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CISG CASE PRESENTATION

Russia 25 April 1995 Arbitration proceeding 200/1994 (Chocolate products case) [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/950425r1.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19950425 (25 April 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: 200/1994

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Switzerland (claimant)

BUYER'S COUNTRY: Russian Federation (respondent)

GOODS INVOLVED: Chocolate confectionery products


Case abstract

RUSSIAN FEDERATION: Arbitration at Russian Federation Chamber of Commerce and Industry [No. 200/1994 of 25 April 1995]

Case law on UNCITRAL texts (CLOUT) abstract no. 141

Reproduced with permission from UNCITRAL

A contract was concluded in mid-November 1993 between a Swiss seller (claimant) and a Russian buyer (respondent) for the supply of chocolate confectionery products for a specified sum of money. The contract included a clause stipulating preliminary payment of the first two installments of the goods -- to be delivered by two vans -- within three days of receipt by the seller of a banker's guarantee from the buyer for payment of the goods. The time-limit for delivery of the goods was one week after receipt of the banker's guarantee. As a consequence of further correspondence between the parties, the delivery was timed to fit in with the forthcoming Christmas holidays.

In mid-December 1993, the seller delivered the first of the two installments on the basis of the buyer's written statement regarding guaranteed payment of goods. The buyer took delivery of the goods having completed all the customs and other formalities required for their import. However, the buyer subsequently failed to pay for the delivered goods. When explaining its position, it cited the fact that the seller had breached the contract by dispatching the goods before the buyer had transmitted the banker's guarantee. The buyer considered that such an infringement should be regarded as a fundamental breach of contract. In addition, the buyer stated that its non-payment was due to its subcontractors' refusal to accept previously ordered goods owing to the changed economic situation in the country. The seller brought a claim for the payment of the delivered goods to the arbitral tribunal.

In settling this dispute, the tribunal noted that, under article 53 CISG, one of the main obligations of the buyer was to pay the price established for the goods. Violation by the seller of the terms specified for dispatch of the goods (delivery in the absence of a banker's guarantee) could not be considered sufficient grounds for discharging the buyer from its obligation to pay for the goods, since the buyer had taken delivery of them. Such violation could not be deemed a fundamental breach of contract, in the sense of article 27 CISG [sic: article 25 CISG], such as to entitle the buyer to breach the contract. Under the CISG, if the violation of the contract on the part of the seller caused the buyer to suffer any damage, it would be entitled to compensation (art. 37 CISG). However, in this particular case the buyer had not brought any such claim. The tribunal thus found in favour of the seller.

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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 25 ; 37 ; 53 ; 78 [Also cited: Article 52 ; 85 ; 87 ]

Classification of issues using UNCITRAL classification code numbers:

25B [Definition of fundamental breach];

37C [Early delivery: buyer may recover damages];

53A [Obligations of buyer: obligation to pay price of goods];

78B [Rate of interest]

Descriptors: Fundamental breach ; Price ; 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]

Italian: Diritto del Commercio Internazionale (1997) 735-736 No. 148

Polish: Hermanowski/Jastrzebski, [1997] Narodów Zjednoczonych o umowach miedzynarodowej sprzedazy towarów. Konwencja wiedenska. Komentarz [CISG commentary], Warszawa: ABC 281-282

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. 30 [79-83]

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

English: Koch, Pace Review of Convention on Contracts for International Sale of Goods (1998) 240-241 [fundamental breach (gravity of consequences of breach): contract's overall value and monetary loss suffered by aggrieved party]; Spaic, Analysis of Fundamental Breach under the CISG (December 2006) n.291

Russian: Rozenberg, Kontrakt mezhdunarodnoj kupli-prodazhi. Sovremennaja praktika zaklijutchenija. Razreschenie sporov [International sales contracts], Mezhdunarodnyj centr finansovo-ekonomitcheskogo razvitija, Moscow [19961] 49, 92; Rozenberg, Kontrakt [19962] 51-52, 90; Rozenberg, Kontrakt [19983] 55, 93; Boguslavsky, [1998] Mezhdunarodnoe tchastnoe provo [Private international law], Moscow [Jurist] 3d ed, 213-214

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 200/1994 of 25 April 1995

Translation [*] by Yelena Kalika [**]

On 25 April 1995 the Tribunal reviewed the claim brought by a Swiss seller against a Russian buyer to recover US $151,384.68.

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

Facts

On 21 June 1994 the Tribunal received a claim from the Swiss firm against the buyer, International Trade Organization "Technointorg" (Moscow), to recover US $151,384.68.

As stated in the complaint, in accordance with the contract of 15 November 1993, the [Seller] promised to deliver 77,760 boxes of chocolate to the [Buyer]. The total cost of the chocolate was US $388,800.00.

In December 1993, based on the letter of guarantee of 8 December 1993 received from the [Buyer], the [Seller] delivered two lots of chocolate (total of 28,854 boxes) for the cost of US $144,270.00. In violation of clause 3 of the contract, the [Buyer] did not pay for the goods delivered. However, in his letter No. 24/55-50 of 4 February 1994 the [Buyer] informed [the [Seller]] of the possible payment that would be made by 23 March 1994.

Due to the [Buyer]'s failure to fulfill his obligations, on 20 April 1994 the [Seller] sent him a demand for payment In his reply, the [Buyer] explained his failure to pay by the change of the economic situation in Russia as well as non-payments by domestic customers, and the absence of the [Buyer]'s written instruction to ship the goods.

The [Seller] disagreed with the [Buyer]'s arguments and stated, in particular, that the two lots of goods were to be paid in advance and not upon their sale in the domestic market. Seller also asserted that the relationships with domestic recipients of the goods, who were not the parties to the contract, did not concern him as a seller under an international contract of sale. Seller stated that such relationships should be separated from the payment under the present contract.

Taking the above into consideration, the [Seller] asked the Tribunal to require the [Buyer] to pay the amount in arrears (US $144,270.00), annual interest in the amount of US $2,371.56, and damages in the amount of US $4,743.12 as well as arbitration fees. The total amount claimed is US $151,384.68.

In his reply to the [Seller]'s complaint, the [Buyer] explained that, pursuant to the contract of 15 November 1993, delivery of goods was to be made by the [Seller] within one week after the [Buyer] made an advance payment.

The [Buyer] did not make the advance payment and, thus, the [Seller] had no reasons to ship the goods. Besides, Buyer stated that the [Seller]'s reference to the letter of guarantee received from the [Buyer] is unreasonable since the contract did not provide for issuing any letters of guarantee sanctioning delivery of goods. The letter which the [Buyer] sent to the customs department could not be seen as the instrument creating the [Buyer]'s liability to the [Seller].

The [Buyer] asked the Tribunal to deny the [Seller]'s claim. The [Buyer] noted that he could not be held liable for the [Seller]'s negligence in fulfilling the terms of the contract.

Having reviewed the [Buyer]'s reply, the [Seller] stated that the shipment of the first lot of goods without receiving an advance payment improved -- not worsened -- the [Buyer]'s position. Therefore, it could not be viewed as a fundamental breach of the terms of the contract in the meaning of Article 25 CISG.

The [Buyer], who sent letters of guarantee to the customs department after having been notified of the shipment of the first lot of goods, fulfilled the customs formalities required to import the goods to the Buyer's State. Such acts entailed liability to pay for the goods.

While admitting that both parties to the contract committed certain violations of its terms in connection with the dates of payment and delivery, the [Seller] nevertheless insisted that his claims be sustained in full.

In the proceeding held on 25 April 1995, the parties submitted additional correspondence regarding the contract in controversy, some other materials (the commission contract of 5 December 1993 between the [Buyer] and a firm from the City of Vladikavkaz; a letter from the SKA Schweizerische Creditanschtalt Bank regarding the rate of loan interest in 1994; the computation of the claims).

In addition to the reply of 24 August 1994, the [Buyer] again emphasized that the [Seller] did not follow the terms of the contract in connection with the date of delivery of the goods and their transportation (clauses 3 and 4 of the contract). He also noted that the sum claimed by the [Seller] for the chocolate delivered was over estimated. Buyer claimed that it exceeded the real figure by at least US $24,000.00.

Rationale

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

1. The contract made by the parties on 15 November 1993 in Moscow contains an arbitration clause according to which all disputes and disagreements that may arise out of the present contract or in connection with it shall be arbitrated in Moscow, unless the parties agree otherwise. The arbitration shall be held at the International Trade Arbitration Commission at the Russian Federation Chamber of Commerce and Industry in accordance with the Arbitration Rules set by the Commission. The awards rendered by the Commission shall be final and binding on both parties.

Although the language of this arbitration clause contains certain discrepancies, the Tribunal finds that it has competence to arbitrate the present dispute. At the moment, when the clause was inserted in the contract on 15 November 1993, pursuant to the Russian Federation Law of 7 July 1993 "On International Commercial Arbitration" an International Arbitral Tribunal was in existence. The Tribunal was the successor in rights of the Arbitration Court at the USSR Chamber of Commerce and Industry, in which the International Trade Arbitration Commission at the USSR Chamber of Commerce and Industry was transformed in accordance with the Ordinance of the Presidium of the USSR Supreme Council on 14 December 1987.

2. Turning to the issue of the law applicable to the parties' relationships under the contract, the Tribunal ascertains that both the [Seller] and the [Buyer] are located in CISG Contracting States. Switzerland has been a Contracting State since 1 March 1991. Russia has been a Contracting State since 1 September 1991. For these reasons, the Tribunal finds that the provisions of the above mentioned Convention shall govern the present dispute.

At the same time, if any issues arising in connection with the arbitration of the present dispute are not settled either in the contract or in the CISG, then in accordance with Article 166 of the USSR Principles of Civil Law 1991, which have come into force in Russia since 3 August 1992, the law of the State, where the Seller was incorporated or has its principal place of business, shall be applied as subsidiary law to the relationships of the parties not settled in the CISG. In the present case, it is the substantive law of Switzerland.

3. In connection with the [Seller]'s main claim to recover US $144,270.00 from the [Buyer], the Tribunal reasons as follows. The parties made a contract of sale of goods. The contract, being a consensual transaction, creates mutual rights and obligations for the parties at the moment when it is made. The main obligation of the Buyer, pursuant to Article 53 CISG, is to pay the price for the goods and to take delivery of them as required by the contract and this Convention.

The terms of payment for the goods and the dates of their delivery were stated in clause 3 of the contract. As it was emphasized, [the terms] suggested an advance payment for the first two trucks within three days upon receipt of a bank guarantee from the Seller. It follows from some additional correspondence in connection with the contract that it had to be performed by Christmas. The materials of the case evidence that the chocolate was delivered to the customer on 20 December 1993. Such delivery totally corresponded with the terms and purpose of the contract.

The Seller's omissions, which resulted in a violation of the order of delivery of chocolate, cannot relieve the Buyer from his obligation to pay for them, since he took delivery of the goods. See Article 52 CISG.

At the same time, the Tribunal pointed out to the Buyer that, if the said omissions of the Seller resulted in the Buyer's damages, he retained any right to claim such damages. See Article 37 CISG. However, during the arbitration proceeding the [Buyer] neither brought any claim nor gave reasons for his possible claim against the [Seller]. Therefore, the Tribunal could not arbitrate the [Buyer]'s counterclaims.

According to Specification No. 1 to the contract, the price of one box of chocolate was set in the amount of US $4.75. The Buyer received a total of two lots of chocolate. The quantity received was 28,854 boxes with the total cost of US $137,056.50. Therefore, the [Buyer] must pay the said amount to the [Seller].

The [Buyer]'s argument, that the contract in controversy was made for the benefit and at the expense of the private joint stock company "Delaware", is not relevant since the said firm is not a party to the contract.

4. Turning to the [Seller]'s claims to recover bank interest on the sum of the main debt, the Tribunal finds that such [Seller]'s claim is based on Article 78 CISG and shall be sustained. However, taking into account that the CISG does not set forth an interest rate, it has to be determined in accordance with domestic laws that apply here as subsidiary law, i.e., Swiss law as stated in clause 2 of the present award.

After analyzing evidence presented by the [Seller], in particular, a letter from the SKA Schweizerische Creditanschtalt Bank, the Tribunal finds that the interest claimed by the [Seller] reflects a median bank interest rate for the use of another's funds in Switzerland and shall be sustained based on the median bank interest rate of 7.5%.

Regarding the period of time for which interest should be paid on the sum in arrears, the Tribunal ascertains that the [Seller] consolidated annual interest claimed in his complaint. Since the interest stated reflects the median interest rate applied by Swiss banks, the Tribunal finds that this claim shall be sustained in the amount of US $10,279.24.

5. The [Seller]'s claim to recover 5% annual interest for the delay in payment pursuant to Article 66 of the USSR Principles of Civil Law 1991 shall be denied. As stated in clause 2 of the award, the relationships of the parties are governed by Swiss law and not by Russian law.

6. The arbitration fee was determined and paid at the time of filing of the complaint in the amount of US $5,127.00. Pursuant to Article 5(2) of the Regulations on Arbitration Fee and Expenses of the Parties, the respondent shall pay the arbitration fee in proportion to the amount of the claims sustained. Thus, he should pay US $4,990.00 to the [Seller].

Resolution

For the above stated reasons and pursuant to Article 34 of the Tribunal's Rules, the Tribunal

HOLDS:

  1. The Russian [Buyer] must pay US $147,335.74 to the Swiss [Seller]. It also must reimburse the [Seller] US $4,990.00 for the arbitration fee paid.
  2. The rest of the claim is denied.

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


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 Russia 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 March 20, 2007
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