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CISG CASE PRESENTATION

Russia 25 June 1998 Arbitration proceeding 478/1996 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/980625r1.html]

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

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Case identification

DATE OF DECISION: 19980625 (25 June 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: 478/1996

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Russian Federation (claimant)

BUYER'S COUNTRY: Turkey (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: Articles 9 ; 53 ; 54 ; 78 [Article 50 is perhaps also relevant]

Classification of issues using UNCITRAL classification code numbers:

9D2 [Usages impliedly made applicable to contract];

53A [Buyer's obligation to pay price of goods];

53B [Obligation to pay includes enabling steps];

78B [Rate of interest]

Descriptors: Usages and practices ; Price ; Interest

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Editorial remarks

"[T]he respondent alleged the existence of an international trade usage according to which reduction of the price must be offered when the goods do not conform to the specification. However, in the Tribunal's opinion, the respondent did not bring forward any convincing evidence proving applicability of such a usage in international trade, except for references to several examples. Therefore, the Tribunal held that there was no legal basis for application of the alleged usage." Djakhongir Saidov, 7 Vindobona Journal of International Commercial Law and Arbitration (1/2003) 1-62 at 21.

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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. 38 [131-134]

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 478/1996 of 25 June 1998

Translation [*] by Alexander Morari [**]

1. SUMMARY OF RULING

     1.1 The Respondent [buyer]'s motion to defer the hearings of the dispute was dismissed since he failed to present good reasons.

     1.2 The Tribunal found that the1980 Vienna Convention [hereinafter referred to as CISG] is applicable to relations between two parties where one of the parties has its place of business in a State which is not a Contracting State to the CISG, taking into account that by virtue of a conflict of laws rule their relations are regulated by the substantive law of a Contracting State.

     1.3 Since the [buyer] failed to prove existence of an established practice in international trade, there is no legal ground to apply this practice in the present arbitration.

     1.4 The Tribunal will not consider [buyer]'s objections to the action because they constitute, in their nature, a separate counterclaim until the [buyer] files a counterclaim in accordance with the Rules of Procedure of the Tribunal.

     1.5 Finally, the Tribunal left without consideration Claimant [seller]'s demand for payment of interest p.a. since the [seller] failed to submit proof of the interest-rate used at the moment when the [buyer] had to perform the payment.

2. FACTS AND PLEADINGS

The action was brought by a Russian company [seller] against a Turkish company [buyer] in connection with incomplete payment for goods delivered under a contract concluded between the parties in August 1995.

The [seller]'s demands included payment of the debt and recovery of interest p.a.

The [buyer] disclaimed liability referring to the fact that the delivered goods did not correspond to the specifications contractually agreed upon. In this connection and according to the established practices of international trade, the [buyer] demanded that the [seller] grant an adequate discount. Additionally, the [buyer] claimed he suffered losses caused by breaches of the contract by the [seller]. Finally, the [buyer] claimed that the [seller] wrongly calculated the price of goods delivered in one of the consignments.

3. TRIBUNAL'S REASONING

The Tribunal ruled that:

     3.1 The competence of the Tribunal over the present dispute was directly stipulated in the contract between the parties.

     3.2 The representative for the [buyer] made a motion to defer the hearing explaining that the president of his company intended to take personal part in the hearing yet because of a business trip he was unable to arrive at the hearing. The other reason to defer the hearing was that the [buyer] needed more time to prepare his counterclaim and to translate a number of documents from Turkish into the language of the hearing. The [buyer] also asked to be allowed to call to the next hearing a representative of a neutral company to support some circumstances referred to in [buyer]'s statement of defense.

Considering that the Rules of Procedure of the Tribunal provide that the Tribunal take measures to end the hearing of a case within the time limit specified in section 11 of the Rules and Procedure, and that the [seller] objected to deferment of the hearing, the Tribunal did not find the arguments presented by the [buyer] reasonable. The Tribunal proceeded from section 28 of the Rules and Procedure which provides that the parties can take part in the hearing directly or through duly authorized representatives. The named company authorized two representatives to present its case at the hearing. These representatives pleaded at the hearing by power of attorney issued by the company.

As for the counterclaim, according to section 33 of the Rules and Procedure of the Tribunal, the [buyer] had the right to file a counterclaim or a set-off demand arising from the same contract within 45 days from the day of receipt of the statement of claim. Yet, the [buyer] did not make use of this opportunity, though the case materials were timely handed to him (8 May 1997). Up to the day of the arbitral hearing scheduled for 25 June 1998, notice of which was received by the [buyer] on 11 May 1998, the Tribunal had received from the [buyer] neither a counterclaim nor a demand for set-off.

Even if such an application had been received, then, in case the Tribunal found that the [buyer] tried to retard the arbitration proceedings by delaying to file the counterclaim or the demand for set-off, the Tribunal, by virtue of section 33 of the Rules and Procedure, would have had the right to place on the [buyer] an obligation to indemnify additional expenses suffered by the Tribunal and the [seller].

By the same motives, the Tribunal did not consider [buyer]'s argument about necessity to call into the arbitration the above-mentioned neutral company in the capacity of a witness.

Therefore, the Tribunal did not find well-founded [buyer]'s motion to defer the hearing of the dispute.

     3.3 As for the issue of the applicable law, the Tribunal found that there was no agreement concerning the law applicable to the relations between the parties. In this situation, the Tribunal, referring to Article 28(2) of the Law of Russian Federation on the Tribunal of International Commercial Arbitration, ruled that, by virtue of a conflict of laws rule provided for in Article 166 of the Fundamentals of Civil Law 1991, rights and obligations of the parties are to be determined according to the law of the country in which the seller of the sales contract is established or has his principal place of business (the principle of lex venditoris).

As the Russian company is the seller in the given contract, Russian substantive law shall be recognized as applicable to the present dispute, first and foremost in that part which is provided for in the CISG, which has been a component part of the Russian substantive law since 1 September 1991 (Article 1(1)(b) CISG).

     3.4 When considering the [seller]'s demand concerning recovery from the [buyer] of the debt for the delivered goods, the Tribunal proceeded from the following:

The case materials (bills of lading Number 1 of 15 September 1995 and Number 3 of 19 October 1995) prove that the delivery did take place and the [buyer] accepted the goods. The [buyer] does not contest his acceptance of the delivered goods. He also admitted a part of his debt to the [seller]. Refusing to pay the outstanding amount of the debt, the [buyer] explained in the hearing that the [seller], in his correspondence with the [buyer], did not dispute his deviation from the specifications for the delivered goods, yet the [seller] refused to grant the discount proposed by the [buyer]. That was why the [buyer], in his own words, followed an established practice of international trade, which did not have to be provided for in the contract, and applied the indicated discount on the price. However, the [buyer] failed to present convincing evidence proving the existence of a practice in international trade with the same kind of goods according to which a party could make a discount without any agreement with the second party. The [seller], in his turn, explained that he refused to grant the discount since the contract did not provide for such a discount. Both parties agreed at the hearing that after concluding the contract they did not sign any document concerning discount on the price, i.e., the notion of discount on the price as a contract category was not settled by the parties. Neither the CISG nor the Russian substantive law applicable to the dispute provides for the discount on the price. In such circumstances, the Tribunal rules that there are no legal grounds for granting the [buyer] a discount on the price. Consequently, according to Articles 53 and 54 of the CISG the [buyer] is obliged to pay the price for the delivered and taken goods. Based on the above reasoning, the Tribunal concluded that the [buyer] must pay the outstanding debt to the [seller].

     3.5 In his Statement of Defense and in his pleading in the hearings, the [buyer] demanded that the [seller] indemnify additional expenses incurred by delivery of goods by the [buyer] to the [seller] (dead freight, VAT, customs duty, etc.), as well as return the difference in the price discovered by the [buyer] when checking the value of goods delivered by the [buyer] to the [seller]. The Tribunal considers these demands to be, in their nature, independent demands and are made by the [buyer] with the aim of set-off. Since these demands were raised against the [seller] with violation of section 38 of the Rules and Procedure, the Tribunal did not consider them, making note of the fact that the [buyer] may file with the Tribunal a separate counterclaim submitting all evidence allegedly being collected and prepared by [buyer]'s representatives.

     3.6 To confirm [seller]'s interest claim, the [seller] referred to his calculation based on the data provided by "Rosbizneskonsalting" Company for 28 October 1996 (i.e., on the day of bringing the action). The Tribunal considers that in this case the [seller] should proceed from the main principle provided for in Article 395 of the Russian Civil Code, i.e., interest shall be calculated according to the interest rate used on the day of execution of a monetary obligation. Section 4 of the Contract provided that the delivered goods were to be paid for by the buyer on the basis of a collection of payments against documents within five bank days from the date of the bank's receipt of complete set of documents to be presented by the buyer. Taking into account that the [seller] did not submit evidence of the interest rate on short-term credits in foreign currency for the day when the [buyer] had to perform payments in accordance with the contract, the Tribunal did not consider [seller]'s demand for recovery of interest p.a., which, however, does not preclude the [seller] from bringing a separate action against the [buyer] and submitting all necessary evidence.


FOOTNOTES

* This is a translation of data on Proceeding 478/1996 of June 1998 of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry, reported in Rozenberg ed., Arb. Parktika 1998, No. 38 [131-134].

All translations should be verified by cross-checking against the original text. For purposes of this presentation, [seller] of the Russian Federation is referred to as [seller]; [buyer] of Turkey is referred to as [buyer].

** Alexander Morari, of the Republic of Moldova, is a law student at the Siberian Academy for Public Administration, Russia. He has participated in a number of Moot Courts as a member of the Moldovan team.

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