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CISG CASE PRESENTATION

Hungary 10 December 1996 Budapest Arbitration proceeding Vb 96074 (Caviar case) [English text]
[Cite as: http://cisgw3.law.pace.edu/cases/961210h1.html]

Primary source(s) for case presentation: Case text


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Case identification

DATE OF DECISION: 19961210 (10 December 1996)

JURISDICTION: Arbitration; Hungary

TRIBUNAL: Arbitration Court of the Chamber of Commerce and Industry of Budapest

JUDGE(S): János Burai-Kovács, chairman; Tibor Várady, arbitrator; Stenglné Horváth Ágnes, arbitrator

CASE NUMBER/DOCKET NUMBER: VB 96074

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Yugoslavia (claimant)

BUYER'S COUNTRY: Hungary (respondent)

GOODS INVOLVED: Caviar


Case abstract

HUNGARY: 10 December 1996 Arbitration Court of Budapest Chamber of Commerce and Industry

Case law on UNCITRAL texts (CLOUT) abstract no. 163

Reproduced with permission from UNCITRAL

A Yugoslav company sold and delivered caviar to a Hungarian company. According to their contract "the buyer has to pick up the fish eggs at the seller's address and take the goods to his facilities in Hungary". Payment was due two weeks after the delivery of the goods, at which time the UN embargo against Yugoslavia took effect in Hungary. The [seller] assigned the claim for the price of the goods to a company located in Cyprus. The [buyer] acknowledged the assignment, but could not pay on the basis that the UN embargo was a force majeure.

The arbitral court found that the damage caused by force majeure had to be borne by the party to whom the risk had passed, i.e., the [buyer]. In this connection, the arbitral court found it necessary to point out that the risk of freight had to be borne by the [buyer], unless the contract of the parties or the applicable law provided otherwise (article 67 CISG). The [buyer] could not be exculpated by proving that the damage was owing to an act or omission of the [seller] (article 66 CISG).

Accordingly, the arbitral court held that the [buyer] was obliged to pay the price of the delivered goods with interest.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 78 ; 79 [Also cited: Articles 53 ; 59 ; 60 ; 66 ; 67 ] [Also relevant: Article 69 ]

Classification of issues using UNCITRAL classification code numbers:

78A ; 78B ; 78C ; [Interest on delay in receiving price; Rate of interest; Liability/non-liability for interest during period of force majeure];

79G [Force majeure occurring after delivery of goods]

Descriptors: Exemption or impediments ; Price ; Delivery ; Passage of risk ; Interest

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

English: Unilex database [Clout abstract]

Polish: Hermanowski/Jastrzebski, Konwencja Narodow Zjednoczonych o umowach miedzynarodowej sprzedazy towarow (Konwencja wiedenska) - Komentarz (1997) 293-294

CITATIONS TO TEXT OF DECISION

Original language (English): Text of case presented below

Translation: Unavailable

CITATIONS TO COMMENTS ON DECISION

English: Thiele, 2 Vindobono Journal (1998) 3-35, citing this case [n.59] and 42 other interest rulings; Petrochilos, Arbitration Conflict of Laws Rules and the CISG (1999) nn.40, 70; Flambouras, Transfer of risk (1999) nn.18, 73, 276; [2004] S.A. Kruisinga, (Non-)conformity in the 1980 UN Convention on Contracts for the International Sale of Goods: a uniform concept?, Intersentia at 133; [2005] Schlechtriem & Schwenzer ed., Commentary on UN Convention on International Sale of Goods, 2d (English) ed., Oxford University Press, Art. 66 para. 4; Schwenzer & Fountoulakis ed., International Sales Law, Routledge-Cavendish (2007) at p. 474

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Case text

Reproduced with permission from the Arbitration Court of the Hungarian Chamber of Commerce and Industry

Magyar Kereskedelmi És Iparkamara
mellett szervezett

Választottbiróság
10 December 1996 VB/96074

In case of . . . Claimant . . . versus . . . Respondent [Buyer] . . . for payment of [a sum of money] with costs and interests the court of arbitration has brought today and delivers to the process parties . . . the following

Award

The Court of Arbitration obliges . . . [Buyer] to pay . . . (Claimant)

a) US $93,127 (ninety three thousand one hundred twenty seven US dollars), as well as

b) 8% interest on the amount of US $15,000 (fifteen thousand) from May 28, 1992 until payment,

c) 8% interest on the amount of US $78,127 (seventy eight thousand one hundred and twenty seven US dollars) from November 23, 1995 until payment,

d) US $5,309 (five thousand three hundred and nine US dollars) which this Court of Arbitration established as costs of arbitration, and

e) US $3,500 (three thousand five hundred US dollars) recognized by this Court of Arbitration as attorney's fee due to Claimant.

[Buyer] is obliged to pay all these amounts (indicated under a-e) within 30 days after the receipt of the present Award.

Further demands of the Claimant pertaining to interest are denied.

Reasons for the Award

  1. The Claimant has submitted in its statement of claim the ground for its claim, and annexed different correspondence of the parties to it as follows:

    [Seller] a Yugoslav company exported caviar to [Buyer]. Delivery took place on May 28, 1992, Hungarian customs clearance was affected on May 29, 1992. It was not contested by [Buyer] that delivery was according to the contract in every respect. The price agreed upon between [Seller] and [Buyer] was US $93,127 -- and it was never paid. . . . [Seller] asked [Buyer] to pay the outstanding amount to four beneficiaries. [Buyer] agreed to it. On July 21, and on July 28, 1992 [Buyer] attempted to pay and gave orders to its bank to effect payment to the Cyprus beneficiaries, but failed. [Buyer] informed [the] beneficiaries the payments were not effected due to the UN sanctions against Yugoslavia. During the . . . sanctions the parties made repeated endeavours to settle the outstanding debt of [Buyer]. The sanctions represented force majeure. In its letter of June 14, 1994 [Buyer] declare d that "the purchase of caviar stock has happened, but declare that fulfillment of payment is limited by force majeure." On December 26, 1994, a written agreement was reached . . . This agreement confirms that the new creditor is . . . the present Claimant in this arbitration case, since it paid to earlier creditors the amount of US $93,127. . . . [Buyer] accepted this change of creditors, it confirmed that its basic debt is US $93,127 and agreed to pay costs and interests on standard banking rates. [Buyer] answered to Claimant on May 26, 1995 that UN sanctions prevented the payment. After the UN sanction[s] were lifted, Claimant repeated its demands for payment on November 23, 1995, as well as on December 21, 1995. In its letter of January 29, 1996 [Buyer] stated that it does not contest the debt, but proposed arbitration which Claimant finally accepted.

  2. The jurisdiction of the Court of Arbitration at the Hungarian Chamber of Commerce and Industry is based on a separate written agreement between the parties. Arbitration was initiated by [Buyer] in its telefax message of January, 1996. Claimant accepted all elements of [Buyer's] proposal (the jurisdiction of the Court of Arbitration of the Hungarian Chamber of Commerce and Industry, the Vienna Sales Convention as applicable law, English as language of the proceedings). Finally [Buyer] confirmed the content of the parties' mutual understanding. (Claimant enclosed the relevant telefaxes of May 1 and 2 of 1996 to its statement of claim.)
  3. On ground of the statement of its claim the Claimant requested to oblige [Buyer] for the payment of US $93,127 principal sum with 8% interests from May 28 until the day of payment as well as to pay the expenses of the Arbitration proceedings.
  4. [Buyer] acknowledged in its statement of defense received by the Court of Arbitration on September 18, 1996, it had concluded with [Seller] the legal predecessor of Claimant the purchase contract but emphasized the consignment was aimed for re-export. Seller delivered the product on May 28, 1992 which as a result of the international . . . sanctions, embargo coming into effect against Yugoslavia had to go outside the bonded warehouse area and [Buyer] could not take delivery of it, or clear it through the customs or return it to Sellers. [Buyer] confirmed it never contested the consignment entered into Hungary on the day prior the embargo came into effect. The goods according to the customs documents arrived for export purposes and never entered customs for local clearance. The responsibility of [Buyer] extended only to the protection of the goods which was met securing and payment of temporary cold storage. Considering [the] conservation date expired, [Buyer] was responsible to destroy the goods and bear its costs. [Buyer] emphasized the sturgeon caviar consignment could never get into its possession and ownership.
  5. On basis of its reasons [Buyer] asked the Court of Arbitration to refuse the claim.
  6. At the oral hearing of the Court of Arbitration of November 21, 1996, the Claimant and the [Buyer] had no objection to the composition of the panel. The Claimant and the [Buyer] confirmed their earlier statements. The Claimant submitted the original sale contract dated May 21, 1992, the relevant freight bills and invoices. The contract wrote in its Point 2 the following: "The Buyer shall pick up the fish eggs at the Sellers address and bring the goods to his facilities in Hungary." The price was agreed on FOB Kladovo basis. The freight bills contained at terms of delivery "FCO KAMION KLADOVO". The Claimant gave details of the amount of the claim. The [Buyer] disputed the deliveries were made on its behalf and that it received the relevant invoices shown at the hearing. The reasons [Buyer] confirmed its payment obligation to Claimant several times was that [Buyer] wanted to maintain the good commercial relationship with Claimant. [Buyer] declared the mother fishes from the consignment were for local destination therefore they were cleared by the customs. The caviar was not cleared by the customs for local destination but cleared by the customs in accordance with the rules relating to goods for re-export purposes because it was not imported for local destination. The Claimant and the [Buyer] unanimously declared there was no later amendment to their sale contract, and confirmed their common understanding relating to the 8% interests to be applied in the present proceedings.
  7. The Court of Arbitration stated first -- based upon the separate agreement of the process parties -- that it has jurisdiction for the present case. The Claimant and the [Buyer] raised no objection to the composition of the court of Arbitration judging the case.
  8. For judgment of the statement of claim as well as the rights and obligations of the parties, the Court of Arbitration had to take into account the Purchase agreement dated May 21, 1992, the protocol of the oral hearing of the Court of Arbitration, the submitted documents as well as the later statements, declarations of the parties. The parties agreed that the language of the Arbitration proceedings shall be English. The parties also agreed the United Nations Convention on Contracts for the International Sale of Goods be applied (hereinafter Vienna Convention). The Court of Arbitration - based upon §25 of Law Decree 13 of 1979 - stated that for judgment of the present case the Yugoslav material law is applicable. The Vienna Convention was already integrated into the Yugoslav material law when the Purchase Contract was signed in 1992.
  9. The Vienna Convention foresees in Art 53 that the Buyer must pay the price for the goods and take delivery of them as required by the contract and this Convention. The contract of the parties definitely provided for the basis of the delivery as follows: "The Buyer shall pick up the fish eggs at the Sellers address and bring the goods to his facilities in Hungary" (Point 2 of the Contract). The price was based FOB Kladovo (point 3 of the Contract). This was confirmed by the freight bills the Claimant enclosed. The Claimant and the [ Buyer] unanimously confirmed at the oral hearing there was no later amendment to this contract. The Contract did not provide for any re-export provision. The [Buyer] could not submit to the Court of Arbitration any proof for any re-export agreement of the parties. The [Buyer] had to pay US $15,000 before the delivery and the remaining amount within two weeks after delivery of the goods in accordance with Point 6 of the Purchase Contract. Art 59 of the Vienna Convention provides the Buyer must pay the price on the date fixed by or determinable from the Contract and this Convention, without need for any request or compliance with any formality on the part of the Seller. Art 60 of the Vienna Convention confirms the Buyer's obligation to take delivery consists in taking over the goods. In the opinion of the Court of Arbitration taking over the goods means taking over the goods as foreseen in the Incoterms Rules, which in our case was regulated by the Contract reading to pick up the goods at Sellers address, FOB Kladovo. The Hungarian customs clearance gives a further support to this understanding. The [Buyer] itself declared during the oral hearing a part of the consignment (mother fishes) were customs cleared for local destination, the other clearance was made in accordance with the re-export provisions.

    Loss of or damage to the goods after the risk has passed to the Buyer does not discharge him from his obligation to pay the price, unless the loss or damage is due to an act or omission of the Seller (Art 66 of the Vienna Convention).

    The Yugoslav material law has the same solution as the German, Austrian or Hungarian law when it says the title to ownership passes simultaneously when the goods are taken over by Buyer.

    The Court of Arbitration came to the conclusion that the risk and the ownership has passed to Buyer . . . in accordance with the Contract at Kladovo. The [Buyer] could not exculpate itself proving the damage is due to an act or omission of Seller or he could not either prove Seller had known about the re-export intent of [Buyer]. In the opinion of the Court of Arbitration this means the damage caused by force majeure has to be borne by the party where the risk is at the moment the force majeure occurs. The Court of Arbitration finds it necessary [to] point out that the risk of the freight has to be borne by the Buyer unless the Contract of the parties or the applicable law otherwise provides (Art 67 of the Vienna Convention). Therefore, the Court of Arbitration stated that the claim of the Claimant is well founded and obliged [Buyer] to pay the Claimant the US $93,127 principal sum.

  10. As for the claim regarding interests the Court of Arbitration stated the following:

    Claimant requested the payment of 8% interest on the principal sum of US $93,127 -- starting from May 1992 until payment. This position was reiterated by Claimant during the oral hearing. [Buyer] did not contest the rate of interest, but contested the principal claim, and -- by implication -- contested the justification for interest payment.

    The Vienna Convention on the International Sale of Goods (chosen by the parties as applicable law) does not contain relevant provisions on interest for delay. Therefore, the arbitrators have to establish the applicable law by virtue of the relevant Hungarian conflict rules applicable on ground of Article 14(2) of the Rules of Proceedings of this Court of Arbitration. The relevant conflict rule is contained in §24 of the 1979 Hungarian Act on Private International Law. According to this provision, the applicable law is the substantive law of the Seller -- which is in this case Yugoslav law. In Yugoslavia, the relevant norms on interest on default are contained in the 1978 Act on Obligations (articles 277-279 in particular) as well as in the 1993 Act on the Amount of Interest on Default.

    The Yugoslav rules referred to above have not made it perfectly clear whether interest on default is only due when delay in payment is attributable to the fault of the debtor, or whether such interest is a simple consequence of the objective fact that payment was not made in time. Article 277 of the Act on Obligations, and Article 1 of the Act on the Amount of Interest on Default simply state that interest on default is owed if the debtor is late with payment. In recent Yugoslav scholarly writings two justices of the Supreme Court of Serbia have taken a position that interest on default is due when the debtor is responsible for the delay. According to Justice Latinovic, "Interest on default is a consequence of breach of contract by the debtor . . ." (Z. Latinovic, Zatezna kamatazbog docnje u placanju novcane obaveze, Pravni zivot 9-10/1992, 1426, at p. 1428). In the words of Justice Maljkovic "Interest on default regarding pecuniary claims is due from the moment the debtor is in default." (B. Maljkovic, zatezna kamata na novcano potrazivanje nenovcane stete, Pravni zivot 9-10/1992, 1436, at p. 1438.) Under Yugoslav law, there is no default if lack of performance is not imputable to the debtor. At the same time, according to Article 262 (4) of the 1978 Act on Obligations, the debtor will be responsible even if his performance became impossible, if it became impossible after the debtor fell into default. We shall be guided by these rules.

    The UN sanctions had created a rather peculiar situation regarding the distribution of liabilities for failure to perform. We have established in this award that [Buyer] is liable to pay the purchase price notwithstanding whether he was or was not able to make proper use of the goods. Respondent/Buyer became responsible for the goods before the UN sanctions became effective in Hungary (they became effective on June 3, 1992 by virtue of Government Order No. 91/1992.) As far as payment is concerned, according to the Purchase Agreement of May 21, 1992, Buyer was supposed to pay US $15,000 before delivery, while the balance was due "within two weeks after delivery". This means that with respect to US $15,000 -- Buyer was in default before the sanctions became effective, he could have and should have paid at a date when payment was possible and his status of being a defaulting party cannot be changed by a later force majeure under Article 262(4) of the Yugoslav Act on Obligations. This is not the case, however, with respect to the balance of US $78,127. With respect to this latter amount [Buyer] was not in default on June 3, 1992, the sanctions effectively thwarted payment. As a matter of fact, Claimant acknowledges in the statement of claim that in July 1992, [Buyer] made attempts to pay, but this was hindered by the UN sanctions. The payment of this amount became only possible when the UN sanctions were suspended. Suspension became effective on November 22, 1995 at 24:00 hours. (Resolution of the UN Security Council No. 1022/1995 -- Published in Hungary in Magyar Közlöny No. 102/1995.) Therefore, from November 23, 1995, [Buyer] was in default with the payment of the amount of US $78,127 -- short of convincing evidence to the contrary -- and no such evidence was presented.

    On ground of these considerations the arbitrators have concluded that [Buyer] owes:

    a) 8% interest on the amount of US $15,000 from May 28, 1992, until payment:

    b) 8% interest on the amount of US $78,127 from November 23, 1995, until payment.

  11. The Court of Arbitration took into consideration the complexity, the value of the claim as well as the outcome of the process when deciding on the amount of the attorneys fees of Claimant. The [Buyer] as the [losing] party shall have to bear and pay the expenses of the Arbitrations proceedings -- already prepaid by Claimant -- and the attorney fees of [Buyer] on basis of § 6 Section 1 of the Regulation on the Arbitration Fees, Costs and Expenses of the Parties.

Dated this 10th December, 1996


dr. Tibor Várady
Arbitrator

dr. János Burai-Kovács
Chairman

Stenglné HorváthÁgnes
Arbitrator

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Pace Law School Institute of International Commercial Law - Last updated February 15, 2007
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