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CISG CASE PRESENTATION

Russia 1 December 1995 Arbitration proceeding 369/1994 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/951201r1.html]

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

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Case identification

DATE OF DECISIONS: 19951201 (1 December 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: 369/1994

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Bulgaria (claimant)

BUYER'S COUNTRY: Russian Federation (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: Article 78 [Also cited: Articles 7(2) ; 61 ; 62 ; 79 ]

Classification of issues using UNCITRAL classification code numbers:

78B [Rate of interest]

Descriptors: 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

Unavailable

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. 63 [174-180]

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Russian: Rozenberg, Kontrakt mezhdunarodnoj kupli-prodazhi. Sovremennaja praktika zaklijutchenija. Razreschenie sporov [International sales contracts], Mezhdunarodnyj centr finansovo-ekonomitcheskogo razvitija, Moscow [19983] 94

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 369/1994 of 1 December 1995

Translation [*] by Yelena Kalika [**]

1. SUMMARY OF RULING

     1.1 When resolving disputes between organizations located in Moscow Convention 1972 member states, the provisions of the said convention shall apply. The arbitration provision in the contract, which did not meet the requirements set forth in the said convention, was not applied.

     1.2 A claim to pay the price of the goods is not the same as a claim to recover damages. It is governed by Articles 61 and 62 CISG and not by Article 79 CISG.

     1.3 The Arbitral Tribunal found it unreasonable to postpone sustaining the [Seller]'s unquestionable claims on the grounds that among the original claims there were some that required further verification and clarification by the parties. The claims requiring further clarification were moved to a separate proceeding.

     1.4 The term in the contract setting forth a penalty for delay in payment excludes the possibility to claim additional payment of 5% annual interest -- which is defined in the law as a fine -- pursuant to Article 66(3) of the USSR Principles of Civil Laws 1991.

2. FACTS AND PLEADINGS

In accordance with the contract made by the Claimant Bulgarian company ([Seller]) and the Respondent Russian company ([Buyer]) on 18 February 1994, the [Buyer] was to pay for the goods, which were sold prior to 5 February 1994, in February-April 1994. However, approximately 50% of the cost of the goods had not been paid by the date of commencing of the present action. The contract set forth discounted prices for the rest of the goods. The [Buyer] failed to pay for the [discounted] goods. The amount of the claim also included a 10% fine set forth in the contract for the delay in payment.

At the arbitral proceeding, the [Seller] also requested the Tribunal to recover from the [Buyer] 5% annual interest for the delay in payment beginning from 30 June 1994 to the day of payment to the [Seller] by the [Buyer]. [The [Seller]] also requested attorneys' fees.

In accordance with the contract, any disputes between the parties shall be arbitrated in the State of the Respondent [the Buyer in this case], i.e., either by the Arbitral Tribunal at the Bulgarian Chamber of Commerce and Industry in Sophia or by the Moscow Arbitral Tribunal applying either Bulgarian or Russian substantive and procedural laws. In his letter of 12 April 1995, the [Buyer] stated that he did not recognize the competence of the Tribunal to arbitrate the present dispute since there was no agreement of the parties to do so. On 31 May 1995, the [Seller] disagreed with this assertion of the [Buyer], stating that the Tribunal's competence to arbitrate the present dispute was set forth in the Convention on Arbitration of Civil Disputes Following from the Economic and Technological Cooperation. Both Bulgaria and Russian are signatories to that convention. In his letter of 31 May 1995, the [Buyer] confirmed his agreement that the present dispute be arbitrated by the Tribunal.

During the proceeding held on 1 December 1995, the [Buyer] submitted his reply to the claim dated 23 November 1995. In that reply he contested the [Seller]'s claims. According to the [Buyer], a great part of the goods delivered to him had expired. The [Seller]'s letter about the extension of the expiration dates also confused him. [Such extension of the expiration dates] is prohibited by the relevant corporeal act issued on 25 May 1994 in the Russian Federation. Delivery of the expired goods to the consumers resulted in their being rejected. As a result, as of the date of the reply, in the [Buyer]'s warehouses there were a great number of defective goods, which were delivered to the [Buyer] under this contract and could not be resold. The [Buyer] submitted a list of such goods signed by the general manager of his company. The [Buyer] asserted that his expenses that resulted from the [Seller]'s wrongful acts amounted to approximately 20% of the amount of the claim. The [Buyer] requested to postpone the proceeding in order to verify the computations taking into account mutual claims and to submit the calculation signed by both parties.

The [Seller]'s representative argued against the [Buyer]'s request on the ground that numerous meetings regarding these issues, which had taken place prior to the arbitral proceeding, did not bring about any results. He also rejected [Buyer]'s contentions on the merits. He referred to the following facts. The [Buyer] filed a claim in connection with a part of the goods delivered but refused to pay for all of the goods. The parties entered into a sales contract with a postponed date of payment and not a consignment agreement. The [Buyer] failed to submit any claims in connection with the quality of the goods within the period of time set in the contract. As the [Buyer] was notified, the expiration dates of the goods were extended by the manufacturers pursuant to the research made by their control bodies. In the draft agreement of 10 March 1995 on the regulation of the parties' relationships under the contract in controversy, the President of the [Buyer]'s company admitted that the [Buyer]'s debt to the [Seller], which should be paid off, amounted to approximately 80% of the amount of the claim. The same amount of debt was recognized by the [Buyer] in his letter of 5 May 1995 signed by the general manager of the [Buyer]'s company. The [Buyer]'s reference to the CISG is unreasonable since, in accordance with the contract of 18 February 1994, the parties agreed to apply Russian substantive laws if the Respondent [Buyer] is the Russian party.

During the discussion of the issue of [Seller]'s additional claims, the [Buyer]'s representative agreed with the [Seller]'s suggestion that the interest for the delay in payment be also imposed after 1 January 1995 in the amount of 5% annually.

3. TRIBUNAL'S REASONING

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

     3.1 The competence of the Tribunal to arbitrate the present dispute follows from the international treaty of the Russian Federation to which both Russia and Bulgaria are signatory states (the Convention on Arbitration of Civil Disputes Following from the Economic and Technological Cooperation 1972). The parties confirmed, both in writing and at the proceeding, their agreement that their dispute be arbitrated by the Tribunal.

     3.2 It follows from the analysis of the terms of the contract made by the parties that it is a contract for the international sale of goods setting forth that payments for the goods should be made in installments. There are no grounds to consider this contract to be a consignment agreement.

     3.3 The contract made by the parties set forth that, when the Respondent [Buyer in this case] is the Russian party, Russian substantive law should apply to any disputes. The Russian Federation, just as Bulgaria, had been a CISG Contracting State at the time the parties entered into their contract. The parties' contract meets all the requirements to a contract for the international sale of goods governed by this Convention. In accordance with Article 15(4) of the Russian Federation Constitution, international treaties of the Russian Federation are a component part of its legal system. Therefore, the parties' choice of Russian law as applicable to this contract does not exclude the application of the provisions of the said Convention to their relationships, in the absence of an agreement to the contrary. At the same time, in accordance with Article 7(2) CISG, questions concerning matters governed by this Convention which are not expressly settled in it or could not 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. The parties' choice of Russian law as applicable means that such questions should be settled in accordance with Russian domestic civil law.

     3.4 The [Buyer] admitted that a greater portion of the main sum of the claim submitted by the [Seller] should be paid off. Taking into account the reasonableness of this claim of the [Seller], the Tribunal does not see any grounds to condition its sustaining upon any additional verification of payments by the parties which was requested by the [Buyer]. The [Buyer]'s reference to article 79 CISG cannot be taken into account for the following reasons. This article, at is directly stated in its paragraph 5, can be invoked only when the subject of the claim is the recovery of damages. A claim to recover the price of goods is not the same as a claim to recover damages, which would be directed to secure equality in the relationships between the parties to the contract. It is governed by Articles 61 and 62 CISG. Besides the [Buyer] did not submit any evidence that the delay in payment resulted from the reasons beyond his responsibility.

     3.5 In connection with the rest of the main sum in arrears claimed by the [Seller], there are disagreements between the parties as to both the amount of this portion of the claim and the legal grounds for this claim. The Tribunal considers that certain questions in connection with this portion of the claim should be additionally verified and clarified. These questions cannot be answered in this proceeding. Such questions, in particular, include:

-   Determination of the exact sum in arrears for which the parties need to make a mutual verification of the payments;
 
- Determination of the expiration dates for each shipment of the goods, which the [Buyer] refuses to pay for, both as of the date of the initial contract (18 February 1994) and taking into consideration the extension;
 
- The procedure of extending the expiration dates for these goods that exists in Bulgaria and [the procedure] that had existed in Russia prior to the enactment of the corporeal act of 25 March 1994;
 
-   Whether this corporeal act relates back;
 
- The contents of the corporeal act which was replaced by the one of 25 March 1994;
 
- Factors taken into account by the parties when setting forth the prices in Appendix No. 1 to the contract of 18 February 1994 (which were reduced in comparison with the earlier prices of the same goods).

     3.6 The delay in payment of the amount due clearly entails, in accordance with the contract, a 10% penalty. Thus, the [Buyer] must pay a fine to the [Seller] in addition to the main sum of the claim. The Tribunal notes that the reasonableness of the application of the fine for the delay in payment was recognized by the [Buyer] himself.

     3.7 In connection with the [Seller]'s claim to recover 5% annual interest from the [Buyer], the Tribunal took into consideration the provisions of Article 78 CISG setting forth the buyer's right to claim interest on the sum in arrears in case of delay in payment of the price. Since the CISG does not set forth the rate of such interest, the Tribunal turned to the provisions of Russian Civil law. In accordance with Article 66(3) of the USSR Principles of Civil Law 1991, which came into force in Russia on 3 August 1992, in case of a delay in payment, the annual interest rate is 5%, unless the agreement of the parties states otherwise. The said 5% annual interest was defined as a fine. When carrying out business activities, it is allowed to claim interest for the use of another's monetary funds in addition to the said fine. Since 1 January 1995, in accordance with Article 395(1) of the Russian Federation Civil Code 1994, any interest rate should be determined according to the bank interest rate on the date of payment, whether such payment is full or partial, at the place where the legal entity is located, unless a different interest rate is set forth by law or agreement.

In accordance with the provisions of Russian law, the Tribunal finds that the [Seller] has no right to claim 5% annual interest on the sum claimed from 30 June 1994 to 31 December 1994, since under the contract he will recover a fine for the delay in payment in the amount set forth in the contract. The [Seller] did not submit evidence of annual interest rate for the use of another's monetary funds, which he could have claimed (at the median bank interest rate in the place of creditor) pursuant to Article 66(3) of the USSR Principles of Civil Law 1991.Taking into consideration that, pursuant to Article 395 of the Russian Federation Civil Code, the [Seller] can claim interest for the use of another's monetary funds and that the parties agreed on the rate of such interest at the hearing (5% annual interest), the Tribunal sustains the [Seller]'s claim to recover 5% annual interest on the main sum in arrears for the period of time from 1 January 1995 to the date of payment. The 5% annual interest should be calculated from 8 November 1994 (the date on which the claim to recover a fine was filed) to the date of payment.

     3.8 The [Seller] failed to submit evidence of expenses he incurred in connection with this case. Taking into consideration the difficulty of the case, the Tribunal found it possible to sustain such claim in the amount it had determined and found reasonable.

     3.9 Taking the above into consideration, the Tribunal moves the [Seller]'s claim to recover the rest of the sum from the [Buyer] and any additional claims related to this sum into a separate proceeding. [The rest of the sum] includes his claims to recover penalties in connection with the sum of the remaining debt.

     3.10 The Tribunal points out to the [Buyer] that, in accordance with Article 29 of the Tribunal's Rules, a counterclaim should meet the same requirements as the main claim. In particular, [it should meet the requirements] as to its form and arbitration fees. The same requirements apply to a counterclaim, in particular, in connection with the recovery of damages resulted, in [Buyer]'s opinion, from the [Seller]'s wrongful acts in connection with the main claim. Thus, in order to arbitrate [Buyer]'s counterclaims at the new proceeding, he has to pay arbitration fees on the sum of his claim. The claim itself should be drawn in accordance with the Tribunal's Rules.


FOOTNOTES

* This is a translation of data on Proceeding 369/19954, dated 1 December 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. 63 [174-180].

All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Bulgaria 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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