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CISG CASE PRESENTATION

Russia 5 March 1998 Arbitration proceeding 160/1997 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980305r2.html]

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

Case Table of Contents


Case identification

DATE OF DECISION: 19980305 (5 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: 160/1997

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (respondent)

BUYER'S COUNTRY: Germany (claimant)

GOODS INVOLVED: Goods


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 26 ; 30 ; 47 ; 49(1)(b) ; 74 ; 75 ; 76 ; 78 ; 81

Classification of issues using UNCITRAL classification code numbers:

26A [Effective declaration of avoidance: notice to other party required];

30A [Seller's obligations];

47A [Buyer's right to fix additional final period for performance];

49A21 [Buyer's right to avoid contract (grounds for avoidance): seller does not deliver or refuses to deliver within additional period set under art. 47];

74A ; 74B [General rules for measuring damages: loss suffered as consequence of breach ; Foreseability of loss];

75A [Damages established by substitute transaction];

76B [Damages recoverable based on current price];

78A ; 78C [Interest on basic debt and on loss of profits: need to calculate amount due];

79B [Impediments excusing a party];

81C [Effect of avoidance on obligations: restitution by each party of benefits received]

Descriptors: Avoidance ; Nachfrist ; Damages ; Foreseeability of damages ; Profits, loss of ; Legal costs ; Cover transactions ; Exemptions or impediments ; Interest ; Restitution

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Editorial remarks

Nachfrist / Avoidance. "The contract was avoided ... In this case, the seller failed to deliver the goods by the due date. The buyer fixed an additional period of time for the seller to perform its obligations in accordance with Article 47 CISG. Since the seller failed to deliver the goods within the additional period of time, the Tribunal ruled that the buyer had the right to avoid the contract under Article 49(1)(b)." Djakhongir Saidov, 7 Vindobona Journal of International Commercial Law and Arbitration (1/2003) 1-62 at 31-32.

Foreseeability of damages. "[T]he Tribunal found that the claimant had informed the respondent that the former had concluded the contract with a third person for resale ;of the contract goods. Therefore, when the claimant demanded compensation for loss of profit suffered due to its inability to perform the contract with the said third party because the respondent had failed to deliver the goods, The Tribunal held the respondent liable for damages." Id. at 48.

Computation of damages. "[T]he buyer claimed both compensation for loss of profit in the amount of the difference between the contract price and the price it could have earned under the contract with a third party, as well as the difference between the contract price and a current market price. The ICAC correctly denied the claim based on Article 76. The Tribunal stated that compensation for loss of profit took account of the difference between the price in the contract with a third party and the original contract price and fully compensates the buyer for the loss suffered." Id. at 52.

Impediment beyond its control. "[T]he seller argued that [a] strike was [an] impediment beyond its control. The Tribunal correctly held that the event could be regarded as such only where it could not have been foreseen. Pursuant to the facts of the case, the strike on which the seller relied as a ground for exemption had already started at the time of the conclusion of the contract. Therefore, the seller ought to have taken this event into account.

"One of the buyer's claims in this case was return of the advance payment. The Tribunal, in this regard, held that impediments beyond the control of the party in breach cannot apply to the obligation to return the advance payment under Article 81." Id. at 54.

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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. 19 [76-78]

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 160/1997 of 5 March 1998

Translation [*] by Ksenia Lapteva [**]

Translation edited by Mykhaylo Danylko [***]

1. SUMMARY OF RULING

     1.1 Since the business companies of the parties to the contract are located at the Contracting States to the UN Convention on Contracts for the International Sales of Goods (Vienna, 1980) [hereinafter CISG], the CISG is applicable to the contractual relations between the parties.

     1.2 It is recognized that [buyer] lawfully avoided the contract, since [seller] failed to perform his duties within the time period provided for by the contract between the parties, as well within the additional time period fixed for him by the [buyer].

     1.3 [Seller]'s reference to force majeure circumstances was not recognized by the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry [hereinafter, the Tribunal] since at the time the contract was concluded, the circumstances to which [seller] has referred already existed.

     1.4 It is recognized that even if the existence of force majeure were proven, it would not be taken into account with respect to the issue of return of the advance payment, made in accordance with the contract.

     1.5 Having recognized that [seller] has to compensate [buyer] for the lost profit in an amount equal to the difference between the price fixed by the contract between [buyer] and [seller] and the price fixed by the contract between [buyer] and the third party, the Tribunal had rejected [buyer]'s claim to the [seller] to compensate [buyer] for an additional difference between the price fixed by the contract and the current market price based on Art. 76 of the CISG.

     1.6 Based on the provisions of Art. 74 of the CISG, proven real damages suffered by the [buyer] due to non-performance by the [seller] of his obligations shall be recovered [from seller].

     1.7 Having recognized the right of [buyer] for recovery of annual interest on the sum of principal debt and damages, the Tribunal did not grant this claim, because the [buyer] failed to calculate the sum of [buyer]'s claim, and did not pay the appropriate arbitration fee for this part of the claim.

     1.8 With due consideration to the complexity of the dispute and the criterion of reasonableness, the Tribunal granted in part the claim of the [buyer] for recovery of his expenses for the arbitration process.

2. FACTS AND PLEADINGS

The claim was brought by a German company [buyer] against a Russian organization [seller] in connection with [seller]'s non-performance of the contractual obligations, in accordance with the contract, concluded between the parties in September 1996. The claims of buyer included: recovery of the paid advance payment, recovery of suffered damages, including lost profit, recovery of annual interest for use of money, recovery of legal fees in the arbitration process, and the arbitration fees. In order to prove the amount of losses incurred, [buyer], in particular, presented the contract concluded by [buyer] with the third party to whom the goods were resold.

3. TRIBUNAL'S REASONING

The ruling of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry included the following main positions.

1. [Competence of the Tribunal]

The competence of the Tribunal to resolve the dispute in question was directly provided for by the contract between the parties.

2. [Applicable law]

The CISG is applicable to the contractual relationship between the parties in the part not directly regulated by the parties' contract, since at the time of the conclusion of the contract between the parties, both the Russian Federation and Germany were Contracting States to the CISG (paragraph (1)(a) of Art. 1 of the CISG).

3. [The merits of the case]

Having heard the merits of the claim, the Tribunal has found that, based on evidences of the case materials presented, according to the provisions of the contract on 30 of July 1996 the [buyer] made an advance payment in the amount of 30% of the cost of the first consignment of the goods to be delivered through late September till October 1996.

[Seller] did not deny that he received this advance payment and has not performed his obligations to deliver the first consignment of goods.

Art. 30 of the CISG provides for the obligation of the seller to deliver the goods and hand over relevant documents relating to them as required by the contract and the CISG.

Since [seller] failed to perform his obligation to deliver the first consignment of the goods during the time from late September to October 1996, aand did not deliver the entire lot of the goods within the additional period of time fixed by [buyer] in [buyer]'s faxed message of 14 of December 1996, as provided for in Art. 47 of the CISG, the Tribunal concluded that in accordance with paragraph (1)(b) of Art. 49 of the CISG, the [buyer] had a right to avoid the contract, which he did by informing the [seller] as required by Art. 26 of the CISG (faxed messages of 27 January 1997 and 4 February 1997). According to Art. 81 of the CISG, a party who has performed the contract either wholly or in part may claim restitution from the other party of whatever the first party has paid under the contract. Considering that the force majeure circumstances alleged by [seller] cannot be taken into account while resolving the issues of repayment of the advance payment, the Tribunal had found that the advance payment should be returned to the [buyer].

4. [Force majeure]

The Tribunal did not find [seller]'s objections, relating to the force majeure to be reasonable. Firstly, based on the relevant clause in the contract between the parties, "force majeure" includes only such circumstances, that "could not be foreseen". At the same time, it was found that the strike, to which [seller] refers, took place at the stage of the conclusion of the contract between the parties. Therefore, [seller] should have considered this fact at that time. Moreover, [seller] failed to provide due evidence of force majeure in the form of appropriate documentation for the Russian Federation Chamber of Commerce and Industry, as provided for by the contract between the parties. Based on foregoing conclusion, the Tribunal found that [buyer] has a right to receive compensation for the damages, caused to him, including lost profit, arising from non-performance of [buyer]'s contractual obligations under the contract with the third party, which in turn arose due to non-performance of the contractual obligations by [seller].

The Tribunal had taken into account the fact that [seller] was notified of the contract between the [buyer] and the third party.

Based on Art. 74 of the CISG, the Tribunal found that the [buyer]'s claims for compensation of lost profit, constituting the price difference between the two above-mentioned contracts, the cost of opening a letter of credit by the third party, paid by the [buyer], and the bank commission for the advance payment to the [seller], were reasonable.

However, [buyer]'s claim for the award of the price difference between the current market price and the price fixed by the contract between the parties, claimed with reference to Art. 76 of the CISG, was rejected by the Tribunal. The Tribunal's conclusion, as described above, was based on the position that the lost profit, which is to be compensated to the [buyer], should be calculated based on the difference between the price for the goods as fixed in the contract between [buyer] and the third party, and the price for the goods as fixed in the contract between [buyer] and [seller], and thus, the damages [lost profit] of the [buyer] is fully compensated for.

5. [Claim for recovery of annual interest]

Based on Art. 78 of the CISG, [buyer] demanded recovery of the annual interest on the sum of the principal debt and on the sum of the damages suffered, however the [buyer] failed to calculate the sum of the interest to be recovered from [seller], as required by para. 16 of the Rules of the Tribunal, and failed to pay the appropriate arbitration fee relating to the interest. For this reason, the Tribunal left this claim without consideration.

6. [Attorneys' fees]

With due consideration to the complexity of the dispute and the criterion of reasonableness, as provided for by paragraph 9 of the Provisions on Arbitration Costs and Arbitration Fees [****], the Tribunal granted the claim of [buyer] for payment of his expenses for legal representation in this arbitration process in part.


FOOTNOTES

* This is a translation of data on Proceeding 160/1997, dated 5 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. 19 [76-78]. All translations should be verified by cross-checking against the original text. For purposes of this presentation, the [buyer] of Germany is referred to as [buyer]; the [seller] of the Russian Federation is referred to as [seller].

** Ksenia Lapteva is a graduate of the Law School of Mari State University, Russia, currently in her postgraduate studies. She took part in the Vis Arbitration Moot in 2001 and 2002, as a member of the Mari State team. The Mari State team ranked in top 16 teams in Vis in 2002.

*** 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.

**** Polozhenie ob arbitrazhnyh raskhodah i sborah, Prilozhenie k Reglamentu Mezhdunarodnogo kommercheskogo arbitrazhnogo suda pri Torgovo-promyshlennoi palate Rossiiskoi Federatsii [Provisions on costs of arbitration and arbitration fees. Addendum to the Rules of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry (came into force on 1 of May, 1995)].

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Pace Law School Institute of International Commercial Law - Last updated July 30, 2004
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