Russia 15 December 1997 Arbitration proceeding 128/1996 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/971215r1.html]
DATE OF DECISIONS:
CASE NUMBER/DOCKET NUMBER: 128/1996
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Russia (claimant)
BUYER'S COUNTRY: United Kingdom (respondent)
GOODS INVOLVED: Unavailable
RUSSIAN FEDERATION: Award in Case No. 128/1996 of 15 December 1997 of the
Arbitration Tribunal of Russian Federation Chamber of Commerce and Industry
Case law on UNCITRAL texts (CLOUT) abstract no. 465
Reproduced with permission of UNCITRAL
A Russian company, the seller, sued an English firm, the buyer, for full payment for goods delivered according to the contract and default interest for overdue payment. The buyer countered that the goods received had not met the required quality standards. The buyer asserted that it was, therefore, entitled to withhold ten per cent of the balance due in view of the quality of the goods.
In considering the case, the tribunal noted that the buyer had failed to complain about the quality of the goods within the time limit set out in the contract. It thus lost the right to claim that the quality was unsatisfactory and, in accordance with article 53 CISG, it was obliged to pay the seller the outstanding amount. The tribunal also ruled that the buyer must pay default interest for the overdue payment.
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APPLICATION OF CISG: Yes
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issues:
Classification of issues using UNCITRAL classification code numbers:
53A [Buyer's obligation to pay price of goods]
53A [Buyer's obligation to pay price of goods]
CITATIONS TO OTHER ABSTRACTS OF DECISION
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. 75 [260-261]
Translation (English): Text presented below
CITATIONS TO COMMENTS ON DECISION
UnavailableGo to Case Table of Contents
Case text (English translation) [second draft]
Queen Mary Case Translation Programme
Translation [*] by Mykhaylo Danylko [**]
1. SUMMARY OF RULING
1.1 On the basis of Art. 166 of the Fundamentals of Civil Law 1991, the Tribunal of International Commercial Arbitration (hereinafter Tribunal) found applicable to the relations under the contract concluded between the Russian company and British company the Russian material law as a law of the country of seller, which, among others, includes the provisions of Vienna Convention 1980 (CISG).
1.2 Buyer's nonobservance of the procedure of determining of non-conformity of the quality of goods, as required by the contract, leads to the loss of his right to refer to this non-conformity and in this connection to reject payment for the goods.
1.3 [The Tribunal] interpreted the contract clause on procedure of calculating the penalty in a limited manner according to the criteria of reasonableness, since such clause was not formulated clear enough.
2. FACTS AND PLEADINGS
The [Seller], a Russian company, brought an action against the [Buyer], a British company, in connection with partial payment for the goods delivered under the contract concluded in July 1995. The [Seller]'s claims included recovery of the debt, recovery of the penalty for the delayed sum, and compensation of the arbitration fees and expenses on preparation and solicitation of the arbitration.
The [Buyer] asked the Tribunal to dismiss the action since the goods received by him did not conform to the requirements of quality stipulated in the contract which is confirmed by an expertise certificate issued by a British company. The [Buyer] alleged that he is entitled to deduct from payment to the [Seller] 10 percent of the price of conforming goods.
Besides this, the representative of [Buyer] asked the Tribunal to conclude that [Seller]'s method of calculation of penalty was unreasonable, since the calculation was made on the whole cost of the goods delivered; the [Buyer] proposed to make the calculation only on the delayed sum. The [Buyer] also confirmed that he had already disposed of the goods. On thr penalty issue the contract contained the following clause "[i]n case of delay of payment the buyer, will pay the seller a penalty of 0.5 percent of the cost of goods per day of delay, but the total sum of penalty shall not exceed 15 percent".
As to the issue of quality of the delivered goods, the [Seller] said that the [Buyer] did not send him a claim as stipulated by the contract term of 30 days from date of notation on the bill of lading that goods have been delivered in the port of destination, thus, breached by this Contract Clause 9(b) which provides that "final settlement shall be made … against an expertise certificate … of the independent expertise company, previously agreed with seller". In this connection, the [Seller] informed that [Buyer] (by fax of 29 September 1995) proposed to have him select from three independent expertise companies, from which the [Seller] chose one particular company (fax of 16 October 1995). At the same time, the [Buyer] solely hired another expertise company not agreed with [Seller].
3. TRIBUNAL'S REASONING
The ruling of the Tribunal contained the following main points.
3.1 [Applicable law]
Since the contract does not contain a clause on the law applicable to the parties' relations, the Tribunal, on the basis of Art. 166 of the Fundamentals of Civil Law 1991 and Art. 28 of the Russian Federation Law on the Tribunal of International Commercial Arbitration concluded that it is appropriate to apply the material law of the country of the seller, i.e., Russian civil law, which includes, inter alia, provisions of CISG that had been effective in Russia since 1 September 1991.
3.2 [The merits of the case]
The Tribunal found that the parties did not have misunderstandings regarding the amount of unpaid sum for the goods received by the [Buyer], nor regarding the number of days during which the payment was delayed.
Considering the [Buyer]'s breach of the agreed procedure of detecting the non-conformity of quality of the delivered goods, the Tribunal concluded that because of this the [Buyer] lost his right to refer to the alleged defects of goods and, therefore, must pay to the [Seller] the unpaid sum in accordance with CISG Art. 53.
The Tribunal found the [Seller]'s method of calculation of penalty erroneous since it has been done on the whole cost of the delivered by the [Buyer] goods. By virtue of Art. 330 of the Russian Federation Civil Code, the penalty should be calculated only on the sum in delay.
The Tribunal fount the [Seller]'s claims to compensate him the expenses arisen in connection with arbitration in the amount asked by [Seller] reasonable, thus should be granted in accordance with para. 9 of the Rules [of Tribunal] on Arbitration Fees and Expenses.
* This is a translation of data on Proceeding 128/1996, dated 15 December 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. 75 [260-261].
All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of Russia is referred to as [Seller] and Respondent of England 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