Russia 10 June 1998 Arbitration proceeding 83/1997 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980610r1.html]
DATE OF DECISION:
CASE NUMBER/DOCKET NUMBER: 83/1997
CASE HISTORY: Unavailable
SELLER'S COUNTRY: Pakistan (claimant)
BUYER'S COUNTRY: Russian Federation (respondent)
GOODS INVOLVED: Goods
APPLICATION OF CISG: Yes [Article 1(1)(b)]
APPLICABLE CISG PROVISIONS AND ISSUES
Key CISG provisions at issue:
Classification of issues using UNCITRAL classification code numbers:
53A [Buyer's obligation to pay price of goods] 78B [Rate of interest]
53A [Buyer's obligation to pay price of goods]
78B [Rate of interest]
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CITATIONS TO ABSTRACTS OF DECISION
(a) UNCITRAL abstract: Unavailable
(b) Other abstracts
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. 37 [127-130]
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 53 ("interest rate was determined in accordance with LIBOR rates ... where it was difficult to determine the rate in force in the country determined by rules of applicable law")Go to Case Table of Contents
Case text (English translation) [second draft]
Queen Mary Case Translation Programme
Translation [*] by Serge Lapine [**]
1. SUMMARY OF RULING
1.1 The relations under the contract -- one of the parties of which has its place of business in a State not Party to the Convention on Contracts for the International Sale of Goods 1980 (hereinafter Vienna Convention 1980) -- are governed by this Convention taking into account the fact that, by virtue of the rule of private international law in force at the time of the conclusion of the contract, Russian material law is considered to be applicable.
1.2 Since there is no arbitration agreement between the Claimant [seller] and the state agency which the parties to the dispute asked to recognize as a Co-Respondent and since this agency did not express his consent to this recognition, the said motion is rejected.
1.3 Non-receipt by the Respondent [buyer] of the permission to pay for the delivered goods from the competent state agency does not absolve the [buyer] from the fulfilment of the obligations under the signed contract.
1.4 A legal entity is liable within the limits of property belonging to it. A state organization is not liable for its subordinate organization having a status of a legal entity.
1.5 According to the rules of the State Bank of the creditor's country, short-term credits are granted only in national currency; that is why there are no bank credit rates in USD which are the currency of the contract. The International Commercial Court of Arbitration (hereinafter the Tribunal) considers it possible to apply in determination of the default interest rate the LIBOR rate habitually applied in international trade.
1.6 Bearing in mind the circumstances of the case and the conditions of the contract on the conversion of the sum of obligation in USD to the national currency of the seller's country which applies in the relations between the parties, the Tribunal applied by analogy the provisions of Article 317 of the Civil Code of the Russian Federation.
The claim was brought by a Pakistani company [seller] against a Russian company [buyer] in connection with incomplete payment for the goods delivered under the contract signed in April 1992. The [seller]'s claims included: clearing off the debt, payment of default interest as well as recovery of the arbitration costs. In the additional brief the [seller] asked to recognize as a Co-Respondent the Russian state agency competent to deliver permissions to make payments. This motion was supported by the [buyer]. The said state agency did not give his consent to the participation in the proceedings.
The [buyer] did not accept the [seller]'s claims, explaining that incomplete payment is due to the non-receipt of permission to pay from the competent Russian state agency which must be liable for the non-observance of the contract obligations by the [buyer].
3.1 The contract provided that all disputes and differences between the parties are to be settled in the Court of Arbitration at the Chamber of Commerce and Industry of the USSR. Point 4 of the Tribunal's Regulation states that the International Commercial Court of Arbitration is the successor of the Court of Arbitration at the Chamber of Commerce and Industry of the USSR and is competent to resolve disputes on the basis of the agreements of the parties on the transfer of their disputes to the Court of Arbitration at the Chamber of Commerce and Industry of the USSR. For these reasons, the Tribunal considers itself competent to hear the present case. The parties expressed no objections as to the Tribunal's competence.
3.2 Since there is no agreement on the applicable law between the parties, the Tribunal pursuant to Article 28 of the Federal Law "On international commercial arbitration" determines the applicable law in accordance with Russian rules of private international law. At the time of the conclusion of the contract, Article 566 of the Civil Code of the Russian Soviet Federal Socialist Republic 1964, which was in force at that time, provided that the rights and obligations of the parties to foreign economic contract are determined under the laws of the place of its conclusion if the parties did not agree otherwise. Since the contract out of which the dispute arose was concluded in Moscow, the relations of the parties are governed by Russian material law. That is why pursuant to Article 1(1)(b) of the Vienna Convention 1980, the relations between of the parties are also governed by the provisions of this Convention which under Article 15 of the Constitution of the Russian Federation prevail over the corresponding provisions of Russian law.
3.3 The Tribunal does not find any ground for satisfying the motion to recognize the Russian state agency as a Co-Respondent. Under its Rules of Court, the Tribunal hears the disputes in case of existence of a written agreement between the parties to transfer to it disputes which have already arisen or can arise. There was no such agreement between the [seller] and the Russian state agency. Moreover, in its letter of 12 March 1998 sent to the Tribunal, this agency expressly states that it cannot be a Co-Respondent in the present case. There is no international treaty pursuant to which this agency can be regarded as a Co-Respondent either.
3.4 There is no dispute between the parties as to whether the lot delivered by the [seller] under the contract remained unpaid by the [buyer]. The latter, however, refuses to pay for it. The [seller]'s representative referred in the hearing to the fact that the contract out of which the dispute arose was concluded on the instruction of the Russian state agency mentioned above. At the time of the conclusion of the contract the [buyer] was not an independent legal entity but a subordinate section of this agency. [Buyer] also attracted the Tribunal's attention to the fact that under the contract the payments were to effected in 1993 to clear off the credits granted to Pakistan before. Because of this fact, the [buyer] tried repeatedly to get from this state agency permission to pay for the goods delivered by the [seller]. But all his efforts in this direction were in vain. In the [buyer]'s opinion, the [seller]'s claims must be addressed not to him but to this state agency.
The Tribunal did not consider the [buyer]'s objections to be justified. First, the [buyer] at the time of conclusion of the contract as well as afterwards was not a subordinate section of the state agency indicated by him but was an independent legal entity and signed as a buyer the contract with the [seller] in his own name. Under Articles 32 and 34 of the Civil Code of the Russian Soviet Federal Socialist Republic 1964 which was in force at the time of conclusion of the contract, the legal entity is liable within the limits of property belonging to it. The state organization (in the present case - the said Russian state agency) is not liable for its subordinate organization having a status of a legal entity. As a consequence, it is the [buyer] who must be responsible before the [seller] for undue fulfilment of his contractual obligations.
3.5 Under Article 53 of the Vienna Convention 1980, the buyer must pay the price for the goods as required by the contract. Article 3 of the contract fixed the price of the goods in USD. Under Article 8 of the contract, the payments for the delivered goods are effected in Pakistani rupees. The contract requirements included a condition on making payment to clear off the credits granted to Pakistan.
The Tribunal, recognizing the [buyer]'s obligation to pay the goods delivered to him, does not have the right to change the method of payment for the goods agreed between the parties to clear off the corresponding interstate credits.
3.6 Under Article 78 of the Vienna Convention 1980, if a party fails to pay the price, the other party is entitled the interest on it. Since the Convention does not fix the interest rate, it is to be determined in conformity with the law applicable by virtue of the rules on of private international law. Referring to Article 395 of the Civil Code of the Russian Federation the [seller] claims to exact the interest for the years 1994, 1995, 1996 and for the first quarter of the year 1997.
But the sum of the interest claimed by the [seller] is not in conformity with the applicable rules or Russian law. First, the Civil Code of the Russian Federation was not in force in 1994 since it came into force only on 1 January 1995. That is why during the year 1994 must be applied the 5% rate fixed by Article 66(3) of the Fundamentals of Civil Law 1991 which were in force at that time in Russia. Second, under Article 395 of the Civil Code of the Russian Federation for the delay in subsequent years, the interest rate is determined on the basis of the bank discount rate at the creditor's place of residence. However, the [seller] applied the rate existing on 11 March 1997 and at the debtor's (not the creditor's) place of residence. Afterwards the [seller], in response to the panel's proposal to submit the evidence proving the rate applicable to the sums in arrears fixed in USD, produced a certificate of 18 April 1998 signed by the manager of a Pakistani bank and stating that under the rules of the State Bank of Pakistan short-term credits are not granted in USD and that the Government of Pakistan permits short-term financing in Pakistani rupees.
In this situation, the Tribunal considered it possible to apply the LIBOR rate, habitually applied in international trade, on the date of the hearing. Under the contract, this sum must be converted into Pakistani rupees. Article 8 of the contract provides that payments for the delivered goods are effected in Pakistani rupees by means of submitting account numbers for collection in National Bank of Pakistan with the conversion at the rate on the date of submission of the papers to the bank. Taking into account the fact that there is no indication in the case concerning this date and that the Tribunal's decision will serve as a ground for exaction of this sum, the Tribunal, applying Article 317 of the Civil Code of the Russian Federation by analogy, considers that the sum to be paid in Pakistani rupees must be determined at the official rate of USD on the date of the actual payment.
* This is a translation of data on Procceding 83/1997, dated 10 June 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. 47 [127-130].
All translations should be verified by cross-checking against the original text. For purposes of this presentation, Claimant of Pakistan is referred to as [seller] and Respondent of the Russian Federation is referred to as [buyer].
** Serge Lapine is a 5th year student at the Law Faculty of Nizhny Novgorod and at the same time at the Interpreters' Faculty of Nizny Novogorod Linguistic University.Go to Case Table of Contents