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CISG CASE PRESENTATION

Russia 28 April 1995 Arbitration proceeding 400/1993 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/950428r1.html]

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

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Case identification

DATE OF DECISIONS: 19950428 (28 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: 400/1993

CASE NAME: Unavailable

CASE HISTORY:Unavailable

SELLER'S COUNTRY:Russian Federation (claimant)

BUYER'S COUNTRY: Austria (respondent)

GOODS INVOLVED: Unavailable


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issues: Articles 13 ; 53 ; 78

Classification of issues using UNCITRAL classification code numbers:

13A [Telegram and telex as a "writing"];

53A [Buyer's obligation to pay price of goods];

78B [Rate of interest; calculation of interest]

Descriptors: Formal requirements ; Writing, definition of ; Price ; Interest

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Russian: See Rozenberg (Practika . . .), below

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. 36 [99-106]

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 400/1993 of 28 April 1995

Translation [*] by Yelena Kalika [**]

1. SUMMARY OF RULING

     1.1 The circumstances surrounding the conclusion of the contract and the subsequent actions of the parties led the Tribunal to the conclusion that both the contracts and the arbitration clauses in them were valid notwithstanding proof submitted by the Respondent [Buyer] that a person, who had signed the contract on [Buyer]'s behalf, lacked authority to do so.

     1.2 An arbitration agreement can be entered into by teletype messages.

     1.3 Since the Claimant [Seller] did not submit either any evidence of the bank interest rate or any other legal evidence of annual interest for the period from 1 January 1995 (Article 395 Civil Code), his claim for interest was not considered.

2. FACTS AND PLEADINGS

The claim was brought by a Russian company against an Austrian company to recover payments for a part of the goods delivered under two contracts made in January-February 1992. Referring to the lack of authority on the part of the person, who signed the contracts on [Buyer]'s behalf, the [Buyer] stated that he did not recognize the Tribunal's competence. Besides, in his opinion, not the [Buyer], but the [Seller] owed him the said amount as follows from the verification of payments made by the parties. The [Seller] objected to these explanations. The [Seller] argued that the contracts were enforceable and that the issue of payments under other contracts was not relevant for the purposes of the present dispute. In this connection, [Buyer]'s representative argued at the arbitral proceeding that the [Seller] could be unaware of what particular firm the person signing the contract really represented, but he had to know that that person worked at a different company and in Moscow he was in charge of the contract made by the [Seller] with that other firm. [Buyer]'s representative explained that the other firm was a large state owned organization, while the [Buyer] was a private firm, a daughter company of that other firm. The performance of the contract, which was made between the [Seller] and the other firm, was assigned to the [Buyer]. The [Seller] did not fully perform his delivery obligations under the contract. If the [Seller] performs these obligations, the [Buyer] would pay him for the goods previously delivered.

[Buyer]'s representative made three arguments against Tribunal's competence to arbitrate the present dispute:

  1. The arbitration clause is separate. Therefore, the contract and the arbitration clause cannot be measured by the same rules.
  2. The rights of a party to enter into an arbitration agreement should be determined under the laws of the State in which such party resides. Pursuant to Austria law and precedents, a special written authorization is required in order to make an arbitration agreement.
  3. The contracts containing the arbitration clause were signed by a person who had never worked at [Buyer]'s firm and never received any written authorization to make an arbitration agreement. Therefore, [the arbitration agreement] is invalid.

[Seller]'s representative insisted that the Tribunal had competence to arbitrate the present dispute.

The Tribunal heard the testimony of witnesses invited to the hearing as per both parties' requests.

3. TRIBUNAL'S REASONING

The arbitral award was made on the following grounds.

      3.1 The two contracts, in connection with which the [Seller] brought his claim, were signed in Moscow on [Buyer]'s behalf by the person, who in his relationships with the [Seller] asserted that he was the Head of the [Buyer]'s permanent representative office in Moscow. This assertion is evidenced by several facts, of which the Tribunal was informed by [Seller]'s witnesses, such as:

-   The existence of the representative's office as well as the door sign of the representative's office stating the name of the [Buyer] firm;
 
- The seal of the representative office (stamped on [Seller]'s complaint in confirmation of its receipt by the representative office);
 
- The presentation of the representative office, at which the Chief Manager of the [Buyer] firm was present;
 
- The use of the official letterhead and facsimile of the [Buyer] firm on the receipt issued by that person in confirmation of delivery of shipping documentation.

One of [Seller]'s witnesses also stated that the Chief Manager of the [Buyer] firm was present at the signing of one of the said contracts.

For the above stated reasons, the Tribunal concluded that the manager of the [Buyer] firm:

-   First, knew of the existence of the representative office of his company in Moscow and sanctioned its opening; and
 
- Second, due to his physical presence at the signing, could not have been unaware that the said person signed the contract to deliver the goods to his firm.

Thus, the [Seller] had reasons to believe that, when the contract was being signed, that person had all the necessary authority [to do so].

     3.2 The [Buyer] argues that the said person did not have any authority either to sign contracts or to enter into arbitration agreements binding upon his firm because the said person was not an employee of the firm having the necessary authority "ex officio", nor was the required power of attorney issued to the said person. Besides, the [Buyer] submitted extracts from the Austrian trade register in which the said person is not listed as a body of the said company. Pursuant to Article 577(3) of the Austria Civil Procedure Code, Article 1008 of the Austria Civil Code and Austrian case law, the [Buyer] argued that in order to enter into a valid arbitration agreement that person should have had special written authorization.

The Tribunal does not believe it is necessary to analyze the [Buyer]'s last argument as well as its reasonableness, including the issue of the law applicable to the form of the relevant authority. The Tribunal, in particular, took into consideration that, after the changes made to Article 577 of the Austria Civil Procedure Code in 1983, in the Austrian doctrine and practice there was no uniform opinion as to the old requirement of a written authorization (Dr. L. Hofmann, Formfragen der Vollmacht zum Abschus von Schitdsabreden, insbesondere unter Kaufleuten. Page 8 of the Russian translation of the said publication submitted by the [Buyer]). At the same time, based on the materials and [Seller]'s claim, the Tribunal came to the conclusion that, as evidenced by the extract from the trade register mentioned above, the manager of the [Buyer] firm had "ex officio" authority to perform any legally significant acts on the firm's behalf, including making contracts and arbitration agreements.

     3.3 Even assuming that at the time of the signing of the contracts in controversy, the person signing them did not have the necessary authority [to do so], the Tribunal believes that the contracts signed -- of which contents the manager of the [Buyer] firm could not be unaware, as stated above -- should be viewed as the preliminary terms agreed upon which were later accepted by the authorized parties on both sides in a proper form.

Besides, the Tribunal notes that a copy of a letter of credit, which was opened by the [Buyer] to pay for delivery of the goods, contains both a reference to the [Buyer] as the party filing [such a request] with the bank [to open the L/C] and a reference to the [Seller] as the beneficiary. [The letter of credit also contains] a reference to the contracts in controversy under which the payments were to be made (see pages 1-3 of the letter of credit). There is a copy of the letter of credit in the materials of the case. Further, acceptance by the parties of all the terms in the contracts in controversy follows from the analysis of the parties' correspondence. In particular, in response to [Seller]'s request to bring the terms of the letter of credit in compliance with the terms of the said contracts, approximately on 27 April 1992 the manager of the [Buyer] firm agreed by telex to promptly make all the requested changes. After [Buyer] made only a partial payment for the goods delivered, the [Seller] demanded the full payment in his telex of 20 July 1992. Otherwise, the [Seller] threatened to file an arbitration claim.

In its turn, the telex of 20 July 1992, which was signed by the manager of the [Buyer] firm but handed over to the [Seller] by the person, who signed the contracts, confirms receipt and acceptance of the quantity of goods set forth in the contracts in controversy. [The telex also confirms] that a partial payment for the goods was made as per [Seller]'s instruction of 4 June 1992. However, in that telex the [Buyer] refused to make the full payment for the goods due to the offset of mutual claims that he made. Therefore, there was a positive balance on [Buyer]'s side. The [Buyer] informed the [Seller] of his intention to file an arbitration claim if the [Seller] did not pay off his debt.

The above mentioned reasons allowed the Tribunal to conclude that the parties agreed upon and confirmed all of the terms of the two contracts signed originally, including the identical arbitration clause in both contracts. Moreover, the statements made by both parties in their correspondence by telex that they would file arbitration claims in connection with the non-payment for the goods delivered, from the logical point of view, could make sense only in connection with the arbitral tribunal stated in the arbitration clauses in the contracts in controversy. In the light of the above mentioned circumstances, the explanations given by the manager of the [Buyer] firm during the arbitral proceeding that he viewed deliveries made by the [Seller] as his paying off the [Seller]'s debt under the contract with the other firm cannot be taken into account as compelling, both from the legal point of view and from the point of view of the normal trade practice.

     3.4 After establishing that both parties accepted all of the terms in the contracts in controversy, the Tribunal does not find any violations of form and authority which could make questionable the validity of either the contract or any terms in it.

As to the question of form, the Tribunal finds it necessary to turn to Article 13 CISG which should apply to the present dispute pursuant to Article 1(1)(a) CISG, taking into account that both Russia and Austria are CISG Contracting States and that the commercial enterprises of the adverse parties are located in these States. Pursuant to Article 13 CISG, a "writing" also includes a message sent by telex. Formal requirements applicable to arbitration agreements do not differ from those applicable to the main contracts. In this connection, "the separability of the arbitration clause", which the [Buyer] talked about in his answer, is not relevant. Teletype messages, in particular, are recognized as a valid form of arbitration agreement, in accordance with Article II of the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards 1958 (both Russia and Austria are signatories of the New York Convention), Article 7 of the Russian Federation Law "on International Commercial Arbitration" and Article 577(3) of the Austria Civil Procedure Code.

Upon establishing that the manager of the [Buyer] firm accepted all of the terms in the contracts in controversy, the Tribunal did not find it necessary to review the issue of whether or not the person who signed the contracts was required to have special written authorization to make a valid arbitration agreement as well as which State law should apply to the issue of his authority.

The Tribunal also took into account that [Buyer] had never questioned the authority of the firm's manager.

     3.5 Upon making a conclusion that all of the terms in the contracts in controversy were properly coordinated, the Tribunal found that both contracts, under which a single delivery was made, contained identical arbitration clauses setting forth that all of the disputes arising out of or in connection with those contracts had to be arbitrated by the Foreign Trade Arbitration Commission at the USSR Chamber of Commerce and Industry. Pursuant to the arbitration clause, jurisdiction of the general jurisdiction courts was excluded and any arbitral award was viewed as binding and final.

Pursuant to the Ordinance of 14 December 1987 issued by the Presidium of the USSR Supreme Council, the above mentioned Foreign Trade Arbitration Commission was renamed the Arbitration Tribunal at the USSR Chamber of Commerce and Industry. Pursuant to the Russian Federation Supreme Council Resolution of 20 January 1993 "On arbitral tribunal, maritime arbitral commission and dispatchers at the Russian Federation Chamber of Commerce and Industry", it was set forth that the Arbitral Tribunal at the USSR Chamber of Commerce and Industry should continue its functions at the Russian Federation Chamber of Commerce and Industry. Pursuant to the Russian Federation Supreme Council Resolution of 7 July 1993 "On coming into force of the Russian Federation Law on International Commercial Arbitration", the Arbitral Tribunal 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. Pursuant to clause 4 of Appendix 1 to the Russian Federation Law "On International Commercial Arbitration", the Tribunal is the successor to the Arbitral Tribunal at the USSR Chamber of Commerce and Industry, which was established in 1932 and was competent to arbitrate disputes under the parties' agreements to arbitrate their disputes at the Arbitration Tribunal at the USSR Chamber of Commerce and Industry, which prior to 1987 was known as the Foreign Trade Arbitration Commission at the USSR Chamber of Commerce and Industry.

Upon ascertaining that for the above reasons there were no grounds to find the arbitration clauses invalid and taking into account that the latter concerned those disputes which fell within the subject matter jurisdiction of the Tribunal, the Tribunal found that it had competence to arbitrate a dispute arising out of or in connection with the contracts in controversy pursuant to Article 16 of the Russian Federation Law "On International Commercial Arbitration" and Article 1(3) of Tribunal's Rules.

At the same time, the Tribunal found it did not have competence to arbitrate issues both in connection with the performance of the contract entered into by the [Seller] and the other firm and in connection with the possible assignment by the other firm of the requirements following from the present contract to the [Buyer]. [The Tribunal found that] those requirements did not follow from or relate to the contracts which, as established, were entered into by the [Buyer] and [Seller].

     3.6 During the arbitral proceeding it was established that there was no disagreement between the parties as to the quantity, quality and cost of the goods delivered under the contracts in controversy as well as to the amount of [Buyer]'s debt. Following the provisions of the CISG, which is applicable to the present dispute as stated above and sets forth the buyer's obligation to pay the price for the goods in Article 53, the Tribunal came to the conclusion that the said amount should be recovered from the [Buyer].

     3.7 As to the annual interest claimed by the [Seller], it was established that in his complaint the [Seller] requested 4% annual interest. Later, during the arbitral proceedings, the [Seller] claimed 6% annual interest which, in his opinion, should be calculated from 30 April 1992 (the date of Bill of Lading) to the date of payment. At the same time, no reference to the relevant law was made.

Pursuant to Article 78 CISG, if one party to a contract fails to pay the price, the other party is entitled to interest on the sum in arrears. At the same time, the CISG does not set forth the amount of annual interest, which, thus, should be determined in accordance with the applicable subsidiary national law.

Pursuant to Article 28(2) of the Russian Federation Law "On International Commercial Arbitration", in the absence of any statement by the parties, the Tribunal shall apply the law determined in accordance with the conflict of laws provisions that it considers applicable. Based on the Tribunal's long-term practice, the Tribunal considers the conflict of laws provisions of the "lex fori" should be applied and, in particular, Article 566 of the Russian Soviet Federative Socialist Republic Civil Code 1964, which had been in force at the time of entering into the contracts in controversy. [Article 566] sets forth that the laws of the place where the international contracts were made should apply. Since the contracts in controversy were made in Moscow, where the telex messages stating that the manager of the [Buyer]'s firm accepted their terms were received, when resolving the issue of annual interest, [the Tribunal] should apply Russian law.

When determining the initial date for which annual interest should be calculated, the Tribunal followed the provisions of the contracts in controversy. In accordance with them, the payment was to be made within 30 days after the date of Bill of Lading. Since [the Bill of Lading] is dated 30 April 1992, the initial date, for which interest should be calculated, is 1 June 1992 and not 30 April 1992 as the [Seller] mistakenly thinks.

In accordance with Article 226 of the Russian Soviet Federative Socialist Republic Civil Code 1964, the debtor must pay 3% annual interest for the delay in payment. Since 3 August 1992, the USSR Principles of Civil Law 1991 have been in force in the Russian Federation. Article 66 [of the Principles] sets forth a 5% annual interest. Finally, pursuant to Article 395 of the Russian Federation Civil Code, which has been in force since 1 January 1995, the amount of interest shall be determined according to the current bank interest rate at the place of the creditor on the date of the payment. Besides, the Tribunal can sustain the creditor's claim based on the relevant interest rate either on the date of the claim or on the date of the award.

Taking the above into consideration, the [Buyer] should pay 3% of the main debt from 1 June 1992 to 2 August 1992 and 5% annual interest from 3 August 1992 to 31 December 1994.

Since the [Seller] has presented no evidence either of the bank interest rate (Article 395 of the Civil Code) or any other legal grounds, his claim to recover 6% annual interest from 1 January 1995 is left without considering.

Since the award is made against the [Buyer], his claim to compensate his expenses in connection with the proceeding should not be sustained.


FOOTNOTES

* This is a translation of data on Proceeding 400/1993, dated 28 April 1995, of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, reported in Rozenberg ed., Arb. Praktika (1997) No. 36 [99-106].

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