Ukraine 13 April 2007 Commercial Court of Donetsk Region, 6 September 2007 Donetsk Appellate Commercial Court, and 11 December 2007 Supreme Court of Ukraine [Case No. 44/69] (Crucible press case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/071211u5.html]
DATE OF DECISION: 20070413 (13 April 2007), 20070906 (6 September 2007), and
CASE NUMBER/DOCKET NUMBER: 44/69
CASE HISTORY: 1st instance Commercial Court of Donetsk Region 13 April 2007; 2d instance Donetsk Appellate Commercial Court 6 September 2007 [reversed Commercial Court opinion]; 3d Instance Supreme Court of Ukraine 11 December 2007 [reinstated Commercial Court opinion]
SELLER'S COUNTRY: Switzerland (plaintiff)
BUYER'S COUNTRY: Ukraine (defendant)
GOODS INVOLVED: Automatic crucible press
UKRAINE: The Commercial Court of Donetsk Region [44/69] 13 April 2007
Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/149],
CLOUT abstract no. 1406
Reproduced with permission of UNCITRAL
On 3 October 2003, a Ukrainian buyer (the buyer) entered into a contract for the purchase of an automatic crucible press (the press) with a Swiss seller (the seller). The law of Switzerland was chosen as the law applicable to the contract. The purchase price was $344,500. The price was to be paid in instalments, but, eventually, $210,467 was overdue. On 26 January 2006, prior to bringing suit, the seller demanded payment of the balance. In hearing the dispute, the first instance court applied the CISG as the law of Switzerland, where both Switzerland and Ukraine are State parties to the CISG.
In the first instance court, the buyer argued that, contrary to the requirement of Article 30 CISG, the seller had failed to transfer the property in the goods. In addition, the buyer requested the first instance court to direct an official examination of the goods with regard to the compliance of the press with the terms of the contract and international standards. As delivery and installation of the press was confirmed by relevant documents, the first instance court held that the seller had performed all of its obligations under the contract and the CISG. The first instance court held that, under the mandatory rules of Article 39(2) CISG, the buyer lost its right to rely on a lack of conformity of the press as it did not give notice thereof to the seller within two years from when the press had been handed over. Consequently, the first instance court rejected the buyer's objections as to the quality of the press and dismissed the motion to conduct a judicial examination of the goods. In addition, the first instance court held that the buyer is not entitled to rely on Article 30 CISG as, under the contract, the seller retains the property in the press until the date of complete payment of the purchase price.
The first instance court held that the buyer's failure to pay the complete purchase price constituted a breach of Articles 53 and 59 CISG. In addition, the first instance court held that the payment obligation should be fulfilled on the date fixed by the contract without the need for any request or the compliance with any formality on the part of the seller. Moreover, it was provided in the contract that if the buyer failed to fulfil its obligations then the seller was entitled to demand payment for the whole debt without further notice to the buyer. The first instance court held that Articles 61-62 CISG established the same rule. Hence, it considered that the seller's demand for the payment of a lump sum of the debt adjusted by interest and commercial sanctions was legally sufficient. Relying on the contract and Articles 73 and 78 CISG, the first instance court held that the buyer's overdue payment resulted in an obligation to pay the whole amount of the debt adjusted by 9 per cent interest on that amount since it became overdue.
During further hearings, the appellate court reversed the decision of the first instance court. The appellate court held that the CISG, as referred to by the seller and the first instance court, does not provide express indication that the court must apply the law of a foreign state to decide disputes between parties to foreign economic contracts. In addition, there is no bilateral treaty between Ukraine and Switzerland with respect to this issue. The appellate court held that the first instance court incorrectly interpreted Ukrainian substantive law and international law and confused the notion of “international treaty” and “foreign economic contract.” Hence, the first instance court erroneously relied upon the CISG. Thus, the appellate court rejected the decision of the first instance court.
The Supreme Economic Court of Ukraine set aside the decision of the appellate court and reaffirmed the decision of the first instance court. Hence, the Court obliged the buyer to pay the balance of the purchase price with interest and penalties to the seller.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:
CITATIONS TO OTHER ABSTRACTS OF DECISION
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=1377&step=Abstract> and <http://www.unilex.info/case.cfm?pid=1&do=case&id=1379&step=Abstract>
CITATIONS TO TEXT OF DECISION
Original language (Ukraine): Unavailable
Translation (English): Texts presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Case text (English translation) [second draft]
13 April 2007 [Case No. 44/69]
Translation by Maksym Sysoiev [*]
In the Name of Ukraine
The Company "Bobst S.A." [the "Seller"]  filed a lawsuit against the Limited Liability Company "Express" [the "Buyer"]  to collect the following amounts of money:
|-||The amount of debt for a delivered good that equals US $210,467;|
|-||9% interest per year totaling US $31,461.05;|
|-||A fine totaling US $13,180; and|
|-||A penalty of US $10,487.36;
|Total: UAH  1,341,256.82.|
The Seller's claims are based on the Buyer's improper and overdue performance of money obligations that arose from the Seller's delivery and set-up of an automatic crucible press [the "Goods"] that cost US $344,500 under [...] Contract No. 09/SP/2003 of 3 October 2003 [the "Contract"].
In the court hearing, [the Seller]'s representative adopted its claims under the complaint and presented the court with requested additional materials, namely the translation of separate rules of the Swiss Code of Obligations [the "SCO"].
[The Buyer]'s representative missed the last court hearing despite the court's due notice about the time and place of the court hearing. Nevertheless, the Buyer's representative had objected earlier in writing to the complaint, noting that [the Buyer] did not agree to have Case No. 44/69 heard by the Commercial Court of Donetsk Region. Moreover, the representative stated that the dispute should be heard under the terms of the Contract by the court authorities of the Canton Vaud in Switzerland. [The Buyer] [...] also noted that, contrary to Article 30 of [the CISG], the Seller had not transferred the property in the Goods. Thus, there occurred a creditor's overdue performance. In addition, [the Buyer] made an oral motion for the court to direct an official technical and goods examination regarding compliance of the Goods to the Contract terms and international standards. [...]
The Buyer's reference to the lack of jurisdiction of the Ukrainian court is insufficient because this expressly conflicts with the prescriptions of Part 2 of Article 124 of the Constitution of Ukraine, Articles 12, and 123  of the Commercial Procedure Code and Article 73  of the Law of Ukraine "On International Private Law". [...] Ukraine has not ratified the Hague Convention on Choice of Court Agreements. Thus, the court considers that [the Buyer] duly filed the lawsuit observing the rules of jurisdiction as determined in Article 15 of the Ukrainian Commercial Procedural Code and within the ten year statute of limitations as established by Part G, Article 127 of the SCO.
Having evaluated the content of the Contract [...], the court concluded that the parties' agreement is a foreign economic contract  of supply (purchase and sale). By its content and legal nature, it falls within the legal regulation of the rules in Article 184 of the SCO and the provisions of the CISG, which was ratified by both Ukraine and Switzerland.
The rules of Swiss law apply to the Contract under Clause 12 of the Contract due to the autonomy of the parties as established by Article 5 of the Law of Ukraine "On Private International Law" and subparts 8-9 of Article 6 of the Law of Ukraine "On Foreign Economic Activity" (as it existed on the date when the Contract was concluded).
Thus, subject to Article 184 of the SCO, Part III of the CISG, Clauses 1-3 of the Contract, and Schedule No. 2 to the Contract, the Seller undertook a commitment to transfer the Goods to the Buyer under the conditions of Incoterms FCA. The Seller also set up the Goods and trained the personnel. The Buyer undertook a commitment to take the Goods and services and to pay the Seller money in the amount of US $344,500. [The payment under the Contract was to be in the following order:] advance payment in the amount of US $34,450 within ten days after the Contract is concluded, US $68,900 within two weeks before the Goods are loaded, US $241,150 payable each month for thirty-six months in equal installments in the amount of US $7,669 additionally adjusted by 9% interest per year. The first payment of the deferred payment was to be made within 180 days after delivery.
Schedule No. 1 to the Contract determines the complete specification of the Goods in English and Russian. Evidence of [the Buyer]'s objection to the mentioned specification was not presented to the court.
According to Incoterms 2000, the ICC official rules for the interpretation of trade terms, the term free carrier free carrier (FCA) means that the Seller delivers the goods when it hands the goods over to the carrier chosen by the Buyer at the named place: in this case, Mex, Switzerland.
The fact that the Seller made the Goods available to the carrier (CAA Transport Moscou) to be transportated into Ukraine for the disposal of the Buyer's consignee is evidenced by the consignment note. Its relation to the subject of the dispute was checked by the court, and this consignment note is a contract of carriage under Article 4 of the Convention on the Contract for the International Carriage of Goods by Road.
In addition, the fact of the Goods' delivery, the Buyer taking, assembling, setting up, and placing them into operation and the seller's training of personnel (completely and without any complaints by the Buyer), is proven by the Act of Performed Works  under the Contract [...]. The mentioned document is signed by the parties and affixed with seals.
Taking this into account, the court considers that [the Seller] duly performed its commitments under the Contract. Presently, [the Buyer's] objections regarding the variety of the Goods and their quality are not considered by the court. Under Article 210 of the SCO, claims for defects of goods may be accepted only within four years of delivery (at the latest on 25 November 2004).
The mandatory rules of Article 39(2) of the CISG determine that the buyer loses the right to rely on a lack of conformity of the goods if it does not give notice thereof to the seller at the latest within a period of two years from the date on which the goods were actually handed over to the buyer (until 14 June 2006). The court was not presented with evidence that the Buyer had raised a claim  regarding the quality and variety of the Goods within two years of their delivery and set-up. Based on this, the court rejects the Buyer's objections regarding the quality of the Goods and dismisses the motion to conduct the judicial examination Clause 6 of the Contract expressly provides that the Seller retains the property in the Goods until the date of complete fulfillment of the Buyer's money obligation under the Contract. Thus, [the Buyer's] reference to Article 30 of the CISG to prove the creditor's overdue performance (the property in the Goods was not transferred) is legally insufficient
[The Buyer] partially fulfilled its money obligation under the Contract in the amount of US $134,033. The amount is proven by the complaint and the advice (Credit advice) of the bank UBS S.A. presented by [the Seller]. Additional evidence of payment under the Contract was not presented by [the Buyer].
Based on the above mentioned facts and Clause 3 of the Contract, the Buyer's money obligation in the amount of US $34,450 arose on 13 October 2003, US $68,900 arose on 11 November 2003, US $241,150, the amount deferred for three years, arose on 23 May 2004 (the first payment in the amount of US $7,669).
Taking this into account, the Buyer's money obligation to the Seller of US $210,467 was not fulfilled on the date of the court decision that constitutes breach of Articles 53 and 59 of the CISG [...]. [Under these articles], the buyer is obliged to pay the price of the goods and take the delivery of the goods according to requirements of the contract and the CISG. Moreover, the money obligations must be fulfilled on the date fixed by the Contract without the need for any request or compliance with any formality on the part of the Seller.
Paragraph e) of Clause 3 of the Contract provides that if the Buyer fails to fulfill its obligations under the Contract, the Seller is entitled to [...] demand payment for the whole debt amount without further notice to the Buyer. Articles 61-62 of the CISG establish analogous rules. The Seller's notice to the Buyer to pay the whole amount of the debt was sent on 26 January 2006, as proven by the post office receipt TNT No. GE433963250WW.
Taking this into account, the court considers that the Seller's claim for payment of a lump sum of the debt adjusted by interest and commercial sanctions is legally sufficient. The Buyer's overdue performance  of money obligation results in the obligation to pay the whole amount of the debt adjusted by 9 per cent interest on the whole amount within the time while the performance was overdue [...] [This conclusion is] based on Clause 3 of the Contract, subpart 5 Article 73, and Article 78 of the CISG. Under the Seller's computation, that was checked by the court, the amount of the interest on the overdue amount under each installment payment as of 12 February 2007 equals US $31,461.05.
The Buyer's overdue performance of the money obligations under Clauses 3 and 5 of the Contract, and also under Articles 160, 161, and 163 of the SCO, results in an obligation to pay a 3% per year penalty on the whole amount of the debt and a 0.5% fine consisting of the price of the Goods for each day the payment was unfulfilled, but not totaling more than 4% of the Goods' price. The Seller claims sanctions in the amount provided by the Contract that complies with subparagraph 1 paragraph II of Article 163 of the SCO [...]. [It] determines that contractual sanctions may be established by the parties in any amount. The court has mathematically checked the Seller's claim to collect the penalty in the amount of US $10,487.36 and the fine in the amount of US $13,180 (4%) accrued from the date when the right to the claim arose until 12 February 2007 [...]. [T]he court established that the computations comply with the Contract terms and the Swiss Code and thus the mentioned claims shall also be satisfied.
The amount of the collections in the case totals US $265,595.41, equaling UAH 1,341,256.82 based on the official exchange rate of the US dollars to UAH (5.05) according to the National Bank of Ukraine as of 12 February 2007.
Therefore, the grounds for the dispute are the Buyer's unlawful breach of the Contract and its breach of the rules of the SCO and the CISG that govern general conditions of fulfilling obligations and rules of performance of purchase and sale contracts (contracts of supply) under the substantive law of Switzerland.
Based on the above mentioned rules of international and domestic substantive law [...], the court
[To rule in the Seller's favor and] to collect in its favor the amount of indebtedness for the delivered goods adjusted by interest [...], the fine and the penalty for overdue fulfillment of the Buyer's money obligation in the total amount UAH 1,341,256.82. To collect from the [Buyer] in favor of the Seller the amount of debt and sanctions totaling UAH 1,341,256.82 [...]
Case text (English translation) [second draft]
Donetsk Appellate Commercial Court 
6 September 2007 [Case No. 44/69]
Translation by Maksym Sysoiev [*]
In the Name of Ukraine
According to the content of [the Contract], it appears that the Contract was signed on behalf of [the Seller] by a sales manager, Sereda Ludvik. The copy of [the Seller]'s Charter, that was added to the case materials during the appellate action, specifies persons who have signatory authority [...]. The above mentioned person, [however], is absent from the list of authorized signers. Thus, under the Seller's Charter, Sereda Ludvik was not entitled to sign the Contract on behalf of [the Seller] [...] [This] was not discovered by the District Commercial Court.
On the request of the Appellate Court, the Seller presented its Charter. Article 19 of the Charter provides that the Board of Directors nominates persons authorized to sign contracts on the Seller's behalf [...]. [The Board also] determines the type of signature, either joint or individual.. At the same time, Article 18 of the Charter provides that the Board of Directors may empower third persons to manage the company's business [...]. Nevertheless, the Board determines their powers and obligations by the adoption of regulations, decisions, or by the approval of individual contracts.
An excerpt from the minutes of the board meeting on the nomination and exclusion which empowered persons from the lists dated 21 May 2002 and presented by [the Seller] does not confirm Sereda Ludvik's authority to sign the disputed Contract in 2003.
The District Commercial Court did not discover the issues regarding the conclusion of the Contract and the authority of the person who signed it [...]
The court's panel did not take into consideration [the Seller]'s reference to the parties' conduct that confirms the performance and conclusion of the Contract [...]. [The court rejected this reference] because it actually changes and supplements the claimant's grounds that were not considered by the District Commercial Court under Swiss substantive law [...] (such rules exist in Ukrainian substantive law, but the Court of First Instance did not discover the issue regarding the existence of analogous rules in the substantive law of Switzerland).
To prove the conclusion of the Contract and its claims to collect money from [the Buyer], [the Seller] refers to rules of Swiss law that were mistakenly applied by the Court of First Instance to decide this dispute.
Article 4 of the Ukrainian Commercial Procedural Code provides that the Commercial Court applies rules of law of other states in cases provided by law or an international treaty.
[The CISG], as referred to by the Seller and the Court of First Instance, does not provide express indication that the court must apply a foreign state's law to decide disputes between parties of a foreign economic contract. Furthermore, there is no bilateral treaty between Ukraine and Switzerland with respect to this.
[The Seller] in its complaint and the Court of First Instance in its decision, justified that a hearing should be held in the Commercial Court of Ukraine based on rules of Swiss substantive law. [They reasoned that] such a right is provided under Clause 12 of the Contract due to the autonomy of the parties to an agreement established by Article 5 of the Law of Ukraine "On Private International Law" and Subparts 8 and 9 of Article 6 of the Law of Ukraine "On Foreign Economic Activity" (on the date of the conclusion of the Contract). Moreover, the Seller refers to Article 118 of the Law of Switzerland "On International Private Law".
Such an interpretation of Ukrainian substantive law and international law is incorrect because the Seller confuses the notion of "international treaty" and "foreign economic contract". In other words, the Commercial Court has the power to apply the law of other countries, but only when this is expressly provided by law or international treaties (a convention ratified by both countries or a bilateral treaty between them) [...] [The Commercial Court may not apply such a law when it is envisioned] by a foreign economic contract as a voluntary will of the parties in different states.
In violation of the rules of Ukrainian procedural law, the Court of First Instance relied in its decision, on a version of the Ukrainian Law "On Foreign Economic Activity" that existed on the date of the contract conclusion. This reliance is erroneous because the issue of choice of law is decided by the court only at the moment of the court hearing. At present, such a version of Article 6 of this law does not exist [...]. [That is, current rules do not] set forth that rights and obligations of the parties to a foreign economic contract are determined by the law of the country chosen by the parties upon the conclusion of the contract or as a result of their agreement.
Moreover, the Law of Ukraine "On Private International Law", in particular, Article 5 "On the autonomy of the parties of foreign economic relations", expressly establishes that parties may make a choice of law applicable to the content of their legal relations only when provided by law. This rule relates only to the parties to the contract but not to the court. Conversely, Articles 7 and 8 of this law establish the court's duty to follow the interpretation of rules and notions according to Ukrainian law when the court determines the applicable law, unless the law provides otherwise.
In violation of the above mentioned rules of the current Ukrainian legislation and the rules of international law, the District Commercial Court decided the dispute based on rules of the Swiss law of obligations (as mentioned above the Seller and the Court of First Instance erroneously relied upon subpart 2 of Article 9 of [the CISG] [sic]  because it does not set forth the power of the courts of any state that ratified the Convention to apply rules of another state law). Furthermore, in violation of Article 8 of the Law of Ukraine "On Private International Law", the Court of First Instance only determined the content of selected separate rules of the SCO based not on their official interpretation, on their practice of application, and doctrines in the respective foreign state (for this purpose the court may apply to the Ministry of Justice of Ukraine or other competent authority in Ukraine or abroad, or experts under the procedure established by law) [...]. [The court reached its conclusion] based on the application of a lawyer Doctor Urs Cenhoizern regarding certain legal issues presented by [the Seller] on the document of Baker & McKenzie Law Firm. The Court of First Instance did not check whether this law firm had power to provide the interpretation of separate rules of the SCO for the court of Ukraine, and it admitted this application as acceptable evidence.
Moreover, applying only selected separate rules of the SCO, the District Commercial Court did not consider the issue of whether [the Seller] proved its claims. Absent an official and complete text of the SCO, [the District Commercial Court]'s conclusion regarding the Buyer's improper performance of its contractual obligations is premature. It appears, from the case materials, that the single consignment note dated 25 November 2003 that was used as the basis of the complaint does not contain a reference to the disputed contract [...]
Clause 1 [thereof] provides for the purchase and sale of the equipment in the amount and under titles and prices indicated in Schedule No. 1 to the Contract. [T]he contract does not refer to the execution of an Act of Performed Works  by the parties under the disputed contract. [The Seller]'s argument in the appellate instance, to consider the materials of the case in aggregate (the consignment note and the act of the performed works of 14 June 2004 together), is rejected [...]. No changes or amendments to this part of the Contract, as of the date of court's decision, were presented by [the Seller], and the court panel does not know how this issue is considered under the rules of Swiss substantive law.
Clause 12 of [the Contract] "Applicable Jurisdiction" provides that any disputed issue arising from this Contract will be heard by the competent court authorities at the Seller's place of business in Lausanne, the Canton Vaud in Switzerland. This Contract is governed by Swiss substantive law.
Thus, in this case, the contracting parties agreed that the jurisdiction to decide disputes arising in connection with the performance of the [Contract] ... would be in a competent court authority of another state (Switzerland) and Swiss substantive law would apply [...]. [Nevertheless,] the Court of First Instance did not discuss the issue of what type of competent court exists in Switzerland to decide this dispute (the court, arbitration, etc.)
[...] The District Commercial Court [...] entertained the lawsuit over which Ukrainian commercial courts do not have jurisdiction based on the following:
In the contract, by their agreement, the parties gave jurisdiction over the case to a foreign enterprise. [This provision] is an arbitration clause which is a condition of the contract [..] [Thus,] a unilateral rejection to perform it is not allowed.
[The Seller argued] that Clause 12 of the Contract, in the part that determines which court authority has jurisdiction to hear the dispute, is an arbitration clause, and the choice of law is only one of the conditions of the Contract [...]. [This argument] was considered by the court's panel and was not accepted because the issue of the competent court authority and [the applicable law] [...] may not be separated in this case.
Therefore, Clause 12 of the Contract, having not been voluntarily changed or amended cannot apply only to certain parts of the arbitration agreement without recognizing the agreement as void in whole, or inoperative, or incapable of being performed.
Furthermore, in this case, the issue is not about contractual jurisdiction, the indefiniteness of the term "arbitration", or the arbitration tribunal because the parties agreed to settle disputes in a competent court authority in a foreign state.
In the case materials there is no evidence that [the Seller] applied to the competent court authority of the Canton Vaud in Switzerland [...]. [There is also no evidence that] any court in Switzerland refused to entertain the complaint nor other evidence of impossibility to hear this dispute under Swiss procedural and substantive law.
In this case, the court's panel has not found any grounds to determine the jurisdiction of Ukrainian courts [...]
The District Commercial Court in its decision [did not determine that Clause 12 of the Contract contains the arbitration agreement], and [the Seller] did not prove the agreement's incapability of being performed. Therefore, the Court of First Instance initiated proceedings in this case erroneously because it did not establish that such an agreement is void, inoperative, or incapable of being performed. Furthermore, the Court of First Instance erroneously applied the statute of limitations provided by rules of substantive law of another state when it decided procedural issues regarding this complaint.
Thus, the Court of the Appellate Instance considers that the application by the District Commercial Court of Clause 12 of [the Contract] is erroneous. Therefore, Donetsk Appellate Commercial Court terminates proceedings in Case No. 44/69 according to the requirements of Subpart 1 of Article 80 of the Commercial Procedural Code of Ukraine.
[...] The Donetsk Appellate Commercial Court
To reverse the decision of the Commercial Court of Donetsk Region of 13 April 2007 in Case No. 44/69.
Case text (English translation) [second draft]
11 December 2007 [Case No. 44/69]
Translation by Maksym Sysoiev [*]
In the Name of Ukraine
Under Article 18 of [the CISG]:
"(1) A statement made by or other conduct of the offeree indicating assent to an offer is an acceptance. Silence or inactivity does not in itself amount to acceptance.
"(2) An acceptance of an offer becomes effective at the moment the indication of assent reaches the offeror. An acceptance is not effective if the indication of assent does not reach the offeror within the time he has fixed or, if no time is fixed, within a reasonable time, due account being taken of the circumstances of the transaction, including the rapidity of the means of communication employed by the offeror. An oral offer must be accepted immediately unless the circumstances indicate otherwise.
"(3) However, if, by virtue of the offer or as a result of practices which the parties have established between themselves or of usage, the offeree may indicate assent by performing an act, such as one relating to the dispatch of the goods or payment of the price, without notice to the offeror, the acceptance is effective at the moment the act is performed, provided that the act is performed within the period of time laid down in the preceding paragraph."
In this case, the Buyer paid in advance for the equipment within the time limit provided by the Contract. The Seller (not its representative) dispatched the equipment to the Buyer also in accordance with the Contract. Thus, the Contract is valid under Article 18 of the CISG, and the parties acted according to their authorized powers.
Under Article 4 of the Commercial Procedural Code of Ukraine, the commercial courts apply rules of the laws of other states in cases provided by Ukrainian law or international treaty.
Under Article 5 of the Law of Ukraine "On Private International Law", parties to legal relations may autonomously make the choice of law provisions to be applied to the content of their legal relations.
Thus, if the parties to a contract have chosen the applicable law, the Commercial Court applies this law to decide the dispute.
Article 80 of the Ukrainian Commercial Procedural Code does not provide for the termination of proceedings where parties have agreed to submit the dispute to a foreign state court.
Because Clause 12 of the Contract provides for application of Swiss substantive law, it shall apply to decide this dispute by the Commercial Court based on Article 4 of the Commercial Procedural Code. At the same time, Article 9 of the Law of Ukraine "On International Private Law" establishes that choice of law provisions referencing a foreign state's law shall be viewed as a reference to rules of substantive law (except for conflict of law rules) governing respective legal relations unless otherwise provided by law.
Furthermore, under Article 6 of the Law of Ukraine "On Foreign Economic Activity" (the version in force on the date of the conclusion of the Contract), rights and obligations of the parties to a foreign economic contract are determined by the law of the state chosen upon conclusion of a contract, or as a result of further agreement.
Therefore, having executed the Contract, the parties made a choice of law that shall apply to determine the scope of their rights and obligations under Article 6 of the Law of Ukraine "On Foreign Economic Activity" (the version in force on the date of the Contract conclusion).
That is why the parties' choice of Swiss substantive law to govern the disputed legal relations is lawful. [U]nder Article 5 of the Law of Ukraine "On Private International Law" [...] the Commercial Court shall apply rules of other states' law when [s]uch choice of law is made as provided in Article 4 of the Commercial Procedural Code.
The Appellate Commercial Court did not take into consideration provisions of Article 6 of the Law of Ukraine "On Private International Law" under which it shall apply only rules that govern the respective legal relations.
Therefore, the conclusion of the Appellate Commercial Court that the complete text of the SCO shall apply to decide the dispute without determination of what rules regulate the respective legal relations is insufficient.
It should be noted that rules of Swiss substantive law, on which the Commercial Court of Donetsk Region relied in its decision, provide available grounds to approve the complaint.
Under Article 8 of the Law of Ukraine "On Private International Law", when applying the law of a foreign state, the court and other authorities determine the content of its rules according to its official interpretation, their application in practice, and doctrines in the respective foreign state. The parties to the lawsuit may present documents that confirm the rules of a foreign state law in order to prove their claims and objections, and to assist the court or another authority to establish the content of these rules.
There follows from the content of the decision dated 13 April 2007 and the materials of the case, that the Commercial Court of the Donetsk Region decided the dispute based on the official text of rules of Swiss substantive law that was placed with the certificate and produced by [the Seller].
The Appellate Commercial Court incorrectly applied Articles 4 and 6 of the Convention on the Contract for the International Carriage of Goods by Road (the Convention is in force for both Ukraine and Switzerland).
According to Article 4 of the Convention, a consignment note evidences the conclusion of the contract on carriage of the goods. It should be noted that the contract on carriage of the goods is an independent contract that is not contingent on the availability or validity of the contract of sale and purchase [...]. [T]hus, [the requirement of] any reference in the consignment note to the contract of sale and purchase (the Contract) has no merit.
This conclusion is confirmed also by Article 6 of the Convention, which establishes requirements for the content of the consignment note. This Article does not demand that the consignment note contain particulars regarding a contract of sale and purchase or specification of equipment in a consignment note. [...]
[The Donetsk Appellate Commercial Court concluded that the Commercial Court of the Donetsk Region insufficiently used the consignment note, which does not contain reference to the Contract, to establish the fact that the equipment delivery was delivered.] [Such a conclusion] has no merit and does not comport with Articles 4 and 6 of the Convention. Issuing the contested decree, the Appellate Commercial Court did not take into consideration the Act of Performed Works dated the 14th of June 2006, which was produced by [the Seller] to the Commercial Court of the Donetsk Region to prove its due performance of the Contract and [the Buyer]'s partial payment for the delivered goods [...]. [This] resulted in an erroneous conclusion.
However, [the Appellate Court]'s conclusion is insufficient and does not conform to provisions of Article 34 and 36 of the Commercial Procedural Code.
According to Article 34 of the Commercial Procedural Code, the Commercial Court admits evidence that is significant for the case. Thus, this article does not confine the Commercial Court to admit only evidence contemplated by the parties in a contract.
As mentioned in Article 36 of the Commercial Procedural Code, written evidence is documents and materials that contain information on the circumstances that are significant for the correct decision of the case.
Given the Act of Performed Works of the 14th of June 2006 is a document containing information that the equipment envisioned by the Contract is at the [the Buyer]'s disposal [...]. [Moreover, the act provides that the Seller performed its obligations to assemble the equipment, place it into operation, and train personnel, and the Buyer did not object to the Seller in connection with performance of the Contract.] [It also] proves circumstances that are significant to decide the dispute correctly. This act is written evidence under the definition of Article 36 of the Commercial Procedural Code, and the Commercial Court has grounds to admit it based on Article 34 of the Commercial Procedural Code.
The Donetsk Appellate Commercial Court found that the parties to the Contract executed the [arbitration] agreement, and thus the commercial courts had no jurisdiction over this dispute.
The Donetsk Appellate Commercial Court based its conclusion on the fact that the parties agreed to bring disputes under this contract to a competent court authority in a foreign state [...]. [Moreover, they] determined that Swiss substantive law is to be applied to the disputed legal relations.
Clause 12 of the Contract sets forth the following procedure to decide disputes: any disputed issue arising from this Contract will be decided by the competent court authorities at the [Seller]'s place of business in Lausanne, the Canton Vaud in Switzerland.
Thus, this clause does not contain the parties' agreement to submit disputes arising from the Contract to arbitration. Moreover, the clause does not determine the specific court that will hear the disputes, but it refers to the procedural legislation at the [Seller]'s place of business to define a competent court. However, Article II of [the "New York" Convention] establishes that reference of disputes to arbitration requires the parties' unequivocal agreement to such submission and shall contain the designation of the authority that will decide these disputes. Under such circumstances, Clause 12 of the Contract is not the parties' agreement to submit the disputes arising from the Contract to arbitration.
The above mentioned conclusion is confirmed by the Decree of the Ukrainian Supreme Commercial Court dated 13 September 2005 in case No. 36/120 (the Supreme Court of Ukraine refused to initiate cassation proceedings to rehear the mentioned decree by a ruling on 4 November 2005), and also Clause 5 of the Presidium of Supreme Commercial Court of Ukraine No. 04-5/608, entitled "On some issues of practice of case hearing with participation of foreign enterprises and organizations" dated 31 May 2002. [This clause] provides that commercial courts should take into consideration that the parties to a foreign economic contract have a right to submit disputes arising therefrom to the arbitration tribunal (acting permanently or created to decide the specific dispute - ad hoc) [...]. [Such submission may be provided] in a contract or by execution of a separate agreement (arbitration clause or arbitration condition). This agreement shall clearly determine a specific authority to decide disputes as chosen by the parties, including the International Commercial Arbitration Court, the Maritime Arbitration Commission of the Ukrainian Chamber of Commerce and Industry, or another arbitral tribunal in Ukraine or abroad.
Furthermore, the conclusion of the Appellate Court regarding the unlawful hearing of this dispute by the District Commercial Court without determining the arbitration clause's validity or capability of being performed does not conform to Subpart 3 Article II of the Convention [...] [Under provisions of this Subpart,] the court must determine the clause's validity or capability of being performed only after its execution.
Taking into account that an arbitration agreement was not executed by the parties to the Contract, the Appellate Commercial Court of Donetsk Region did not have grounds to determine its validity or capability of being performed.
The Cassation Instance determines that Chapter XII of the Law of Ukraine "On Private International Law" does not prohibit state courts of Ukraine from hearing a complaint with a foreign element  when there is a prorogatory agreement to have the case heard in a foreign state court.
Under Article 76 of the Law of Ukraine "On Private International Law", the courts may entertain and hear any action with a foreign element when in the territory of Ukraine the defendant has: a residence or place of business; chattels or real estate that may be subject to collection; or a branch or representative office of a foreign legal entity.
[...] The Supreme Commercial Court of Ukraine
[To rule in favor of the Seller.]
To reverse the decision of the Appellate Commercial Court dated 6 September 2007 in the case of the Commercial Court of Donetsk Region No. 44/69.
To have the decision of the Commercial Court of Donetsk Region dated 13 April 2007 remain in force
* Maksym Sysoiev [enter bio details]
1. The Seller's place of business is in Switzerland. [trans. footnote]
2. The Buyer's place of business is in Ukraine. [trans. footnote]
3. UAH or Ukrainian gryvnya is a national currency of Ukraine. [trans. footnote]
4. Under Article 613 of the Ukrainian Civil Code, an obligor is overdue in particular when it has not taken actions provided by a contract, acts of the civil legislation or followed from the essence of obligation or the usage of business practice, and until these actions are taken the obligor could not fulfill his obligation. If the creditor did not take above mentioned actions, the obligor's fulfillment of its obligation may be postponed within the term when the creditor is overdue. The obligor does not pay interest within the above mentioned term. [trans. footnote]
5. Under Article 41 of the Ukrainian Commercial Procedural Code, only the court institutes the court examination. A conclusion of the court expert is not binding for the court but as a matter of practice is very persuasive. Moreover, if the court refuses to institute the court examination, this may be a ground for the parties to appeal. The Code does not expressly provide for the possibility of non-court experts testifying. As a rule, even if admitted by the court, their testimonies will not be as persuasive as court experts' for the court. [trans. footnote]
6. The jurisdiction of Ukrainian courts covers all legal relations that arise in the state.
7. Commercial courts have jurisdiction over disputes that arise upon the conclusion, modification, cancelation and performance of commercial contracts. [trans. footnote]
8. Foreign enterprises and organizations are entitled to bring actions under subject to jurisdiction rules over commercial disputes to protect their violated or contested rights and interests protected by law
9. Foreigners, stateless persons, foreign legal entities, foreign states (their authorities and officials) and international organizations are entitled to bring action before the Ukrainian courts to protect their rights, freedoms or interests. [trans. footnote]
10. Regarding transactions in goods, a contract between a Ukrainian party and a foreign party that results in the goods crossing borders are transactions subject to special regulation. [trans. footnote]
11. Document prepared by a consignor and countersigned by the carrier as a proof of receipt of consignment for delivery at the destination. Used as an alternative to bill of lading (especially in inland transport). (definition from Business Dictionary available at http://www.businessdictionary.com/definition/consignment-note.html). [trans. footnote]
12. Under Ukrainian domestic law and commercial usage, the document that evidences performance of work and services by the oblige.[trans. footnote]
13. Under Ukrainian law, term "to raise a claim" may have at least three meanings: 1) to file a law suit; 2) to submit a formal claim (subject to strict requirements regarding a form and content under rules of commercial procedure) to the party in breach demanding that it cure the breach of its obligations; 3) to submit an application in writing (there are no strict requirements) to manufacturer or seller of the goods claiming remedies arising from sale of consumer products. Probably, tacking into account nature of the transaction, the court used the term to "raise a claim" according to the first two meanings.[trans. footnote]
14. Under Article 612 of the Ukrainian Civil Code, the obligor, in particular, is overdue when it has not performed its obligation within the term established by a contract. As a consequence, the overdue obligor is liable to the obligee that incurred expenses.[trans. footnote]
15. Under Article 101 of the Ukrainian Commercial Procedural Code, the appellate commercial court rehears the case under available materials and additionally presented evidence. The Appellate Court admits evidence if the party proves impossibility to present it to the Court of First Instance because of reasons that did not depend on the party. The Appellate Commercial Court is not confined to arguments of the appellate complaint and completely considers legality and sufficiency of a decision made by a District Commercial Court. However, the Appellate Commercial Court does not entertain and does not hear the claims that were not heard by the Court of First Instance.[trans. footnote]
16. It appears that the court made typo in its decisions. Probably, the court referred to Article 7(2) of the CISG.[trans. footnote]
17. As a matter of practice, an Act of Performed Works is a written document evidencing that works or services were actually performed under a contract and that the party to a contract or a beneficiary under it has no objections or has some objections with respect to their performance. This act is usually issued by the party to a contract or by the beneficiary under the contract to the performing party.[trans. footnote]
18. The dispute is not to be decided in the Ukrainian commercial courts.[trans. footnote]
19. In particular, a foreign element is present when one of the parties to the Contract is a foreigner. [trans. footnote]Go to Case Table of Contents