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CISG CASE PRESENTATION

Russia 25 May 1998 Arbitration proceeding 104/1997 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980525r1.html]

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

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Case identification

DATE OF DECISION: 19980525 (25 May 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: 104/1997

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Bahamas (respondent)

GOODS INVOLVED: Goods


Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: 71 ; 78 [Also cited: Articles 53 ; 54 ; 59 ]

Classification of issues using UNCITRAL classification code numbers:

71A1 [Grounds for suspension of performance: apparent that other party will not perform substantial part of obligations];

78A ; 78B [Interest on delay in receiving price or any other sum in arrears; Rate of interest]

Descriptors: Suspension of performance ; Interest

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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. 32 [112-116]

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 104/1997 of 25 May 1998

Translation [*] by Yelena Kalika [**]

1. SUMMARY OF RULING

     1.1 Pursuant to Article 15 of the Russian Federation Constitution and Article 1(1)(b) CISG, where there was the parties' agreement to apply Russian law, the CISG was applied to the relationships under the contract when one of the parties was located in a state which was not a CISG signatory state.

     1.2 Since under the terms of the contract the goods were to be delivered FCA Sender's moorage, the quantity of the goods handed over was determined not on the basis of the data stated in bills of lading, but on the basis of the waybills evidencing the quantity of goods received from the sender for carriage by river.

     1.3 Annual interest for the use of monetary funds was recovered pursuant to Article 78 CISG at the rate determined taking into account the provisions of Article 395 of the Russian Federation Civil Code. The rate set by one of the leading banks in the creditor's state was taken as evidence of the [interest] rate.

     1.4 When determining the total quantity of goods under the contract, which was to be delivered in separate lots within a defined period of time but without setting certain dates of shipment, the provisions of Article 508(1) of the Russian Federation Civil Code were taken into account. Under the said Article, shipment shall be made in equal monthly deliveries.

     1.5 Taking into consideration that the buyer did not fulfill his obligations to make an advance payment and to present a bank guarantee, seller's suspending any further performance of his obligations in accordance with the terms set forth in the contract was found reasonable.

     1.6 The claims to recover damages stated in a counterclaim were denied both because the seller's suspending any further deliveries was found reasonable and because there was no causal connection between buyer's losses and seller's non-performance.

2. FACTS AND PLEADINGS

The action was commenced by the Russian [seller] against the [buyer] whose commercial enterprise was located in the Bahamas. The claim was brought in connection with the partial payment for the goods delivered under the contract made by the parties in April 1996. The contract set forth the upper limit of the quantity [of goods] to be delivered ("up to") and the period within which the shipment was to be made. [The contract also stated] that the delivery was supposed to be made in shipments to be coordinated by the parties in writing. The schedule of deliveries was also supposed to be coordinated [by the parties]. Within 48 hours after being notified that a lot is ready for shipment, the buyer was obligated to make an advance payment in the amount of 50% of the cost of goods. At the same time, he was also supposed to present a guarantee issued by a first class bank for the rest of the payment plus 5%.

In fact, the parties never coordinated the shipments. Nor did they coordinate the delivery schedule.

The Sender delivered 19 lots of goods without preliminary coordination [with the buyer]. The invoice for the advance payment, which was issued by the seller to the buyer, was paid. However, the bank guarantee required by the contract had never been presented. Besides, the seller was notified that the buyer concedes a letter of credit to the seller. The amount of the letter of credit was equal to the amount of the bank guarantee required.

The seller suspended any further shipments, referring to the terms of the contract which gave him rights to do so in case of [buyer]'s failure to present a bank guarantee.

The seller's claims included the recovery from [the buyer] of the debt for the goods delivered, interest for the use of monetary funds, and arbitration fees and costs.

The [buyer] denied the [seller]'s claims and filed a counterclaim for an amount exceeding three times the amount of the main claim. First, the [buyer] contested the quantity of the goods delivered. Second, in his opinion, the seller's suspending of deliveries was unreasonable. The amount of the counterclaim included both real damages, which the [buyer] claimed he suffered, and lost profit.

3. TRIBUNAL'S REASONING

The Tribunal's decision contained the following main points.

     3.1 The Tribunal's competence to arbitrate the present dispute in accordance with the substantive laws of the Russian Federation is based on clause 8 of the contract between the parties. This clause sets forth that "all disputes, disagreements and claims arising out of or in connection with the present contract, including ones relating to the performance, breach, termination or invalidity of the contract, shall be arbitrated by the International Commercial Arbitration Tribunal at the Russian Federation Chamber of Commerce and Industry in accordance with its rules and the substantive laws of the Russian Federation."

     3.2 Since, when entering into the contract, the parties chose the Russian Federation laws as the laws applicable to the relationships arising from the contract, then the relationships between the parties, which are not settled in the contract, shall be governed by the CISG both because this Convention is part of the Russian Federation legal system pursuant to Article 15 of the Russian Federation Constitution and pursuant to Article 1(1)(b) CISG. The provisions of the Russian Federation Civil Code shall be applied as subsidiary laws.

     3.3 The fact of shipment of goods in the quantity stated in the complaint is evidenced by the materials of the case. Both in the fax message of 6 August 1996 and in the counterclaim, the [buyer] made an assertion that he had received a smaller quantity of goods. This assertion cannot be taken into account since such quantity was determined by the [buyer] on the basis of sea bills of lading and not on the basis of the 19 waybills evidencing the quantity of goods received from the Sender to be carried by river transportation. Such waybills are determinative since the contract set forth that the delivery of goods would be made FCA Sender's moorage.

Since in his reply to the claim, the [buyer] did not contest the cost of the goods received and since his duty to pay the price of the goods received is set forth in Articles 53, 54 and 59 CISG, the [seller]'s claim to recover the cost of the goods delivered should be sustained.

     3.4 The [seller]'s claim to recover interest is based on Article 78 CISG which states that, in case of delay in payment by the buyer, the seller is entitled to interest on the sum that is in arrears. The silence of the CISG on both the amount of annual interest for the delay in payment and the mechanism of paying such interest means that they should be determined in accordance with the applicable national law. In the present case, it is Article 395 of the Russian Federation Civil Code.

Since the [buyer]'s monetary obligation is stated in US dollars, there is no official bank interest rate for bank credits on the date of performing the monetary obligation in the state of creditor. There is also no publication in the official media of the median bank interest rate made in the creditor's state. Therefore, the Tribunal followed the practice established, which reflected clause 52 of the Resolution No. 6/8 of 1 July 1996 issued by the Plenum of the Russian Federation Supreme Court and Russian Federation Higher Arbitration Court, and found it possible to take the rate submitted by the [seller] as evidence of the amount of interest to be recovered [from the buyer]. The rate was submitted in the form of a certificate issued by one of the leading banks located in the [seller]'s state.

     3.5 The buyer's claim set forth in the counterclaim was based on the fact that, in buyer's opinion, the seller unreasonably and unilaterally stopped deliveries under the contract in violation of laws. As a result, the buyer suffered the following damages:

-   Demurrage, standing idle and freight cancellation of river vessels;
- "Dead" freight of the sea vessel and short loading of ocean tankers;.
- Demurrage of ocean tankers awaiting the goods;
- Lost profit resulted from failure to deliver the goods.

When reviewing the issue of reasonableness of seller's suspending any deliveries of goods, the Tribunal took into consideration the following facts established in the case.

-   Since the goods were to be shipped in separate lots during May-December 1996 and since the dates of shipments were not set forth either in the contract or in the correspondence, then, in accordance with Article 508(1) of the Russian Federation Civil Code, the quantity of goods that was supposed to be delivered in equal monthly lots could amount up to one eighth (1/8) of the total quantity per month.
 
- Taking into account the average initial price on 6 May 1996 -- when the substantial part of the May shipment was delivered -- the buyer failed to pay seller's invoice of 29 April 1996 for the advance payment and to present a bank guarantee for the rest of the 50% of the cost of goods.
 
- Taking into consideration the above factors as well as the additional quantity of goods, that was ready for shipment, seller's demand of a bank guarantee and an advance payment from the buyer was in accordance with the terms of the contract.

Buyer's conceding a letter of credit as a substitute for a bank guarantee was buyer's offer to modify the contractual payment terms and was not accepted by the seller. Therefore, the Tribunal does not have to evaluate whether it was, as the buyer insists, a valid substitute for a bank guarantee.

In the Tribunal's opinion, where the seller delivered a substantial quantity of the goods and the buyer accepted such delivery, seller's failure to notify [the buyer] of the readiness of every lot of goods for the shipment as well as the parties' failure to coordinate the shipments do not relieve the buyer from his contractual obligation to present a bank guarantee for 50% of the cost of goods delivered but unpaid.

Taking into account the above mentioned clearly expressed term of the contract stating that "in case of delay in presenting a bank guarantee, the seller has a right to suspend delivery and to attribute all his losses caused by such delay to buyer's account," the Tribunal finds that the seller rightfully suspended deliveries and that there are no grounds for sustaining the counterclaim.


FOOTNOTES

* This is a translation of data on Proceeding 104/1997, dated 25 May 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. 32 [112-116].

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 [seller]; Respondent of the Bahamas is referred to as [buyer].

** Yelena Kalika, a law student at the Pace University School of Law, has studied at the Moscow State Law Academy, interned with a Moscow law firm, and is a Research Assistant at the Pace Institute of International Commercial Law.

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