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CISG CASE PRESENTATION

Russia 10 January 1998 Arbitration proceeding 65/1997 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980110r1.html]

Primary source(s) for case presentation: Case text

Case Table of Contents


Case identification

DATE OF DECISIONS: 19980110 (10 January 1998)

JURISDICTION: Arbitration ; Russian Federation

TRIBUNAL: Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry

JUDGE(S): Unavailable

CASE NUMBER/DOCKET NUMBER: 65/1997

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russia (claimant)

BUYER'S COUNTRY: Austria (respondent)

GOODS INVOLVED: Unavailable


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issues: Article 4 [Also cited: Articles 7(2) ; 53 ; 62 ]

Classification of issues using UNCITRAL classification code numbers:

4B [Scope of Convention (issues excluded): validity under domestic law, penalty clauses]

Descriptors: Scope of Convention ; Validity ; Penalty clauses

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Editorial remarks

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Citations to case abstracts, texts, and commentaries

CITATIONS TO ABSTRACTS OF DECISION

(a) UNCITRAL abstract: Unavailable

(b) Other abstracts

Unavailable

CITATIONS TO TEXT OF DECISION

Original language (Russian): Rozenberg, [1998] Mezhdunarodnyj dogovor i inostrannoe pravo v praktike Mezhdunarodnogo kommertscheskogo arbitrazhnogo suda [The international contract and foreign law in the practice of the International Commercial Arbitration Court], Moskva: Statut 92-94

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 nn. 56, 158

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 65/1997 of 10 January 1998

Translation [*] by Mykhaylo Danylko [**]

1. SUMMARY OF RULING

     1.1 The states, in the territories of which the commercial companies of the parties are located, are Contracting States of the Vienna Convention 1980 (CISG), thus this Convention is applicable to the relations of parties not covered by the contract. The Russian material laws were applied subsidiary to the issues not covered by the Convention on the basis of Art. 7(2) CISG and Art. 166(1) of the Fundamentals of Civil Law 1991.

     1.2 The agreement between parties on settlement of the debt was qualified as a conditional contract, since its entry into force was conditioned upon consent by three Russian official authorities. Whereas these authorities did not confirm their consent, and the case materials do not show that [Seller] did not somehow encumber the incurrence of this condition, the Tribunal of International Commercial Arbitration (hereinafter Tribunal) concludes that the contract did not enter into force.

     1.3 Taking into account that the CISG does not concern itself with the validity of the contract itself or of any of its provisions (Art. 4), and that it does not contain provisions on penalty and connection between the penalty and losses, the Tribunal resolved these issues on the basis of subsidiary applied rules of the Russian Federation Civil Code.

     1.4 Because the amount of penalty, calculated by [Seller] under the provisions of contract, is disproportionate with the consequences of the [Buyer]'s breach of his obligations, the Tribunal, on the basis of Arts. 333(1) and 10(2)(1) of the Russian Federation Civil Code, decreased the amount of the penalty.

2. FACTS AND PLEADINGS

The Respondent [Buyer], an Austrian company, paid only part of the price for goods delivered to him by the Claimant [Seller], a Russian company, under a contract, concluded between the parties in October 1995. The [Seller] claimed recovery of the debt and a penalty for delay of payment calculated in accordance with provisions of the contract. The [Buyer] objected to these claims, referring to an agreement on settling the debt signed by the parties, according to which the [Buyer], on behalf of [Seller], made a payment to the third party, in relations with which the [Seller] had a debt. Besides this, the [Buyer] alleged that when concluding the contract, the parties did not have in mind that there would be any payments for the goods delivered (the deliveries would be made on account of [Seller]'s debt to [Buyer]). In this connection, the [Buyer] believes that the contract concluded between parties was an indent or simulated contract. The [Seller], having objected to the arguments of [Buyer], pointed to the fact that the agreement on settlement of debt signed between the parties was conditional (in order to become effective, this document would have had to have been approved by three stipulated authorities). However, such approval had not been received. Moreover, the [Buyer] did not make any payments to the third party on [Seller]'s behalf.

3. TRIBUNAL'S REASONING

The ruling of the Tribunal contained the following main points.

     3.1 The Tribunal's competence to arbitrate the present dispute is directly provided in the parties' contract.

     3.2 The parties' contract does not contain provisions on applicable law. Since both Russia and Austria, in the territories of which the commercial companies of the parties are located, are Contracting States of the CISG, this Convention should be applied to the relations of parties not regulated by the contract. The Russian material laws should be applied subsidiary in virtue of Art. 7(2) CISG and Art. 166(1) of the Fundamentals of Civil Law 1991.

     3.3 The document on settlement of debt signed between parties directly provided its entry into force upon approval by three "official Russian authorities". Considering this, according to Russian Federation Art. 157(1), the Tribunal qualified this document as a conditional contract.

It follows from the case materials that none of the authorities specified in the document confirmed its consent to the document. One authority notified that it did not have competence to consent to such a document. The second [authority] pointed to non-compliance of this document with the Russian currency laws; the third [authority] pointed to its non-compliance with the Russian currency and customs laws.

Since the case materials do not indicate that [Seller] did not somehow encumber the incurrence of the condition specified by parties, the agreement between the parties on settlement of the debt cannot be considered as having entered into force.

     3.4 Even if the agreement on settlement of the debt between the parties had legally entered into force, the [Buyer] did not prove the fact of its performance: the copies of banking orders do not allow either identification of the recipients of payment or the connection of these documents to the relations of parties regarding settlement of the debt.

     3.5 The Tribunal did not sustain the allegation of [Buyer] that the contract concluded between the parties was an indent or "simulated contract". Under Art. 170(2) of the Russian Federation Civil Code a simulated contract can be an agreement concluded with the aim of camouflaging another agreement. The [Buyer] did not present proper evidences of his allegation. The actions of [Buyer], who received the goods under the contract and made a partial payment for them, disprove his own allegation that the agreement was simulated. The attempts of the parties to reach an agreement on settlement of the debt, even if it is admitted that such agreement does not comply with the laws of Russia, do not themselves convert the prior concluded agreement into a simulated contract ...

     3.6 In accordance with provisions of the contract, and also by virtue of Arts. 53 and 62 CISG, the [Buyer] is obliged to pay the [Seller] the unpaid sum for the delivered goods in the amount on which parties do not have misunderstandings.

     3.7 The claim of [Seller] to recover from [Buyer] the penalty for delay of payment of the price for the goods complies with the provisions of the contract, which do not limit the total amount of penalty. However, considering that the amount of penalty three times exceeds the sum of [Buyer]'s debt for the delivered goods, the Tribunal, while sustaining the [Seller]'s right to recover a penalty from [Buyer], concluded that such penalty appears to be disproportionate with the consequences of [Buyer]'s breach of obligations. Therefore, on the basis of Arts. 333(1) and 10(2)(1) of the Russian Federation Civil Code, the Tribunal decreased the amount of penalty granted in [Seller]'s favor.


FOOTNOTES

* This is a translation of data on Proceeding 65/1997, dated 1o January 1998, of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, reported in Rozenberg ed., Arb Praktika (1998) No. 65 [15-18].

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 Austia 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.

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