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CISG CASE PRESENTATION

Russia 6 October 1998 Arbitration proceeding 269/1997 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/981006r1.html]

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

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Case identification

DATE OF DECISION: 19981006 (6 October 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: 269/1997

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: People's Republic of China (Claimant)

BUYER'S COUNTRY: Russian Federation (Respondent)

GOODS INVOLVED: Goods


Case abstract

RUSSIAN FEDERATION: Award in Case No. 269/1997 of 6 October 1998 of the
Arbitration Tribunal of Russian Federation Chamber of Commerce and Industry

Case law on UNCITRAL texts (CLOUT) abstract no. 469

Reproduced with permission of UNCITRAL

Abstract prepared by Alexander Komarov, National Correspondent

A Chinese company, the seller, sued a Russian organization, the buyer, in connection with the buyer’s non-performance of its obligations under a barter contract. The parties had concluded a supplementary agreement concerning payment by the buyer for the goods delivered by the seller instead of returned deliveries, the establishment of a time limit for extinguishment of the debt, and the payment of interest in the event of non-performance of obligations in respect of debt extinguishment. In response to the suit, the buyer requested to be released from its liabilities, since its inability to perform was due to an obstacle beyond its control and was the fault of a third party: the bank which held the buyer’s financial assets went bankrupt.

On the basis of the evidence, the tribunal determined that the seller had delivered goods to the buyer but the buyer had not fulfilled the corresponding obligation to deliver goods to the seller. The parties, therefore, decided to settle the contract in monetary form, rather than through barter. The buyer also failed to perform its obligations to pay for the delivered goods. The tribunal considered unfounded the buyer’s claim that it should be released from liability for nonperformance of the contract, on the basis of article 79 CISG since a bank’s bankruptcy is not among the grounds for release from liability indicated in the article.

In view of the above, the tribunal applied articles 53 and 62 CISG, according to which the buyer is bound to pay the seller the price for the goods received. The seller’s claim for payment of interest, which was based on the conditions of the supplementary agreement concluded by the parties, was also upheld.

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Classification of issues present

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

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 53 ; 62 ; 79

Classification of issues using UNCITRAL classification code numbers:

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

62A [Seller may compel performance of buyer’s obligations];

79B [Impediments excusing party from damages]

Descriptors: Price ; Specific performance ; Exemptions or impediments

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Editorial remarks

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Citations to other abstracts, case texts and commentaries

CITATIONS TO OTHER ABSTRACTS OF DECISION

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. 53 [176-178]

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 269/1997 of 6 October 1998

Translation [*] by Yelena Kalika [**]

1. SUMMARY OF RULING

     1.1 The agreement of the parties to make payments for the goods supplied by one of the parties instead of exchanging goods transformed a barter contract into a sales contract. Since both parties are located in CISG signatory states, their relationships are governed by the CISG in the absence of the specific terms in the contract.

     1.2 The insolvency of the bank serving one of the parties to the contract does not relieve such party from its obligation under Article 79 CISG. This circumstance does not qualify as an impediment beyond one's control that would relieve such a party from its liability under the contract.

     1.3 The provisions of the USSR-China treaty regarding the order and period within which the fines can be challenged do not apply to the claim to recover interest in the amount agreed by the parties.

2. FACTS AND PLEADINGS

The action was commenced by Claimant, a Chinese company, against the Respondent, a Russian company, in connection with a breach of a barter contract entered into in January 1994. The parties reached an agreement that the Respondent [hereinafter "buyer"] would pay for the goods supplied by the Claimant [hereinafter "seller"] instead of making counter-deliveries. The agreement also set forth the term within which the debt had to be paid as well as the 3% monthly bank interest to be paid in case of failure to pay the debt.

In his reply to the claim, the [buyer] did not contest the fact or amount of debt but requested that he be relieved from his liability since the impossibility of his performing his obligation had resulted from an impediment beyond his control and arose due to the fault of a third party, the bankrupt bank with which all the [buyer]'s money was deposited. As to the [seller]'s claim that the [buyer] pay the bank interest, the [buyer] referred to the USSR- China treaty pursuant to which the [seller] missed the three months period during which such claim could be brought.

3. TRIBUNAL'S REASONING

The Tribunal's decision contained the following main points:

     3.1 The competence of the Tribunal to hear the present dispute follows from clause 9 of the barter contract of 25 January 1994 which states that all the disputes arising out of this contract shall be arbitrated by an international arbitral tribunal. It also states that the arbitral tribunal for the Russian party is the Chamber of Commerce and Industry and the arbitral tribunal for the Chinese party is the China Commission on Foreign Trade Cooperation. Pursuant to the above arbitration clause in the contract, the [seller] brought his claim with the International Commercial Arbitration Tribunal at the Chamber of Commerce and Industry of the Russian Federation located in the [buyer]'s state. The [buyer] did not contest the Tribunal's competence and submitted his explanations. On the above stated grounds, the Tribunal found that it had competence to arbitrate the present dispute.

     3.2 The [buyer] was duly notified by the Tribunal of the date of hearing (6 October 1998). This fact is proven by the delivery confirmation receipt evidencing that the notice was received on 15 June 1998. The [buyer] did not appear at the hearing.

Pursuant to paragraph 28(2) of the Tribunal's Rules, when a party was duly notified of the time and place of arbitration, his failure to appear does not preclude either the arbitration or making of an arbitral award unless such party had submitted a written motion to postpone the hearing due to a valid reason. Since the [buyer] never submitted such a motion and since the materials of the case are sufficient, the Tribunal found it possible to hold a hearing in the absence of the [buyer].

     3.3 According to the Minutes of 26 July 1994 the parties modified the barter transactions set forth in the contract of 25 January 1994 and agreed that payments would be made for the goods supplied by the [seller]. Thus, this transaction was turned into a sales contract.

Taking into consideration that both China and Russia -- as the states where the [seller] and the [buyer] are located -- are signatories to the CISG, the present dispute should be arbitrated in accordance with the provisions of this Convention (Article 1(1)(a) CISG) since the parties' contract is silent on this matter.

     3.4 After reviewing the [seller]'s claim to recover the amount of the main debt from the [buyer], the Tribunal notes that the [seller] delivered goods to the [buyer] in accordance to the schedule set by the parties in July 1994. The [buyer] failed to perform his counter obligation to make delivery in May-December 1994. The [buyer] explained his failure to perform by the objective reasons. The parties then agreed on the monetary payments. However, the [buyer] again failed to fully perform his obligation under the Minutes of 26 July 1994 that the goods would be paid for in US dollars in August 1994. In the protocol signed by the parties on 21 March 1995, the [buyer] acknowledged his debt in the amount stated in the claim. In accordance with that protocol, the [buyer] agreed to pay off his debt by 31 May 1995. However, he again failed to fulfill that obligation.

In his reply to the claim, the [buyer] refused to pay off his debt on the ground that his bank became insolvent (bankrupt). The [buyer] assumed that it was a valid reason relieving him from liability under the contract. The [buyer] referred to Article 79 of the CISG. However, the Tribunal cannot find this reference reasonable. First, the [buyer] incorrectly quotes the language of Article 79 CISG in his reply since that Article does not mention the third party's fault. Second, the [buyer] does not take into account that bankruptcy is not a ground relieving a party from his liability under Article 79 CISG. The parties' contract of 25 January 1994 resolves this issue in a similar way since it states that a party can be relieved from his obligation only if there is an impediment beyond his control (clause 10).

Taking the above into consideration, the Tribunal came to the conclusion that it is an obligation of the [buyer]-Buyer under Articles 53 and 62 CISG to pay off his debt for the goods received.

     3.5 The [seller]'s claim to recover interest from the [buyer] is based on the terms of the additional agreement to the contract dated 21 March 1995 which states that if the buyer fails to make payments, 3% monthly interest shall be imposed starting on 1 June 1995.

The [buyer]'s reference to the [seller]'s failure to file his claim within the three months period set forth in Chapter XII of the USSR-China treaty cannot be found reasonable. In accordance with clause 4 of the mentioned additional agreement, the [buyer] was obligated to pay the 3% bank monthly interest for the delay in payment to the [seller]. In this connection, the [seller] agreed not to apply the penalty for the untimely payment set forth in clause 7 of the contract.

The computation of the interest should reflect the provisions of the said additional agreement. Consequently, the amount of this claim shall be reduced.


FOOTNOTES

* This is a translation of data on Proceeding 269/1997, dated 6 October 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. 53 [176-178].

All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of China is referred to as [seller]; Respondent of the Russian Federation 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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Pace Law School Institute of International Commercial Law - Last updated January 9, 2004
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