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CISG CASE PRESENTATION

Serbia 1 October 2007 Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce (Timber case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/071001sb.html]

Primary source(s) of information for case presentation: Text of award

Case Table of Contents


Case identification

DATE OF DECISION: 20071001 (1 October 2007)

JURISDICTION: Arbitration ; Serbia

TRIBUNAL: Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: T-8/06

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Romania (respondent)

BUYER'S COUNTRY: Serbia (claimant)

GOODS INVOLVED: Timber (poplar)


Classification of issues present

APPLICATION OF CISG: Yes [Article 1(1)(a)]

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 25 ; 26 ; 49 ; 74 ; 76 ; 78 ; 79 ; 81 ; 84

Classification of issues using UNCITRAL classification code numbers:

8C [Intent of party making statement or other conduct: interpretation in light of surrounding circumstances];

25B [Definition of fundamental breach];

26A1 [Effective declaration of avoidance: notice to the other party required];

49A [Buyer's right to avoid contract (grounds for avoidance): fundamental breach];

74A ;74A1; 74B [General rules for measuring damages: loss suffered as a consequence of breach; Includes loss of profit; Outer limits of damages: foreeseability of loss];

76A ; 76B [Avoidance without purchase or resale; Damages recoverable];

78A ;78B [Interest on delay in receiving price or any other sum in arrears; Rate of interest;

79E [Impediment excusing party from liability for damages: timely notice of impediment required];

81C [Effect of avoidance on obligations: restitution by each party of benefits received];

84A [Seller bound to refund price must pay interest]

Descriptors: Intent ; Fundamental Breach ; Avoidance ; Damages ; Interest ; Restitution ; Unjust enrichment ; 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 (Serbian): Click here for case text

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Serbian: [2008] Vladimir Pavić, Milena Djordjević, Primena Becke konvencije u arbitraznoj praksi Spoljnotrgovinske arbitraže pri Privrednoj komori Srbije, Pravo i privreda br. 5-8/2008, cited at pp. 580, 586, 587, 589, 605, 606, 608, 612

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Case text (English translation)

Queen Mary Case Translation Programme

Foreign Trade Court of Arbitration
attached to the Serbian Chamber of Commerce in Belgrade

Award of 1 October 2007 [Proceedings No. T-8/06]

Translation [*] by Ugljesa Grusić, LL.M.
Edited by Dr. Vladimir Pavić, Milena Djordjević, LL.M. [**]

Claimant of Serbia [Buyer] v. Respondent of Romania [Seller]

The Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce in Belgrade [the Arbitral Tribunal], composed of [...], in a dispute concerning the claim of the [Buyer] against the [Seller] for payment of EUR 100,000, upon having conducted the arbitration proceedings and hearing of 1 October 2007, pursuant to Articles 37 paragraph 6, 47 and 49 of the Rules of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce (hereinafter the Rules), makes the following

AWARD

  1. [Buyer]'s original claim for the amount of EUR 124,557,18 is considered withdrawn.

  2. [Buyer]'s substitute claim is partially granted and the [Seller] is ordered to pay to [Buyer], within fifteen days from the day of receipt of the Award:

    a)    the amount of EUR 15,000.00 as restitution of the advance payment;
    b)    the amounts of EUR 7,662.10 and EUR 2,948.62 as compensation
           for the direct damage suffered by the [Buyer] due to non-performance
           of the contract by the [Seller]; and
    c)    the amount of EUR 1,464.12 as compensation for the [Buyer]'s loss
           of profit.

  3. [Buyer]'s substitute claim is partially refused as ungrounded:

    a)    in the amount of EUR 3,848.96, claimed as direct damage; and
    b)    in the amount EUR 69,076.20 with interest, claimed as loss of profit.

  4. [Seller] is ordered to pay to the [Buyer] interest at the rate of 3.5% annually on the amounts awarded in paragraph II of the operative part of this Award, as of 10 April 2008 until the moment of payment, within fifteen days from the day of receipt of the Award.

  5. [Seller] is ordered to pay to the [Buyer] the amount of EUR 1,884.23 as compensation of registration fee, arbitration costs and costs of representation (attorneys' fees), within fifteen days from the day of receipt of the Award.

STATEMENT OF REASONS

I. JURISDICTION

      1. The [Buyer] submitted a Statement of Claim to the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce in Belgrade (received by the Arbitration Tribunal on 10 April 2006), in which the [Buyer] stated that the parties had provided for the jurisdiction of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce for settlement of disputes in Article VII of their Sales Contract of 27 June 2002.

      2.  2.1. The Arbitral Tribunal determined that Article VII paragraph 1 of the Sales Contract of 27 June 2002, from which the present dispute arose, contains, in addition to an arbitration clause, a prorogation clause ("the competent court at the place where the buyer has its seat"). The Tribunal found that the wording of the mentioned clause leaves the [Buyer] with an option of either commencing arbitration proceedings or court proceedings for resolution of disputes. The Tribunal also concluded that the Contract, in which this provision is found, contains an arbitration clause, and that the [Buyer] decided to choose arbitration for settlement of the dispute, which is an option provided by the Contract.

            2.2. The Tribunal particularly deliberated upon a part of the wording used in Article VII paragraph 1, which provides for the possibility of excluding disputes from the jurisdiction of a court. The parties formulated this option by providing for the possibility of having disputes settled "before the Yugoslav Chamber of Commerce." The Yugoslav Chamber of Commerce was an institution under whose auspices the Foreign Trade Court of Arbitration was organized and was operating at the time of conclusion of the contract. It is generally accepted in the arbitration practice of that Foreign Trade Court of Arbitration that an agreement providing for jurisdiction of the "Yugoslav Chamber of Commerce" for settlement of disputes arising from business relations having a subjective foreign element is deemed adequate for establishing the jurisdiction of this Arbitration. In other words, such a formulation is treated as a clear indication that the parties intended to have their disputes settled by the Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce.

            2.3. Article 3 of the Law on Abrogation of the Law on Yugoslav Chamber of Commerce (Official Gazette of the Republic of Serbia 55/2003), which came into force on 5 June 2003, prescribes that the Foreign Trade Court of Arbitration attached to the Yugoslav Chamber of Commerce continues operating, in the existing composition, and under the same organization and conditions, fully autonomous and independent, within the framework of the Serbian Chamber of Commerce, and that all disputes are to be settled by applying the existing arbitration rules. Therefore, this Award is made by the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce, by applying the Rules of this institution. The will of the parties to have the disputes between them settled by arbitration, and by the institutional arbitration they have chosen, is fully upheld. Namely, the mentioned provisions of the Law on Abrogation of the Law on Yugoslav Chamber of Commerce prescribe that the Arbitration, which was chosen by the parties, has only changed the institution under whose auspices it is formally organized. However, its status, organization, nature, independence, and all other characteristics it had before this change, are fully preserved. Hence, the arbitration stipulated by the parties and the Arbitration that made this Award are identical.

            2.4. Moreover, the [Seller] has not challenged the jurisdiction of the Serbian Arbitration Tribunal for settlement of the dispute during its communication with the Arbitration Tribunal.

      3. For the mentioned reasons, the Arbitral Tribunal finds that the Sales Contract of 27 June 2002, from which the present dispute arose, contains a valid arbitration agreement, and that this agreement envisages the jurisdiction of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce.

II. APPOINTMENT OF ARBITRATORS

[...]

III. APPLICABLE LAW

      1.   1.1. The Tribunal found that the parties failed to make an express choice of law to govern their contractual relationship.

            1.2. In its Statement of Claim, the [Buyer] requested the application of the substantive law of Serbia in the present dispute. The [Buyer] based this request on the fact that the parties had agreed in the sales contract upon the jurisdiction of Serbian courts, as one of the two methods of dispute resolution.

      2.  2.1. Concerning the [Buyer]'s request to have the substantive law of Serbia applied in the present dispute, the Arbitral Tribunal is aware that the Rules provide that, in the absence of the parties' agreement on the applicable law, the arbitrators shall apply the law determined by the conflict of laws rules they consider to be most appropriate in the case at hand (Article 48 paragraph 2), and that Article 50 paragraph 3 of the Serbian Law on Arbitration prescribes that the arbitral tribunal shall determine the applicable law, if the parties failed to do so, by applying the conflict of laws rules it deems most appropriate. By using the power conferred upon it, the Arbitral Tribunal decided to apply conflict of laws rules contained in the Serbian Law on Resolution of Conflict of Laws with Provisions of Other Countries for determining the applicable law for issues which are not regulated by the Vienna Convention (see paragraph 2.2.). Pursuant to Article 20 of this Law, if the parties fail to make an express choice of law, their contractual relation is governed by the law to which the particular circumstances of the case point (the most closely connected law). In the case at hand, several particular circumstances of the case (the contract was drafted in the Serbian language, the seat of the buyer is in Serbia, the place of performance of the contract is in Serbia, the contract provides for non-exclusive jurisdiction of Serbian courts) point to the application of the Serbian substantive law.

            2.2. The Arbitral Tribunal acknowledges that the United Nations Convention on Contract for the International Sale of Goods ("Vienna Convention") should be primarily applied to this case of international sale of goods. The data on the United Nations Commission for International Trade Law (UNCITRAL), available at <http://www.uncitral.org/uncitral/en/uncitral_texts/sale_goods/1980CISG_status.html>, show that the Vienna Convention came into force in Romania on 1 June 1992, and in Serbia on 27 April 1992. Pursuant to the provisions of Article 1 paragraph 1(a) and (b) of the Convention, which determine its sphere of application, the Convention applies to contracts of sale of goods between parties whose seats are in different Contracting States, or when the conflict of laws rules lead to the application of the law of a Contracting State. Both conditions for application of the Vienna Convention are met in the case at hand.

IV. ARBITRATION PROCEEDINGS AND THE HEARING

      1. The [Seller] did not submit an Answer to the [Buyer]'s Statement of Claim, nor has the [Seller] commented on the appointment of arbitrators, even though the Statement of Claim with a request to reply to it, the Amendment to the Statement of Claim, and the notice on appointment of arbitrators were properly delivered to the [Seller] (the Arbitral Tribunal determined these facts by inspecting the report of the courier service, and on the basis of the fact that the [Seller] had sent certain documents, which were received by the Arbitration Tribunal on 23 June 2006).

      2.  2.1. The Secretariat of the Foreign Trade Court of Arbitration sent the notice of hearing, scheduled for 1 October 2007, by DHL on 3 September 2007. The [Buyer] received the notice properly, and the report of the courier service of 13 September 2007 shows that the notice was not delivered to [Seller], because the addressee was not present at the address stated in the sales contract, i.e., at the address at which he had received the Statement of Claim and other documents previously sent by the Arbitration.

            2.2. The Arbitral Tribunal, however, found that the notice of hearing was also properly delivered to the [Seller]. Pursuant to Article 34 paragraph 3 of the Rules and Article 41 paragraphs 2 and 3 of the Serbian Law on Arbitration, the delivery is to be made to the addressee's last known address, which is the address stated in the arbitration agreement. The notice of hearing was sent to the [Seller] to this address. Since the [Seller] had previously received documents sent by the Arbitration to the address stated in the sales contract (which also contains the arbitration clause), and had not notified the Arbitration Tribunal about the change of address, the Tribunal determined that the notice of hearing was duly delivered to the [Seller].

      3. Only the representative of the [Buyer] was present at the hearing of 1 October 2007. After having determined that the Secretariat of the Arbitration had properly delivered the notice of hearing to the [Seller] (see paragraph 2 of this part of the Statement of Reasons of the Award), the Tribunal decided to conduct the hearing in the absence of the [Seller], in accordance with Article 34 paragraph 7 of the Rules (which enables the conduct of proceedings in the absence of properly notified parties). In reaching this decision, the Tribunal had in mind its duty to make sure that the proceedings are not unnecessarily delayed (Article 36 paragraph 2 of the Rules), and the fact that the conduct of the [Seller] indicated that the [Seller] would not have made an appearance even if another notice of hearing had been sent.

      4. The Arbitral Tribunal conducted the evidentiary proceedings at the hearing. The Tribunal examined the arguments and evidence presented by the [Buyer] in support of its claims having in mind possible defenses of the [Seller], but only within the limits of the rules on the burden of proof, and without examining such substantive objections as the [Seller] might have raised.

V. POSITION OF THE PARTIES

      1.  1.1. In the Statement of Claim received by the Arbitration on 10 April 2006, in other written submissions (received by the Arbitration on 24 May and 25 October 2006), and in its oral presentation, the [Buyer] stated that:

(i) On 27 June 2002, the [Buyer] concluded with the [Seller], a Contract for the purchase of goods -- timber made from Canadian poplar -- pursuant to which the [Seller] contracted to sell to the [Buyer] a total quantity of 10,000 m3 of timber, by delivering 1,500 m3 of timber each month, within fifteen days from the date of advance payment for the first installment, and within ten days from the date of advance payment for other installments;

(ii) The mentioned monthly advance payment was set at 30% of the value of each individual installment, and the [Buyer] was to pay the remaining 70% upon receipt of each monthly installment;

(iii) The price was set at EUR 32.5 per m3 fco Kovin-Dunavac, Yugoslavia, CIF É [city in Serbia;

(iv) The Contract provided that, in case of vis maior, the [Seller] was obliged to notify the [Buyer] of this fact and to present the relevant evidence within twenty-four hours from the date of the occurrence of the event representing vis maior;

(v) On 31 July 2002, the [Seller] and [Shipping company N] had agreed to transport the logs of poplar from K [city in Romania] to S [city in Serbia] in an uncovered vessel during the period between 5 and 30 August 2002;

(vi) The [Buyer] had duly made the advance payment in the amount of EUR 15,000.00, but the [Seller] failed to make the delivery of the goods as required by the Contract;

(vii) The [Buyer] had contacted the Ministry of Internal Affairs -- County Police Inspectorate -- regarding this non-performance of the contract on the part of the [Seller], but this had no influence on the [Seller];

(viii) In addition to not delivering the goods as required by the contract, the [Seller] did not return the advance payment of EUR 15,000.00;

(ix) The Sales Contract that had been concluded with the [Seller] was avoided;

(x) The [Seller] caused damage to the [Buyer] by not performing his obligation, namely:

      (a) The total interest and the cost of obtaining a loan under the loan contract that the [Buyer] had concluded with a bank on 21 June 2002, for the purpose of securing funds for making payment under the Sales Contract concluded with the [Seller], and which loan the [Buyer] had repaid on 1 February 2004;

      (b) Loss of profit, which the [Buyer] calculated on the basis of the contract of sale of poplar planks, which the [Buyer] had concluded with [a third party] before conclusion of the Sales Contract with the [Seller] (under which the [Buyer] contracted to sell 40 m3 of poplar planks for EUR 125 per m3, with production costs being calculated pursuant to a ratio that 1.875 m3 of poplar is required to produce 1 m3 of planks); and

      (c) Costs that the [Buyer] had in relation to the performance of the sales contract concluded with the [Seller] --- costs of business trips to Romania (daily allowances and costs of transportation).

            1.2.  1.2.1. In its Statement of Claim, the [Buyer] requested the Tribunal to order the [Seller] to pay a total amount of EUR 224,557.18, as follows:

The [Buyer] based these claims, arising from both unjust enrichment and responsibility ex delicto, on the relevant provisions of the Serbian Law on Contracts and Torts.

                     1.2.2. In a written submission received by the Arbitration Tribunal on 24 May 2006, the [Buyer] amended its claim to reduce the total amount claimed (the amount stated in the previous paragraph 1.2.1.) from EUR 224,557.18 to EUR 100,000.00. The [Buyer] also reduced the amount claimed as loss of profit from EUR 195,097.50 to EUR 70,540.32, whereas all the other claimed amounts were left unamended.

            1.3. In its Statement of Claim, the [Buyer] also requested default interest on the amount of the main debt, at the domiciliary interest rate, as of the date of submitting the Statement of Claim until the moment of payment.

            1.4. The [Buyer] further requested that it be compensated for costs of the proceedings (amounts paid to the Arbitration Tribunal, costs of representation calculated in accordance with the Lawyer's Tariff).

            1.5. In support of its claims, the [Buyer] submitted the following evidence in photocopy along with its Statement of Claim and other written documents:

   -    Sales Contract of 27 June 2002 (number 941 in [Buyer]'s records);
   -    Loan contract in foreign exchange (loan sub-account 26119/6545-3-00098) of 21 June 2002 concluded between the [Buyer] and [a bank];
   -    Resale contract of 24 June 2002, concluded between the [Buyer] and [a third party];
   -    [Expert]'s report of 3 April 2006, travel orders and evidence of travel expenses to Romania made by [Buyer]'s employees in connection with the conclusion and performance of the sales contract;
   -    Transportation contract of 31 July 2002, translated from Romanian into Serbian;
   -    [Buyer]'s letter of 21 August 2002, translated from Romanian into Serbian;
   -    Export permit of 31 December 2002, translated from Romanian into Serbian;
   -    Excerpt from the business registry for the [Seller] of 27 May 2001, translated from Romanian into Serbian;
   -    [Seller]'s letter to the [Buyer] of 13 October 2002, translated from Romanian into Serbian;
   -    List of [Seller]'s employees, translated from Romanian into Serbian;
   -    An undated letter sent by fax by the [Seller] (on setting up of a barge for loading of the goods on 3 August 2002), translated from Romanian into Serbian;
   -    Letter from the Romanian Ministry of Internal Affairs -- County Police Inspectorate in B. -- to the [Buyer] of 26 November 2002, translated from Romanian into Serbian;
   -    Letter from the Ministry of Public Information of Romania sent to the County Police Inspectorate in B. of 18 November 2002, translated from Romanian into Serbian;
   -    Letter sent by fax by the [Seller] to the [Buyer] on 3 March 2003, translated from Romanian into Serbian;
   -    Excerpt from the [Buyer]'s bank account of 3 July 2002, an order of transfer of money abroad given to [a bank] on 3 July 2002.

[...]

      2.  2.1. After having received the request to submit an Answer to the [Buyer]'s Statement of Claim, the [Seller] sent certain documents in the Romanian language, without translating them into Serbian (received by the Arbitration on 23 June 2006). The [Seller] did not make any comments regarding the documents it had sent to the Arbitration Tribunal, nor did the [Seller] address the claims set out in the Statement of Claim.

            2.2. On 25 October 2006, the [Buyer] submitted to the Arbitration a translation into Serbian of the documents sent by the [Seller]: these documents consisted of a contract on transfer of stake in the [Seller], a decision of the court in B. of 1 June 2005, and a statement on trader's honor.

VI. REASONS FOR THE AWARD

      1. While deliberating on the merits of the dispute at the hearing of 1 October 2007, the Arbitral Tribunal read all the written evidence presented by the parties (enumerated in Part V, above).

      2. The Arbitral Tribunal did not accept the legal basis on which the [Buyer] based its claims (since not being legally bound by the legal qualifications of the [Buyer]), but has ruled upon the justification of the claims by applying the provisions of the Vienna Convention, which prevails over provisions of the internal law of Serbia pursuant to Article 194 of the Constitution of the Republic of Serbia.

      3. 3.1. In the written submission received by the Arbitration Tribunal on 24 May 2006, the [Buyer] reduced the claimed amount for EUR 124,557.18, declaring that this should reduce the arbitration costs.

            3.2. Having in mind the [Buyer]'s justification for reducing the claimed amount, the Arbitral Tribunal found that Article 57 paragraph 5 of the Rules is to be applied. Pursuant to this provision, if a party fails to pay the costs within two months from the date of the invitation to do so, it shall be deemed that his claim has been withdrawn. Hence, the Tribunal made the decision as stated in paragraph I of the operative part of this Award.

      4.  4.1. The Arbitral Tribunal found that the [Buyer]'s request for restitution of the advance payment in the amount of EUR 15,000.00 is justified, and made the decision as stated in paragraph II (a) of the operative part of the Award.

            4.2.  4.2.1. Pursuant to Article 81(2) of the Vienna Convention, a party who has performed the contract may, after the avoidance of the contract, claim restitution from the other party of whatever it has paid under the contract.

                     4.2.2. The Arbitral Tribunal determined that it is an undisputed fact that the [Buyer], under the Contract for the sale of timber, made the advance payment of EUR 15.000,00 to the [Seller] for the first monthly delivery of timber, and that the [Buyer] has never returned that amount.

                     4.2.3. The Arbitral Tribunal found that the [Seller], by not performing the first delivery of timber, committed, in relation to that delivery, a fundamental breach of the sales contract within the meaning of Article 25 of the Vienna Convention. [Seller]'s assertions, set out in the letter sent to the [Buyer] on 13 October 2002, justifying its non-performance of the loading of the first consignment and its transportation by occurrence of "the situation that represents vis maior" and "the oscillation in the level of the water mark," cannot release the [Seller] from the liability for non-performance. This conclusion is supported by the fact that the situation described by the [Seller] in its letter as an obstacle to the performance of the contractual obligation does not prima facie meet the conditions regarding the notice set out in Article 79 of the Vienna Convention and Article VII (vis maior) of the Sales Contract of 27 June 2002. Consequently, the [Seller] was only entitled to request modification or termination of the contract, and not to disregard the contract and keep the advance payment received by the [Buyer].

            4.3.  4.3.1. Pursuant to Article 26 of the Vienna Convention, a contract for sale of goods can be avoided by a declaration of avoidance sent to the other party. This declaration can be made not only expressly, but also tacitly (for example when the buyer sends a request to the seller to have the price returned, etc.). It is essential that the seller is clearly informed about the buyer's intention of not wanting to be bound any longer by the contract for the sale of goods, which the seller has breached. In the case at hand, the [Buyer] attempted to pressure the [Seller] to have the advance payment returned by, among other things, contacting the Romanian Ministry of Internal Affairs and the Romanian Ministry of Public Information. It is the Arbitral Tribunal's opinion that this represents a clear sign that the [Buyer] considered the contract avoided.

                     4.3.2. According to arbitral and judicial practice concerning the interpretation of Article 26 (and which should be taken into consideration pursuant to Article 7(1) of the Convention), express avoidance of the contract can also be made in the statement of claim concerning that contract (on condition that it is duly delivered to the other party). In the case at hand, the [Buyer] expressly stated in its Statement of Claim that it deemed the contract for the sale of goods avoided, by using wording which, in the opinion of the Arbitral Tribunal, unambiguously expressed the [Buyer]'s intention not to be bound by the contract any longer.

                     4.3.3. If one examines the correspondence between the parties, one can conclude that, after the non-performance of the first delivery, the parties have negotiated on the subsequent performance. However, these negotiations were to no avail. It was obvious from the beginning, and in accordance with Article 8 of the Vienna Convention, that the [Seller] had no intention of performing any (not the first, nor the subsequent) deliveries under the sales contract).

      5.  5.1. The Arbitral Tribunal found that the request for compensation of the direct damage is partially founded: (a) in the amount of EUR 7,662.10 for costs of business trips to Romania (including the costs of transportation), and (b) in the amount of EUR 2,948.62 for interest paid on the amount of EUR 15,000.00 as of 3 July 2002 (date of advance payment) until 1 February 2004 (date of repayment of the loan to the bank), and made the decision recited in paragraph II (b) of the operative part of the Award.

            5.2. Pursuant to Article 81(1) of the Vienna Convention, avoidance of the contract for the international sale of goods releases both parties from their obligations under it, subject to any damages which may be due, and obliges the parties to make restitution of the amounts received under the contract. The damages encompass (in addition to the compensation of loss of profit) compensation of any direct damage suffered by a party from the breach of the contract by the other party, which that other party foresaw or ought to have foreseen at the time of conclusion of the contract, in the light of the facts and matters of which he then knew of ought to have known, as a possible consequence of the breach of the contract (Article 74 of the Vienna Convention).

            5.3.  5.3.1. The Arbitral Tribunal recognized as direct damage suffered by the [Buyer] the costs of daily allowances and transportation that the [Buyer] incurred in relation to the business visits to the [Seller] in Romania (in the amount of EUR 7,662.10), since the [Seller] ought to have foreseen, at the moment of conclusion of the sales contract, the possibility, common in business practice, that the [Buyer] would attempt to negotiate with him the subsequent performance of the contract in case of non-performance of the delivery under it. This conclusion is especially justified having in mind that the correspondence between the parties indicates that the [Seller] had suggested to the [Buyer] that he would subsequently perform the first delivery.

                     5.3.2. The Arbitral Tribunal accepted the evidence on the amount of expenses presented by the [Buyer], and the opinion of the expert, employed by the [Buyer], which confirmed the amount of these expenses.

            5.4.  5.4.1. Furthermore, the Arbitral Tribunal found that the [Seller] at the time of conclusion of the contract could have presumed that the [Buyer] would obtain a loan from a bank for securing the necessary funds for the advance payment under the sales contract, since it is a well known and established business practice that companies secure necessary funds by lending money from banks. Therefore, in accordance with Article 74 of the Vienna Convention, the Arbitral Tribunal found that the [Seller], at the time of conclusion of the contract for the sale of timber, ought to have known that the [Buyer] could make the payment under the sales contract from the funds secured by obtaining a loan from a bank. Hence, the [Seller] ought to have foreseen that the [Buyer] would suffer damage in the amount equal to the interest on the amount borrowed from the bank, from the moment on which the advance payment has been made until the repayment of the loan. Consequently, [Seller] is obliged to compensate the [Buyer] for the damage suffered.

                     5.4.2. By inspecting the loan agreement that the [Buyer] had concluded with the [Bank], the Arbitral Tribunal found that the [Buyer] was to pay interest under that contract at the rate of 12% annually on the amount granted for making the advance payment, and made the decision on compensation of the direct damage by applying the interest rate actually paid. Therefore, the Arbitral Tribunal granted the [Buyer]'s claim for compensation of direct damage in the amount of the interest paid on the amount the [Buyer] had borrowed from the bank to make the advance payment to the [Seller], as of the date of making the advance payment (3 July 2002) until the date of repayment of the loan (1 February 2004) at the rate of 12% annually, which was stipulated in the loan contract (EUR 2,948.62).

      6.  6.1. The Arbitral Tribunal found that the [Buyer]'s request for compensation of loss of profit is partially justified in the amount of EUR 1,464.12, and made the decision recited in paragraph II (c) of the operative part of the Award.

            6.2. The Arbitral Tribunal found that the [Seller] could have foreseen that the [Buyer] was purchasing the poplars for the purpose of their processing and reselling, and that the [Buyer] had contracted for the resale of the quantity for which the advance payment was made. Therefore, the condition of foreseeability for awarding damages pursuant to Article 74 of the Vienna Convention is met.

            6.3. The Tribunal determined that the [Buyer] had concluded a contract for the sale of poplar planks with [Company C] some time before concluding the contract with the [Seller], and decided to grant the [Buyer]'s request for compensation of loss of profit only in relation to the quantity of timber related to that contract. The Tribunal accepted the costs of production and normative for production of planks from poplar (i.e., that 1.875 m3 of poplar timber is required to produce 1 m3 of planks), and the calculation of the amount of profit to be gained by selling the planks, which was used by the expert in her opinion submitted along with the Statement of Claim. The Tribunal applied the elements that the expert had used in calculating the loss of profit, to the essential elements of the contract concluded between the [Buyer] and [Company C] (quantity of 40 m3 of planks, the price of EUR 125 per m3) and calculated the amount of loss of profit to be awarded to the [Buyer].

      7.  7.1. The Arbitral Tribunal found that the [Buyer]'s request for compensation of direct damage in the amount of interest from the date of repayment of the loan until 31 March 2006, as the day of calculation of interest (EUR 3.900,00) is unfounded, and made the decision recited in paragraph III (a) of the operative part of the Award.

            7.2. Having examined the evidence presented by the [Buyer], the Tribunal determined that the interest on the borrowed amount was not running after the date of repayment of the loan (1 February 2004) until 31 March 2006 (being the calculation date used by the expert in her opinion). Therefore, the Tribunal refused [Buyer]'s claim for compensation of direct damage on this ground, because only the interest actually paid to the bank could be recognized as direct damage.

      8.  8.1. The Tribunal found that the [Buyer]'s claim for compensation of loss of profit in the amount of EUR 69,076.20, being the difference between the claimed amount on this ground (EUR 70,540.32) and the amount of EUR 1.464,12, granted as compensation for loss of profit recited in paragraph II (c) of the operative part of the Award, is unfounded.

            8.2. The Arbitral Tribunal determined that the loss of profit calculated by the [Buyer] as presumed profit which [Buyer] would have acquired after selling [planks produced] from all six installments does not meet the condition of foreseeability for compensation of damage, set out in Article 74 of the Vienna Convention. Namely, the Tribunal found that the [Seller] at the time of conclusion of the sales contract could not have foreseen, nor were there any circumstances which would cause the [Seller] to foresee, that the [Buyer], as as a reseller, had concluded a contract of sale of the timber for the total quantity of 10,000 m3 of poplar. This conclusion is supported by the provisions of the Sales Contract, which provides for several deliveries, with each delivery being triggered by the [Buyer] by making the advance payment for the respective delivery. This indicates that at the time of the conclusion of the sales contract the whole quantity of poplar could not have been envisaged for processing and reselling to specific subsequent buyers. The [Buyer] only proved that it had contracted to sell 40 m3 of timber (a minimal quantity even in respect of the first delivery of 1.538 m3 of poplar), thereby not meeting the condition for awarding loss of profit.

            8.3. For the abovementioned reasons, the Arbitral Tribunal made the decision recited in paragraph III (b) of the operative part of the Award.

      9.  9.1. The Arbitral Tribunal found that the [Buyer]'s claim for payment of default interest at the domiciliary interest rate on the claimed amounts is well founded (see paragraph IV of the operative part of the Award).

            9.2. The Arbitral Tribunal reached the decision on awarding default interest by applying Article 78 of the Vienna Convention, which stipulates that a party that fails to pay the price or any other sum that is in arrears is obliged to pay interest on that amount. Also, in reaching its decision, the Tribunal applied Article 278 of the Serbian Law on Contracts and Torts, which provides that a creditor is entitled to default interest regardless of any damage that he may have suffered as a consequence of debtor's failure to make payment, and Article 279 paragraph 2 of this Law, which prescribes that the default interest can be claimed as of the moment of initiating proceedings.

            9.3. The Vienna Convention does not prescribe the interest rate at which the interest is to be calculated. The Serbian law also does not prescribe interest rate for debts in foreign currency, but it is an established arbitral and judicial practice to award interest at the domiciliary rate of the relevant foreign currency.

            9.4. The Arbitral Tribunal found that the domiciliary interest rate for EUR can be presumed to be the interest rate which the European Central Bank pays on deposits that it receives from its clients. The European Central Bank publishes these interest rates in its Statistical Bulletin, and on the Reuters information system. EURIBOR interest rate can also be used as the domiciliary interest rate for EUR. This interbank interest rate for EUR deposits is published by the Banking Federation of the EU on the Reuters information system. The Arbitral Tribunal inspected the data on these two interest rates and found them identical.

            9.5. The Arbitral Tribunal adhered to the established practice of the Foreign Trade Court of Arbitration to award interest by precisely determining the relevant domiciliary interest rate. After having inspected information on the interest rate published by the European Central Bank and the Banking Federation of the EU, the Tribunal determined that the average interest rate in the period to which the part of the claim expressed in EUR relates was 3.5% annually. Therefore, the Tribunal awarded interest at this rate on the awarded amounts.

      10.  10.1. The Arbitral Tribunal determined that the [Buyer] paid to the Arbitration RSD 14,279.00 for registration fee, RSD 285,520.63 for arbitration costs, which amounts to total of RSD 299,799.63.

            10.2. In awarding arbitration costs, the Arbitral Tribunal had in mind the outcome of the dispute. Having in mind that the [Buyer] was awarded 27.07% of the claimed amount, the Tribunal decided to order [Seller] to pay to the [Buyer] 27.07% of the arbitration costs the [Buyer] had incurred. This percentage of the whole amount of RSD 299,799.63 equals RSD 81,155.76.

            10.3. The Arbitral Tribunal established that the costs of [Buyer]'s representation in the arbitration proceedings according to the Tariff of the Serbian Bar Association (three times RSD 22,500.00 for two written submissions and one representation at the hearing). The Arbitral Tribunal accepted to award [Buyer] full compensation of this amount, because the amount of these expenses would have been the same had the [Buyer] fully succeeded with its claim (the fact that the claim was partly refused did not influence the amount of the representation costs).

            10.4. The Tribunal converted the total amount of the awarded costs of RSD 148,655.76 (RSD 81,155.76 under paragraph 10.2. plus RSD 67.500,00 under paragraph 10.3.) into EUR by applying the middle exchange rate in Belgrade at the day that this Award was made (1 EUR = RSD 78.8946), which amounts to EUR 1,884.23, which is awarded in paragraph V of the operative part of the Award.

VII. FINALITY OF THE AWARD

      1. Pursuant to Article 64 of the Serbian Law on Arbitration (Official Gazette of the republic of Serbia 46/2006) and Article 56 paragraph 1 of the Rules of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce, this Award is final and is not subject to appeal. It has the force of a final decision of a Court of the Republic of Serbia.

In Belgrade, 1 October 2007

Arbitral Tribunal
[Signed]


FOOTNOTES

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

** Ugljesa Grusić, LL.M. (U. of Nottingham) is a Doctorate student at the University of Belgrade Faculty of Law. Dr. Vladimir Pavić is an Assistant Professor in Private International Law and Arbitration, and Milena Djordjević, LL.M. (U. of Pittsburgh) is a Lecturer in International Commercial Law at the University of Belgrade Faculty of Law.

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