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CISG CASE PRESENTATION

Russia 2 March 1998 Arbitration proceeding 201/1997 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980302r1.html]

Primary source(s) of information for case presentation: Case text

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Case identification

DATE OF DECISION: 19980302 (2 March 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: 201/1997

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (respondent)

BUYER'S COUNTRY: People's Republic of China (claimant)

GOODS INVOLVED: Goods


Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 6 ; 7(1) ; 8(3)

Classification of issues using UNCITRAL classification code numbers:

Unavailable

Descriptors: Unavailable

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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, Practika of Mejdunarodnogo Commercheskogo Arbitrajnogo Syda: Haychno-Practicheskiy Commentariy [Practice of the International Commercial Arbitration Court: Scientific - Practical Comments] Moscow (1998) No. 16 [66-70]

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, 88

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Case text (English translation)

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 201/1997 of 2 March 1998

Translation [*] by Alexander Morari [**]

Translation edited by Mykhaylo Danylko [***]

1. SUMMARY OF RULING

      1.1 Taking into account an agreement between the parties (Russian and Chinese companies respectively) about the applicability of Russian substantive law to their contractual relations, the Tribunal of International Commercial Arbitration [at the Chamber of Commerce and Industry of the Russian Federation (hereinafter Tribunal)] ruled that the Treaty Concerning General Terms of Deliveries between the USSR and the People's Republic of China (hereinafter GTD) and the Vienna Convention 1980 [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG] are applicable.

      1.2 The relations between the Russian Respondents, which took part in performance of the contract with the Chinese Claimant-[buyer], were qualified, considering the facts and case materials, as based on a contract of commission, although the contract concluded between the Respondents and presented by them, is in its essence is a contract of agency.

      1.3 By virtue of article 174 of the Civil Code of the Russian Federation, an agreement may be contested in terms of its conclusion by a person not duly authorized only by institution of a suit. Since no such suit has been instituted, the agreement is declared valid.

      1.4 The Tribunal's declaration of the validity of the agreement between the parties is based on the provisions of the CISG concerning the observance of good faith in international trade as well as the procedure of determination of the intent of the parties.

      1.5 Since the agreement concerning return by the Respondent of the advance payment is signed on behalf of the two Respondent companies, the Tribunal ruled that these companies share a common liability for the non-performance of that agreement.

      1.6 The Claimant-[buyer]'s claim for imposing on the Respondents the expenses in connection with defense of her interests is partially granted taking into account reasonable expenses suffered by the [buyer].

2. FACTS AND PLEADINGS

The action was brought by [buyer], a Chinese company, against two Russian companies, in connection with partial non-delivery of the goods, for which the [buyer] had paid in advance in accordance with the contracts concluded with one of the Russian companies (the first Respondent) in December 1994 and July 1995.

      2.1 [Position of the buyer]

The [buyer] held negotiations to conclude the contracts with the second Respondent, who handed over to the [buyer] an agreement between the first and the second Respondents, under which the first Respondent had taken over the obligation to act on commission from and in the name of the second Respondent. In December 1995, the CEO of the second Respondent guaranteed the [buyer] either refund of the advance payment with payment of interest or payment of the debt by shipment of the goods. In February 1996, the [buyer], together with the first and the second Respondents, signed an agreement for return of the advance payment and payment of penalties at the agreed by them amount by shipments of the goods, or, if such shipments are impossible to be made, by payment of the debt with calculation of the annual interest.

      2.2 [Position of the second Respondent]

In its statement of defense to the [buyer]'s action, the second Respondent asserted unreasonableness of the action brought against him because the contracts were concluded between the [buyer] and the first Respondent. In his opinion, the second Respondent did not guarantee the performance of contractual obligations by the first Respondent, and the agreement signed in February 1996 by his officer (commercial director) is void since that person was not duly authorized.

The second Respondent deemed the consent for arbitration of the dispute by the Tribunal, given by his arbitration manager, merely as expression of this arbitration manager's opinion.

      2.3 [Buyer's reply]

Challenging the position of the second Respondent, the [buyer] pointed, inter alia, that the first Respondent was an overseas commercial branch of the second Respondent and that the contracts on behalf of the first Respondent were signed by the Head of the Board of Directors of the first Respondent, who was at the same time a commercial director of the company of the second Respondent.

       2.4 [Position of the first Respondent]

The first Respondent did not appear at the hearing, nor did he present explanations regarding the dispute.

3. TRIBUNAL'S REASONING

The Tribunal's ruling contained the following main points:

      3.1 [Jurisdiction competence of the Tribunal]

The Tribunal's competence to arbitrate the present dispute arises from the arbitration clauses of the contracts as well as from section 52 of the GTD. The aforesaid section of the GTD provides for the settlement of disputes from or in connection with the contract by the arbitration procedure, in case the respondent is the USSR Company - by the Tribunal of Arbitration at the USSR Chamber of Commerce and Industry in Moscow. The Tribunal, being a successor of the Tribunal of Arbitration at the USSR Chamber of Commerce and Industry (paragraph 4 of the Annex to the Law of Russian Federation On the Tribunal of International Commercial Arbitration) has competence to arbitrate the disputes, which had to be settled by the Tribunal of Arbitration at the USSR Chamber of Commerce and Industry.

      3.2 [Non-appearance of first Respondent]

As to the absence at the hearing of the first Respondent's representatives, the Tribunal found that in the case materials there is postal service acknowledgement by the first Respondent of receipt of the summons. According to section 28(2) of the Rules of Tribunal, non-appearance of a party duly notified of the time and place of the hearing does not preclude an arbitration from proceeding and rendering its ruling. There were no written motions received from the first Respondent to adjourn the hearing proceedings due to any good excuse.

      3.3 [Second Respondent's motion for new hearing]

The Tribunal did not find reasonable the arguments of the second Respondent, stated in his petition of 5 February 1998, submitted to the Tribunal after the termination of hearing of the case, to proceed with additional hearings, because the [buyer]'s response to the Respondent's statement of defense, handed over to the Respondent's representative at the hearing, contained no amendments or alterations to the [buyer]'s action claims. In its essence, this document is merely a written representation of the oral pleading by the [buyer]'s representative. There is no new evidences attached to the mentioned response except some absent from the case materials statements of the [buyer]'s representative in Russia that do not change the essence of the [buyer]'s position. The Tribunal did not find any new arguments or evidence in the Respondent's petition which were not mentioned in his statement of defense or during the oral pleadings.

Accordingly, the Tribunal dismissed the Respondent's petition.

      3.4 [Applicable law]

Having considered the issue of the law applicable to the merits of the dispute, the Tribunal found that, in clause 10 of the contracts between the [buyer] and the first Respondent, the parties have chosen the Russian substantive law as being applicable.

As follows from the case materials, the parties agreed that the GTD is applicable to their relations. The Tribunal came to the conclusion that the CISG is also applicable because Russia and the People's Republic of China are Contracting States to this Convention and the parties did not exclude in the contracts the application of this Convention under Article 6 [CISG].

      3.5 [Nature of the relationship between first and second Respondents]

Having examined the agreement of October 1994 on relations between the first and the second Respondents, which defines their relations regarding the contractual relations with the [buyer], the Tribunal found that, in its essence, it is a contract of agency. However, as it follows from the explanations of the [buyer], and is not rebutted by the Respondent, this agreement, as proof that one of the Respondents was represented by the other, was transmitted to the [buyer] before conclusion of the contract with the first Respondent, and, since the contracts with the [buyer] were concluded by the first Respondent in his own name, and not in the name of the second Respondent, and taking into account that the first Respondent, as the parties alleged, is not a manufacturer of the goods but merely a specialized overseas commercial company, the Tribunal came to the conclusion that the relations between the Respondents, based on the mentioned agreement, were as a matter of fact relations arising from a contract of commission, considering that no other contract governing their relations has been presented to the Tribunal. Accordingly, everything received under the contract of consignee with a third party is property of the principal, subject to deduction of the commission fees.

The Tribunal did not find proved the second Respondent's assertion that he did not receive from the first Respondent the money of advance payment and, as a result, did not become the owner of this [money]. But even in such situation, this fact would not have any effect on the nature of the relations between the parties.

      3.6 [Restitution agreement]

The Tribunal stated that it follows from the factual circumstances of the case that the contracts were concluded by the [buyer] with the first Respondent upon the proposal of the second Respondent, to whom the [buyer] had sent an offer for purchase of the goods. Case materials proved that the pre-contractual negotiations were held jointly by the Respondents and the [buyer].

The [buyer] was handed an agreement between the first and second Respondents as proof of the representation relations of the Respondents. The contracts of December 1994 and July 1995, as the Tribunal found, were signed in the name of the first Respondent by persons who at the same time were top executive officers of the second Respondent that gave [buyer] a false impression regarding the responsibility of the second Respondent for performance of the contracts. Though formally the second Respondent was not a party to the contracts, in correspondence with the [buyer] (letters of 1 December 1995 and 26 January 1996) and with other persons (a letter of 25 January 1996), [the second Respondent] admitted his obligation to return the received advance payment to the [buyer].

      3.7 [Validity of agreement]

Having considered the Agreement on refund of the advance payment relating to the contracts signed by the three parties, i.e., the first and the second Respondents and the [buyer], the Tribunal found that the parties are in dispute regarding the validity of this agreement. The second Respondent considers that under Article 183 of the Civil Code of the Russian Federation, the agreement did not create legal consequences for him since it was concluded by an unauthorized person. The [buyer] believes the agreement is valid because the commercial director did have the required capacity, but even if he did not, the second Respondent, pursuant to Article 174 of the Civil Code of the Russian Federation, could have requested during the Tribunal's hearings that the agreement is declared void, but he did not do so. Having examined all the evidence, the Tribunal came to the conclusion that, based on the documents and oral pleading of the second Respondent, it does not clearly follow that the commercial director did not have capacity to make such agreements. The Tribunal concurred with the [buyer]'s opinion that since the second Respondent has not subsequently contested the agreement (Article 174 of the Civil Code of the Russian Federation), it, [the agreement], was considered valid by him. When declaring the agreement valid, the Tribunal referred to the provisions of Article 7(1) CISG, concerning the observance of good faith in international trade, as well as Article 8(3) CISG on determining the intent of a party or the understanding [a reasonable person would have had, with due consideration] of all relevant circumstances, including the negotiations, any practice [which the parties have established between themselves], usages and any subsequent conduct of the parties.

By the agreement, jointly signed by both Respondents, they admitted their debt to the [buyer] that had arisen in connection with non-return of the advance payment and non-payment of the penalties. Whereas the agreement was not performed within the fixed period of time by either shipment of the goods or return of the advance payment, thus, by virtue of Article 322 of the Russian Federation Civil Code, the Respondents share a common liability to pay to the [buyer] the sum of principal debt and penalties.

      3.8 [Respondent's procedural argument]

The Tribunal found unreasonable the Respondent's assertion of violation by the [buyer] of the pre-trial procedure of settlement of the disputes which is provided in the GTD. The mentioned law does not regulate at all the issue of making the pre-trial claim, related to the refund of an advance payment (sections 29-33 GTD), and the payments for the goods delivered, according to the GTD, should be made by collection following acceptance (i.e., immediate payment) against shipping documents and not by an advance payment.

      3.9 [Arbitration expenses]

The Tribunal ruled to grant partially the [buyer]'s claim for recovery from the Respondents of the expenses related to the presentation of the [buyer]'s interests by legal representatives, in connection with the arbitration proceeding, taking into account the expenses reasonably suffered by the [buyer].


FOOTNOTES

* This is a translation of data on the award in Proceeding 201/1997, dated 2 March 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. 16 [66-70]. All translations should be verified by cross-checking against the original text.

** Alexander Morari studied law at Moldova State University from 1997 to 2002 and has recently transferred to Law School established by Russian President's Administration in Novosibirsk, Russia. Since 1999, he has taken part in three different international moot court events as a member of Moldovan team. The second-iteration redaction of this translation was by Dr. John Felemegas of Australia.

*** 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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