Case text (English translation)
Queen Mary Case Translation Programme
Russian Federation arbitration proceeding 152/1998 of 16 April 1999
Translation [*] by Gilyana Bovaeva [**]
Translation edited by Mykhaylo Danylko [***]
1. SUMMARY OF RULING
1.1 In the absence of the parties' agreement as to the applicable law, the applicable law is determined on the basis of the Russian rules of conflict of laws effective at the time of the conclusion of the contract. Since Russian law is recognized as applicable as the law of the country of seller, the Vienna Convention 1980 [UN Convention on Contracts for the International Sale of Goods (1980), hereinafter CISG] was applied as the principal statute. Such ruling is in compliance with the provisions of Article 1(1)(b) CISG, taking into account that the commercial company of Respondent, [buyer], is located in a country that is not a Contracting State to the CISG.
1.2 The provisions of Article 8 CISG were employed to interpret the intent of the [buyer] expressed in the course of performance of the contract. With this, it was noted that criteria contained in the Article 8 CISG coincided with the provisions of the UNIDROIT Principles of International Commercial Contracts (Article 4.2).
1.3 Coming to the conclusion that under all circumstances a reasonable person, acting "in the [seller]'s shoes", would have interpreted the intent of [buyer] in the same manner as meant by the [buyer], the Tribunal of International Commercial Arbitration [the Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry (hereinafter Tribunal)] denied granting the [seller]'s claims to recover additional expenses resulting from taking actions caused by incorrect interpretation of the [buyer]'s intent.
2. FACTS AND PLEADINGS
The action was brought by [seller], a Russian company, against [buyer], a company located at the Isle of Man (British Isles), for recovery of damages caused by the return of two lots of the goods delivered under the contract concluded between the parties on 22 December 1995.
2.1 [Seller's claims]
The [seller]'s claims included:
- recovery of transport expenses, customs clearance under the export and re-import conditions; as well as
- recovery of the difference between the contract price of the goods and the sale price of the goods on the domestic market.
3. TRIBUNAL'S REASONING
The ruling of the Tribunal contained the following main points.
3.1 [Jurisdiction competence of Tribunal]
Competence of the Tribunal to arbitrate this dispute follows from clause 4 of the General Terms of Delivery and Payment, which is an integral part of the contract.
3.2 [Applicable law]
Whereas the contract is silent regarding applicable law, the applicable law was determined on the basis of Article 166 of the Fundamentals of Civil Law of USSR 1991 in accordance with Article 28(2) of the Russian Federation Law "On the Tribunal of International Commercial Arbitration" of 7 July 1993. Russian law was applied as the law of the country where the seller was incorporated and has his principal place of business. Pursuant to Article 7 of the Russian Federation Civil Code, the CISG was recognized as the principal statute governing the relations between the parties. Provisions of the Russian Federation Civil Code should be applied as subsidiary statute.
3.3 [Merits of the case]
As to the merits of the claims asserted by the [seller], the Tribunal found that, according to the contract concluded between the parties, the [seller] shipped the goods in January-December 1996, having agreed the price for each quarter. In accordance with the paragraph 5.1 of the General Terms of Delivery and Payment, which is an integral part of the contract, the [buyer], not later than 45 days prior to the month of shipment, should inform the [seller] of the name of the port of destination, the country of destination, and the name of a consignee, and in accordance with paragraph 5.4 of the General Terms of Delivery and Payment - return the empty, cleaned cisterns to [seller].
As it follows from the circumstances of the case and submissions of the representatives of the parties, the dispute between the parties concerns the recovery [of damages] in connection with the return by [buyer] of two canisters with goods to the [seller]. In relation to this, the parties interpret differently instructions given by the [buyer] on 11 October, 24 October and 10 November 1996. In particular, the [buyer] asserts that in the fax of 11 October is clearly stated her request to postpone the shipment of goods to her until [her further] special instruction, and in fax of 24 October 1996 - her request to ship one cistern to her address. In the [seller]'s opinion there were no instructions from the [buyer] as to November shipments, hence, on 6 November 1996, [seller] shipped one cistern with goods.
The divergence in interpretation of the [buyer]'s instructions gave rise to this dispute. Article 8 CISG contains rules of interpretation of statements made by or other conduct of a party, setting forth that the statement made by a party are to be interpreted according to his intent where the other party knew or could not have been unaware what that intent was. With this, attention also must be paid to the understanding that a reasonable person of the same kind as the other party would have had in the same circumstances. The same criteria of interpretation of statements and other conduct are prescribed in Article 4.2 of UNIDROIT Principles of International Commercial Contracts. Application of the rules employed in the aforementioned documents leads to the conclusion that a reasonable person acting as the [seller] here would have interpreted [buyer]'s request to postpone the shipment until a further special instruction. Such interpretation also follows from the circumstances in the parties' relations, inter alia, the difficulties that occurred at the manufacturing plant which reprocessed the goods purchased from [seller], of which the [seller] was acknowledged. Shipping the goods in November 1996, the [seller] acted at his own risk, for which the [buyer] cannot bear any responsibility. The loss incurred by the [seller] from this is not caused by conduct of the [buyer]. Moreover, the [buyer] took reasonable measures to return the goods to the [seller]. Therefore, the expenses as to transportation of the goods and loss due to re-selling of the goods on the domestic market cannot be imposed on the [buyer]. Had the [seller] followed the [buyer]'s instructions to postpone the shipment until a special instruction and suffered losses due to postponing the shipment of goods in the mentioned cistern (including penalties to be paid to the rail carrier), such resulting losses would have had a causal connection to the [buyer]'s conduct, would have been caused by her, and thus the [seller] would be entitled to recover them.
Following from the aforesaid, the Tribunal does not find any grounds to grant the [seller]'s claim for recovery from the [buyer] of the expenses as to customs clearance of the goods under the conditions of export and re-importation and as to transportation of the goods delivered by the [seller] in November 1996, and also as to recovery of the losses suffered due to the resale of the goods on the domestic market.
As to the additional expenses incurred by the [seller] in connection with the return of the second cistern, they should be recovered because these expenses occurred due to the shipment of the goods upon direct instruction by the [buyer] and were caused by her conduct. They include expenses due to the return of this cistern and customs clearance of the goods for their export and their return under the re-importation conditions. Whereas the parties agreed at the hearing that the Value Added Tax included in the customs declaration is not to be imposed [by the State], thus, the expenses as to payment of [Value Added Tax] cannot be recovered.
4. ARBITRATION FEES
Whereas the dispute was arbitrated by a sole arbitrator, thus, in accordance with § 4(1) of the Rules of Tribunal on Arbitration Expenses and Fees, the [seller] was reimbursed with 30% of the arbitration fees at the time of filling of the action.
It was imposed on [buyer] to compensate the [seller] for the arbitration fees proportionally to the amount of claims granted.
FOOTNOTES
* This is a translation of data on Proceeding 152/1998 of 16 April 1999 of the Tribunal of
International Commercial Arbitration at the Russian Federation Chamber of Commerce
and Industry, reported in: Rozenberg ed., Arb. Praktika 1999-2000, No. 14 [79-81]. All translations should be verified by cross-checking against the original text. For
purposes of this translation, Claimant of Russia is referred to as [seller]; Respondent of the
British Isles is referred to as [buyer].
** Gilyana Bovaeva, a scholar from the Russian Federation, Kalmyk Republic, earned her
LL.M. degree in Environmental Law from the Pace University School of Law, 2002.
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