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CISG CASE PRESENTATION

Russia 17 November 1998 Arbitration proceeding 164/1996 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/981117r1.html]

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

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Case identification

DATE OF DECISION: 19981117 (17 November 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: 164/1996

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: Slovenia (respondent)

BUYER'S COUNTRY: Russian Federation (claimant)

GOODS INVOLVED: Equipment


Case abstract

RUSSIAN FEDERATION: Award in Case No. 164/1996 of 17 November 1998 of the
Arbitration Tribunal of Russian Federation Chamber of Commerce and Industry

Case law on UNCITRAL texts (CLOUT) abstract no. 471

Reproduced with permission of UNCITRAL

Abstract prepared by Alexander Komarov, National Correspondent

A Russian company, the buyer, sued a Slovenian firm, the seller, for delivery of equipment of inadequate quality. Before the expiration of the guarantee period established by the contract, the buyer found defects, which were rectified by the seller’s specialists. However, the equipment failed again and the buyer demanded that the seller replace the equipment. The seller refused to do so. Consequently, the buyer demanded repayment of the purchase price of the equipment, together with the costs incurred by the buyer in returning parts of the equipment to the seller.

The tribunal noted that when the defects in the operation of the equipment were discovered, the parties signed an annex to the contract, under which the seller undertook to exchange the defective parts at its own cost. At the same time, the parties agreed that if the equipment broke down again within six months after its repair, the buyer would return the defective equipment to the seller and the seller would install new equipment, in good working order, and pay the costs of returning the defective equipment. However, the buyer did not fulfil its obligation under the agreement and article 86 CISG to preserve the equipment, since the equipment had been written off and disposed of. Under articles 46 and 82 CISG, therefore, the buyer had forfeited its right to demand the delivery by the respondent of equipment in good working order and was found to have resorted to a legal remedy incompatible with its right to demand performance by the seller of its obligations.

The tribunal rejected the buyer’s claim for the return of the purchase price of the equipment. The buyer’s claim for the recovery from the seller of customs duties for the delivery of defective equipment parts to the seller was 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 46(1) ; 82(1) ; 86(1) ; 88

Classification of issues using UNCITRAL classification code numbers:

46B [Buyer's right to require delivery of substitute goods lost by resort to inconsistent remedy];

82A1 [Buyer would have right to avoid contract except for inability to return goods];

86A1 [Buyer who has received goods and intends to reject obligated to take reasonable steps to preserve goods];

88A1 [Party obligated to preserve goods may sell them when other party unreasonably delays]

Descriptors: Substitute goods ; Preservation of goods; Storage of goods ; Resale of goods

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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. 64 [225-226]

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 nn.137-138, 261

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Case text (English translation) [second draft]

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 164/1996 of 17 November 1998

Translation [*] by Alexander Morari [**]

1. SUMMARY OF RULING

      1.1 The buyer, who resorted to a remedy which is inconsistent with the requirement of the seller to perform his obligation, loses the right to require delivery of the substitute goods, in accordance with art. 46(1) and art. 82(1) of the 1980 Vienna Convention on International Sales of Goods (hereinafter CISG).

      1.2 If the buyer has received the goods and intends to reject them, he must take such steps to preserve them as are reasonable, according to [art. 86(1)] CISG.

2. FACTS AND PLEADINGS

The action was brought by the buyer, a Russian company, against the seller, a Slovenian company, in connection with delivery of the goods not of the quality required by the contract concluded between the parties in August 1992.

Having received an inspection certificate from the [buyer], the [seller]'s specialists eliminated the detected defects in the equipment within the warranty period stipulated by the contract. Some time later, however, the equipment went out of action again. On the basis of a new inspection certificate, the [buyer] required the [seller] to substitute the equipment. The [seller] did not carry out this requirement. As a result, the [buyer] required the [seller] to refund the price of the equipment as well as all expenses linked to return of equipment components to the [seller].

3. TRIBUNAL'S REASONING

The ruling of the Tribunal contained the following main points.

      3.1 [Jurisdiction of the Tribunal]

The Tribunal's competence follows directly from the contract concluded between the parties.

      3.2 [Applicable law]

The parties did not agree on the applicable law in the contract nor in any subsequent agreement. Since the parties' places of business at the moment of conclusion of the contract were in states parties to the CISG, the CISG is applicable to the relationships of the parties out of the contract according to art. 1(1)(a) CISG.

      3.3 [Ruling on primary substantive law issues]

In connection with detection of defects in the components of the equipment delivered by the [seller], which is confirmed by inspection certificates presented by the [buyer], the parties signed an Appendix to the contract on 6 March 1995. In the Appendix, the [seller] bound himself to substitute the defective components at his own expense no later than 31 March 1995. Besides, the parties agreed that in case the equipment goes out of action within six-month time after repairs, the [seller] will deliver new equipment in perfect working order without additional payment and will cover all expenses connected with return of the faulty equipment.

The defective components were substituted in March 1995. In June, which is within the warranty period, these components went out of action (this is confirmed by the inspection certificate of 26 June 1995). Referring to the Appendix to the contract, the [buyer] sent the inspection certificate to the [seller] on 14 August 1995 in which he required substitution of the faulty goods. In a letter of 5 August 1995, the [buyer] declined [seller]'s proposal to repair the faulty components.

In conformity with clause 1.5 of the Appendix to the contract, providing return of the faulty equipment to the [seller], the [buyer] was asked to present a certificate of the state of the equipment done by an independent third party, completeness of the equipment and conditions of storage. On 17 November 1995, the [buyer] handed to the Tribunal documents concerning writing-off of fixed assets approved by the head of the plant-recipient of the equipment, specifying that the equipment in question was written-off due to the impossibility of its repair. The representative of the [buyer] has explained that to the best of his knowledge the equipment is not in the possession of the [buyer].

The Appendix to the contract (clause 1.5) sets mutual obligations of the parties according to which the [seller] must substitute the faulty equipment and the [buyer] must return the faulty equipment to the [seller]. The [buyer] has not carried out and is no more able to carry out his obligation due to the absence of the equipment. [buyer]'s obligation to preserve the equipment is provided in art. 86(1) CISG, according to which if the buyer has received the goods and intends to exercise the right under the contract to reject them, he must take steps to preserve them.

The [buyer] resorted to a remedy inconsistent with the requirement of the [seller] to perform his obligations and, thus, lost his right to require the [seller] to deliver new equipment in working order instead of the faulty equipment or to refund the price of the equipment.

If, according to [buyer]'s opinion, the [seller] committed an unreasonable delay in taking the equipment back, art. 88 CISG would give the [buyer] the right to sell it and to retain out of the proceeds of sale an amount equal to the expenses of preserving and selling of the equipment. The Tribunal is of the opinion that this would not have deprived the [buyer] of his right to require the [seller] to compensate the part of the loss not covered by the proceeds of sale of the equipment.

      3.4 [Ruling on customs fees]

[Buyer]'s demand to recover from the [seller] all customs fees connected with forwarding of the defective components to [seller]'s address is documentarily confirmed (cargo customs declaration attached to the case materials) and is to be granted in accordance with clause 1.3 of the Appendix to the contract.


FOOTNOTES

* This is a translation of data on Proceeding 164/1996 of 17 November 1998 of the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry. All translations should be verified by cross-checking against the original text. For purposes of this translation, the Claimant of the Russian Federation is referred to as [buyer] and the Respondent of Slovenia is referred to as [seller].

** Alexander Morari, born in the Republic of Moldova, currently a law student at Siberian Academy for Public Administration, Russia; has taken part in a number of international moot courts as a member of Moldovan Team; once as a coach of Novosibirsk, Russia team.

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