the period of the guarantee, gives the [Buyer] grounds to realize his rights set out in the declaration of guarantee. Thus, lack of rights under the guarantee of the [Buyer] must be proved by the [Seller].
Second, pursuant to Article 439(4) of the GCC, if the seller supplies a part free of defects for the purpose of cure, he may demand the return of the defective part. Proceeding from the provisions of Article 74 of the CISG, [Buyer]'s non-execution of such a demand of the [Seller] does not deprive the [Seller] of the right to claim damages in amount proven by him. But the [Seller] did not produce any proof of its damages or their amount.
Third, as it follows from the [Buyer]'s claims which were presented by the [Seller], the [Buyer] discussed with the [Seller] the possibility of sending a specialist to repair the defective equipment. The [Seller] explained that it does not have any information about whether such a specialist was or was not sent. Meanwhile, there is no doubt that such a specialist must have determined the reasons for the defects discovered. If such defects were not covered by the guarantee of the [Seller], the [Seller] would have notified about that.
3.7 Payment of interest for the use of monetary funds
The [Seller]'s claim to recover annual interest should be sustained because of the following.
[Seller]'s right to ask for the recovery of annual interest arises from Article 78 of the CISG. Inasmuch as the main indebtedness is proved, the [Seller] has the right to interest payment on the stated amount. Taking into the consideration that during the arbitration the [Seller] gave up the claim of interest recovery for the period from 1 August 2004 until 11 December 2004, the right for the [Seller] to ask for the payment for the main indebtedness appeared from 11 December 2004. The Tribunal finds it reasonable to sustain the [Seller]'s claims for the recovery of annual interest only for the period from 11 December 2004 until 16 June 2006.
Since Article 78 of the CISG does not determine the rate of interest or the procedure for its recovery, pursuant to Article 7(2) of the Convention, the Tribunal turns to the subsidiary law, i.e., the German Commercial Code (GCC).
Pursuant to Article 288 of the GCC, in the case of legal transactions to which a consumer is not a party, the rate of interest for claims for payment is eight percentage points above the basic rate of interest. Taking into consideration that the parties are commercial enterprises, this provision of the GCC is applicable to this dispute. The process of calculation of the basic rate of interest is established by 247 of the GCC. The calculations given by the [Seller] comply with the provisions of Articles 247 and 288 of the GCC. To confirm the effective basic rate of interest established by the Deutsche Bundesbank, the [Seller] provided corresponding information. The [Buyer] did not dispute the calculations of the amount of payment for the annual interest.
The Tribunal concludes that the [Seller]'s claim to recover annual interest is reasonable and should be sustained and that the interest should be paid on the amount of the main indebtedness. Interest on the costs of re-delivered parts of the equipment is not sustained.
3.8 Payment for expenses for the legal protection of [Seller]'s interests
Resolving the question of [Seller]'s claims to oblige the [Buyer] to pay for [Seller]'s expenses for the protection of its interests with the help of legal representatives in accordance with the Article 8 of the of the Regulations on Arbitration Fees and Expenses, the Tribunal, taking into account the quantity of the evidence and the complexity of the case, found it appropriate to sustain the [Seller]'s claims in the amount claimed, which is recognized as reasonable.
3.9 Recovery of the expenses for the payment of the arbitration fee
Pursuant to Article 6(2) of the Regulations on Arbitration Fees and expenses, the arbitration fees and expenses must be paid by the [Buyer] in proportion to the claims sustained.
* All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Germany is referred to as [Seller] and Respondent of Russia is referred to as [Buyer].
** Andriy Kril, student at National University "Kyiv-Mohyla Academy", trainee at the law firm Kushnir, Yakymyak and Partners Attorneys & Counselors at Law, Kyiv, Ukraine.Go to Case Table of Contents