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CISG CASE PRESENTATION

Serbia 15 July 2008 Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce (Milk packaging equipment case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/080715sb.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 20080715 (15 July 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 -4/05

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Switzerland (claimant)

BUYER'S COUNTRY: Serbia (respondent)

GOODS INVOLVED: Equipment for packaging of milk


UNCITRAL case abstract

SERBIA: Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce (Milk packaging equipment case) 15 July 2008

Case law on UNCITRAL texts [A/CN.9/SER.C/ABSTRACTS/103],
CLOUT abstract no. 1021

Reproduced with permission of UNCITRAL

The plaintiff, a Swiss company, contracted to lease equipment for packaging of milk to the defendant, a Serbian company. Under the terms of the contract, the buyer had to pay half of the price 15 days before the delivery, the remaining sum being payable in quarterly instalments within five years upon invoices issued by the seller. In addition, the buyer was requested to order prescribed quantities of packaging from the seller for five years. In case the buyer failed to perform this obligation, the contract provided for payment of liquidated damages. The contract did not prescribe the conditions of purchase of the packaging, but only the quantity to be purchased and the amount of liquidated damages to be paid in case smaller quantities were to be ordered. Furthermore, the contract provided that "the equipment is to remain the property of the seller until the expiration of the agreed period, or until the fulfillment of the conditions of purchase of the packaging and its timely payment".

The buyer failed to perform its contractual duties on several occasions, even though the seller warned him to do so: it did not make the payments it was supposed to and it ordered less packaging than it was obliged to under the contract. The parties attempted to reach a mutually acceptable solution, but the buyer failed to perform timely payment. Therefore the seller commenced arbitration proceedings requesting termination of the contract, return of the leased equipment and payment of costs and liquidated damages. The buyer alleged that the contract had been modified and that a form of settlement had been reached. However, neither in its submissions to the arbitrator nor at the hearings, did the buyer ever put forward any counterclaims against the seller.

Since the parties had not chosen the law applicable to the contract, the arbitrator determined that Serbian law -- thus the CISG, pursuant to Article 1 (1) -- was applicable to the case. Given the language of the contract (Serbian), the place of performance of substantial part of the obligations (Serbia) and the fact that the Serbian subsidiary of the seller had a relevant role in the performance of the contract, the Serbian law was mostly connected to the contract. However, the contract was to be considered an "international transaction" (as per Article 1 CISG). Since the seller had more than one place of business, the one most closely connected to the contract and its performance (Article 10 CISG) was the headquarters in Switzerland (it conducted the negotiations, signed the contract, delivered the machine and received the payment). Incidentally, the arbitrator noted that although the Serbian law on the ratification of the CISG uses the term "seat" instead of "place of business", for the purpose of the uniform interpretation of the Convention, the Serbian translation should be interpreted in accordance with the terminology used in the official languages of the Convention.

The CISG was applicable even if the parties had named their contract "Leasing Contract" and the seller in its submissions referred to the contract as a lease. The agreement was to be considered a sale of goods, with the price being paid in instalments and a provision of retention of property over the delivered goods by the seller until complete performance of the contractual obligations. Payment in advance of one-half of the price and the fact that the buyer would become the owner of the equipment upon payment of the last instalment (rather than being in the position to purchase the object of the contract after payment of the last instalment) corroborated this interpretation. The interpretation was also consistent with foreign judicial practice, which was to be taken into consideration for the uniform application of the Convention, on the basis of Article 7 (1) CISG. (The arbitrator quoted the case of the Australian Federal Court for South Western Australia Roder Zelt- und Hallenkonstruktionen GmbH v Rosedown Park Pty and Reginald Eustace ((1995) 57 FCR 216, 240 (FCA)).) Since the Convention does not deal with the effect of the contract on the property of the goods sold (Article 4 CISG), the question of the retention of property over the delivered goods by the seller was to be decided according to Serbian law.

Based on evidence, the arbitrator noted that the parties had negotiated on the performance of the contract even after their submissions to the arbitrator. Through its "Statement of Claim", the seller had given the buyer an additional period of time for performance of its contractual obligations. As a result, the seller could have avoided the contract only upon the expiration of this additional period of time under Article 64 (1)(b) of the Convention. This additional period of time, of about four months, was reasonable as per the meaning of Article 63 CISG. However, the seller failed to declare avoidance: its behaviour, pursuant to Article 8 CISG, indicated that it wanted the contract to remain in force. The provisional measure obtained by the seller from the Commercial Court in Kraljevo, ordering the restitution of the equipment, was a way to put pressure on the buyer. This equipment was eventually handed over to the seller and the contract was at that point avoided in accordance with Article 64 (1)(b) CISG. Therefore, the arbitrator could not decide on the avoidance of the contract, as requested by the seller, but only acknowledge the moment of avoidance.

Pursuant to Article 81 (1) CISG, restitution in case of avoidance can be ordered only in respect of those performances for which it is claimed. While the seller requested restitution of the machine returned, the buyer failed to request the restitution of what it had paid for the machine until the moment of avoidance. Therefore the buyer was ordered to deliver the machine with all accessories.

The seller's request for payment of the lease-price for usage of the equipment from the moment of delivery to the moment of commencement of arbitration was unfounded. The arbitrator considered the request as a request for compensation of damages (Article 74 CISG) or as a request for restitution based on unjust enrichment. The seller failed to prove the occurrence of damage due to the buyer's breach of contract, or the profits acquired by the buyer by usage of the equipment. The seller also failed to submit evidence to determine the amount of the machine's depreciation, as well as evidence on lost profits, because the machine was in the possession of the buyer, and on the amount of benefit that the buyer had obtained keeping possession of the machine until the moment of avoidance of the contract.

As to the request of liquidated damages for failure of the buyer to purchase packaging, the arbitrator noted that pursuant to the principle of party autonomy (Article 6 CISG) the parties can freely stipulate the amount of compensation to be paid in case of non-performance or untimely performance of the contractual obligation. The arbitrator thus granted the seller's claim, although not in the amount requested by the seller. Pursuant to Article 78 CISG, the seller's request of "domiciliary interest" was also granted.

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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 4 ; 7(1) ; 8 ; 10 ; 26 ; 63(1) ; 64(1) ; 74 ; 78 ; 81(1) [Also cited: Article 6 ]

Classification of issues using UNCITRAL classification code numbers:

4B2 [Scope of Convention: sale, definition of; Issues excluded: effect of contract on property (retention of title clause); liquidated damages];

7B [Materials for interpretation: international case law];

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

10A [Multiple places of business: closest relationship to contract and performance];

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

63A [Setting an additional final period for buyer's performance];

64A21 [Grounds for avoidance: buyer does not pay or take delivery within additional period set by seller under art. 63];

74C [Other problems associated with claims for damages: proof of damages];

78A [Interest on delay in receiving price or other sum in arrears];

81D [Restitution by both parties: concurrent exchange (need to plead in order to receive)]

Descriptors: Scope of Convention ; Sale, definition of ; Property in the goods ; Liquidated damages ; Internationality ; Intent ; Business, places of ; Nachfrist ; Avoidance ; Damages ; Interest ; Restitution

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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

Croatian: [2008] Vladimir Pavić, Milena Djordjević, Primena Becke konvencije u arbitraznoj praksi Vanjskotrgovinske arbitraze pri Privrednoj komori Srbije, Pravo i gospodarstvo br. 6/2008

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

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

Award of 15 July 2008 [Proceedings No. T-4/05]

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

Claimant (Switzerland) [Seller] v. Respondent (Serbia) [Buyer]

The Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce in Belgrade, sole arbitrator [...], in a dispute concerning the claim of the [Seller] against the [Buyer] for return of "leased equipment" and payment of EUR 97,311.50 with interest and costs of the proceedings, upon the conducted arbitration proceedings and hearings of 29 February 2008, 4 April 2008, 7 May 2008 and 6 June 2008 ... makes the following

AWARD

(1)    It is determined that the "Leasing Contract" concluded on 18 June 2002 between the [Seller] and the [Buyer] was avoided on 16 April 2007.
 
(2)    The [Seller]'s claim is partially granted and, within 15 days from the day of receipt of the Award, the [Buyer is ordered to:
 
   -   Return the equipment for packaging of milk, namely, a refurbished filler PS 30, a new system of moving belts - conveyers and a new set of spare parts; and
 
   -   Pay EUR 45,654.00 of liquidated damages.
 
(3)    The [Seller]'s claim is partially refused as ungrounded:
 
   -    In the amount of EUR 29,166.50, claimed as "lease-price for usage of the equipment"; and
 
   -    In the amount of EUR 22,500.00 claimed as liquidated damages.
 
(4)    Within 15 days from the day of receipt of the award, the [Buyer] is ordered to pay to the [Seller] interest at the annual rate of 3.50% on the amount determined in paragraph (2) of the Award:

   -    On the amount of EUR 10,645.00 as of 4 March 2005;
   -    On the amount of EUR 15,000.00 as of 4 December 2005;
   -    On the amount of EUR 20,000.00 as of 4 December 2006.
 
(5)    The [Buyer] is ordered to pay to the [Seller] EUR 3,250.00 and RSD 113,500.00 for registration fee and the costs of the proceedings within 15 days from the day of receipt of the Award.

STATEMENT OF REASONS

1. Jurisdiction

The jurisdiction of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce in this matter is established by Article 9 of the "Leasing Contract" concluded on 18 June 2002 between the [Seller] and the [Buyer] (hereinafter the Contract). Since the [Buyer] did not submit an Answer to the [Seller]'s Statement of Claim, the Board of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce determined at its meeting of 8 November 2007 that the arbitration agreement is contained in the documents submitted by the [Seller].

Even though the [Buyer] initially failed to submit an Answer to the Statement of Claim, the [Buyer] subsequently participated in the proceedings without contesting jurisdiction. Therefore, the jurisdiction is correctly established pursuant to Article 13 of the Rules of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce (hereinafter the Rules).

2. Appointment of sole arbitrator

The parties failed to determine the number of arbitrators in the arbitration agreement, i.e., whether the dispute is to be settled by a sole arbitrator or a tribunal of three arbitrators. At the time of submission of the Statement of Claim (4 March 2005), the value of the claim was EUR 55,061.50, which was less than US $70,000.00 according to the then valid exchange rate. Pursuant to Article 20(1) of the Rules, in the absence of the parties' agreement on the number of arbitrators, disputes with a value of less than US $70,000.00 are to be settled by a sole arbitrator. Since the [Buyer] failed to submit an Answer to the Statement of Claim, and the parties could not agree upon the person to act as a sole arbitrator, the sole arbitrator was appointed by the Chairman of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce on 13 November 2007, pursuant to Article 27 paragraph 3 of the Rules.

3. Arbitral proceedings

The [Seller] submitted its Statement of Claim to the Court of Arbitration on 4 March 2005, paid the registration fee on 22 March 2006 and the costs of arbitration on 1 December 2006. The Statement of Claim was delivered to the [Buyer] on 17 January 2007 via DHL. The [Buyer] failed to submit an Answer to the Statement of Claim.

The first hearing was scheduled for 29 February 2008, but the [Buyer] failed to make an appearance, even though the [Buyer] was properly notified pursuant to Article 34(3) of the Rules. The arbitrator scheduled a new hearing for 4 April and ordered both parties to deliver all available documents relevant for establishing the facts of the dispute.

The [Seller] was again the only party to appear at the hearing of 4 April 2008. In the meantime, the [Seller] amended its claim. This resulted in the increase of the value of the dispute from EUR 55,061.50 to EUR 97,311.50. Also, at the hearing, the [Seller] submitted a letter sent by fax entitled "Objection", which [Seller] claimed to have received from the [Buyer]. It was addressed to "SCC - Foreign Trade Court of Arbitration - for [name of the sole arbitrator]", and is enclosed among the documents submitted by [Seller]. Considering all the above-mentioned, the arbitrator decided to schedule a new hearing for 7 May 2008, and to allow [Seller] to pay additional costs of arbitration in proportion to the increased value of the dispute. The [Buyer] was sent the notice of the upcoming hearing and asked to clarify whether the letter ("Objection"), which was enclosed with the documents submitted by [Seller], was indeed written by the [Buyer]. [Buyer] did so on 9 April 2008. The authenticity of the letter was confirmed by the [Buyer] at the next hearing.

Both parties appeared at the hearing of 7 May 2008, the [Buyer] being represented by Mr. X, the founder and the sole owner of the [Buyer]. It was acknowledged that the [Seller] failed to pay the additional costs, but since this was due to the wrong calculation for which the [Seller] was not responsible, and considering that the facts on which the original and the amended claim are based are the same, it was decided that the hearing should not be postponed. During the hearing, both parties had the opportunity to present their arguments in regard to all the documents that had been submitted by both parties, answer the questions posed by the arbitrator and address the arguments presented by the opposing party. At the end of the hearing, both parties agreed with the summoning of Ms. Y to the next hearing in the capacity of a witness. The [Buyer] pointed out in advance that [Buyer] would not participate in the next hearing.

The last hearing was held on 6 June 2008, where the witness Ms. Y gave her testimony.

4. Notice of the dispute to the [Buyer]

The [Seller] submitted its Statement of Claim to the Court of Arbitration on 4 March 2005, paid the registration fee on 22 March 2006 and the costs of arbitration on 1 December 2006, after which, on 6 December 2005, an attempt was made to deliver the Statement of Claim to the [Buyer] by registered mail to the address indicated in the Contract. The Statement of Claim was returned to the Court of Arbitration with the note "undelivered." The [Seller] then submitted a new address [in Serbia] to which the delivery to the [Buyer] should be made … After that, the Statement of Claim was delivered to the [Buyer] on 17 January 2007 via DHL. The [Buyer] failed to submit an Answer to the Statement of Claim. On the same day, the Foreign Trade Court of Arbitration received a document from the [Seller], informing it that the [Buyer] had "established contact with Mr. X, the founder and the general manager of the [Buyer], who provided an address [in Luxembourg] to which the Statement of Claim should be sent …"

Later, documents were simultaneously sent via DHL and registered mail to [both addresses of the Buyer], fully in accordance with Article 34(2) and (3) of the Rules. At the hearing of 7 May 2008, at which the [Buyer] was present, Mr. X stated that the house number on the address in Luxembourg to which the documents had been sent was wrong and that was the reason why the [Buyer] had been unable to make an appearance at the hearing of 4 April 2008. When asked by the arbitrator whether this in any way affected [Buyer]'s right to present the case, Mr. X replied that it did not and stated that he was fully capable to present the [Buyer]'s defense. This statement has been duly entered in the record.

All subsequent deliveries were sent simultaneously to [both addresses of the Buyer] Hence, the delivery was performed throughout the proceedings fully in accordance with Article 34 of the Rules.

5. Facts of the case, evidence

It is undisputed between the parties that they concluded a contract entitled "Leasing Contract" on 18 June 2002. It provided that the [Buyer] was to "lease" from the [Seller] one refurbished filler PS 30, one new system of moving belts - conveyers and one new set of spare parts. The [Buyer] was obliged by the Contract to pay the amount of EUR 70,000.00, one-half of the price being payable in advance fifteen days before the delivery, and the remaining sum being payable in quarterly installments within five years upon invoices issued by the [Seller]. In addition, the [Buyer] was obliged to order in the period of five years prescribed quantities of packaging from the [Seller], and in case [Buyer] failed to order these quantities, the Contract provided for payment of liquidated damages. The Contracts did not prescribe the conditions of purchase of the packaging (price, manner and time of delivery, payment terms), but only the quantity to be purchased by the [Buyer] and the amount of liquidated damages to be paid in case smaller quantities were ordered. Article 7 of the Contract provided that "the equipment is to remain the property of the [Seller] until the expiration of the agreed period, or until the fulfilment of the conditions of purchase of the packaging and its timely payment."

The machine was delivered on 4 December 2002 and [Buyer] made a payment of EUR 34,965.00. However, the payment was made after the date envisaged by the Contract, more than month and a half after the delivery of the machine. On 27 January 2003. [Buyer] failed to perform its contractual duties afterwards, even though the [Seller] warned him to do so. It is also undisputed between the parties that the [Buyer] ordered less packaging than [Buyer] was obliged to under the Contract. The packaging was ordered only for the first (157,600 pieces instead of 1,000,000) and, in the second year (663,400 instead of 2,000,000), and no packaging was ordered afterwards.

On 7 October 2006, the owner of the [Buyer] signed a "Statement" by which he obliged himself to "pay the outstanding debt of EUR 35,000 for the machine and the packaging by 31 January 2006 (…)" Several days before this, the [Buyer] had paid an additional EUR 5,000 to the [Seller]'s account. [Buyer] paid EUR 39,965 in total for the machine. The Statement did not specify what the debt for packaging meant, but the wording of the Contract and the facts of the case indicate that it related to the claim of the [Seller] for payment of liquidated damages for non-ordered packaging, which amounted to EUR 55,061.50 according to the Statement of Claim submitted to the Foreign Trade Court of Arbitration.

The [Seller] subsequently submitted a Decision of the Commercial Court in Kraljevo No. 77/05 ordering a provisional measure, on the basis of which another decision (for execution of the provisional measure) was made to return to the [Seller] one refurbished filler PS 30, one new system of moving belts - conveyers, and one new set of spare parts.

It is also undisputed between the parties that they attempted to reach a mutually acceptable solution after the [Buyer] had failed to perform timely payment. In its submission ("Objection" of 9 April 2008) and on the hearing of 7 May 2008, the [Buyer] claimed that it had reached an agreement with the [Seller] to sell the machine, return the amount already paid (EUR 40,000) to the [Buyer], and that the remaining amount should be kept by the [Seller]. To substantiate its clam, [Buyer] submitted a not entirely legible letter faxed on 21 September 2006. The letter was sent on the letterhead of [Seller]'s Serbian subsidiary by Ms. Y, consultant of the [Seller]'s Serbian subsidiary. The [Buyer] alleged that [Buyer] had reached the described agreement with Mr. Y, that she was acquainted with this matter, and suggested that she be summoned to the proceedings in the capacity of a witness, where she would be able to confirm this agreement reached by the parties.

At the hearing of 6 June 2008, Ms. Y, former general manager and later consultant of the [Seller]'s Serbian subsidiary, was heard as witness. She denied that she had ever agreed with the [Buyer] on the modification of the Contract or reached any form of settlement, and stated that she, as an employee of the Serbian subsidiary, and not of the Swiss company, had no capacity to reach such an agreement without a special authorization. She explained that her involvement was of a less formal nature and had the purpose of enhancing the performance of the Contract. The arbitrator finds that the witness's statement is in accord with the wording of the letter sent by fax of 21 September 2006 ("we confirm the consultations of 15 September 2006 on the manner of payment of your debt"), and that the [Buyer]'s claims that the parties have reached a settlement or have agreed to modify the Contract are unfounded. The last sentence in the letter sent by fax is in accord with this testimony: "The Agreement (will be made) after the payment of the debt for the machine and packaging."

6. Applicable law

The parties failed to insert in the Contract a clause on the applicable law.

Pursuant to Article 48(2) of the Rules, in the absence of the parties' agreement on the applicable law, the arbitrator is to apply the law or the rules of law determined by the conflict of laws rules that the arbitrator deems most appropriate to the case. The arbitrator considers that it is most appropriate to apply the law that is most closely connected to the Contract in the present case. The language of the Contract (Serbian), the fact that the place of performance of the substantial part of contractual obligations was in Serbia, and the fact that the Serbian company owned by the [Seller] was obviously active in the performance of the Contract point to the Serbian law as applicable. It is also important that the parties have agreed on the jurisdiction of the Foreign Trade Court of Arbitration attached to the Serbian Chamber of Commerce in Belgrade. On the other hand, the fact that the [Seller], as the performer of the characteristic (non-pecuniary) contractual obligation, has its seat in Switzerland, and that the obligation of the [Buyer] (payment) is to be performed at a Swiss account of the [Seller] point to the Swiss law.

On the basis of the evaluation of the mentioned circumstances, the arbitrator concludes that the most closely connected law is the Serbian law. Since Serbia ratified the UN Convention on Contracts for the International Sale of Goods (the Vienna Convention), which thereby became an integral part of Serbian law, the arbitrator finds that the Vienna Convention should be primarily applied to the Contract, since all the conditions for its application are fulfilled pursuant to Article 1(1) of the Convention: the Contract is of international character, it is a contract for the sale of goods, and the applicable law is the law of a Contracting State (Serbia). In addition, Switzerland is also a Contracting State to the Vienna Convention. The provisions of the Serbian law are subsidiarily applicable.

The first condition for the application of the Vienna Convention is fulfilled since the parties had their places of business in different States (Switzerland and Serbia). Even though the Serbian law on ratification of the Vienna Convention (Official Gazette of the RS - Treaties, No. 10-1/84) uses the term "seat" and not "place of business" as the relevant criterion for application of the Convention, the arbitrator considers that it is necessary, for the purpose of uniform interpretation of the Convention, to interpret the Serbian translation in accordance with the translation in official languages (Eng. place of business). The [Seller] has more than one place of business within the meaning of the Vienna Convention, among others in Switzerland and Serbia. For that reason, it was important to primarily determine which place of business in most closely connected to the Contract pursuant to Article 10 of the Convention. The facts of the case show that the leading role in conclusion and performance of the Contract was performed by the Swiss headquarters of the [Seller] (it conducted negotiations, signed the Contract, delivered the machine from Switzerland, the payment was performed at its account, etc.), while the Serbian subsidiary was only involved in the attempts to reach the settlement regarding an existing debt. Therefore, the arbitrator concludes that the circumstances of the case (even without the need to apply the generally accepted principle in dubio pro conventionae) show that the condition of an international transaction as per Article 1 of the Convention is satisfied.

Further, the Vienna Convention should be applied regardless of the fact that the parties named their contract a "Leasing Contract", and that the [Seller] qualified the Contract in its Statement of Claim and submitted documents as a "lease." The arbitrator is of the opinion that the present Contract is a contract for the sale of goods (machine and spare parts), with the price being payable in installments and a provision on retention of property over the delivered goods by the seller (pactum reservati dominii) until complete performance of contractual obligations. The fact that one-half of the price was paid in advance and that the [Buyer] would become the owner of the equipment upon payment of the last installment (rather than being in the position to purchase the object of the contract - the machine after payment of the last installment) points to the fact that the Contract is a contract for the sale of goods. All of this indicates that the elements of a contract of sale are dominant over elements akin to the elements of a contract of lease in this "Leasing Contract." This position is in accord with foreign judicial practice, which should be taken into consideration for the purpose of achieving uniform application of the Convention, pursuant to Article 7(1) of the Convention. For example, the Australian Federal Court for South Western Australia decided to apply the Vienna Convention to a contract for sale of goods which contained a provision on retention of property over the delivered goods until the complete payment of the contractual price in the case, Roder Zelt- und Hallenkonstruktionen GmbH v Rosedown Park Pty and Reginald Eustace ((1995) 57 FCR 216, 240 (FCA)).

The question of validity of the pactum reservati dominii clause is not regulated by the Convention (Article 4 of the Convention envisages that the effect which the contract may have on the property in the goods sold are not regulated by the Convention), but should be rather appraised under Serbian law, which allows for such provisions.

The Vienna Convention does not deal with the question of validity of the provision on liquidated damages, which are requested by the [Seller]; however, in accordance with the principle of party autonomy (Article 6 of the Convention), it is undisputed that the Convention allows the parties to freely determine the amount of compensation to be paid by the debtor to the creditor in case of non-performance or untimely performance of a contractual obligation. The validity of such a clause is not affected by the application of the Serbian Law on Contracts and Torts, which is based on the same principle (Article 10 of the Law on Contracts and Torts).

7. [Seller]'s claims

In the amended Statement of Claim of 11 March 2008, the [Seller] requested the Arbitration Tribunal to:

(1) Terminate the contract;
 
(2) Order [Buyer] to return to the [Seller] the milk filling equipment (one refurbished filler PS 30, one new system of moving belts - conveyers and one new set of spare parts);
 
(3) Order [Buyer] to pay to [Seller] the amount of EUR 29,166.50 as lease-price for usage of the equipment;
 
(4) Order [Buyer] to pay to [Seller] the amount of EUR 68,145.00 as liquidated damages for the failure to purchase packaging;
 
(5) Order [Buyer] to pay:
 
   -    Interest on the amount of EUR 55,061.50 (the amount of requested lease-price and liquidated damages due at the time of submission of the Statement of Claim) as of 4 March 2005);
 
   -    Interest on the amount of EUR 20,000 (liquidated damages) as of 1 January 2006 and on the amount of EUR 22,500 (also liquidated damages) as of 1 January 2007. The arbitrator notes that the total amount on which the interest is sought is EUR 97,561.50, i.e., EUR 250 more than requested by the amended Statement of Claim;
 
(6) Order [Buyer] to pay the costs of the proceedings.

The [Buyer] submitted a letter entitled "Objection" on 9 April 2008. The [Buyer] did not put forward any counterclaims against the [Seller], but only alleged that the Contract had been modified, and that a form of settlement had been reached. At the hearing of 7 May 2008, the [Buyer] repeated the claims from the above-mentioned letter, without putting forward any claim against the [Seller].

The arbitrator acknowledges that, for the avoidance of a contract, the decision of a court or arbitral tribunal is not necessary. According to Article 26 of the Vienna Convention, the Contract may be avoided by a simple declaration of avoidance sent to the other party, if the conditions for avoidance are satisfied. Hence, the seller is entitled, among other things, to avoid the contract after having set for the buyer an additional period of time for performance of the contractual obligation of payment of the contractual price (Article 64(1)(b) of the Convention).

The evidence suggests that the parties have negotiated on the performance of the Contract even after the Statement of Claim was submitted. The consequence of these negotiations is a "Statement" signed by Mr. X, the owner of the [Buyer] … on 7 October 2005, in which he promised to pay all due sums under the Contract by 31 January 2006. This additional period of nearly four months represents a reasonable and clear time period within the meaning of Article 63(1) of the Convention, by which the [Buyer] was given an additional period of time for performance of its obligations. However, the [Buyer] failed to commence performing its remaining contractual obligations within this period. Even though the [Seller] had the right to avoid the Contract upon the expiration of this additional period of time; [Seller] did not do it until 2007. In the Statement of Claim submitted to the arbitration on 4 March 2005, the [Seller] requested avoidance and performance of the contractual obligations (payment of the remainder of the price). And the subsequent behavior of the [Seller], pursuant to Article 8 of the Convention, indicates that the [Seller] wanted the Contract to remain in force. As a means of putting pressure on the [Buyer], the [Seller] obtained provisional measure No. 77/05 from the Commercial Court in K. on 14 March 2005. The execution of it, however, was postponed several times in order to leave the possibility to the [Seller] to restart the production and repay its debt. At the meeting of 15 September 2006, Ms. Y, the [consultant at the Serbian subsidiary of Seller] informed the [Buyer] that the [Seller] would help the [Buyer] by postponing the execution of the provisional measure if the [Buyer] pays its obligations in an additional period of two weeks - by 30 September 2006. The [Buyer] was thereby clearly informed that the [Seller] would commence enforcement of the provisional measure after the expiration of this period, which would make the Contract effectively avoided. After this, the [Buyer] paid EUR 5.000 on 29 September 2006, but failed to further perform its obligations after 30 September 2006. The [Seller] therefore commenced the execution of the provisional measure and the machine was handed over to the [Seller] by the decision of the court on 16 April 2007, which made the Contract effectively avoided in accordance with Article 64(1)(b) of the Convention. Therefore, the arbitrator cannot decide on avoidance of the Contract, as requested by the [Seller], but can only acknowledge as the moment of avoidance - 16 April 2007.

The avoidance of the Contract releases both parties from their obligations, subject to any damages that may be due (Article 81(1) of the Convention). In case of avoidance, the parties may request the restitution of that which was given under the contract. This was performed only by the [Seller], requesting to have the machine returned (filler, spare parts and moving belts). The [Buyer] failed to request the restitution of EUR 39,965 which it had paid for the machine until the moment of avoidance, either in [Buyer]'s submission or oral pleadings. Pursuant to Article 81(1) of the Convention and the basic principles of arbitration proceedings, restitution can be ordered only in respect of those performances for which it is claimed, and therefore the [Buyer] is ordered to deliver the machine with all accessories (filler, spare parts and moving belts).

The [Seller]'s request for payment of EUR 29,166.50 for lease-price for usage of the equipment from the moment of delivery to the moment of submission of the Statement of Claim is unfounded. Since the arbitrator is not bound by the [Seller]'s legal reasoning, and, in the light of the contractual obligations and the requested restitution from the [Seller], this request can be interpreted only as a request for compensation of damages in the meaning of Article 74 of the Convention or as a request for restitution based on unjust enrichment. The burden of proving the occurrence of damage sustained by the [Seller] by breach of the Contract by the [Buyer] or profits acquired by the [Buyer] by usage of the object of the Contract was on the [Seller], but [Seller] failed to make any of these occurrences certain. The [Seller] failed to submit the evidence from which the market price of the machine, which was the object of the Contract, could be determined, both at the moment of delivery and at the present moment, thus making it impossible to determine the amount of its depreciation, and has failed to submit the evidence on lost profits allegedly sustained from the fact that the machine was in the possession of the [Buyer], and on the amount of benefit that the [Buyer] has obtained due to the fact that the machine was in [Buyer]'s possession until the moment of avoidance of the Contract. In accordance with this, the [Seller]'s claim to receive the "lease" payment in the amount of EUR 29,166.50 is denied.

The Contract also prescribes quantities of packaging that the [Buyer] had to order "in certain years": a minimum of 1,000,000 boxes in the first year "as of the delivery of the machine", 2 million in the second year, 3 million in the third year, 4 million in the fourth year and 4.5 million in the fifth year. For each box ordered under the minimal quantity, the [Buyer] was to pay EUR 0.005.

Since the machine was delivered on 4 December 2002, the obligation to purchase the packaging was due on:

   -    4 December 2003, for 1 million boxes for the first year.
   -    4 December 2004, for 2 million boxes for the second year.
   -    4 December 2005, for 3 million boxes for the third year.
   -    4 December 2006, for 4 million boxes for the fourth year.
   -    4 December 2007, for 4.5 million boxes for the fifth year.

[Seller]'s calculation that all obligations became due at the end of the calendar year, 2002 being the first relevant year, is unfounded, considering that Article 3.1. of the Contract clearly designated the day of delivery of the machine as the first day of commencement of the period.

It is undisputed between the parties that the [Buyer] ordered only 157,600 boxes in the first year, which means that 842,400 boxes less were ordered. In the second year, the [Buyer] ordered 663,400 boxes, which means that 1,336,600 boxes less were ordered. The [Buyer] failed to make any orders in the third year from the envisaged 3 million boxes, and [Buyer] also failed to make any orders in 2006 from the envisaged 4 million boxes. For each non-ordered item, the Contract prescribes a penalty of EUR 0.005.

The [Buyer] never contested the facts of the case, nor the validity of the liquidated damages clause, nor has the [Buyer] objected to their amount. On the contrary, the [Buyer] has several times during the proceedings, and in writing, admitted that the debt arising from the non-ordered packaging, in accordance with the liquidated damages provision, exists. The Vienna Convention does not contain any provisions which could be applied to this legal question, but the principle of party autonomy (Article 6 of the Convention) enables the parties to stipulate freely the amount of compensation to be paid by the debtor to the creditor in case of non-performance or untimely performance of the contractual obligation, as is the case here. The validity of this clause is not contested by the Law of Contracts and Torts of the Republic of Serbia, which is based on the same principle (Article 10 of the Law on Contracts and Torts), and this provisions could not be held contrary to the imperative norms, public policy or customs.

The provisions of the Contract and the facts of the case point that the [Buyer] is obliged to pay to the [Seller] for liquidated damages EUR 10,895.00 for the first two years (as of 4 December 2004) with interest as of 4 March 2005, EUR 15,000 for liquidated damages for the third year with interest as of 4 December 2005, and EUR 20,000 for liquidated damages for the fourth year with interest as of 4 December 2006.

[Seller]'s claim to be paid liquidated damages for the packaging which was not ordered during the fifth year is unfounded, given that the Contract was avoided in its entirety on 16 April 2007, including its provisions on liquidated damages for non-ordered packaging. Since the obligation to order a certain amount of packaging for the fifth year was due on 4 December 2007, the request for payment of liquidated damages for the fifth year in the amount of EUR 22,500 is unfounded.

The arbitrator acknowledges that the [Seller] requested an amount of EUR 68,145.00 for liquidated damages in its amended Statement of Claim, while [Seller] put forward the amount of EUR 68,395,00 in the reasoning which followed the amended Statement of Claim, i.e., EUR 250 less. However, the petitum requested interest, which is equal to an amount increased by EUR 250 compared to the indicated value of the dispute and the amount of claim put forward in the operative part. Considering the fact that the [Seller] paid the costs of the proceedings for the total amount of the dispute of EUR 97,311.50, and not for EUR 97,561.50 and the principle in dubio pro reo, it is decided that the difference of EUR 250 is to be deducted from the amount on which the interest is calculated/ The final amount of liquidated damages awarded is:

   -    EUR 10,645.00 with interest as of 4 March 2005;
   -    EUR 15,000.00 for liquidated damages for the third year with interest as of 4 December 2005; and
   -    EUR 20,000.00 with interest as of 4 December 2006.

8. Costs of arbitration proceedings

In its submission of 13 June, the [Seller] requested compensation of US $200 of registration fee, US $2,968 and EUR 4,485 of costs of arbitration proceedings, and compensation for sums paid for writing of written submissions and representation before the arbitration, and in the proceeding for awarding provisional measure before the Commercial Court in K. The costs sustained in the proceeding for awarding provisional measure were not taken into consideration by the arbitrator, considering that they are not costs of representation before the arbitration, even though they are related to the present proceedings.

Since the value of the dispute as set out by the [Seller] was EUR 97,311.50, and the [Seller]'s claim was partially successful in the amount of EUR 45,895.00, i.e., in nearly one half of the claim, the compensation of costs of arbitration proceedings is awarded proportionately. The arbitrator accepts to award full compensation of costs of representation to the [Seller], since these costs would have been the same had the whole claim been awarded (the fact that the [Seller] did not succeed fully with his claim did not affect the costs of representation).

9. Interest

The [Seller] requested a domiciliary interest at the rate equal to the main refinancing rate of the European Central Bank on all of the amounts requested in [Seller]'s claim, including the part of the claim in which [Seller] succeeded (liquidated damages in the amount of EUR 45,895.00). In accordance with Article 78 of the Vienna Convention, the arbitrator finds that the request is justified, and that the determination of the interest rate in accordance with the domiciliary rate of the currency is already accepted in the arbitral practice of the Foreign Trade Court of Arbitration, and is in accordance with the generally accepted customs for international payments. However, the [Seller] failed to set out the relevant moment for determining the interest rate.

The arbitrator took into consideration the existing practice of the Foreign Trade Court of Arbitration to award the interest in accordance with the relevant domiciliary interest rate. After having reviewed the interest rate data published by the European Central Bank, the arbitrator determined that the average main refinancing rate in the period from the moment of commencement of running of the interest to the first awarded claim (4 March 2005) until the moment of making the Award (15 July 2008) for the part of the claim expressed in EUR was 3.5% annually. Such interest rate was therefore awarded.

10. Finality of the Award

Pursuant to Article 64 of the Law on Arbitration (Official Gazette of the Republic of Serbia No 46/2006) and Article 56 paragraph 1 of the Rules, this arbitral award is final and is not subject to appeal. It has the force of a final decision of a court of the Republic of Serbia.

In Belgrade, 15 July 2008

Sole Arbitrator [Signed]


FOOTNOTES

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

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

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