Russia 2 April 2007 Arbitration Court [Appellate Court] for the Volga-Vyatka Area
[Cite as: http://cisgw3.law.pace.edu/cases/070402r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: A43-21560/2004-27-724
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Croatian
BUYER'S COUNTRY: Russia
GOODS INVOLVED: Accumulator batteries
RUSSIAN FEDERATION: Volga-Vyatka Area Federal Arbitration Court
Case No. A43-21560/2004-27-724 of 2 April 2007
Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/113],
CLOUT abstract no. 1111
Reproduced with permission of UNCITRAL
A Croatian seller sued a Russian buyer, claiming payment of the price for goods supplied (accumulator batteries), interest on that sum and damages in respect of the buyer's failure to fulfil its obligations under the contract of sale (losses incurred through loans servicing, payment of a fine for infringements of Croatian foreign exchange legislation and the expenses of a visit to the Russian Federation).
The court granted the plaintiff's claims in part: it ordered the respondent to pay the moneys it owed for the unpaid goods, as well as interest and damages. When the court of appeal considered the case, it increased the amount of interest on the grounds that the court of first instance had incorrectly specified the applicable law, since the law of Croatia was applicable only in respect of issues not governed by CISG.
The buyer contested the court of appeal's decision before the court of cassation, asserting that the substantive law had been incorrectly applied in respect of the interest and damages awarded and proposing that, since interest had been awarded, the damages should be reduced. The respondent further stated that the provisions of CISG were discretionary in nature and should be applied in the light of the agreement between the parties, the provisions of the applicable domestic legislation (in this case, the law of Croatia) and prevailing business practices. Since CISG does not lay down principles governing the correlation between penalties such as damages and interest, the issue should be resolved under the applicable provisions of Croatian law. The lower courts had incorrectly applied articles 277 and 278 of the Croatian Obligations Act, since they had not taken into account the potential for setting off the interest awarded against the damages awarded to the plaintiff, and had decided to order the payment of interest on the moneys used by the respondent as well as damages.
The respondent also considered that the courts had incorrectly applied article 74 CISG, by assuming a causal relationship between the actions of the debtor and the losses suffered by the creditor, and articles 266 and 267 of the Croatian Obligations Act, which limits the debtor's liability for losses suffered by the creditor if the latter does not take reasonable measures to mitigate the loss. The plaintiff did not use the payments it had received from the respondent in respect of the goods to pay off its loans, so that the amount of the loans had not decreased.
The court of cassation upheld the decisions of the lower courts, on the following grounds. CISG is applicable in the case in question. In respect of those issues not governed by CISG, by virtue of article 1211 of the Civil Code of the Russian Federation as the subsidiary law governing the transaction, the applicable law is that of Croatia (the law of the country of the seller). The court rejected the principle, provided for in Croatian law, of deducting interest from any damages awarded, on the grounds that, under article 78 CISG, if a party fails to pay the price or any other sum that is in arrears the other party is entitled to interest on the sum in arrears without prejudice to any claim for damages recoverable under article 74 CISG.
The court decided that, under that provision, if the obligation to pay for the goods was not duly fulfilled, any amount of damages might be awarded in addition to interest. According to the view expressed in CISG, the charging of interest does not constitute a penalty and is not the same as damages: rather, it reimburses the creditor for the unjustified use by the debtor of moneys belonging to the creditor. In the application of CISG, the calculation of interest is based not on an attempt to compensate the creditor for its loss, but on the presumption of ownership by the creditor of the increased value of the money illegally retained by the debtor, which would have accrued to the creditor if the payment had been made on time. Accordingly, if the offence created specific losses for the creditor, the latter could claim compensation independently of the interest awarded. Article 78 CISG, in the court's opinion, clearly and comprehensively regulated the question of the correlation between damages and interest, so that there was no need for subsidiary application of Croatian law pursuant to article 7(2) CISG.
The respondent's claim that the plaintiff had not taken steps to mitigate the extent of its losses by paying off the increased interest on its loan agreements, as provided for in article 77 CISG, was not upheld by the court on the grounds that the respondent must inevitably have foreseen that the plaintiff would suffer a loss of that kind if the respondent did not pay for the supplied goods. The court agreed that the plaintiff had rightly used the payment made by the respondent in respect of the goods to pay off some of the interest, but not to pay off the loans themselves. The court also rejected the plaintiff's claim for compensation for the visit it had made, since the plaintiff had not established a causal link between those expenses and the respondent's breach of its contractual obligations.Go to Case Table of Contents
APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
7 [Interpretation of Convention]; 74 [Damages - General Rules for Measuring]; 77 [Mitigation of Damages]; 78A [Interest on delay in receiving price or any other sum in arrears]
7 [Interpretation of Convention];
74 [Damages - General Rules for Measuring];
77 [Mitigation of Damages];
78A [Interest on delay in receiving price or any other sum in arrears]
CITATIONS TO OTHER ABSTRACTS OF DECISION
CITATIONS TO TEXT OF DECISION
Original language (Russian): online database of court judgements <http://kad.arbitr.ru>
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents