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CISG CASE PRESENTATION

Russia 30 June 2009 Arbitration proceeding 11/2009 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/090630r1.html]

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

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Case identification

DATE OF DECISION: 20090630 (30 June 2009)

JURISDICTION: Arbitration ; Russian Federation

TRIBUNAL: Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 11/2009

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russia

BUYER'S COUNTRY: Japan

GOODS INVOLVED:


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 7(2) ; 8 ; 12 ; 81(2) ; 84(1) ; 96

Classification of issues using UNCITRAL classification code numbers:

Unavailable

Descriptors: Unavailable

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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 (Russian): Russian legal database <http://base.consultant.ru/cons/cgi/online.cgi?req=doc;base=ARB;n=133120>

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [first draft]

The CISG Translation Network

Decision of the Arbitration Court of International Commercial Arbitration
at the Russian Federation Chamber of Commerce and Industry

June 30, 2009, no. 11/2009

Translation [*] by Anastasia Konina [**]

A company incorporated under the laws of Japan (hereinafter referred to as the [Buyer]) has filed a complaint for the refund of money against an Open Joint Stock Company incorporated under the laws of the Russian Federation (hereinafter referred to as the [Seller]) in the Arbitration Court of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry (hereinafter referred to as “ICAC”).

As indicated in the claim and the documents attached to it, the parties have entered into a contract for the supply of goods in accordance with the terms of which the [Seller] was to deliver the goods FCA Asha station (INCOTERMS 2000).

Following the execution of the contract the [Seller] drew an invoice on the [Buyer] for 100% of the purchase price payable upfront. The [Buyer] paid the invoice by payment order.

In accordance with the contract terms the carrier provided the container for the loading of the goods. The [Seller] then notified the [Buyer] of the delay in loading the goods due to the delay of the delivery of raw materials, necessary for the manufacture of the goods. The goods were not delivered.

The [Buyer] sent an e-mail to the [Seller] claiming the return of the upfront payment due to the non-delivery of the goods. The [Seller] notified the [Buyer] that the payment would be transferred within seven banking days following the receipt of the original of the [Buyer]'s request to return the payment.

In accordance with the DHL tracking waybill, the original of the request has been received by the [Seller], although up to the present day the upfront payment has not been returned.

Acting in accordance with the clause of the contract that provides for the resolution of the disputes by the Arbitration Court of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry (Moscow), the [Buyer] has filed a claim for the recovery of the upfront payment; penalties for the failure to deliver the goods in accordance with the contract in the amount of 10% of the purchase price of the non-delivered goods; interest in accordance with Article 395 of the Civil Code of the Russian Federation for 166 days of delay in delivery at the annual rate of 7%; attorney fees; the ICAC fees.

In its answer the [Seller] has raised defenses against the claims alleging that the [Buyer] failed to make the payment within the term provided in the invoice. In accordance with the contract the payment was to be made within five banking days from the date when the invoice was faxed to the buyer. In accordance with the contract, in case of the late payment the parties shall agree upon the new period for the loading of the goods, and if the parties fail to reach the agreement, the contract is deemed terminated. Having exchanged the letters, the parties agreed to return the upfront payment, acknowledging herby that the contract was terminated. The [Seller] asserted that due to the termination of the contract, the obligations of the parties have terminated and in accordance with Article 453 of the Civil Code of the Russian Federation the [Buyer] is not entitled to the refund of the upfront payment.

The [Seller] has also asserted that the [Buyer]'s claim for penalties and interest are meritless, because they are not supported by any evidence.

The [Seller] also denied the claim for attorney fees, because the dispute is not complex and does not involve major time commitments and expenses on the part of the [Buyer].

In the preliminary hearing the representatives of the parties confirmed that, although the claim and answer refer exclusively to the Civil Code of the Russian Federation, that does not imply that the UN Convention on the International Sale of Goods (1980) (CISG) does not apply to the contract. In addition, the representative of the [Buyer] informed the ICAC that in his additional submissions he made reference to the CISG.

The representative of the [Seller] conceded that the [Buyer] was entitled to claim the refund of the upfront payment under Article 487(3) of the Civil Code of the Russian Federation and Article 81 of the CISG, however he raised defenses against the other claims of the [Buyer].

Challenging the claim for the recovery of the penalty for failure to deliver the goods, the representative of the [Seller] pointed out the lack of evidence confirming the refusal of the [Seller] to deliver the goods and insisted on the defense raised in the answer that the [Buyer]'s late payment of the invoice caused the delay in the payment for the raw materials.

The representative of the [Buyer] denied the late payment of the invoice. The [Seller] had to draw a new invoice because the original invoice failed to state the right quantity of the goods. The [Buyer] informed the [Seller] of the mistake by e-mail. The second invoice was paid within five banking days in accordance with the contract. To support the timely payment, the representative of the [Buyer] made a reference to the [Seller]'s letter, in which the [Seller] apologized for the failure to comply with the delivery schedule. The letter did not refer to any delay on the part of the [Buyer]. Moreover, the representative of the [Buyer] insisted that the failure to deliver the goods was entirley the fault of the [Seller] because the [Seller] failed to perform any actions to deliver the goods.

The representative of the [Seller] denied having drawn the second invoice on the date indicated by the [Buyer].

Based on the provisions of the contract that provided for the penalty in case of an arbitrary refusal to deliver the goods and Article 8 of the CISG, the representative of the [Buyer] alleged that the [Seller]'s failure to deliver the goods constituted a refusal to deliver the goods and that it triggered the application of the contractual provisions for payment of the penalty.

In support of the claim for 7% annual interest for the retention of funds, the representative of the [Buyer] introduced an interest calculation spreadsheet that suggested that the interest rate for short-term foreign currency loans was 7.1%. In support of the suggested interest period calculation the representative of the [Buyer] stated that the period of 166 days is calculated from the date when the delivery should have been made up to the date of the claim,although, based on the CISG, the [Buyer] could have claimed interest for 189 days.

The representative of the [Seller] conceded that the [Buyer] was entitled to interest, but at the same time he made a motion under Article 333 of the Civil Code of the Russian Federation to reduce the interest. The representative of the [Buyer] challenged the motion for the reduction of interest, stating that Article 333 applies only to penalties.

In support of the claim for the refund of attorney fees the representative of the [Buyer] introduced a website printout with the hourly rates for legal services in the Moscow region. In addition to the ICAC claim the [Buyer] has worked on the motion for provisional measures. The representative of the [Buyer] insisted on the reasonableness of the attorney fees for the Moscow Region because they constituted less than 10% of the amount in controversy.

The representative of the [Seller] stated that the amount claimed for attorney fees was too high. In support of its statement he referred to the [Buyer]'s statement on the non-complexity of the case and the [Seller]'s requested for the hearing of the case by a sole arbitrator. In addition, in accordance with the [Seller], the attorney fees include services not connected with the court proceedings, in particular, enforcement of the award.

Opinion of the Arbitration Court.

Having analyzed the case and heard the oral arguments of the representatives of the parties during the proceedings, the ICAC made the following conclusions.

Having considered the question of jurisdiction, the ICAC decided that the contract has an effective arbitration clause. It is evident that by referring to the “Arbitration court of Russia” in both languages the parties meant the [Arbitration Court at] Chamber of Commerce and Industry of the Russian Federation in Moscow. Therefore, the ICAC concluded that the the parties agreed to the ICAC as the Arbitration Court.

In addition, since the current dispute relates to a contract for the international sale and purchase of goods and the place of business of the [Buyer] is abroad (in Japan), the dispute falls under the category of disputes which in accordance with Article 1(2) of the Federal Law of the Russian Federation on International Commercial Arbitration and Article 2(1) of the ICAC's Rules can be heard by the ICAC.

For the foregoing reasons and in accordance with Article 1(2) and Article 7(2) of the Federal Law of the Russian Federation on International Commercial Arbitration and Article 2(1) and Article 2(2) of the ICAC's Rules, the ICAC concluded that it had jurisdiction to hear the case.

Having considered the issue of the applicable law, the ICAC decided that it was resolved by the parties in the arbitration clause of the contract. In both versions of the contract the parties have chosen Russian Federation law as the applicable law.

In accordance with Article 28(1) of the Federal Law of the Russian Federation on International Commercial Arbitration and Article 26(1) of the ICAC's Rules, the ICAC resolves the disputes in accordance with the applicable substantive law that was agreed by the parties. Therefore, the rights and obligations of the parties under the contract were governed by Russian Federation law.

In accordance with Article 15(4) of the Constitution of the Russian Federation international treaties of the Russian Federation form part of its legal system. Since the contract is for the delivery of goods by the Russian company to the Japanese company, the ICAC finds that the rights and obligations of the parties under the contract are governed by the United Nations Convention on Contracts for the International Sale of Goods of 1980 (CISG), ratified by the Russian Federation.

CISG applies to the contracts of sale of goods between parties whose places of business are in different States when these states are Contracting States or when the rules of private international law lead to the application of the law of a Contracting State (Article 1(1) of the CISG). As was noted above, the Russian Federation is a Contracting State. In accordance with the official publication of UNCITRAL, Japan has joined the CISG, but it becomes effective on August 01, 2009. Therefore, the application of the CISG to this contract is possible only because the contract is governed by Russian Federation law and the parties have not excluded the application of the CISG in accordance with Article 6.

The ICAC notes that in the claim and the answer the parties make references exclusively to the Civil Code of the Russian Federation, but in the additional submissions made during the proceedings the [Buyer] supported its claim by making references to the CISG. During the preliminary hearing both parties confirmed that they did not exclude the application of the CISG to the contract.

For the foregoing reasons and in accordance with Article 1(1)(b) of the CISG, the ICAC concluded that the rights and obligations of the parties are governed by the CISG. In accordance with Article 7(2) of the CISG the ICAC decided that questions that are not expressly governed by the CISG shall be governed by Russian Federation law which was chosen by the parties as the applicable law.

3. Having considered the [Buyer]'s claim for the recovery of the upfront payment for the non-delivered goods the ICAC decided as follows.

The contract provided that the buyer shall make the upfront payment in the amount of 100% of the purchase price within five banking days from the date of the issue of the invoice which shall be sent by fax.

The case materials and the submissions made by the parties during the proceedings confirm that the invoice was issued and sent by e-mail and was paid by the [Buyer].

The ICAC found that the parties disputed whether the invoice was paid by the [Buyer] within the term provided by the contract. The [Seller] alleged that the [Buyer] failed to make a payment within the term provided by the contract. The [Buyer], making reference to the e-mail that was sent to the [Seller] and introduced by the [Buyer] during the hearing, alleged that he was not able to make the payment due to the mistake in the quantity of the goods and the [Seller] e-mailed him an amended invoice with the unchanged issue date and the payment date. The ICAC finds that both parties failed to prove the events that took place during the payment of the invoice.

The case materials and the submissions made by the parties during the hearing confirm that the [Seller] failed to deliver the goods to the [Buyer] within the contract term and within the additional timefixed by the [Buyer]. Due to the [Seller]'s failure to deliver the goods, the [Buyer] sent an e-mail to the [Seller] claiming the refund of the upfront payment. In its reply letter to the [Buyer] the [Seller] agreed to return the payment.

The ICAC found that the exchange of letters by the parties was an agreement in writing for the avoidance of the contract. Article 434(2) of the Civil Code of the Russian Federation provides that the parties can enter into an agreement by means of electronic exchange of documents. The parties must comply with the requirement that is set out in Article 162 of the Civil Code of the Russian Federation and that directly follows from Articles 96 and 12 of the CISG that the agreement to terminate the contract for the international sale of goods entered by the party with the place of business in the Russian Federation must be made in writing.

In accordance with Article 81(2) of the CISG, avoidance of the contract entitles a party who has performed the contract either wholly or in part to claim restitution from the other party of whatever the first party has supplied or paid under the contract. The [Buyer]'s right for the restitution of the upfront payment was confirmed by the representative of the [Seller] during the hearing.

For the foregoing reasons and in accordance with Article 81(2) of the CISG, the ICAC finds that the [Buyer]'s claim for the refund of the upfront payment for the non-delivered goods is well-pleaded and the [Buyer] is entitled to the refund.

4. Having considered the [Buyer]'s claim for the recovery of the penalty, the ICAC found the following.

In accordance with the contract the seller had to pay to the buyer a penalty in case of the arbitrary failure to deliver the goods in the amount of 10% of the purchase price for the non-delivered goods. This contract clause complies with the provisions of the Civil Code of the Russian Federation on penalties (Article 330(1)).

The case materials confirm that the [Seller] failed to deliver the goods on time in breach of the contract. The [Seller] also failed to comply with the written promise it made to the [Buyer] to deliver the goods in the additional period. The ICAC was not presented with any documents that could confirm that the buyer refused to accept delivery of the goods. To the contrary, the correspondence between the parties indicates that the [Buyer] and the [Seller] made attempts to agree new delivery terms. In accordance with Article 8(3) of the CISG in determining the intent of a party or the understanding a reasonable person would have had, due consideration is to be given to all relevant circumstances of the case including, among other things, the negotiations. The case materials confirm that the [Seller] intended to deliver the goods and not to refuse to deliver the goods. The [Buyer] initiated the avoidance of the contract by claiming the return of the upfront payment due to the failure of the [Seller] to deliver the goods on time.

For the foregoing reasons, the ICAC cannot agree with the [Buyer] that the [Seller] refused to deliver the goods by omission to act. The ICAC acknowledges that the contract clause that limits the penalty to cases of a refusal to deliver the goods cannot be extended to cases of the failure to deliver the goods on time caused by the termination of the contract by agreement of the parties.

Since the parties dispute whether the [Seller]'s failure to deliver on time was caused by the [Buyer], who, as alleged by the [Seller], failed to pay the invoice on time, the ICAC deems it necessary to note that, taking into account the aforesaid, the cause of the failure to deliver the goods on time is irrelevant for the resolution of the penalty dispute between the parties.

For the foregoing reasons the ICAC dismisses the claim for the payment of penalty.

5. When considering the [Buyer]'s claim for the payment of interest, the ICAC relied on the lawfulness of the [Buyer]'s claim for the refund of the upfront payment, determined in part 3 of this opinion. In accordance with Article 84(1) of the CISG if the seller is bound to refund the price, he must also pay interest on it, from the date on which the price was paid.

The [Buyer] claimed interest for 166 days of late delivery starting from the date following the delivery date up to the date the claim was filed. The [Buyer] claimed a shorter interest period than it was entitled to under the CISG.

The CISG (Article 78) does not contain any provisions on the interest rate and its computation. Moreover, the CISG lacks any general principles that would decide these issues. For these reasons the ICAC by virtue of Article 7(2) of the CISG, decided to apply the rules of the gap-filling law- Russian substantive law. In accordance with Article 395(1) of the Civil Code of the Russian Federation the interest rate is determined in accordance with the bank discount interest rate at the place where the creditor is located. In accordance with paragraph 52 of the Decision of the Plenum of the Supreme Court and the Supreme Arbitrazh Court of Russia, dated July 01, 1996 N 6/8 "On Certain Questions Relating to the Application of Part 1 of the Civil Code of the Russian Federation,” in the event of unavailability of the official discount interest rate and/or the publication in the official sources of information on mean short-term foreign currency credit interest rate applicable in the place where the creditor is located, the amount of interest shall be determined in accordance with the letter issued by one of the leading banks in the place where the creditor is located, confirming the short-term foreign currency credit interest rate applied by this bank. The ICAC determines, that the spreadsheet calculation introduced by the [Buyer] can be considered as such a letter confirming the short-term foreign currency interest rate in the currency of the payment.

In accordance with Article 395(1) of the Civil Code of the Russian Federation the interest rate is determined as of the date of the payment. In accordance with the case materials, by accepting the offer of the [Buyer] to terminate the contract, the [Seller] indicated that the amount of the upfront payment will be refunded within seven banking days following the receipt by the [Seller] of the original of the letter from the [Buyer]. The original of the letter was received by the [Seller] in accordance with the DHL tracking waybill. Therefore, the application of the bank interest rate closest to the date of payment complies with the law.

ICAC finds that the interest calculation was performed by the [Buyer] correctly.

The ICAC acknowledges that during the proceedings the [Seller] conceded that the [Buyer] had the right to recover interest, but the [Seller] introduced a motion for the reduction of the interest amount in accordance with Article 333 of the Civil Code of the Russian Federation.

The ICAC considers that such a motion cannot be upheld based on the following grounds.

First of all, the recovery of interest on unpaid sums under the CISG (Article 78) and the Civil Code of the Russian Federation (Article 395) are substantially different. The CISG provides for the recovery of damages without prejudice to the recovery of interest, while the Civil Code of the Russian Federation provides for the recovery of the damages if they exceed the interest. A generally recognized approach of international trade that is reflected in the UNIDROIT Principles of International Commercial Contracts (Article 7.4.9(1)) is that a failure of a party to pay a sum of money when it falls due entitles the aggrieved party to interest upon that sum from the time when payment is due to the time of payment whether or not the non-payment is excused. The rules of the Civil Code of the Russian Federation, that are applied as gap-fillers, as well as commentary to them, prepared by the Plenums of the Supreme Court and the Supreme Arbitrazh Court shall be applied in accordance with Article 7(2) of the CISG only to matters that are not expressly settled in the CISG or cannot be settled in conformity with the general principles on which it is based. As was explained above, only the determination of the interest rate and its computation are matters that shall be determined in accordance with the gap-filler law. The interest that is recoverable under the CISG cannot be classified as a penalty because, first of all, the CISG does not govern matters of the application of a penalty and also, because in the Civil Code of the Russian Federation the rules on interest can be found in the chapter entitled "The remedies for the breach of obligations" while in the CISG the interest rules can be found in a separate section out of the scope of the section on remedies.

The claim for the reduction of interest under Article 333 of the Civil Code of the Russian Federation could have been meritorious if the interest rate that was agreed by the parties exceeded the average interest rate and, accordingly, the excess part could have been classified as a penalty. In the present case, however, the [Buyer] clams interest in accordance with the interest rate determined by the rules of Civil Code and explanations given by the Supreme Court and the Supreme Arbitrazh Court as to the application of those rules and in accordance with case law.

Secondly, the [Buyer] reduced the amount of interest by reducing the number of days that entitle him to the payment of interest and by applying an interest rate reduced by 0.1%.

Thirdly, the interest claimed by the [Buyer] constitutes 3.2% of the upfront payment.

Based on the foregoing and in accordance with Article 84(1) of the CISG, Article 395 (1) of the Civil Code of the Russian Federation, the ICAC finds the [Buyer]'s claim well-pleaded and awards the interest to the [Buyer].

6. Having considered the claim for attorney fees, the ICAC found that this claim is based on the contract entered into between the [Buyer] and the closed joint stock comany. The subject-matter of the contract is legal services: drafting of the complaint and representation in the ICAC proceedings in order to resolve the dispute with the [Seller] and the enforcement of the award.

The case materials confirm that the amount claimed by the [Buyer] represents an upfront payment made by the [Buyer] for drafting of the complaint and the representation in the ICAC proceedings.

In accordance with Paragraph 9 of the Schedule on Arbitration Fees and Costs (Attachment to the ICAC Rules) a winning party is entitled to claim that the losing party shall pay its reasonable attorney fees, incurred in the arbitration proceedings, in particular, the costs related to attorney fees.

Whereas the [Buyer] was awarded partial relief and whereas the case did not require examination, drafting and submission of a substantial amount of documents (the contract provided for a single delivery and a single payment) and one proceeding was sufficient to hear the case, the ICAC finds that it is reasonable and fair to attribute the [Buyer]'s attorney fees to the [Seller].

7. In accordance with Article 10(3) of the ICAC Rules the amount in controversy does not include the recovery of the arbitration costs and fees and the cost of the parties. During the proceedings the ICAC found that the [Buyer] mistakenly included the attorney fees in the amount in controversy.

In addition, the ICAC found that at the time of the filing of the claim there was no agreement between the parties that their claim will be heard by a sole arbitrator and the amount in controversy exceeded the amount that enables the ICAC Presidium to decide that the case shall be heard by a sole arbitrator (paragraph 17(2) of the Schedule on Arbitration Fees and Costs). The arbitration fee was determined by the ICAC and paid by the [Buyer] in full.

In accordance with Paragraph 4(1) of the Schedule on Arbitration Fees and Costs if the case is heard by a sole arbitrator, the arbitration fee is reduced by 20% subject to Paragraph 4(4) of the Schedule.

8. In accordance with Paragraph 6(2) of the Schedule on Arbitration Fees and Costs if the [Buyer] is awarded partial remedy, the arbitration fee is charged to the [Seller] in proportion to the amount of the relief granted and to the [Buyer] in proportion to the amount of the relief not awarded.

Decision of the ICAC

Based on the foregoing and by virtue of Paragraphs of 37 - 39 of the Rules, the Arbitration Court of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry

DECIDED AS FOLLOWS:

  1. To recover from the Defendant - a Russian Open Joint Stock Company in favor of the [Buyer] – a Japanese company:

  2. To deny the recovery of the penalty for the failure to deliver the goods.
  3. To return to the [Buyer] the arbitration fee paid in excess of the required fee.

FOOTNOTES

* All translations should be verified by cross-checking against the original text.

** Anastasia Konina has completed her LL.M in International and Comparative Law at the University of Pittsburgh School of Law in May 2015. She received a Bachelor of European and International Law degree in 2009 and her Master of European and International Law degree in 2011 from the Moscow State University of International Relations (MGIMO-University).

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