Case text (English translation)
Queen Mary Case Translation Programme
Russian Federation arbitration proceeding 3/1996 of 13 May 1997
Translation [*] by Mykhaylo Danylko [**]
Translation edited by Djakhongir Saidov [***]
1. SUMMARY OF RULING
1.1 Legal determination of the nature of the terms of the contract was carried out on the basis of the provisions of the Vienna Convention of 1980 [UN Vienna Convention on Contracts for the International Sale of Goods of 1980 (hereinafter CISG)] on interpretation of the expressions of the will of the parties.
1.2 The Tribunal of International Commercial Arbitration at the Chamber of Commerce and Industry of the Russian Federation (hereinafter Tribunal) stated that the contractual term on liability for breach of an obligation does not contradict the general principles of liability prescribed by the CISG.
1.3 The [buyer]'s refusal to take delivery of undelivered good was recognized as justified under the provisions of the CISG.
1.4 The Tribunal did not consider the [seller]'s having referred to certain circumstances as a ground for his exemption from liability as justified, because they did not correspond to the attributes of such circumstances prescribed in the CISG (Article 79).
2. FACTS AND PLEADINGS
In accordance with the contract between the [buyer], a Russian company, and the [seller], a Canadian company, the [buyer], in December 1994, made an advance payment to the [seller] in the amount of 60% of the price of goods to be delivered in February 1995. The [seller], with a significant delay, delivered only part of the goods, the price of which was lower than the sum of the advance payment made by the [buyer].
2.1 [Buyer's position]
The [buyer] claimed the recovery of the difference between the sum paid by the [buyer], and the price of the goods actually received as well as the payment of the penalties provided for by the contract, for breach of the term of delivery and incomplete delivery.
2.2 [Seller's position]
The [seller] in his statement of defense referred to some difficulties he had encountered in performance of the obligations under the contract and to the [buyer]'s failure to fulfil [seller]'s request to make the payment of the remaining 40% of the price of goods before the shipment of the goods. At the same time, the [seller] expressed his readiness to make the shipment of the undelivered part of the goods.
2.3 [Buyer's reply]
The [buyer] has not agreed with the [seller]'s arguments. Concerning the shipment of the undelivered part of goods, the [buyer] asserted that during the period that elapsed after conclusion of the contract, [buyer]'s technological activity has changed significantly. Therefore, there was no longer a need for the goods that had not been shipped by the [seller].
3. TRIBUNAL'S REASONING
The ruling of the Tribunal contained the following main points.
3.1 [Jurisdiction competence of the Tribunal]
Since the contract was concluded between the parties whose commercial companies are located in States that are Contracting States to the CISG, the CISG is to be applied to the relations between the parties by virtue of Article 1(1)(a) CISG.
3.2 [The merits of the case]
The [buyer]'s refusal to take delivery of the goods not delivered in time is based on Article 49 CISG. Therefore, the [Buyer]'s claim for recovery of the part of advance payment exceeding the price of delivered goods, should be granted.
Liability of the seller, stipulated in the contract, for breach of the term of delivery (for each day of delay) is limited by the ceiling imposed. Guided by Article 8 CISG, the Tribunal finds that this contractual provision should be interpreted as an agreement between the parties providing for the fixed amount of liquidated damages, determined in advance, to be paid by the [seller] to the [buyer] in the event of late delivery of the goods. This conclusion is based on the fact that the extent of liability is linked with the total price of the contract and at the same time is limited by contract. This method of recovery of damages does not contradict the principles of liability prescribed in the CISG.
The reasons which caused [seller]'s failure to perform his obligation in time, and to which the [seller] referred in his statement of defense, cannot be recognized as a ground for the [seller]'s exemption from liability because they do not correspond to the attributes of such circumstances prescribed in Article 79 CISG that determines such grounds.
Based on the aforesaid and also considering that the [seller]'s failure to perform his obligations to deliver goods in time has caused commercial and production difficulties to the [buyer] which led to economic losses, the Tribunal ruled to place on the [seller] the obligation to pay damages to the [buyer] in the amount stipulated in the contract in the event of late delivery.
Concerning the [seller]'s claim as to recovery of penalties exceeding the upper level of the fixed penalties [liquidated damages] specified in the contract for an incomplete delivery, the Tribunal ruled that this claim should not be granted because this penalty is not in accordance with the principles of liability by which one should be guided taking into account the considerations mentioned above.
FOOTNOTES
* This is a translation of the award in Proceeding 3/1996, dated 13 May 1997, of the Tribunal of
International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry,
reported in: Rozenberg ed. Arb. Praktika 1996 - 1997, No. 57 [198-199]. 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 [buyer]; Respondent of Canada is referred to as
[seller].
** 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. The second-iteration redaction of this translation was by Dr. John Felemegas of Australia.
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Institute of International Commercial Law - Last updated July 30, 2004
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