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CISG CASE PRESENTATION

Russia 22 November 1995 Arbitration proceeding 99/1994 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/951122r1.html]

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

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Case identification

DATE OF DECISIONS: 19951122 (22 November 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: 99/1994

CASE NAME: Unavailable

CASE HISTORY:Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Unavailable (respondent)

GOODS INVOLVED: Unavailable


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issues: Articles 4 ; 7(2) ; 8 ; 55

Classification of issues using UNCITRAL classification code numbers:

4B [Issues excluded: validity under domestic law];

7C23 [Gap-filling by domestic law];

8A ; 8C [Intent of party making statement or engaging in conduct; Interpretation in light of surrounding circumstances];

55A [Enforceability of agreements that do not make provision for the price]

Descriptors: Intent ; Validity ; Gap filling ; Open-price contracts

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Editorial remarks

"[T]he contract concluded between the parties provided for the basic price for the goods having a minimum content of a certain indicator. There was no provision as to the price for the goods in which a content of the indicator was below the minimum level. In such a situation, pursuant to the contract, the price was to be agreed upon by the parties. In some of the delivered goods the level of content of the indicator was below minimum. In this situation, the ICAC deemed it possible to apply Article 55 to determine the price.

"It is not clear why the Tribunal deemed it possible to apply Article 55. Such a decision seems to run counter to the provision of the contract according to which in the situation that took place in the case, a price was to be agreed upon by the parties. It is submitted that Article 55 could only be applied where the parties intended to regard an open price contract as valid. Therefore, a price could be determined according to Article 55 only if such a determination of a price stemmed from interpretation of the contract. The decision does not make it clear whether the Tribunal interpreted the agreement. On the basis of the information available, it seems that the parties' intention was not to leave the price open, but to come to an agreement to this effect. In such a case, Article 55 could not be applied.

This decision appears to be inconsistent with the decision taken in a case No 304/1993 [of 3 March 1995] where Article 55 was held to be inapplicable in the situation where the parties have agreed to negotiate the price in future and failed to do so. Djakhongir Saidov, 7 Vindobona Journal of International Commercial Law and Arbitration (1/2003) 1-62 at 37-38. (citations omitted)

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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. 58 [158-164]

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 99/1994 of 22 November 1995

Translation [*] by Yelena Kalika [**]

1. SUMMARY OF RULING

     1.1 The CISG applies to international contracts for the sale of goods between the parties whose commercial enterprises are located in different States not only when these states are the CISG signatories but also when the rules of private international law (the conflict of laws provisions) lead to the application of the law of a Contracting State.

     1.2 When determining the authority of the representative under the power of attorney, the provisions of Article 8 CISG shall be taken into account, such as the understanding that a reasonable person in the position of a person to whom the representative showed the power of attorney. After receiving a written explanations from the party, who issued the power of attorney, limiting the authority of the representative, the third party has no right to take into consideration his original understanding of the authority of the representative.

     1.3 Since the contract did not set forth the price of goods, the quality of which is below the minimum requirements set in the contract, the provisions of Article 55 were taken into consideration when arbitrating the dispute. Besides, pursuant to Article 4 CISG, the issue of legal validity of the contract were settled under the rules of Russian law.

     1.4 Respondent [Buyer]'s counterclaim was not considered since the [Buyer] did not take the mandatory measures required by the Tribunal in order to arbitrate the counterclaim.

2. FACTS AND PLEADINGS

The parties to the dispute were Claimant, a Russian company [Seller] and Respondent [Buyer], a company located in a State that was not a CISG Contracting State.

Pursuant to the terms of the contract made by the parties on 29 July 1993, the [Seller] was to deliver the goods to the [Buyer]. The price was to be differentiated depending on the percentage of a certain parameter [in the goods]. At the same time, the parties settled the minimum allowable percentage of such parameter and the minimum price for a weight unit. The payments were to be made by wire transfer to [Seller]'s account upon unloading of each lot of the goods. The parties also agreed that upon [Seller]'s request, the [Buyer] had a right to give cash to [Seller]'s representative (the captain of a vessel which delivered the goods) to cover expenses in connection with the expedition.

The dispute between the parties was related to the different understanding of the authority given the captain of the vessel under the power of attorney issued by the [Seller]. In [Seller]'s opinion, such power of attorney gave the representative only the right to declare and carry out the formalities in connection with the goods exported under the contract. The [Buyer] argued that under the power of attorney the captain of the vessel was authorized to carry out all the works and actions in connection with performance of the contract on [Seller]'s behalf. Thus, they accepted all the lots of goods and determined the price of the goods, which were partially sub-standard, and, upon captain's request, paid him the sum of money amounting to the larger part of the cost of the goods delivered.

3. TRIBUNAL'S REASONING

The Tribunal's award was based on the following grounds.

     3.1 Tribunal's competence to arbitrate the present dispute follows from clause 10 of the contract between the parties. Pursuant to that clause, all disputes and disagreements between the parties shall be arbitrated by the Arbitral Tribunal 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" (clause 2), 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.

     3.2 In the contract made by the parties, there is no term setting forth the applicable law. Pursuant to Article 28 of the Russian Federation Law "On International Commercial Arbitration", the Tribunal finds Russian law applicable to the merits of this case. [The applicable law] was determined in accordance with the conflict of laws provisions of Article 166 of the USSR Principles of Civil Law 1991 that had been in force in the Russian Federation since 3 August 1992. According to this Article, when there is no agreement of the parties as to the laws applicable to their relationships under a contract of sale of goods, the law of the State, in which the Seller's company is incorporated or has its principal place of business, shall apply.

In accordance with the Russian Federation Constitution (Article 15(4)), international treaties of the Russian Federation are a component part of its legal system. If an international treaty of the Russian Federation sets forth the rules that are different from the [national] law, then the rules set forth in the international treaty apply.

The Russian Federation is a CISG Contracting State. Pursuant to Article 1(1)(b) CISG, this Convention applies to contracts of sale of goods between parties when the rules of private international law lead to the application of the law of a Contracting State (i.e., a State that has adopted the Convention). Thus, pursuant to the provisions of the CISG, the relationships between the parties under the contract out of which the present dispute arose shall be governed by the CISG. At the same time, pursuant to Article 7(2) CISG, questions concerning matters governed by this Convention, which are not expressly settled in and cannot be settled in conformity with the general principles on which it is based, shall be settled in conformity with the law applicable by virtue of the rules of private international law, i.e. Russian national law in this case.

     3.3 When interpreting the terms of the contract and the parties' statements and conducts, pursuant to Article 8 CISG, the Tribunal reasoned that they shall be interpreted according to the intent of the party where the other party knew or could not have been unaware what that intent was. If such intent was not made known to the other party and it could not be aware of it, when making any interpretations, the Tribunal took into consideration the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. In doing so, the Tribunal applied the criteria set forth in Article 8(3) CISG.

     3.4 When clarifying certain issues, that have significant importance for the purposes of resolving of the present dispute, the Tribunal reached the following conclusion based on its analysis of the terms of the contract, the parties' correspondence and other materials of the case, as well as [Seller]'s statements made during the proceeding of the Tribunal and their comparison with the rules of applicable law.

   3.4.1 The representatives of the parties inspected the quality of the goods at the port of unloading in accordance with clause 6 of the contract ("inspection of goods"). The results of such inspection are reflected in the certificates of quality of goods and price settlement signed by the representatives of the [Buyer] and [Seller]. Therefore, [Seller]'s arguments that there is no proper evidence of his delivery of goods of sub-standard quality (i.e., not meeting the requirements of the contract) cannot be taken into account. If, in [Seller]'s opinion, his representative unreasonably signed the said certificates, such issue can be resolved only between the [Seller] and his representative who acted under a power of attorney.

   3.4.2 The contract entered into by the parties did not contain any terms as to the minimum allowable price. It set the basis price of the goods containing the minimum allowable percentage of a certain parameter as well as extra charges [in cases] when such percentage was above the basis parameter level. At the same time, it was directly stated that when the said parameter in the goods was below the basis level, "such goods shall be rejected and their price shall be additionally agreed upon." Therefore, the contract did not set forth the application of the minimum price in connection with the goods containing the agreed parameter below the allowed level.

   3.4.3 Due to the existing disagreements between the parties regarding the authority given by the [Seller] to his representative, the Tribunal considered the following circumstances.

-   First, the power of attorney issued by the [Seller] to his representative was broad. It gave [the representative] the authority to carry out all the necessary works and actions in connection with performance of the contract, as well as with the customs declaring and clearing of the goods exported under the present contract. It does not follow from the language [of the power of attorney] that the authority of the representative was limited to declaring and customs clearing of the goods exported. Besides, such narrow interpretation of the power of attorney would mean that the [Seller] did not have any intention to secure performance of certain requirements mentioned in the contract and, in particular, his representative's participation in making an inspection of the goods at the port of unloading (clause 6 of the contract), determination of the price of sub-standard goods at the port of unloading (clause 4 of the contract). The [Buyer] did not and could not know about any such intention of the [Seller]. Nor would a reasonable person of the same kind as the [Buyer] acting in the same circumstances have interpreted the power of attorney in such way.
 
- Second, even if the power of attorney issued to the representative could be interpreted by the [Buyer] as giving him the authority to order cash payments [of the sums] owed to the [Seller], then after receiving a fax message from the [Seller], in which the [Seller] demanded to make payments [by wire transfer] to him, the [Buyer] could not interpret that fax message in any way other than limiting the representative's authority in that part. Pursuant to Article 69 of the Russian Soviet Federative Socialist Republic Civil Code 1964, which is applicable to this case, revocation of a power of attorney by a person who issued it leads to the expiration [of such power of attorney].
 
- Third, it is not sufficiently clear whether the settlement of the price for the goods containing the parameter below the basis level was within the authority of the representative. The [Seller] directly stated in his fax sent to the [Buyer] that his representative was not authorized to make such settlement. The [Buyer] received [the said fax] one day before his receiving the last lot of goods. However, this issue is not relevant for the purposes of resolution of the current dispute and, thus, is not being reviewed here.

   3.4.4 Pursuant to Article 55 CISG, where a contract does not expressly or implicitly fix or make provision for determining the price, the parties are considered, in the absence of any indication to the contrary, to have impliedly made reference to the price generally charged at the time of the conclusion of the contract for such goods sold under comparable circumstances in the trade concerned.

The legal validity of a contract made without fixing the price serves as a condition of application of this provision of the CISG. Pursuant to Article 4 CISG, this Convention is not concerned with the validity of the contract or of any of its provisions. Therefore, the legal validity of the contract shall be determined in accordance with the rules of the applicable national law. Pursuant to the USSR Principles of Civil Law 1991 (Article 75(1)), such contract shall be recognized as valid and the price shall be determined in accordance with the method set forth in the CISG.

The Tribunal allowed the [Seller] to submit evidence that the prices, which were set in the certificates signed by the [Buyer] and [Seller]'s representative, did not reflect the prices charged for such goods -- taking into consideration their quality -- sold under comparable circumstances. However, the [Seller] has stated that he has no evidence of prices for the goods which quality is below the basis one. Therefore, the [Seller] has not contested the reasonableness of prices set in the said acts.

   3.4.5 Pursuant to the terms of the contract (clause 8), the Seller (i.e., Claimant) shall bear all expenses in connection with the vessel's calling in the port of destination and unloading of the goods in that port. Besides, the Buyer (i.e., Respondent) has the obligation to submit all the disbursement and other bills to the [Seller]. Therefore, such expenses should be placed on the [Seller], since they have arisen and since their amount has been proven. In the case there is documentary evidence proving such expenses.

The same clause in the contract sets forth that the Buyer shall bear all expenses [made] in Russia in connection with any customs formalities. Thus, any proven expenses in connection with paying the custom duties and carrying out all the customs formalities in Russia should be attributed to [Seller]'s account. In the materials of the case, there are documents proving the amount of the customs duties paid at the regional customs department by the [Buyer] at the request of [Seller]'s representative. There is also evidence that the relevant sum for carrying out the customs formalities was transferred [by the [Buyer] to the same customs department].

The payment of the relevant amount for the quarantine inspection made in Russia is also documentary proven.

     3.5 Taking the above into consideration, the Tribunal reasoned as follows.

   3.5.1 The cost of the goods delivered by the [Seller] and accepted by the [Buyer] should be determined in accordance with the acts of acceptance signed by the representatives of the [Seller] and [Buyer]. At the same time, [Buyer]'s expenses, that under the contract were to be paid by the [Seller], should be withheld from the amount due to the [Seller].

Considering that the payment of the relevant amounts for the first three lots (in order to pay the salaries to the crew, to buy equipment, and to bunker the vessel) was made by the [Buyer] prior to his receiving [Seller]'s order limiting the authority of [Seller]'s representative and prior to his being able to carry it out, the money handed over to [Seller]'s representative in connection with those three lots should be counted towards the payment of the price to the [Seller].

   3.5.2 Pursuant to the contract, the [Buyer] was obligated to pay to the [Seller] the penalty for the delay in payment. The amount of penalty was 0.08% per day from 1 January 1994 to the day of payment.

[Seller]'s claim to recover 5% annual interest from the [Buyer] pursuant to Article 66(3) of the USSR Principles of Civil Law 1991 cannot be sustained. Pursuant to the said Article, the 5% annual interest can be recovered in case of delay in payment if the agreement of the parties does not set forth a different amount of interest. As stated above, the amount of such interest is directly stated in the contract between the parties.

   3.5.3 As to the sums paid by the [Buyer] to the captain of the vessel on [Seller]'s behalf without any legal grounds, the [Buyer] can bring any relevant claims again the captain of the vessel.

     3.6 The counterclaim filed by the [Buyer] via telex was not considered. In accordance with Article 29(2) of Tribunal's Rules, the counterclaim shall meet the same requirements as the original claim. In particular, arbitration fees have to be paid. However, by the date of arbitration, of which the [Buyer] was notified, he had not taken any mandatory measures in order to arbitrate the counterclaim. In such circumstances, [Buyer]'s counterclaim could not be arbitrated in the same proceeding as the original claim.


FOOTNOTES

* This is a translation of data on Proceeding 99/1994, dated 22 November 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. 58 [158-164].

All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the Russian Federation is referred to as [Seller]; Respondent, a company of a country that is not a Contracting State to the CISG, 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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