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CISG CASE PRESENTATION

Russia 16 March 1995 Arbitration proceeding 155/1994 (Metallic sodium case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/950316r1.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19950316 (16 March 1995)

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: 155/1994

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (respondent)

BUYER'S COUNTRY: Germany (claimant)

GOODS INVOLVED: Chemical products (metallic sodium)


Case abstract

RUSSIAN FEDERATION: Arbitration at Russian Federation Chamber of Commerce and Industry [No. 155/1994 of 16 March 1995]

Case law on UNCITRAL texts (CLOUT) abstract no. 140

Reproduced with permission from UNCITRAL

A contract was concluded between a Russian seller and a German buyer for the supply of a specific quantity of chemical products within a period of time specified in the contract (fourth quarter of 1992). The goods were not delivered to the buyer within the specified period. From January to May 1993, the buyer repeatedly informed the seller that it insisted on the goods being delivered in accordance with the contract concluded and was ready to extend the time-limit for delivery. In May 1993, the buyer informed the seller that, as a result of the latter's breach of its contractual obligations, the buyer had purchased the goods specified in the contract from a third party. In May 1994, the buyer sued the seller for breach of contract, such damages consisting in the difference between the price of the goods established in the contract and the price at which the buyer was obliged to purchase the goods from the third party.

In its reply to the claim, the seller maintained that it should be discharged from liability on the grounds that it had been unable to deliver the goods for reasons beyond its control, namely because of an emergency production stoppage at the plant manufacturing the goods specified in the contract.

Referring to article 79 CISG, the tribunal decided that the seller (respondent) was unable to prove the facts that would have discharged it from its liability for non-performance of its obligations since refusal on the part of the manufacturer of the goods to supply them to the [seller] could not be deemed sufficient grounds for such discharge from liability. The [seller] should bear liability for failure to fulfill its obligations on the additional grounds that it was unable to establish that it could not reasonably be expected to take account, in concluding the contract, of the obstacle preventing its compliance with the contract or to avoid or surmount that obstacle or its consequences.

With regard to the amount of compensation for the damages, the tribunal considered that establishing the extent of damages on the basis of the difference between the contract price and the replacement purchase price was consistent in this instance with the provisions laid down in article 74 CISG for determining the amount of damages. In addition, account was taken of the fact that the respondent (seller) was not able to establish that the buyer would have been able to purchase the goods at a lower price when making the second purchase in replacement of the first.

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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 74 ; 75 ; 78 ; 79 [Also cited: Articles 6 ; 7(2) ] [Also relevant: Articles 45 ; 76 ]

Classification of issues using UNCITRAL classification code numbers:

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

75C1 [Damages established by substitute transaction (damages recoverable): difference between contract price and price in substitute transaction];

78B [Rate of interest];

79B1 ; 79C [Exemptions: impediment excusing party from damages; Non-performance attributable to third-party contractor]

Descriptors: Damages ; Foreseeability of damages ; Cover transactions ; Exemptions or impediments ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database [CLOUT abstract]

French: Van den hole, [1998] Revue trimestrielle de droit (RDC/TBH) 356 [356 n.120]

Italian: Diritto del Commercio Internazionale (1997) 733-734 No. 145

Polish: Hermanowski/Jastrzebski, [1997] Narodów Zjednoczonych o umowach miedzynarodowej sprzedazy towarów. Konwencja wiedenska. Komentarz [CISG commentary],Warszawa: ABC 280-281

CITATIONS TO TEXT OF DECISION

Original language (Russian): Rozenberg, Praktika Mezhdunarodnogo kommercheskogo arbitrazhnogo suda. Nauchno-prakticheskyi kommentaryi [Practice of the International Commercial Arbitration Court: Scientific - Practical Comments] (Moscow 1997) No. 24 [63-65]

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Baker, 32 Vanderbilt Journal of Transnational Law (1999) 347-390 [381 n.145 (Art. 79 in Y2K context)]; Honnold, Uniform Law for International Sales (1999) 450 [Art. 75] 489 [Art. 79(2)]; Southerington, Impossibility of performance and other excuses in international trade (2001) n.148; Larry A. DiMatteo et al., 34 Northwestern Journal of International Law & Business (Winter 2004) 299-440 at n.797; [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 142; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 75 para. 5 Art. 79 para. 29; Carla Spivack, 27 Pennsylvania Journal of International Economic Law (Fall 2006) nn. 170, 191 [commentary on Art. 79 issues]

Russian: Rozenberg, Kontrakt mezhdunarodnoj kupli-prodazhi. Sovremennaja praktika zaklijutchenija. Razreschenie sporov [International sales contracts]. Mezhdunarodnyj centr finansovo-ekonomitcheskogo razvitija, Moscow [19961] 87; Rozenberg, Kontrakt [19962] 85; Rozenberg, Kontrakt [19983] 86

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 155/1994 of 16 March 1995

Translation [*] by Yelena Kalika [**]

On 6 February 1995 the Tribunal consisting of the Chairman of the Arbitral Panel and arbiters reviewed the claim brought by a German buyer against a Russian seller to recover US $205,000.00.

The representatives of both the [Buyer] and the [Seller] were present at the proceeding.

Facts

On 20 May 1994, the Tribunal received a complaint filed by the German firm to recover US $205,000.00 plus annual interest and arbitration and legal fees from the Russian firm.

On 28 April 1992, the [Buyer] and [Seller] entered into the Contract and Appendix No. 1 to it. The terms of the Contract included the Standard Terms of Sale.

According to the Contract and Appendix to it, the [Seller] was to deliver metallic sodium in the following quantity:

      -   500 tons (the first lot under the Contract) at US $830.00 per ton; and
- an additional 500 tons (the second lot under the Contract) at US $820.00 per ton.

The [Seller] delivered the first lot and the [Buyer] paid for it in a due manner. There was no delivery of the second lot.

The shipment of the second lot was to be made at the [Buyer]'s option by 30 April 1992. The [Buyer] exercised his option right by signing Appendix No. 1 to the Contract with the [Seller]. The shipment of the second lot was supposed to take place within the forth quarter of 1992 on the terms set forth in the contract.

Since during the performance of the Contract it became clear that the [Seller] did not fulfill his obligations in connection with delivery of the second lot, the [Buyer] took steps to assist the [Seller] in fulfilling his obligations as the [Buyer]'s customers had been awaiting the goods for a long time. Notwithstanding the fact that the [Buyer] made numerous demands that delivery be made and expressed his bewilderment in connection with the delay in delivery -- see telexes of 5 February 1993, 1 February 1993, 18 February 1993, 15 March 1993 and 17 May 1993, -- the [Seller] neither responded to these letters nor made delivery.

In his letter of 27 May 1993, the [Buyer] informed the [Seller] that, due to the delay of delivery by the [Seller], he had to purchase metallic sodium from other suppliers at significantly higher prices. As a result, he suffered a loss in the amount of US $245,978.00 representing the difference in prices of the sodium purchased by the [Buyer] -- the difference between the price of 400 tons purchased at US $1,280.00 per ton plus the price of 100 tons purchased at US $1,350.00 per ton, that amounted to US $237,000.00, and the price of US $820.00 per ton under the Contract -- as well as US $8,978 of expenses in connection with extending the Letter of Credit due to the [Seller]'s delay in delivery as well as expenses incurred in connection with a business trip to Moscow made by a [Buyer]'s representative to negotiate the dates of delivery with the [Seller]. The [Buyer] requested either the payment of his losses or, alternatively, delivery of the 500 tons of metallic sodium as set forth in Appendix No. 1.

In his reply to the claim of 5 January 1995, the [Seller] explained that his failure to fulfill his obligations in connection with delivery of the rest of the goods was due to impediments beyond his control, i.e., his supplier's emergency stopping of any metallic sodium production.

On the merits of the claim, the [Seller] stated that the [Buyer] failed to present evidence of the amount of the losses suffered and failed to meet the two-months period within which the claim should have been brought in accordance with the Standard Terms of Sale under the Contract. Missing this two-months period of time deprives the party of his right to begin an arbitration proceeding.

The [Seller] also argued that it was impossible to make delivery due to circumstances beyond his control, i.e., cancellation of his export license.

In addition to the contentions in connection with the claim of 5 January 1995, in his letter of 3 February 1995 the [Seller] stated that, in his opinion, Appendix No. 1 to the Contract signed by the parties on the same day with the Contract, under which he was required to deliver additional 500 tons of metallic sodium, was not a contract; it represented only a verification of a new price for the second lot and the terms of delivery.

When explaining his position in connection with the [Seller]'s arguments, the [Buyer] pointed out:

   -   As stated in Chapter 3 of [Buyer]'s claim, the [Seller] was to make shipments in the fourth quarter of 1992. The first claim was sent by the [Buyer] on 1 February 1993. However, the [Seller] failed to respond to it. The following claims were sent on 5 February 1993 and 18 February 1993. All those claims were sent within the two-months period. These and the following claims demonstrate that the [Buyer] demanded that the promised delivery be made and reserved a right to claim losses, if such delivery was not made. The fact that the [Seller] understood the claims is evidenced by his own reply in which he pointed out that "from January 1993 to August 1993 the [Buyer] insisted that the delivery of 500 tons of metallic sodium be made."
- Even if the [Buyer] failed to file a claim within the first two months after the [Seller]'s breach, the language of the Contract demonstrates that the two-months limitation set forth in clause 6 of the Standard Terms was supposed to apply only to claims regarding the quality of goods and not in connection with one's failure to deliver. In this connection, clause 5 of the Standard Terms sets forth the procedure of filing claims regarding the quality of goods delivered under the Contract. Clause 6 only adds that claims should be filed "within two months from the date of delivery."
- The reason for the two-months limitation was to guarantee to the Seller that the goods, which he delivered, were accepted, if the Buyer did not file a claim within two months.
- If the Seller breached the Contract by failing to deliver the goods, then there was no "date of delivery." In such case it would be reasonable to expect that the Buyer substitute the goods not received with the equivalent goods purchased from other suppliers.
- The letters containing inquiries as well as the letters containing the preliminary claims were mailed without any delay. However, the letter containing the final claim and a threat to arbitrate, was sent only after the Buyer realized that the Seller did not wish to make up for his breach as well after the Buyer made a computation of his losses based on the price that he had to pay to purchase goods in substitute of the goods not delivered by the breaching Seller. It was unreasonable to expect that this all would take place within two months.

The [Buyer] noted that Russia law regards as invalid any provisions in contracts or in any other agreements of parties which limit the period of time during which the parties should file their claims in connection with a breach of contract. In this connection, Article 80 of the Russian Federation Civil Code states that "no modification of either the statute of limitation or the procedure for its determination is allowed." The same rule is reflected in Article 198 of the new Civil Code. Thus, the Civil Code guaranties to the [Buyer] the full three-year period of statute of limitation to file his claims, notwithstanding any contrary provisions in the Contract.

Rationale

After reviewing the materials of the case and after hearing the arguments of the parties, the Tribunal finds the following.

1. The Contract of 28 April 1992, which was submitted by the [Buyer] along with the claim of 19 May 1994, contains the Standard Terms of Sale (Article 9) and provides for the arbitration of disputes between the parties by the International Trade Arbitration Commission at the USSR Chamber of Commerce and Industry in accordance with the rules of the said Commission. The Commission was later reorganized into the Arbitration Court at the Russian Federation Chamber of Commerce and Industry. By the Resolution of the Russian Federation Supreme Council of 7 July 1993 "On entering into force the Russian Federation Law "On International Commercial Arbitration"" (clause 2) the Arbitration Court at the Russian Federation Chamber of Commerce and Industry was renamed the International Commercial Arbitral Tribunal at the Russian Federation Chamber of Commerce and Industry ("the Tribunal"). Thus, in accordance with the arbitation clause in the Contract, the Tribunal is the arbitral tribunal in whose competence it is to arbitrate the present dispute.

2. Turning to the issue of law applicable to the relationships under the contract, the Tribunal concludes that, pursuant to article 166 of the USSR Principles of Civil Law 1991, the said relationships are governed by the law of the Seller's State. For the above reasons, the Russian Federation law shall apply since the transaction was made in Moscow and since the Seller was a legal entity incorporated and carrying out its activities under the law of the Russian Federation.

At the time when the contract was made, both the Russian Federation and the German Federative Republic had been CISG Contracting States. Article 1(1)(a) CISG sets forth that this Convention applies to the relationships between parties whose commercial enterprises are located in Contracting States. Pursuant to Article 15 of the Russian Federation Constitution, international treaties of the Russian Federation are a component part of the Russian Federation legal system. Pursuant to Articles 6 and 7(2) CISG, questions, which are not expressly settled in this Convention and which cannot be settled in conformity with the general principles on which it is based, shall be settled in conformity with Russia domestic civil law.

3. Turning to the issue of legal enforceability of Appendix to the Contract of 28 April 1992, the Tribunal finds that the [Seller]'s position cannot be found reasonable. The [Seller] argues that no agreement was formed as a result of signing of Appendix to the Contract of 28 April 1992 which set forth the [Seller]'s obligation to make delivery of additional 500 tons of metallic sodium. However, this document directly states that it is nothing else but an appendix to the contract. It sets forth a new price of goods and a new date of delivery of the second shipment of goods ("the second lot"). As stated in the Appendix, other terms of delivery are reflected in the main Contract.

For the above reasons, the Appendix to the Contract of 28 April 1992 regarding delivery of the second lot of 500 tons of metallic sodium should be recognized as a binding separate sales contract between the parties.

4. Regarding the legal consequences of missing the period of time within which the claims should have been brought as it was required by clause 6 of the Standard Terms of Sale, which is a component part of the Contract, the Tribunal finds that such provision cannot limit the [Buyer]'s lawful right to commence an action due to the [Seller]'s breach of contract.

5. Regarding the issue of the [Seller]'s failure to fulfill his obligations to deliver the second lot of 500 tons of metallic sodium, as set forth in Appendix to the Contract of 28 April 1992, after reviewing the documents presented and after hearing the parties' arguments, the Tribunal finds that there was a breach of the [Seller]'s obligations following from the Appendix to the Contract. By so finding, the Tribunal applied Article 79 CISG.

Article 79 CISG

"(1) A party is not liable for a failure to perform any of his obligations if he proves that the failure was due to an impediment beyond his control and that he could not reasonably be expected to have taken the impediment into account at the time of the conclusion of the contract or to have avoided or overcome it or its consequences.

"(2) If the party's failure is due to the failure by a third person whom he has engaged to perform the whole or a part of the contract, that party is exempt from liability only if:

  1. he is exempt under the preceding paragraph; and
  2. the person whom he has so engaged would be so exempt if the provisions of that paragraph were applied to him.

"(3) The exemption provided by this article has effect for the period during which the impediment exists.

"(4) The party who fails to perform must give notice to the other party of the impediment and its effect on his ability to perform. If the notice is not received by the other party within a reasonable time after the party who fails to perform knew or ought to have known of the impediment, he is liable for damages resulting from such non-receipt.

" (5) Nothing in this article prevents either party from exercising any right other than to claim damages under this Convention."

The [Seller] was unable to prove the existence of impediments which would excuse him from liability for his failure to fulfill his obligations, since the manufacturer's refusal to supply the said goods to the [Seller] cannot be found an impediment releasing one's obligations. The [Seller] should bear responsibility for his failure to fulfill his obligations also because he did not prove that it could not be reasonably expected either that he would take such an impediment into account, when entering into the contract, or that he would avoid or overcome such an impediment and its consequenses.

After reviewing the [Buyer]'s claim regarding the losses he claimed, the Tribunal finds that the amount of losses should be determined in accordance with Article 74 CISG. Article 74 CISG sets forth that damages for breach of contract by one party consist of a sum equal to the loss, including loss of profit, suffered by the other party as a consequence of the breach. In the Tribunal's opinion, the difference between the price stated in Appendix No. 1 to the Contract and the price of the goods purchased in February 1993 in substitute of the goods not delivered by the [Seller] under the above mentioned contract represents sufficient evidence of the amount of losses suffered by the [Buyer] due to the [Seller]'s breach. Besides, the Tribunal is of the opinion that in this case the [Seller] must pay such amount of damages also because at the time when the contract was made he should have foreseen any possible unfavorable consequences of not fulfilling [Seller]'s obligations. For example, he should have foreseen the increase of the world prices of the goods sold.

At the same time, the Tribunal took into account that the [Seller] presented no evidence that [at the time of his breach] it was possible to purchase the goods at lower prices.

The Tribunal also sustained the [Buyer]'s claim to recover 5% annual interest on the sum of the award beginning from 1 February 1993 in accordance with Article 66 of the USSR Principles of Civil Law 1991.

6. Pursuant to the Regulations on Arbitration Fees and Expenses of the Parties, which in the absence of an agreement to the contrary places the arbitration fee on the party against whom the award was made, the Tribunal finds that the [Seller] should pay the arbitration fee. As to the [Buyer]'s claims to recover legal fees, the Tribunal finds it possible to allow their recovery from the [Seller] in the amount of 5% of the main sum of debt.

Resolution

For the above stated reasons, the Tribunal

HOLDS:

The [Seller] must pay the [Buyer] the following:

  1. Losses suffered due to the failure to fulfill obligations to deliver 500 tons of metallic sodium in the amount of US $205,000.00;
  2. 5% annual interest on the said amount from 1 February 1993 to the factual date of payment;
  3. Arbitration fees in the amount of US $6,150.00;
  4. Legal fees incurred in the amount of US $10,250.00

The present award is made and signed in three originals, one of which shall be kept by each the Tribunal, the [Buyer] and the [Seller].


FOOTNOTES

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

** Yelena Kalika, a law student at the Pace University School of Law, has studied at the Moscow State Law Academy, interned with a Moscow law firm, and is a Research Assistant at the Pace Institute of International Commercial Law.

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Pace Law School Institute of International Commercial Law - Last updated May 19, 2009
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