Russia 19 December 1995 Arbitration proceeding 133/1994 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/951219r1.html]
DATE OF DECISIONS:
CASE NUMBER/DOCKET NUMBER: 133/1994
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Russian Federation (respondent)
BUYER'S COUNTRY: Ukraine (claimant)
GOODS INVOLVED: Unavailable
APPLICATION OF CISG: Yes [Article 1(1)(a)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issues:
Classification of issues using UNCITRAL classification code numbers:
25B [Definition of fundamental breach: substantial deprivation of expectation, etc.]; 49A [Buyer's right to avoid contract (grounds for avoidance): fundamental breach]; 76B [Damages recoverable based on current price]; 78B [Rate of interest]; 84A [Restitution of benefits received: seller bound to refund price must pay interest]
25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];
49A [Buyer's right to avoid contract (grounds for avoidance): fundamental breach];
76B [Damages recoverable based on current price];
78B [Rate of interest];
84A [Restitution of benefits received: seller bound to refund price must pay interest]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
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. 70 [192-195]
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
English: Djakhongir Saidov, 7 Vindobona Journal of International Commercial Law and Arbitration (1/2003) 1-62 at n.225Go to Case Table of Contents
Case text (English translation) [second draft]
Queen Mary Case Translation Programme
Translation [*] by Yelena Kalika [**]
1. SUMMARY OF RULING
1.1 The CISG applies to the relationships under an international contract of sale between the Respondent Russian company [Seller] and the Claimant Ukrainian company [Buyer] since both countries are CISG signatory states.
1.2 Seller's numerous failures to perform the contract were found to be a fundamental breach entitling the Buyer to declare the contract avoided pursuant to Article 49 CISG.
1.3 In accordance with Article 76 CISG, the [Buyer]'s claim to recover from the Buyer the difference between the price fixed in the contract and the current price at the time of avoidance of the contract was sustained. Besides, the amount of the current price was found proven since it was within the limits set by the parties themselves for a case of a short delivery of goods.
1.4 Due to the delay in payment, pursuant to Article 78 CISG, the [Buyer]'s claim to recover annual interest from the [Seller] was found reasonable. Since Article 78 CISG sets forth no annual interest rate, the Arbitral Tribunal applied the rules of Russian law as a subsidiary statute. Taking into consideration that the [Buyer] did not submit any evidence of a bank interest rate in the currency in which the payment had to be made, at the place of [Buyer], his claim was not sustained.
1.5 It was found incorrect to take into account a partial recognition of [Seller]'s debt made by the [Seller] in his correspondence with the [Buyer], since at the time, when such recognition was made, the amount of [Buyer]'s claims substantially exceeded the amount stated in the complaint.
2. FACTS AND PLEADINGS
Pursuant to the contract made by the parties, the [Buyer] (a Ukrainian company) made an advance payment to the [Seller] (a Russian company) for the goods that were to be delivered in 1993. However, the [Seller] did not make any delivery claiming the change of prices. Notwithstanding the fact that the parties set numerous new dates of delivery and increased the price in comparison to the one fixed in the contract, only partial delivery was made. The [Seller] refused to deliver the rest of the goods claiming a substantial change of prices. In this connection, the [Buyer] declared the contract avoided. The [Buyer]'s claims included:
|-||Refund of the advance payment;|
|-||Payment of the difference between the contract price and the current price;|
|-||Payment of interest for the delay in payment.|
3. TRIBUNAL'S REASONING
The award made by the Arbitral Tribunal stated the following.
3.1 The advance payment made by the [Buyer] should be refunded by the [Seller] in the amount determined pursuant to Article 81 CISG. The Arbitral Tribunal has made such a conclusion since the [Buyer] declared the contract avoided totally in accordance with the provisions of Article 49 CISG because the [Seller] missed the dates of delivery agreed upon in the contract on many occasions and because, after missing the last date of delivery, he refused to deliver the rest of the goods at all.
3.2 Pursuant to Article 76 CISG, the [Buyer] can claim from the [Seller] the difference between the contractual price and the current price at the time of avoidance of the contract. To utilize this right the [Buyer] must prove the current price. Although the [Buyer] has not demonstrated any reasonable ground on which the current price used in his computations should be applied, the Arbitral Tribunal finds [Buyer]'s claim reasonable. The Tribunal finds that [this current price] is within the limits set forth by the parties themselves in case of a refund of the amount owed in connection with a short delivery.
3.3 The [Buyer]'s claim to recover damages is nothing else but a claim to recover interest for the untimely refund of his monetary funds. Pursuant to article 78 CISG, if a party fails to pay the price or any other sum, the other party is entitled to interest on the sum in arrears, without prejudice to any claim for damages. Since the CISG itself does not set forth any interest rate, then, pursuant to both Article 7 CISG and the parties' agreement as to the applicable law, it has to be determined in accordance with the rules of the Russian Federation law.
Article 66 of the USSR Principles of Civil Law 1991 sets forth that, in case of a delay in payment, a creditor is entitled to recover from the debtor 5% annual interest for the period of such delay, unless a different interest rate is set either in a legislative act or in the parties' agreement. There were no other laws that could apply to the present dispute in order to determine the interest rate during the period of time when the USSR Principles of Civil Law 1991 were in force. The agreement made by the parties sets forth a penalty for either a delay in delivery or a short delivery or for a refusal to deliver the goods which have been paid for. However, [the agreement] contains no provisions regarding an interest rate for a delay in payment.
On the above grounds, the Tribunal has applied the 5% interest rate. The Tribunal took into account that the USSR Principles of Civil Law 1991 had not been in force in Russia since 1 January 1995. Article 66 of the USSR Principles of Civil Law 1991 also provides for the recovery of interest for the use of the other's monetary funds in case of a delay in fulfilling one's obligations in connection with carrying out business activities. Since Article 66 of the USSR Principles of Civil Law 1991 does not set forth either the procedure of computation of interest or its rate, the Tribunal applies Article 133(3) of the USSR Principles of Civil Law 1991 by analogy. Article 133(3) contains a reference to a median bank interest rate at the place of Creditor. Since the [Buyer] has not presented evidence of such rate that existed in 1994, the Tribunal does not find it possible to recover interest for the use of the other's monetary funds in excess of 5% annual interest.
The new Russian Federation Civil Code has been in force since 1 January 1995. Article 395 of the Code provides that an interest rate for the use of another's monetary funds shall be determined in accordance with the bank interest rate existing at the place of Creditor on the date of payment. When recovering an amount in arrears in court, the court may sustain a creditor's claim taking into consideration the bank interest rate either on the date when the claim was filed or on the date when the decision was rendered.
The [Buyer] has presented the Tribunal with a letter issued by a bank at the place of his residence stating that the annual bank interest rate set by the National Bank of the Ukraine as of 19 December 1995 is 110%. Since the mentioned rate is set for loans issued in the Ukrainian national currency, the [Buyer] has suggested the following method of computation of interest. The main amount of the claim in Rubles should be transferred into Karbovanets at the rate of the National Bank of the Ukraine as of 1 January 1995. The 110% annual interest should be computed on that amount. Then the amount calculated in Karbovanets should be transferred back into Rubles at the rate on the date of the proceeding.
The bank interest rate of the National Bank of the Ukraine is set for the Krarbovanets, the national currency of the Ukraine. In Tribunal's opinion, it cannot be applied to amounts in Rubles, the currency of the Russian Federation. The method of transferring Rubles into Karbovanets and then back into Rubles, which has been suggested by the [Buyer], in the final analysis, leads to the application of the same interest rate. The difference in transferring Rubles into Karbovanets as of 1 January 1995 and in transferring Karbovanets into Rubles as of 19 December 1995 only evidences the change in currency rates.
For the above reasons, the Tribunal comes to the conclusion that the [Buyer] has not proved the interest rate existing at his place of residence which could be applied to amounts in Rubles. Therefore, the Tribunal finds no reason for sustaining the [Buyer]'s claim to recover annual interest for the use of his monetary funds from 1 January 1995 to 19 December 1995.
3.4 The Arbitral Tribunal does not find it possible to accept the letter written by the [Seller] as evidence of his partial recognition of his debt. (The letter was submitted by the [Buyer]). First, the letter was sent to the [Buyer] prior to [Seller]'s making partial delivery of the goods. Second, it would have been incorrect to stretch partial recognition of the claim to the amount set forth in the complaint. The amount of the claim, that was partially recognized, exceeded the amount stated in the complaint five times.
* This is a translation of data on Proceeding 133/1994, dated 19 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. 70 [192-195].
All translations should be verified by cross-checking against the original text. For purposes of this presentation, Claimant of the Ukraine is referred to as [Buyer] and Respondent of Russia is referred to as [Seller].
** 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.Go to Case Table of Contents