Russia 12 March 1996 Arbitration proceeding 218/1995 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/960312r2.html]
DATE OF DECISIONS:
CASE NUMBER/DOCKET NUMBER: 218/1995
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Russia (claimant)
BUYER'S COUNTRY: Italy (respondent)
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:
78A ; 78B [Interest on delay in receiving price or any other sum in arrears: method of calculation; Rate of interest]
78A ; 78B [Interest on delay in receiving price or any other sum in arrears: method of calculation; Rate of interest]
CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
CITATIONS TO TEXT OF DECISION
Original language (Russian): Rozenberg ed., Arbitrazhnaja praktika za 1996-1997 gg. [Arbitration practice in the years 1996-1997], Moskva (Statut) 1998, No. 11 [38-41]
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.160Go to Case Table of Contents
Case text (English translation) [second draft]
Queen Mary Case Translation Programme
Russian Federation arbitration proceeding 218/1995 of 12 March 1996
Translation [*] by Mykhaylo Danylko [**]
1. SUMMARY OF RULING
1.1 The States where the parties to the dispute have their places of business at the time of concluding the contract were Contracting States of the CISG. This Convention shall be applied to the relations of the parties, with the part of their relations which is not covered by the Convention regulated by the law defined according to Art. 7(2) CISG and the requirements of Art. 28(2) of the Russian Federation Law On International Commercial Arbitration.
1.2 Although the contract was concluded by the parties in March 1992, the Tribunal of International Commercial Arbitration (hereinafter Tribunal) applied the Rules of Tribunal that became effective on 1 May 1995, taking into attention that the suit was brought to the Tribunal on 19 June 1995 and neither party requested that the Rules of Tribunal of 1998 (effective at the conclusion of the arbitration clause) be applied to the arbitration of the dispute.
1.3 The fact that the Claimant [Seller] did not provide documents for payment under
the bank guarantee does not exempt the Respondent [Buyer] from payment to the [Seller] of the cost of the delivered goods within a reasonable time after the bank reestablish the previously issued guarantee for payment for the shipped goods.
1.4 Delay of payment of the debt leads to the obligation to pay annual interest according to Art. 78 CISG. The amount and method of calculation of the annual interest shall be defined in accordance with subsidiary applied provisions of the Russian laws.
1.5 For the period until 31 December 1994 inclusively, the penalty in the amount of 5 percent and additionally penalty for the use of money in the amount of an average banking annual rate at the place of the creditor proved by the [Seller] was recovered [from the Buyer] on the basis of the Fundamentals of Civil Law 1991 Art. 66(3) and Art. 133(3), applied by analogy.
1.6 The [Seller]'s claim to recover from the [Buyer], on the basis of Russian Federation Civil Code Art. 15, the 15 percent annual interest for the delay in payment starting from 1 January 1995 was not considered, because it is a material claim that increases the amount of the cost of action but was not covered by the arbitration fees [paid by the Seller]. The [Seller]'s claim to calculate the annual interest on the basis of Russian Federation Civil Code Art. 395 was also not considered because the [Seller] did not present evidence of the amount of banking rate for short term credit at the place of [Seller] for the relevant period.
1.7 In addition, the Tribunal left without consideration, as a claim not covered by the arbitration fees, the [Buyer]'s claim to decrease the sum against him by the costs spent by [the Buyer] to issue the banking guarantee not used by the [Seller].
2. FACTS AND PLEADINGS
2.1 [Seller's position]
The [Seller] (a Russian company) claimed recovery from the [Buyer] (an Italian company) of the price of goods delivered by the [Seller] under the contract concluded between the parties on 17 March 1992 in Moscow. The [Seller] also claimed annual interest for the delay in payment.
2.2 [Buyer's position]
The [Buyer] did not feel himself responsible for the delay in payment because the [Seller] did not receive the payment as a result of the [Seller]'s failure to use a banking guarantee, which was open in favor of the [Seller] according to the provisions of the contract. As to payment of the principal debt, the [Buyer] in his written response stated that his losses under this and another contract concluded with [Seller] exceed the amount of the principal debt because of breaches of contract committed by the [Seller].
2.3 [Seller's amendments to the claim]
In an additional claim addressed to the Tribunal, the [Seller] changed the grounds and judicial qualification of the claims to recover annual interest for the period since 1 January 1995.
2.4. [Buyer's response]
The [Buyer], during the hearings, admitted that he received the goods, but rejected the [Seller]'s claim because the latter did not use the banking guarantee, which led to unforeseen expenses for the [Buyer] as well as because the [Seller] failed to deliver the goods in time and because the [Seller] provided a short delivery of the goods. Based on this, the [Buyer] asked the Tribunal to consider the expenses incurred by the [Buyer] to open the banking guarantee.
3. TRIBUNAL'S REASONING
The ruling of the Tribunal contained the following main points.
3.1 [Jurisdiction and competence of the Tribunal]
The Tribunal's competence is based on the fact that the Tribunal is a successor of the [arbitration authority] specified in the arbitration clause of the contract.
3.2 [Applicable law]
The CISG is applicable to the relations of the parties because the States where the parties have their places of business are Contracting States of the Convention. To the part of their relations which is not covered by the CISG on the merits, should be applied the law defined in accordance with Art. 7(2) CISG and the requirements of Art. 28(2) of the Russian Federation Law On the International Commercial Arbitration. The Tribunal applied the Russian rules of conflict of laws. Taking into consideration that the contract between the parties was concluded in Moscow on 17 March 1992 when the Russian Federation Civil Code 1964 Art. 566 was effective, Russian law was held applicable (according to Article 566, the rights and obligations of the parties to an international commercial contract should be defined under the laws of the place of conclusion of the contract [lex loci actus]).
When hearing this dispute, the Tribunal used as a procedural law the Rules of the Tribunal effective since 1 May 1995, because the claim papers were received by Tribunal on 19 June 1995.
3.3 [The merits of the case]
The [Buyer] admitted that he received the goods and did not pay the price asked by the [Seller]. On this ground and in accordance with Arts. 53 and 54 CISG, the sum of the principal debt should be recovered from the [Buyer].
The [Seller]'s claim to recover annual interest is based on Art. 78 CISG and on subsidiary applied provisions of the Russian Federation law.
After considering the merits of the dispute, the Tribunal concluded that the [Buyer] fulfilled the requirements of the contract to open a bank guarantee in favor of the [Seller], although for a shorter term - 90 days instead of 120 days since the date when the invoice along with bills of lading were sent to him. The bank guarantee, opened on 16 October 1992, was effective until 15 January 1993. During this period of time, the [Seller] did not present documents for payment under the bank guarantee and could not prove this at the Tribunal's hearings.
On the basis of the documents presented by the [Buyer], it follows that on 25 March 1993 the Italian bank reissued the guarantee at the [Buyer]'s account necessary for the payment for the delivered goods. Having received the money from the bank, the [Buyer] was obligated and had the opportunity to make payment for the goods received within a reasonable term, which is 30 days in the belief of the Tribunal, and which in fact was not done by the [Buyer]. Therefore, the Tribunal found the [Buyer] was in delay of payment of the debt since 26 April 1993.
At the moment when the debt was incurred and until 31 December 1994, the Fundamentals of Civil Law 1991 Art. 66(3) was effective in the Russian Federation. By virtue of this article, 5 per cent annual interest shall be calculated on the amount of principle debt for the period in delay. Whereas Art. 66(3) of the said Fundamentals does not provide the procedure of calculation of the annual interest, the Tribunal found it possible to apply Art. 133(3) of the Fundamentals of Civil Law 1991, according to which the annual interest for using money shall be calculated in the amount of the average rate of the banking credit at the place of creditor. On the basis of evidence provided by the [Seller], the average rate of the banking interest for the period in delay constituted 15 per cent per annum. The Tribunal admitted this evidence as reasonable and granted the claims of the [Seller].
However, the [Seller]'s claim to recover from the [Buyer], on the basis of Russian Federation Civil Code Art. 15, the 15 per cent annual interest for the delay in payment starting from 1 January 1995 until the day of payment was left without consideration, because it is a material claim that increases the amount of the cost of action but was not covered by the arbitration fees paid [by the Seller]. According to the Art. 1(2) of the Rules of Tribunal On Arbitration Fees and Expenses, every claim addressed to the Tribunal should be paid with the arbitration fees, which was not done by the [Seller] regarding this claim.
The [Seller]'s claim to calculate 15 per cent annual interest on the base of Russian Federation Civil Code Art. 395 was also left without consideration because the [Seller] did not present evidences on the amount of banking rate for the short term credits at the place of [Seller] for the relevant period.
In addition, the Tribunal left without consideration as a claim not covered by the arbitration fees the [Buyer]'s claim to decrease the sum against him on the costs spent by [the Buyer] to issue the banking guarantee not used by the [Seller].
* This is a translation of data on Proceeding 218/1995, dated 12 March 1996, of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, reported in Rozenberg ed. Arb. Praktika (1998) [38-41].
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 of Italy is referred to as [Buyer].
** Mykhaylo Danylko is a Partner with the law firm Danylko, Kushnir, Soltys & Yakymyak, Attorneys & Counselors at Law, Kiev, Ukraine <http://www.dksylaw.com>. He holds a Masters of Laws (European Studies Program) from the Law School of International Science and Technology University, Kiev, Ukraine (July 2000); a Master of Management in Business of the Business School of International Science and Technology University (June 2002); and has received his LL.M. in International and Comparative Law at the Pace University School of Law.Go to Case Table of Contents