Russia 3 March 1995 Arbitration proceeding 304/1993 (Implicit agreement on price case) [commentary available]
[Cite as: http://cisgw3.law.pace.edu/cases/950303r2.html]
Primary source(s) of information for this case presentation: Mikhail Rozenberg
DATE OF DECISIONS:
CASE NUMBER/DOCKET NUMBER: 304/1993
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Unavailable
BUYER'S COUNTRY: Unavailable
GOODS INVOLVED: Unavailable
APPLICATION OF CISG: Yes [Article 1(1)(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issues: Articles
Classification of issues using UNCITRAL classification code numbers:
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CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
English: Unilex database <http://www.unilex.info/case.cfm?pid=1&do=case&id=433&step=Abstract>
CITATIONS TO TEXT OF DECISION
Original language (Russian): Rozenberg, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy [Practice of the International Commercial Arbitration Court: Scientific - Practical Comments] Moscow (1997) No. 21 [46-54]
CITATIONS TO COMMENTS ON DECISION
English: Rozenberg, 2 RCL/IPG-LAW (March/April 1995) 10-13 [text provided below]; Petrochilos, Arbitration Conflict of Laws Rules and the CISG (1999) n.76; Saidov, Damages under the CISG (December 2001) n.310; Djakhongir Saidov, 7 Vindobona Journal of International Commercial Law and Arbitration (1/2003) 1-62 at nn.88, 158, 202 ("one of the parties demanded compensation for 'moral harm.' Among several grounds for denial of this claim, was the tribunal's holding that the Convention does not provide for recoverability of 'moral harm' in situations analogous to the situation in the case in question"), 236; Pilar Perales Viscasillas in Ferrari, Flechtner & Brand ed., The Draft UNCITRAL Digest and Beyond, Sellier / Sweet & Maxwell (2004) 277-279 [Art. 55 issues];  Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 14 para. 10
Russian: Rozenberg, Kontrakt mezhdunarodnoj kupli-prodazhi. Sovremennaja praktika zaklijutchenija. Razreshenie sporov [International Sales Contracts], Mezhdunarodnyj centr finansovo-ekonomitcheskogo razvitija, Moscow  45, 61-70; Rozenberg, Kontrakt  46, 63-72; Rozenberg, Kontrakt  39, 48, 66-74, 95
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Reproduced with the permission of the author
by: M. Rozenberg [*]
The award of the International Court of Commercial Arbitration at the RF Chamber of Commerce & Industry (hereinafter referred to as the "ICCA"), cited hereinbelow, was made on March 3, 1995 on Case No. 304/1993. It gives an idea of the complex application by the ICCA of rules or international treaties, conflict of laws rules (rules of private international law) and applicable internal law to a case difficult to settle both from the standpoint of law and fact.
A complex method of analysis applied in the ICCA practice to the settlement of disputes with difficult points of law and of fact, when rules of international treaties and of national law have to be applied, can be clearly seen in the illustration cited hereinbelow (Case No. 304/1993, Award of 3 March 1995).
The relationships as between the parties, wherefrom the dispute has arisen, were set forth in three documents: (1) a supplement to the contract concluded by th[e] parties two years prior to it, with the supplement stating the name, quantity, price and time of delivery of the goods and also giving the [buyer] (buyer) a one-month option to purchase an additional lot of the same goods; (2) the [seller]'s (seller's) telex sent to the [buyer] five months later and providing for a cut in the price of the goods, stated in the supplement, and containing an offer to deliver the additional quantity of the goods in the first quarter of the following year at prices to be agreed upon by the parties ten days before the new year began; (3) the [buyer's] telex confirming the acceptance of the [seller's] offer (sent four days after receipt of the [seller's] telex).
The delivery of the goods, provided for in the supplement, was effected, in the main, at the appointed time. The non-delivered part of the goods was made up in the first quarter of the following year. The price of the additional lot of the goods offered to be delivered by the [seller] in the first quarter of the following year had not been agreed upon by the parties: the [seller] omitted to quote it and subsequently (in January of the following year) advised the [buyer] of the impossibility of the delivery of this additional part. Settlement for the delivered goods was made in accordance with changed prices agreed upon by the parties. The [buyer] failed, however, to pay the [seller] for a part of the price of the delivered goods demanding that obligations relating to the additional lot of the goods be fulfilled.
The [seller's] demands in the statement of the claim contained the price of the unpaid part of the delivered goods and interest on the delayed amount of payment. In the [seller's] view the contract for the delivery of the additional lot of the goods in the first quarter of the following year was not concluded by the parties since they had not agreed on the price. As far as the option is concerned, as was given to the [buyer] in the supplement, the [buyer] failed to avail himself thereof either within the time appointed in the supplement or within the extra time granted him by the [seller].
Considering the [seller's] demand that the delivered goods be paid for in full to be justified, the [buyer] set up the following defense: (1) the [seller] agreed to defer the payment; (2) the contract for the delivery of the additional lot of goods was concluded by the parties and the [seller's] failure to perform it caused the [buyer] losses substantially exceeding the amount of claim; (3) the price of the goods was set in the telexes exchanged by the parties for the definite period of delivery. Presenting in the following year bills for the goods delivered in January at prices provided for in his telex the [seller] thus confirmed his consent to the retention of these prices in the first quarter of the following year, too, and accordingly, to their application to the additional lot of the goods to be delivered. The [buyer] filed a counterclaim including the following demands: (1) compensation to him of damages, caused by the non-delivery of the additional lot of the goods, calculated as the difference between the current market prices, applied in the first quarter of the following year, and the prices set by the exchange of telexes; (2) compensation of moral harm; (3) indemnification of expenses incurred in making attempts to attain an amicable settlement of the dispute.
Objecting to the counterclaim, the [seller] asserted in this principal claim that the contract for the delivery of the additional lot of the goods had not been concluded by the parties and, accordingly the claim of damages caused by its non-performance was unjustified. He also challenged the ICCA competence to consider the demands contained in the counterclaim.
Having considered the materials of the case and heard the parties' explanations, the ICCA came to the following conclusions.
(a) In order to decide whether the consideration of the principal claim and the counterclaim was within the ICCA competence it was in the first place necessary to establish whether the parties made an agreement of this question. Keeping in mind that no separate arbitration agreement had been concluded, the ICCA made a legal analysis of the documents filed by the parties and made a conclusion that the arbitration clause in the parties' contract, to which a reference was contained in the document termed a supplement to this contract, was applicable to both the principal claim and the counterclaim.
Although this document was referred to as a supplement to the contract, in the legal sense it was an independent contract providing for the delivery of the goods of the same name but outside this contract (the delivery of the goods over and above the quantities provided for in this contract, beyond the scope of annual periods appointed in it, at other prices). Along with that the parties' indication in the document that it was a supplement to the contract could not be understood otherwise than signifying the parties' agreement to apply to this delivery all the terms of the contract not contained in the document termed a supplement, including also the arbitration clause of this contract.
The parties' telexes were, by their content, not an independent agreement made by the parties, but an amendment to and specification of the above-said document. Accordingly, the terms of the contract in the part not contradicting to these telexes and of the document termed by them a supplement to the contract were also to be applied to the relationship arising from the latter.
The contract provided for the settlement of disputes arising therefrom, or in connection therewith, in the Arbitration Court at the USSR CCI, Moscow. Under paragraph 4 of the Statute of the International Court of Commercial Arbitration at the RF CCI (Annex 1 to the 7 July 1993 RF Law entitled "On International Commercial Arbitration") the ICCA at the RF CCI shall be the successor of the Arbitration Court at the USSR CCI and be, in particular, competent to settle disputes under the parties' agreements to refer their disputes to the Arbitration Court at the USSR CCI.
The [seller's] argument with regard to the principal claim that the ICCA was not competent to consider the counterclaim cannot be deemed justified. Regardless of whether the contract for the delivery of the additional lot of the goods in the first quarter of the following year would be deemed by he ICCA concluded by the parties, the parties' arbitration agreement, referred to above, remained in effect. Such a conclusion followed directly from articles 7 and 16 of the 7 July 1993 FR "International Commercial Arbitration" Law and paragraph 2 of the Statute of the International Court of Commercial Arbitration at the Chamber of Commerce & Industry of the Russian Federation, as well as from §1 of the Rules of Procedure of the Arbitration Court.
(b) States, wherein the parties' commercial enterprises were situated, were parties to the Vienna Convention as at the date of drawing up the document termed by the parties a supplement to the contract. Taking into account the fact that the parties did not agree otherwise, the relationships wherefrom the dispute arose, were regulated, in virtue of article 1, para. 1, subpara. "a" of the Vienna Convention, by the provisions of this Convention. The application of the Vienna Convention to the issue of the conclusion of a contract (including to the decision whether the contract for the delivery of the additional lot of the goods had been concluded by the parties by the exchange of telexes) was based on article 100 of the Vienna Convention. The proposal to conclude a contract was made in the telex sent after the Vienna Convention had entered into force for the two States.
At the same time rules of national law, determinable under the rules of private international law (conflict of laws rules), were subject to application, in virtue of article 7, para. 2 of the Vienna Convention, to issues, which had not been directly settled therein, and could not be settled in accordance with its general principles.
In compliance with article VII of the 21 April 1961 European Convention on Foreign Trade Arbitration (parties to which are both the Russian Federation and the states where the conflicting parties' commercial enterprises were situated) and with article 28, para. 2 of the 7 July 1993 RF "International Commercial Arbitration" Law the ICCA deemed applicable to issues, which could not be resolved under the rules of the Vienna Convention, the law of the [seller's] country. In doing so, it had the following considerations.
In virtue of article VII of the above-said 21 April 1961 Convention and article 28 of the RF "International Commercial Arbitration" Law, unless the parties stipulate the applicable law under a conflict of laws rule which it deems applicable in such a case.
It followed from the materials of the case and the parties' explanations that they had not made an agreement on the applicable law.
During the session of the Arbitration Court the counsel for the parties requested the Court to determine the applicable law at its discretion.
When deeming applicable the law of the [seller's] country to the principal claim the Arbitration Court (applying the existing conflict of laws rules) considered that the seller of the delivered goods was the [seller] with regard to the principal claim and the place where an agreement was made to make changes in the supplement by exchange of telexes was, under the provisions of the Vienna Convention (article 18, para. 2 and article 23), also the State where the party, the [seller] with regard to the principal claim, has established his main place of business. From the capital of the [seller's] country was sent a proposal to conclude a contract for the additional delivery of goods. Thus, when determining the applicable law the Arbitration Court applied the conflict of laws rules "the law of the seller's country" (lex venditoris), "the law of the place where it is made" (lex loci contractus) and "the law of the place where the contract is to be performed (lex loci actus).
(c) In compliance with the provisions of para. 30 of the Rules of Procedure of the Arbitration Court the ICCA deemed that each party must prove the facts, to which it referred, as the grounds for his claim or defense.
(d) The [seller's] demand with regard to the principal claim was that the recovery of the price of the delivered goods be held subject to satisfaction. It was confirmed by the materials of the case. The [buyer] did not argue against its justification both in principle and in the amount. The legal grounds for its satisfaction were articles 53, 61 and 62 of the Vienna Convention.
(e) The Arbitration Court held subject to satisfaction also the [seller's] demand of interest p.a. on the delayed amount of payment in the principle claim.
Since the Vienna Convention does not provide for the rate of interest on the delayed amount of payment and for the mode of its calculation, and it cannot be determined on the basis of the general principles of the Convention, the Arbitration Court took into account the provisions of the law of the [seller's] country. In doing so the interest was charged not as from the date of the beginning of the delay, but from the date the [seller] revoked the deferment of payment he had allowed the [buyer] up to the date of the actual payment.
(f) When filing a counterclaim as follows from the materials of the case and the explanations of the [buyer's] counsel, the [buyer] proceeded from the fact that a contract for the delivery of the additional lot of the goods in the first quarter of the following year had been concluded by the parties. The analysis of the materials of the case led the Arbitration Court to a conclusion that such a contract had not been concluded by the parties.
Under the Vienna Convention (art. 14) a proposal to conclude a contract must be fairly definitive. It is to be deemed as such if goods are indicated therein, and the quantity and the price, or the mode of their determination, are directly or indirectly provided for in it. The [seller's] telex relating to the deliveries in the first quarter of the following year indicated the goods and their quantity. But it failed to provide for either the price of the goods, or the mode of its determination. The statement in the telex that the prices of these goods would be agreed upon (revised) ten days before the new year began could not be construed as signifying the mode of the determination of the price. It was only the expression of consent to determine the price of goods in future by agreement of the parties. Having confirmed this proposal by his telex, the [seller] thus agreed to the price of these goods being subject to an additional agreement of the parties. Taking into account the above-said, to this case was inapplicable article 55 of the Vienna Convention enabling the price of goods to be determined when it had not directly or indirectly been set in the contract, or the mode of its determination had not been provided for therein. It followed from the [buyer's] confirmation . . . of the [seller's] proposal, as noted above, that the parties implied the necessity to reach an agreement on the price in the future.
It followed from the materials of the case and the explanation by the parties that subsequently (following the exchange of telexes) they had not agreed on the price of this lot of the goods.
The [buyer's] assertion . . . that, having presented bills for the goods delivered in January at the price set for the principal lot of the goods, the [seller] thus agreed to the retention in the first quarter of the following year of the price set by the parties in respect of the goods to be delivered in the preceding year could not be held justified. Firstly, when construing, under the provisions of article 8 of the Vienna Convention, the contents of the proposal of the [seller], confirmed by the [buyer], a conclusion should be drawn that the price had been agreed upon by the parties only in respect of the goods to be delivered in the preceding year as the main lot of the goods. Accordingly, it was at this price that the goods, delivered in January of the following year to make up the non-delivery of this quantity in the preceding year, were to be paid for. Therefore, the presentation for payment of bills for these goods at the price agreed upon regarding the main lot of the goods conformed to the parties' agreement. Secondly, the delay in the delivery of the goods could not by itself entitle the delaying party to demand that the goods be paid for at higher prices. If an approach suggested by the [buyer] were to be taken, then a conclusion should have been drawn that the [seller] would have been entitled to present bills for the delayed goods at prices set for the deliveries in the first quarter of the following year, if such prices had been agreed upon by the parties. The level of these prices, judging from the materials, filed by the [buyer], would have been substantially higher.
(g) Since, as has been said above, the contract for the delivery of the additional lot of the goods in the first quarter of the following year was not concluded, the claim of damages caused by the non-performance of this contract could not be met. Taking this into account the Arbitration Court did not deem it advisable to subject to a special analysis the calculation of damages submitted by the [buyer], which, in his statement, were caused by the non-performance of the contract, as well as the documents submitted to confirm them. Along with that the Arbitration Court noted that the method of calculation of damages, applied by the [buyer] and taking into account the difference between the contractual and current market price, could be applied only to prove damages caused by the non-performance of a concluded contract by one of the parties. In particular, the Vienna Convention (art. 76) provided for a right to claim the difference between the price set in the contract and the current market price when a contract was repudiated by a party due to a breach committed by the other party.
(h) After having made a conclusion that the contract for the delivery of the additional lot of the goods had not been made and, consequently, the claim of damages caused by the non-performance of this contract could not be satisfied, the Arbitration Court noted simultaneously that the proposal to agree on prices of this additional lot of the goods ten days before the new year began had come from the [seller] and had been confirmed by the [buyer]. Accordingly, the [buyer] entitled to expect a proposal from the [seller] even if a general price rise occurred in the market. The reluctance of the [seller] to agree on prices within the time set in his proposal and accepted by the other party, and a subsequent communication made in January of the following year of the impossibility of concluding a contract for this additional lot of the goods may be regarded as the revocation of the proposal made. In the absence of proof that the revocation of the proposal was legally justified, and that there were circumstances relieving from liability for non-fulfilled obligations arising from this proposal if such acts of the [seller] caused damages related to the non-conclusion of the contact, the [buyer] was not deprived of the right to file a claim for them submitting appropriate evidence. Such a claim might be the subject-matter of an independent claim to be taken out of this case and filed for separate proceedings.
(i) The Arbitration Court saw no grounds for meeting the claim for the compensation of moral harm caused by the [seller] over the entire period of contractual relationships as from the date of the conclusion of the contract to which a reference was made in the supplement. Firstly, the counterclaim might be filed only in respect of demands arising from such a relationship and falling within the same arbitration clause as the principal claim. As was noted above, the principal claim was filed under an independent contract. Therefore, when settling this dispute demands based on the breach of other contracts concluded by the parties, including the contract to which a reference was made in the document termed a supplement thereto, could not be deemed the counterclaim. Secondly, the amount of claim was unjustified. Thirdly, neither the Vienna Convention, nor the applicable national law contained provisions for the compensation of moral harm in such cases.
(j) There were also no grounds for satisfying the demand of the [buyer] that the [seller] should pay the travelling expenses of the representatives of the [buyer] incurred to have talks with the other party. Firstly, in order to compel the [seller] to pay such expenses (which are normally borne by the party which has incurred them) it is necessary to prove that they were [caused] by [the seller's] improper actions. There is no such evidence in the materials of the case. Secondly, their amount was not confirmed by documents.
(k) Under para. 5 of the Regulations of the arbitration fees and costs and the expenses of the parties which is an annex to the Rules of Procedure of the Arbitration Court, arbitration fees and costs were awarded to the claimant [seller] filing the principal claim.
* Ph.D. in Laws, Honored Lawyer of the RSFSR, professor of the All-Russian Academy of Foreign Trade and Moscow Institute of International Business, arbitrator of the International Court of Commercial Arbitration at the Chamber of Commerce & Industry of the Russian Federation.Go to Case Table of Contents