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CISG CASE PRESENTATION

Serbia 23 January 2008 Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce (White crystal sugar case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/080123sb.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 20080123 (23 January 2008)

JURISDICTION: Arbitration ; Serbia

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

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: T-9/07

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Serbia (respondent)

BUYER'S COUNTRY: Italy (claimant)

GOODS INVOLVED: Crystal white sugar


UNCITRAL case abstract

SERBIA: Expanded Tribunal of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce (White crystal sugar case) 23 January 2008

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/103],
CLOUT abstract no. 1022

Reproduced with permission of UNCITRAL

Abstract prepared by Andrea Vincze

The dispute arose out of a contract for the sale of white crystal sugar. The Italian buyer commenced arbitration before a Serbian court of arbitration against the Serbian seller to recover the customs the buyer had to pay in Italy as a result of withdrawal by the Serbian authorities of the certificates of origin required by the contract and ensuring exemption from the payment of customs. The seller challenged the jurisdiction due to incorrect denomination of the court of arbitration, contested its liability for any damages suffered by the buyer as a result of the withdrawal, and disputed the amount of damages requested arguing that the buyer had already requested compensation for the same losses in another proceeding.

Applying Articles 28 and 30 of the Serbian Arbitration Act (identical to Article 16 (1) and (3) of the UNCITRAL Model Law on International Arbitration) and Article V, paragraph 3, of the European Convention on International Arbitration of 1961, the arbitral tribunal ruled that it had jurisdiction despite the incorrect denomination; and rejected the seller's argument regarding identity of claims.

On the merits, the tribunal made its decision under a multiplicity of legal sources, i.e. the CISG, the UNCITRAL Model Law on International Credit Transfers, and several sources of lex mercatoria. Therefore, UNCITRAL texts represent only a part of the legal basis and the reasoning. [Only UNCITRAL texts are referred to in this abstract.]

The arbitral tribunal ruled, that under Article 35 (1) CISG, the provision regarding specific origin of the goods and the duty to provide the certification of origin was an express contractual term. Therefore, the seller was aware at the time of contract conclusion that a failure to provide the required certification of origin may have financial effects on the buyer, i.e. that buyer would lose the exemption from paying customs and relating charges in Italy.

The arbitral tribunal applied Article 36 (1) and 45 (1)(b) CISG and found that the seller was liable for non-conformity existing at the time of passing of the risk to the buyer because the seller had been aware of the express contractual term on the requirement to provide a certificate of origin as early as the conclusion of the contract, even though the non-conformity became apparent only at a later time.

Based on the above findings and under Article 74 CISG, the arbitral tribunal found that the seller could have foreseen at the time of the contract conclusion that the buyer may suffer damages if the specific certificate of origin is not available to the buyer, and ordered the seller to pay damages to the extent proved by the buyer.

Under Article 78 CISG, the arbitral tribunal ordered the seller to pay interest. In lack of a relating Serbian law, the interest rate was determined by applying lex mercatoria and Article 2 (1)(m) of the UNCITRAL Model Law on International Credit Transfers. The tribunal found that the applicable interest rate was the EURIBOR rate, being the short-term lending rate calculated on the basis of the currency involved.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 7 ; 35 ; 74 ; 78 [Also cited: Articles 36 ; 45 ]

Classification of issues using UNCITRAL classification code numbers:

7B31 [Materials for interpretation: relevance of consensus applicable to international transactions];

35A [Conformity of goods to contract: quality, quantity and description required by contract (art. 35(1)];

74A ; 74B [General rules for measuring damages: loss suffered as consequence of breach; Outer limits of damages: foreseeability of loss];

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

Descriptors: Interpretation of Convention ; Conformity of goods ; Damages ; Foreseeability of damages ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Serbian): Click here for Serbian text of case

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Serbian: [2008] Vladimir Pavic, Milena Djordjevic, Primena Becke konvencije u arbitraznoj praksi Spoljnotrgovinske arbitraze pri Privrednoj komori Srbije, Pravo i privreda br. 5-8/2008, cited at pp. 572, 581, 586, 592, 601 and 606.

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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, Serbia

Award of 23 January 2008 [Proceeding No. T - 9/07]

Translation [*] by Jovana Stevovic
Edited by Dr. Vladimir Pavic, Milena Djordjevic, LL.M. [**]

Claimant of Italy [Buyer] vs. Respondent of Serbia [Seller]

After the preliminary decision of the Expanded Arbitral Tribunal of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce in Belgrade, composed of [...], on the challenge of jurisdiction of the Court of Arbitration, the Arbitral Tribunal, composed of [...], in the presence of D.P taking the minutes of the meeting, deciding in a dispute concerning the claim of the [Buyer] against the [Seller] for payment of the main debt in the amount of 124,843.24 €, after the proceedings, the hearing and deliberations and voting, pursuant to Article 54 paragraph 1 of the Law on Arbitration (hereinafter referred to as: the LA) (Official Gazette of the Republic of Serbia no. 46 of 2 June 2006) and Article 49 of the Rules of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce (Official Gazette of the Republic of Serbia no. 52 of 8 June 2007; hereinafter the Rules) on 23 January 2008 has made the following unanimous:

AWARD

      1.) The [Seller] is ordered to pay to the [Buyer] the sum of 90,904.91 € for the main debt with 4.62% yearly interest, distributed in the following way: for the sum of 76,657.63 € the interest is due for the period from 18 June 2007 until the final payment; for the sum of 8,260.58 € the interest is due for the period from 19 June 2007 until the final payment and for the sum of 5,986.70 € the interest is due for the period from 5 June 2007 until the final payment, within 15 days of the receipt of this Award, subject to court enforcement in case of non-payment.

      2.) The [Seller] is ordered to pay to the [Buyer] the amounts of US $146.00 and 2,623.15 € as compensation of the costs of proceedings and the amount of 73,630.00 RSD, for the cost of representation in this dispute, within 15 days from the day receipt of the Award, subject to court enforcement in case of non-payment.

      3.) The [Buyer]'s claim against the [Seller] in the amount of 33,939.07 € is rejected as unfounded.

STATEMENT OF REASONS

1. Jurisdiction of the Court of Arbitration

In his Claim of 5 July 2007 against the [Seller] (both Parties have been fully named in the operative part of this Award, which is not disputed), the [Buyer] based the jurisdiction of the Court of Arbitration on the arbitration clause contained in Sales Contract No. 3585 concluded in the written form with [Seller] in Belgrade on 7 October 2002. The arbitration clause in the abovementioned contract reads as follows: "All disputes between the Parties arising out of or in connection with this Contract shall be resolved directly by the Parties. If that is not possible, the Court of Arbitration attached to the Serbian Chamber of Commerce in Belgrade shall be competent to settle the dispute."

[Buyer] submitted the abovementioned Sales Contract and documents that it referred to and their translations from Italian into the Serbian language and vice versa.

After the payment of the registration fee and arbitration fee, the Statement of Claim was duly delivered to the [Seller] with all the evidence, the Rules (mentioned in the introduction of this Award) and the List of Arbitrators with a written instruction to submit an Answer to the Statement of Claim within 30 days of the receipt thereof and to appoint his arbitrator.

[Seller] submitted to the Court of Arbitration his Answer to the Statement of Claim on 9 July 2007 in which he contested the jurisdiction of the Court of Arbitration. He reiterated the challenge of jurisdiction in his written submissions on 17 July, on 25 July and on 10 September 2007. [Seller] also contested the jurisdiction on 23 January 2008, at the hearing before the Expanded Arbitral Tribunal which is competent to deliberate and decide on the plea contesting jurisdiction pursuant to the Rules.

[Seller]'s argument for the challenge of jurisdiction consists of the following:

      The arbitration clause contained in the Contract between the [Seller] and the [Buyer] refers to the "Foreign Trade Court of Arbitration attached to the Chamber of Commerce in Belgrade" and not to the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce.

      Due to the imprecise reference to the name of the arbitral institution, the Arbitral Tribunal should find that it does not have jurisdiction over the merits of the case.

[Buyer] gave a detailed explanation in regards to the plea contesting jurisdiction in his submission of 17 July 2007. [Buyer]'s position was that the Court of Arbitration was competent regardless of the imprecise naming of the Court of Arbitration in the Contract. [Buyer], further supported his position by invoking Article 99 paragraph 2 and Article 100 of the Serbian Law on Contracts and Torts (hereinafter referred to as: the LCT). Furthermore, [Buyer] emphasized that in regards to the same contract and the same arbitration clause a dispute has already been brought before this Court of Arbitration in Case No. T-10/06. In that dispute, [Seller] did not contest the Tribunal's jurisdiction. Due to the fact that from that time there have not been any significant changes in the wording of the arbitration clause, [Buyer] considers [Seller]'s challenge to be unfounded.

If a party raises a plea contesting jurisdiction of the Court of Arbitration, the question of jurisdiction shall be decided by an Expanded Tribunal (Article 18 paragraph 2 of the Rules). Since [Seller] raised the plea contesting jurisdiction in his Answer to the Statement of Claim (according to Article 19 paragraph 1 of the Rules) an Expanded Arbitral Tribunal composed of [...] has been appointed to decide on the alleged lack of jurisdiction. On 23 January 2008, upon having conducted the proceedings, the Expanded Arbitral Tribunal unanimously decided to refuse the plea contesting jurisdiction.

Reasons for the ruling of the Expanded Arbitral Tribunal

During the 60 years of existence and work of this Foreign Trade Court of Arbitration (previously attached to the Chamber of Commerce of Yugoslavia, then to the Chamber of Commerce of Serbia and Montenegro and now to the Chamber of Commerce of Serbia), it has always been the only permanent arbitral institution for settlement of international trade disputes. Throughout these sixty years, the parties were usually precise in designating its name. However, there were times when they failed to state the name of the Court of Arbitration accurately. However, this lack of accuracy occurs in regards to the designation of other Courts of Arbitration in the world as well. Admittedly, this kind of imprecision makes the arbitration clause to be a pathological one. However, if such an arbitration clause contains all other essential elements, the jurisdiction of the Tribunal and the validity of the arbitration agreement are not affected..

In the case at hand, it is clear that the Parties agreed to resolve their potential disputes by means of arbitration rather than by litigation before a state court. This is not disputed between the Parties. In addition, it is well known that in Belgrade, apart from this Court of Arbitration, there is no other permanent arbitration body for the settlement of disputes having an international business character, nor has such a body ever existed. It is important to note that, on the basis of the arbitration clause in question, the same Parties have already brought a dispute before this Court of Arbitration in Case T-10/06. In that case, [Seller] did not raise a plea contesting jurisdiction and the dispute was finally settled by arbitration.

The Expanded Arbitral Tribunal considers that the Parties have not exhausted the right to settle their dispute before this Court of Arbitration by having already submitted a claim in Case T-10/06. The same parties may refer a different claim on the basis of the same arbitration clause to the Court of Arbitration, and this is exactly what the Parties have done in the case at hand. If the Court of Arbitration were now to decide that it lacks jurisdiction, such a decision would create an unsustainable legal situation due to the fact that on the basis of the same arbitral clause, between the same Parties, and in regards to the same legal relationship (however on a different basis) the two decisions of the Court of Arbitration would be in contradiction. The Court of Arbitration has no legal basis, nor reason to make two different decisions in regards to its jurisdiction. Both Parties in both of the disputes are in the same legal position in relation to the validity of the arbitral clause (in eadem causa esse).

The Expanded Arbitral Tribunal considers that the arbitration clause in question is a result of the Parties' insufficient carefulness, rather than their intent to limit or exclude the settlement of their disputes by arbitration. The true intent of the Parties was to have a "Court of Arbitration attached to the Chamber of Commerce" settle their dispute and render an award. In relation to that question there was no dilemma. This interpretation of the abovementioned clause corresponds to the considerations of fairness in legal operations and to the common intent of the Parties,, which was expressed by the arbitration clause in question.

Relying on the reasoning presented above and having in mind the arbitral practice of this Court of Arbitration, as well as the practice of other internationally renowned arbitral institutions in relation to this question, the Expanded Arbitral Tribunal applied the well-known principle of useful effect, according to which the provision of an arbitration agreement should be interpreted in the sense which gives it a certain effect (here - the settlement of the arbitral dispute), and not in the sense that deprives it of any effect at all. Every other interpretation of the arbitration clause in the case at hand would lead to the callous infringement of the basic principle of contract law - the principle of good faith and fair dealing, which this Court of Arbitration does not condone. Due to the abovementioned reasons, the Expanded Arbitral Tribunal has unanimously decided to "cure" the pathology of the arbitration clause in question by giving it correct meaning and sense.

This decision on the plea contesting jurisdiction is made pursuant to Article 19 of the Rules, Article 28 paragraph 1 and Article 30 of the LA and in the generally accepted principle of "Kompetenz - Kompetenz" (the authority of the Tribunal to decide on its own jurisdiction), which has been further specified in Article V paragraph 3 of the European Convention on International Arbitration (Geneva, 21 April 1961; hereinafter European Convention 1961). On the basis of the abovementioned argument, the Expanded Arbitral Tribunal decided to refuse the plea contesting jurisdiction.

2. Appointment of Arbitrators

In his submission of 27 June 2007, [Buyer] appointed [...] as his arbitrator in this dispute.

[Seller], to whom the Statement of Claim was duly delivered on 25 June 2007 together with the Rules and the List of Arbitrators, was requested to submit an Answer to the Statement of Claim and appoint an arbitrator. [Seller] submitted an Answer to the Statement of Claim, however, [Seller] failed to appoint an arbitrator within the specified 30-day time limit. After the expiration of the specified time limit, the Chairman of the Court of Arbitration [...], pursuant to Article 22 paragraph 2 of the Rules, appointed [...] from the List of Arbitrators as [Seller]'s arbitrator.

The arbitrators named by the Parties signed statements that they accepted the appointment as arbitrators in this dispute, as well as statements that they are independent in regards to the Parties and that no circumstances or situation exist that might give rise to doubt with respect to their impartiality and independence, pursuant to Article 25 paragraph 1 of the Rules. Pursuant to Article 22 paragraph 4 of the Rules, the arbitrators have been requested by the Secretariat to appoint a third arbitrator as the Chairman of the Tribunal from the List of Arbitrators within 30 days.

The arbitrators [...] have appointed [...], a specialist in the field of international commercial contracts, as the third arbitrator and the Chairman of the Tribunal. On 11 October 2007, [...] signed a statement accepting the appointment as arbitrator and the Chairman of the Tribunal in this dispute and a statement of independence in regards to the Parties.

The Secretariat duly delivered the statements of the Chairman and members of the Arbitral Tribunal to the Parties. Within 15 days, as provided by Article 25 paragraph 3 of the Rules, the Parties did not submit any objections to the appointment of the Chairman and members of the Arbitral Tribunal. Accordingly, the constitution of the Arbitral Tribunal was completed.

3. Arbitration proceedings, statements and evidence presented by the Parties

      1.) On 5 June 2007, [Buyer] submitted a Statement of Claim against [Seller] to the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce in Belgrade. [Buyer] requested the Court of Arbitration to order [Seller] to pay damages in the amount of 114,819.45 €, with interest which the European Central Bank stipulates for debts in Euros, on the following amounts: for the amount of €77,383.33 the interest was to be paid as of 24 May 2005 until the final payment, and for the amount of €37,436.12 the interest was to be paid as of the submission of the claim until the final payment. [Buyer] also requested costs of the procedure to be reimbursed to him.

[Buyer] stated in the claim the following: On 7 October 2002, [Buyer] concluded Sales Contract No. 3585 with [Seller] and an Annex No. 1 to this Contract on 9 December 2002. According to the Contract, [Seller] was required to sell and deliver to [Buyer] 671 tons of white crystal sugar of Serbian origin, 2002 harvest. Apart from the other documents regarding the goods, [Seller] was required to provide a certificate of origin of the goods - EUR 1, as evidence of the agreed origin of the sugar. It noted that in several successive deliveries until the end of March 2003, [Seller] delivered the agreed goods and provided a EUR 1 for each successive delivery, which was issued by the Customs Administration of the Republic of Serbia. However, in the middle of August 2004, the Government of the Republic of Serbia communicated about 5,000 suspicious cases of the export of sugar into the EU which were followed by EUR 1 forms to the Customs Administration. The European Anti-Fraud Office (OLAF) demanded an explanation regarding the validity of the EUR 1 forms issued. After the subsequent inspection, the Customs Administration RS sent report No. 01/13 No. D-908/1 of 19 January 2005 to [Seller] informing him that it withdrew the certificate of origin (EUR 1) for 168 tons of sugar. After the withdrawal of the certificate of origin (EUR 1), there was no basis for a favored treatment of the acquired and imported sugar, therefore, the competent customs organs of Italy instructed [Buyer] (as the buyer and importer of the sugar in question for which EUR 1 was withdrawn) to pay 66,369.60 € in the name of customs with VAT and due interest up to 24 May 2005 in the amount of 9,013.73 €. [Buyer] stated that, due to all these circumstances, he suffered damages in the amount of 1,550 € and 5,886.12 € and that tax costs amounted to 30,000 €.

In addition to the claim, [Buyer] also submitted the following items of evidence:

      -    The Sales Contract between the Parties, with Annex No. 1
      -    EUR 1 forms;
      -    Bills of lading;
      -    Certificates;
      -    Statements of the sugar factory on the origin of the sugar;
      -    Dispositions for dispatch of the goods, information of the Customs Administration RS on the results of the export control;
      -    [Buyer]'s Information (objection) submitted in regards to the finding of the Customs Administration RS;
      -    The judgment of the tax commission in the G. Province No. 99/2/06 made in regard to [Buyer]'s appeal;
      -    Notification of the Customs Agency in G. of 24 May 2005 with an order to pay the customs and VAT;
      -    Policy of judicial deposit of the [name of a company ] company 9-34122;
      -    Payment invoices: No. 126/07 of 30 March 2007 for the amount of 2,773.72 €, No. 51/2006 of 8 May 2006 for the amount of 100 €, No. 172 of 20 October 2005 for the amount of 499.20 € and No. 280/05 of 23 September 2005 for the amount of 2,613,20 €.

[Buyer] has not submitted with his claim, nor until the conclusion of the hearing, the evidence of the payment of tax nor of the payment of costs - premium for the issuance of the policy of judicial deposit.

In his submission of 3 July 2007, [Buyer] increased his claim to 124,843.98 €, with interest which the European Central Bank stipulates for: the amount of 81.224,12 € without determination of the time period for which [Buyer seeks interest, and for the amount of 43,619.86 € with interest from the submission of the claim until the final payment. He requested the reimbursement of the costs of the proceedings as well. With this document he submitted: Receipts of the Department for the payment of tax No. XX T 126111 of 18 June 2007 for the amount of 76,657.63 € and No. XX T 127386 of 19 June 2007 for the amount of 8,260.58 €.

The Statement of Claim and document increasing the amount of claim were duly delivered to [Seller].

      2.) On 9 July 2007, [Seller] submitted a written answer without submitting any evidence. This answer and [Seller]'s objections in the submissions of 25 July and 10 September 2007 are referred to in the Statement of Reason of this Award in Section 1 - Jurisdiction of the Court of Arbitration. They are all related to the plea contesting jurisdiction.

      3.) In his submission of 17 July 2007, [Buyer] responded in greater detail to the raised plea contesting jurisdiction. His positions are stated in Section 1. - of this Award.

      4.) In the submission of 10 September 2007, [Seller] contested the basis and the amount requested in the claim. [Seller] stated that proceedings between the Parties have already been held on the same basis before this Court of Arbitration, under Case No. T-10/06, and terminated by an award of 27 November 2006 and that the [Seller] paid "... the entire amount of damages which were claimed under this basis." He contested the [Buyer]'s claim in regard to the unpaid customs, due to the fact that previously [Buyer] requested a smaller amount on the same basis. He asserted that [Buyer] had come to an agreement with the customs organs in his country to pay under a favored condition just the amount of 16,592.25 €. This sum was already the subject matter of the abovementioned claim before this Court of Arbitration. The [Seller] disputed the obligation to pay the costs of the guarantee and the fees for legal representation. He particularly stated that he is not obliged to pay 32,489.65 € for tax, since [Buyer] has not paid this sum. In reference to Article 279 paragraph 1 of the Serbian LCT, [Seller] contested [Buyer]'s right to interest. [Seller] emphasized that in the entire business operation regarding sale and delivery of sugar there is no fault on his part, due to the fact that he performed his contractual obligations in good faith and professionally.

In [Seller]'s opinion, the Customs Administration RS, on its initiative, conducted a subsequent inspection and verification of the issued certificates of origin of goods and then withdrew the issued certificate EUR 1. Therefore, there is no responsibility or fault on the part of [Seller], so he should not be ordered to pay the requested amount to [Buyer]. [Seller] requested the Tribunal to dismiss the claim as unfounded. He requested reimbursement of the costs of arbitration, however, he did not specify their amount nor did he provide evidence on that subject. As evidence of his assertions, he suggested the examination of the records of Case T-10/06 before this Court of Arbitration. [Seller] submitted [Buyer]'s letter of 13 January 2006 as evidence.

      5.) In his submission of 25 October 2007, [Buyer] contested all of [Seller]'s assertions from the previous submission. He emphasized that "... there [was] a difference in the subject matter between the dispute in the case at hand and the dispute in the proceedings No. T-10/06 ..." In Case T-10/06, [Buyer] requested the amount he had paid for the penalties, while in the present dispute he requested the amount he had paid for the customs, interest and costs. In [Buyer]'s claim, he specified the main debt in the amount of 124,843.98 € with interest stipulated by the European Central Bank for: the amount of 66,369.60 € as of 18 June 2007 until final payment, for the amount of 14,485.52 € as of 19 June 2007 until the final payment, and for the amount of 43,619.86 € as of the submission of claim until the final payment. He also requested the reimbursement of the costs of the proceedings - the sum that they amount to until the end of the proceedings. He also submitted evidence: Notification of the imposed administrative measure towards [Buyer] in the amount of 66,369.00 € which was issued by the director of the Customs Department in G. under No. 48/2005.

      6.) In the submission of 7 November 2007, [Seller] reiterated all of the above-mentioned reasons upon which he disputes the basis and the amount requested in the [Buyer]'s claim. [Seller] did not make any new assertions. He did not submit any new evidence. He requested the Tribunal to refuse the [Buyer]'s Statement of Claim as unfounded.

      7.) The hearing was scheduled and held on 23 January 2008, in the presence of the Parties' counsel.

The Arbitral Tribunal, at its own initiative, verified whether this Court of Arbitration had jurisdiction over the present dispute and whether the dispute was arbitrable rationae personae rationae materiae. The Tribunal decided that the Parties may freely dispose with the subject of the claim.

            7.a.) Arbitrability rationae personae. In the assessment of the arbitrability in regard to the Parties, the Arbitral Tribunal started off with the fact that the Parties to the present dispute were from different countries. In their countries they represented national legal entities - legal entities within the sense of the domiciliary regulations of the country in which they were established and registered. Different countries have granted them the status of a legal entity, whereby they have fulfilled the requirement to be a party in the dispute pursuant to Article I paragraph 1(a) of the European Convention of 1961, and the conditions provided for in Article 12 of the Rules and Article 3 paragraph 1 of the LA.

            7.b.) Arbitrability rationae materiae. When examining the arbitrability rationae materiae, the Arbitral Tribunal first turned to the essence of the legal relationship between the Parties, determined by their Contract No. 3585, its execution and the substance of the claim. After analyzing the abovementioned elements, the Arbitral Tribunal has concluded that the backbone of this legal relationship between the Parties is a classical sales contract on the export of goods. Their legal relationship is in no way special or specific in order for it to be excluded from the term: international business relationship - international commercial business, nor does it fall within the scope of exclusive jurisdiction of the state courts, as provided for in the relevant legal acts.

According to the Arbitral Tribunal, it is not disputed that 1.) the substance of the legal relationship is an international commercial business relationship; 2.) there is no exclusive jurisdiction of the state courts for the settlement of this dispute provided by relevant legal acts; and 3.) the Parties can freely dispose of the right which is the subject of this dispute. In this way, a unique ruling was made that all the requirements for the objective arbitrability of the dispute have been met pursuant to the abovementioned provisions of European Convention 1961 as well as the conditions laid down in Article 5 paragraph 1 of the LA and Article 1 paragraph 1 and Article 12 of the Rules.

After the assessment of the arbitrability of the dispute, the deliberation on the merits of the dispute began in the presence of the Parties' counsel. Before the hearing was held, the Extended Arbitral Tribunal made a ruling on the refusal of the plea contesting jurisdiction. This ruling was read to the Parties, and copies of the minutes of the hearing before the Expanded Arbitral Tribunal were delivered.

At the hearing, the counsel remained with their assertions and proposals made in their written submissions. They did not request an additional evidentiary proceeding. They agreed that the Serbian substantive law should be applied. [Buyer] requested to be reimbursed for the amount of the costs he had paid.

Counsel stated that they did not have objections to the composition of the Arbitral Tribunal. The Arbitral Tribunal made a ruling to examine the evidence by reading all the documents submitted by the Parties and to read Case T-10/06. All the submitted evidence has been read. The hearing was then concluded. The minutes of the hearing have been signed without any objections.

On 23 January 2008, the Arbitral Tribunal met in camera. At that occasion, the evidence was assessed and the Tribunal made the award.

4. Substantive law

The arbitration clause was silent with regard to the choice of substantive law. The Parties' counsel agreed at the hearing that the substantive law of the Republic of Serbia should be applied in the present dispute.

Acting in accordance with the agreement between the Parties, and keeping in mind Article VII paragraph 1 of the European Convention of 1961, Article 50 paragraph 4 of the LA and Article 48 paragraph 3 of the Rules, the Arbitral Tribunal was obliged to also take into consideration the trade usages which might be applied to the present dispute and underlying transaction..

As the question of "hierarchy of regulations" was considered not to be essential, and in accordance with the abovementioned obligation to settle the dispute, this Arbitral Tribunal has applied:

      1. The terms of Sales Contract No. 3585;

      2. The United Nation Convention on Contracts for the International Sale of Goods, Vienna, 11 April 1980 (hereinafter: Vienna Convention 1980). It was ratified by both Italy and Serbia. According to the international standardized practice and domiciliary regulations of the States, the Vienna Convention is to be applied directly (without recurring to the conflict of law rules);

      3. The Principles of European Contract Law - PECL, published in 1998 and 2002, also known in practice as: the Ole Lando Principles (as it will be further referred to) - as a generally accepted part of the lex mercatoria;

      4. The UNIDROIT Principles of International Commercial Contracts, 1994, with later amendments, hereinafter: UNIDROIT Principles - as lex mercatoria;

      5. The UNCITRAL Model Law on International Credit Transfers of 1992. (UNCITRAL, XXV session in 1992 - documents of the UN General Assembly - Supplement No. 17 (A/47/17) hereinafter: UML on International Credit Transfers - as lex mercatoria.

      6. The Law on Contracts and Torts, Official Gazette of SFR Yugoslavia, No. 29/1978, with later amendments, which is now applied as the law of the Republic of Serbia.

The Ole Lando Principles are interpreted and applied together with the UNIDROIT Principles (adopted in 1992 by the International Institute for the Unification of Private Law) and the Vienna Convention of 1980. This also applies to the UML on International Credit Transfers.

The Arbitral Tribunal paid due regard to the widely known fact that from the end of the 20th and the beginning of the 21st Century there could be noted a development and harmonization of a new international commercial practice and trade usages which was "codified" in the form of the abovementioned UNIDROIT Principles, UML on International Credit Transfers and Ole Lando Principles. They became available to everyone who performs international business transactions as well as to those who arbitrate disputes in the field of international commerce. Respectable Arbitral Tribunals in the world (especially the ICC Court of Arbitration) have long since made awards pursuant to these Principles and arbitrated disputes between Parties by applying these principles as lex mercatoria. Considering that there is no reason for this Court of Arbitration to keep avoiding their application, the Arbitral Tribunal has decided to interpret these principles in regard to the present dispute, to apply them and to arbitrate in accordance with their contents and aims.

The Arbitral Tribunal has commenced with the undisputed and clear obligation laid down in Article VII paragraph 1 of the European Convention of 1961 that trade usages should be applied "to all cases". The Tribunal also respected the obligation laid down in Article 50 paragraph 4 of the LA, accordance to which it "shall always take into account the terms of the contract and usages", as well as the obligation contained in Article 48 paragraph 3 of the Rules that it "shall make the award in accordance with the provisions of the contract, and it shall take into account trade usages that may be applicable to the transaction". Considering that trade usages represent the "hard core" of lex mercatoria, that they are modern, widely accepted and that their content is to the greatest extent harmonized in the abovementioned Principles, the Arbitral Tribunal, decided to primarily apply the abovementioned Principles as trade usages, in addition to the Sales Contract. However, the Tribunal did not neglect the mandatory norms of the substantive law chosen by the Parties (Serbian Law on Contracts and Torts).

Considering that, absent the adequate provisions of the substantive law chosen by the Parties, both the Principles and UML on the International Transfer of Funds can provide more up-to-date and modern solutions for the dispute at hand, that they "determine the general principles for international commercial contracts ... they may be used for interpreting and complementing the internationally unified rules ..." as well as for "interpreting and complementing the provisions of national law", the Arbitral Tribunal strongly supports the application of the abovementioned Principles in this dispute - as lex mercatoria.

By applying the Principles in accordance with their meaning, the Arbitral Tribunal has found that they contain solutions for the questions disputed between the Parties.

5. Procedural law

The Parties had the chance to make a free choice of rules to govern the proceedings before this Court of Arbitration. They were entitled to make such a choice pursuant to Article IV paragraph 1 (b) - iii - of the European Convention 1961.

As the Parties have not determined the procedural law in the arbitration clause, the Arbitral Tribunal acted pursuant to Article 45 paragraph 1 of the Rules and applied the Rules to the proceedings before this Court of Arbitration, as stated in the reasoning of this Award.

6. The disputed questions

The Arbitral Tribunal has identified the following questions as disputed between the Parties:

      1. Is [Seller] justified in objecting that in Case T- 10/06 settled before this Court of Arbitration [Buyer] was awarded damages which he is now claiming again (res iudicata objection)?
      2. Is the claim founded and what is the amount of claim?
      3. Is the claim for the interest on the main debt founded and at what rate?
      4. Does the [Buyer] have the right to be reimbursed for the costs of the proceedings and to what extent?

7. Position of the Arbitral Tribunal in regard to the disputed questions

      7.1. Res iudicata objection

      Before deciding on the subject matter of this case, the Arbitral Tribunal has read the records of the proceedings before this Court in Case No. T-10/06.

After reading the records of the above mentioned case, the Arbitral Tribunal has concluded that there is no identity of claims between Cases No. T-10/06 and No. T-9/07.

Admittedly, [Buyer] and [Seller] were parties to both proceedings and they appeared in the same roles (as Claimant and Respondent). It is also correct that the legal relationship between the Parties was defined by the same Sales Contract No. 3585 of 7 October 2002. In both disputes [Buyer] claimed damages.

According to the legal reasoning of this Arbitral Tribunal, the mere fact that the proceedings in relation to the same legal grounds were conducted earlier between the same parties does not suffice to determine the identity of disputes. It is necessary to determine whether in the prior proceedings [Buyer] was awarded the entire amount for damages, in all of its aspects and in the total amount, or just a part of it.

After reviewing the records of the Case No. T-10/06 the Arbitral Tribunal determined that [Buyer] claimed the amount of 16,592.25 €, which was awarded to him under the award carrying the same number, rendered on 27 November 2006. From the report of the claim and the documents submitted with the claim it was determined that in that case [Buyer] based his claim on the documents concerning the payment of the administrative penalties to the authorities of his country. He informed [Seller] of this in a letter dated 13 January 2006, specifically stating that it concerns a penalty and not the payment of customs duties or other damages. From the written reply sent to [Buyer], dated with the same date, [Seller] literally stated that he considered [Buyer]'s decision "to pay one-fourth of the penalty" to be rational. From receipt No. 7/A of 31 January 2006 in the name of [Buyer] and inspection sheet of the Central institute of the National Bank of Italy of the same date (pages 16 and 17 in that case), it was determined that [Buyer] paid an administrative penalty in the amount of 16,592.25 €. From the statement of reason of the award under this number, it can also be seen that the dispute concerned a penalty and not the payment of customs duties and costs in regards to the customs procedure.

The previously requested and awarded amount of 16,592.25 € in the dispute between the same parties before this Court of Arbitration is therefore of no relevance.

In the current dispute, [Buyer] does not claim the amount paid for the penalty, which he paid on 31 January 2006, but rather the amount of 76,657.73 € paid on 18 June 2007 for the customs duties with interest and the amount of 8,260.58 € which he paid on 19 June 2007 for the costs of customs procedure. By conducting proceedings for the damages he had incurred by paying the penalty, [Buyer] did not exhaust his right to claim newly incurred damages or to commence new proceedings on a different basis - on the basis of paid customs, interest and costs which he subsequently had to pay. The Arbitral Tribunal has analyzed and qualified the prior and current claims and found that they are not identical in regard to the legal basis and the documents on which they are based. By conducting proceedings of one dispute for one part of the material damages, the party does not lose the right to claim the remaining amount for damages. Any other interpretation would deny the party the right to claim damages which it later incurred or the entire amount of damages, which does not have justification in the applied substantive law. On the basis of all of the abovementioned reasons, [Seller]'s objection of res iudicata has been refused as unfounded.

      7.2. The basis of the claim

      In regard to the circumstances of the basis of the claim, the Arbitral Tribunal has determined the following:

On 7 October 2002, the Parties concluded Sales Contract No. 3585 according to which [Seller] was required to sell to [Buyer] a certain amount of "white crystal sugar of Yugoslav origin, harvest 2002". According to the same contract [Seller], was required to provide the specifically stipulated documents regarding the goods, among which is also the certificate of origin of goods - EUR 1. That was not disputed between the Parties. [Seller] exported the agreed goods in the period of end of 2002 until March 2003. With each successive delivery it provided a certificate of origin in the form EUR -1, which it obtained from the competent bodies - Federal Customs Administration. From the memo of the Customs Administration of the Republic of Serbia 01/13 No. D-908/1 of 19 January 2005, the Arbitral Tribunal has determined that the Customs Administration has acted in accordance with the order of the Ministry of Finance and conducted a subsequent inspection of the issued certificates of the origin of goods - EUR-1. All this occurred after the request of the European Anti-Fraud Commission (OLAF), which suspected that some certificates (around 5,000) were not valid. The subsequent inspection determined that for 7 certificates it was not possible to confirm the national origin of the exported good which [Buyer] bought.

      -    From the judgment of the Tax Commission of the Province of G. No. 99/2/06 of 28 September 2006, the Arbitral Tribunal concluded that [Buyer]'s appeal in regard to the act of the Tax Department of 24. May 2005 on the determination of the customs and VAT for the goods for which the form EUR -1 was withdrawn in the amount of 66.396,60 €, was refused.
 
      -    From the receipt of payment No. XX T 126111 of 18 June 2007, issued by the competent authority in Italy, it was established that [Buyer], on the date of issuance, paid 76.657,63 €.
 
      -    According to receipt no. 127386 of 19 June 2007, it was established that [Buyer] paid interest, fees, and costs in the amount of 8,260.58 €.
 
      -    The invoice of the law firm L. No. 126/07 of 30 March 2007 and invoice No. 280/05 of 23 September 2005, the Arbitral Tribunal has established that [Buyer] paid 2,773.72 € and 2,613.20 € for the costs for representation in the proceedings before the commission of the Province of G.
 
      -    According to receipt R.C.A representation and insurance consulting - S.r.l., No. 51/2006 of 8 May 2006 it was determined that [Buyer] paid a 100.00 € fee for the verification of documents.
 
      -    According to receipt no. 172 of 20 October 2005, the Arbitral Tribunal established that [Buyer] paid 499.20 € for the appeal before the Tax Commission of the Province of G.

According to this evidence, the Arbitral Tribunal established that [Buyer] paid the total amount of 90,904.91 € for the fees of the customs, VAT and other necessary expenses in regards to it.

[Buyer] failed to provide evidence that he had paid the difference up to the total amount of the claim, which amounts to 33,939.07 €.

The amount of 90,904.91 € paid represents damages which [Buyer] incurred due to the withdrawal of EUR - 1 by the customs organs of Serbia by which a certain quantity of the acquired sugar lost its favored treatment, so [Buyer] had to pay for it an import custom with VAT. Due to these reasons, [Buyer] also had other expenses mentioned above.

In examining the legal basis of the obligation to pay damages which [Buyer] incurred:

      -    The Arbitral Tribunal commenced with Articles 9.501 and Article 9.502 of the Ole Lando Principles according to which the aggrieved party is entitled to damages for loss caused by the other party's non-performance which is not justified. The general measure of damages is such a sum that would put the aggrieved party in the closest possible position to the one in which it would have been if the contract had been duly performed. The Arbitral Tribunal does not have any doubts in regard to whether [Seller] could reasonably foresee the possible consequences of the non-performance of his obligation to deliver sugar "of Yugoslav origin, harvest 2002" at the time of the conclusion of the Contract. As a professional businessman he ought to have reasonably foreseen such consequences. [Seller] ought to have foreseen that the non-performance of his contractual duties could make [Buyer] responsible before the authorities of his country until the payment of the penalty and subsequently assessed customs, and in connection to that the costs incurred in his country.
 
      -    The same rights to damages due to non-performance of the contract are granted to the aggrieved party (in this case [Buyer]) pursuant to Article 7.4.1 and Article 7.4.4 of the UNIDROIT Principles. The right to damages is more closely specified in these Articles exclusively or in conjunction with other remedies. [Seller] did not invoke the exclusion of his liability and he did not prove that conditions for the exclusion of liability are fulfilled. The provisions regarding foreseeability of harm (Article 7.4.4) provide that the non-performing party is liable only for harm which it foresaw or could reasonably have foreseen at the time of the conclusion of the contract as being likely to result from his non-performance. [Seller], who professionally does business, certainly falls in to the category of people who could have at the conclusion of the contract foreseen and expected the consequences for the contracting party due to non-delivery of goods whose origin is not in conformity with the contract.
 
      -    The provisions of Chapter II of the Vienna Convention of 1980 (Article 35(1), Article 36(1), Article 45(1)(b) and Article 74.) have clearly determined that apart from the goods, the seller (here respondent) must provide the buyer (here claimant) with the specified documents in regard to the goods. It is undisputed that certificate EUR-1 falls within these documents, which should verify that the exported sugar is of "Yugoslav origin, harvest 2002." It is only on the basis of an accurate document that [Buyer] would not be required to pay the subsequently determined customs, which is the economical effect relevant for him, which cannot be disregarded.
 
      -    [Seller] was required to provide [Buyer] with the specified documents regarding the goods which can in a credible manner prove the Yugoslav origin of the goods, harvest 2002. [Seller] was obliged to deliver the goods in conformity with the quality and origin required by the contract. Only such goods could have the favored treatment in regard to the exemption of custom duties. Any other goods of the same quality which is not of "Yugoslav origin, harvest 2002" would not have had a favored treatment. That is why [Buyer] had to pay customs and VAT for the imported goods. According to the Arbitral Tribunal's opinion, the contract provision concerning the goods of Yugoslav origin, harvest 2002 is an essential element of the contract. Respondent as a Seller is liable for the non-conformity of goods which existed at the time of the passing of the risk to Claimant as the Buyer, even though the lack of conformity became apparent only after that time, which was the case in the present dispute. In accordance with Article 45(1)(b) and Article 74 of the Vienna Convention of 1980, [Buyer]'s right to damages is undisputed and the amount of the damages has been proven.

According to the Arbitral Tribunal there are no fundamental differences in the obligation to pay damages which occurred due to non-performance of the contract on the part of the Seller who at the time of the conclusion of the contract as a reasonable person could have foreseen, regardless of the legal basis which the Arbitral Tribunal invokes. All three documents: the Ole Lando Principles, UNIDROIT Principles and the Vienna Convention of 1980 regulate the obligation to pay damages which can be foreseen at the time of the conclusion of the contract in a similar manner.

There are no fundamental differences between the three mentioned documents and the LCT in regard to damage that occurred due to breach of a contract. Article 262 paragraph 1 and 2 and Article 266 of the LCT determine the basic right of the obligee in the obligational relationship to demand the fulfillment of an obligation, and obligor (in this case: Respondent as the Seller) is required to fulfill the obligation in good faith as it is specified. If it fails to do so, the obligee (here: Claimant as the Buyer) has the right to demand damages which it incurred, if the other party had to foresee such harm as a possible consequence of the breach of contract, due to the facts that were known to it or that it should have known. This Arbitral Tribunal, in regard to the evidentiary material in this case, had no dilemma whether [Seller] knew or could have known that in Italy sugar is imported under a favored treatment and that there is a financial consequence for [Buyer] if [Seller] does not deliver goods which are in conformity with the conditions of the contract, especially in regard to the origin and the type of harvest.

Under Article 510 of the LCT, [Seller] is also responsible for the restriction of the public law nature, - for the payment of customs on the goods which had defects in regard to its origin and which it did not delivered in conformity with the contract. [Buyer] also had the right to invoke the [Seller]'s responsibility for the defects in case when it admitted the right of his country to the subsequently determined customs even without the notification of the [Seller] or the dispute.

Assessing the [Seller]'s actions during entire performance of the contract, the Arbitral Tribunal has concluded that the [Seller] has not acted in accordance with the principle of good faith and fair dealing, on which all of the modern legislation is based, This principle is also accepted by the acts that the Arbitral Tribunal invokes as the legal sources of substantive law on the basis of which it decided this dispute.

Pursuant to the evidence put forward and by applying the provisions of the mentioned Principles, Vienna Convention of 1980 and the LCT, the Arbitral Tribunal has unanimously reached the decision - as is stated in the operative part of this Award under 1.

The claim in the amount of 33,939.07 € is rejected as unfounded, which is stated in the operative part of this Award under 3. [Buyer] did not submit any evidence to prove that he actually paid that amount.

      7.3. Right to interest

      The Arbitral Tribunal recognizes [Buyer]'s right to interest according to:

      -    Article 9.508 of the Ole Lando Principles;
      -    Article 7.4.9 of the UNIDROIT Principles;
      -    Article 78 of the Vienna Convention 1980;
      -    Article 2 paragraph 1 (m) of the UML on International Credit Transfers; and
      -    Article 277 paragraph 1 and Article 279 paragraph 2 of the LCT.

All of these provisions are very similar. All of them provide in a very similar manner that the obligor must pay the interest on the debt, payment of which is delayed.

      -    Article 9.508 of the Ole Lando Principles determines that if payment of a sum of money is delayed, the aggrieved party is entitled to interest on that sum from the time when payment is due to the time of payment at the average commercial bank short-term lending rate to prime borrowers prevailing for the contractual currency of payment at the place where payment is due.
 
      -    Article 7.4.9 of the UNIDROIT Principles provides that the rate of interest shall be the average bank short-term lending rate to prime borrowers prevailing for the currency of payment at the place for payment, or where no such rate exists at that place, then the same rate in the State of the currency of payment. In the absence of such a rate at either place the rate of interest shall be the appropriate rate fixed by the law of the State of the currency of payment.
 
      -    The Vienna Convention of 1980 in Article 78 establishes the obligation of a party whose payment is in arrears, to pay interest on that amount, without further specification of the interest rate and of how it is to be determined.
 
      -    Article 277 paragraph 1 and Article 279 paragraph 2 of the LCT, as well as the prior regulations and Principles, provide that the obligor who is in delay with payment is obliged to pay the default interest for the main debt from the date that it became due, and for the amount of interest that is not paid it can demand a default interest from the day that the claim for its payment was submitted to the court.

As none of the abovementioned Principles and regulations determine the interest rate, but rather make it definable, and because as of March 2001 there is no law in Serbia to fix such a rate for claims in a foreign currency, in the determination of the interest rate the Arbitral Tribunal has relied on the abovementioned principles as a safe indicator how to determine such a rate.

Article 9.508 of the Ole Lando Principle, as well as Article 7.4.9 of the UNIDROIT Principles clearly address the "short term lending rate" which the Arbitral Tribunal has accepted as the method in which to determine the interest rate. Having in mind Article 2 paragraph 1 (m) of the UML on International Credit Transfers, by which interest is defined as a time value of the funds or money involved, which, unless otherwise agreed, is calculated at the rate and on the basis customarily accepted by the banking community for the funds or money involved, therefore for the Euro. The Arbitral Tribunal is only left to determine the average interest rate.

In order to determine this, the Arbitral Tribunal, on its own initiative, acquired the Statistical Report of the European Central Bank for December 2007 (http://www.ecb.int) according to which it determined how the amounts of the interest rate (EURIBOR) have changed from the submission of the claim until the end of November 2007 - when the information was given to the Report. In the specified time period the interest rate of the Central European Bank was variable. The Arbitral Tribunal took as the most realistic interest rate for the time period from the submission of the claim until the end of November 2007, until the information existed, and determined the average interest rate of 4.62% - as stated in operative part of this Award under 1.

      7.4. Costs of the proceedings

      [Buyer] requested the costs of the proceedings: registration fee and arbitration fee, and compensation for representation before the arbitration. In the list of expenses which it requested for the representation for the writing of the claim and three submissions it requested 22,500.00 RSD for each, and for the representation at the hearing 23,500.00 RSD and 5,000.00 US$ for fees.

[Seller] did not request reimbursement of costs.

From the case record, the Arbitral Tribunal has determined that [Buyer] paid US $200,00 with the exchange rate set on 8 June 2007 for registration, and for the arbitration fee for the claim it paid: 3,413.24 € with the exchange rate set on 21 June 2007 and 190.00 € with the exchange rate set on 18 July 2007.

By comparing the calculated legal fees with the Advocates' tariffs for the payment and reimbursement for the advocates' work of the Republic of Serbia (Official Gazette of Serbia and Montenegro No. 5/2006), the Arbitral Tribunal determined that [Buyer]'s counsel requested 22,500.00 RSD for each legal act and not 21,150.00 RSD., as he has the right to. It is an insignificant difference, however, without basis.

Assessing that [Buyer] in this dispute has succeeded in 72.8% of the claim, the Arbitral Tribunal has granted his request for reimbursement of arbitration costs and costs of representation, as is stated in operative part of this Award under 2.

8. Finality and validity of the Award

Pursuant to Article 56 paragraph 1 of the Rules this award is final. According to Article 64 paragraph 1 of the Law on Arbitration this award has the effect of a final and binding court decision.

Belgrade, 23 January 2008. Arbitral Tribunal:
No. T- 9/07
President: signed
 
Members of the Tribunal: signed


FOOTNOTES

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

** Jovana Stevovic is a student at the University of Belgrade Faculty of Law. Dr. Vladimir Pavic is an Assistant Professor of Private International Law and Arbitration, and Milena Djordjevic, LL.M. (U. of Pittsburgh) is a Lecturer of International Commercial Law at the University of Belgrade Faculty of Law.

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