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CISG CASE PRESENTATION

Russia 7 June 1999 Arbitration proceeding 238/1998 [translation available]
[Cite as: http://cisgw3.law.pace.edu/cases/990607r1.html]

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

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Case identification

DATE OF DECISION: 19990607 (7 June 1999)

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: 238/1998

CASE NAME: Unavailable

CASE HISTORY: Unavailable

SELLER'S COUNTRY: India (respondent)

BUYER'S COUNTRY: Russian Federation (claimant)

GOODS INVOLVED: Goods


Case abstract

RUSSIAN FEDERATION: Award in Case No. 238/1998 of 7 June 1999 of the
Arbitration Tribunal of Russian Federation Chamber of Commerce and Industry

Case law on UNCITRAL texts (CLOUT) abstract no. 473

Reproduced with permission of UNCITRAL

Abstract prepared by Alexander Komarov, National Correspondent

An action was brought by a Russian company, the buyer, against an Indian firm, the seller, for the tribunal to recognize as well-founded the buyer’s avoidance of a contract of sale of goods, following the seller’s refusal to fulfil an exclusive condition that the whole shipment should be carried as a single consignment on a vessel specially insured only for that shipment at a time specified by the contract. The buyer also claimed compensation for losses incurred in connection with the avoidance of the contract. The seller submitted a counterclaim for compensation for losses incurred as a result of the avoidance of the contract by the buyer. The seller argued that the buyer’s interpretation of the contract conditions concerning exclusive use of the insured vessel was incorrect.

The tribunal noted that, under article 8 CISG, the conduct of a party is to be interpreted according to its intent, where the other party knew or could not have been unaware what that intent was. It was clear from the provisions of the contract and from the business correspondence between the parties that the seller was aware of the buyer’s intention to ensure the best possible quality for the food product to be supplied and to exclude the use of the vessel for the transport of any cargo except its own goods. The tribunal, therefore, concluded that the seller had been under an obligation to charter a whole vessel exclusively for the transport of the buyer’s cargo. The tribunal found that, since the seller had not fulfilled the buyer’s requirements concerning the vessel, the buyer had been entitled to deny the seller permission to use a vessel that did not correspond to the provisions of the contract. The tribunal further concluded that given the seller’s unfounded interpretation of the provision concerning the "exclusiveness" of the vessel and its refusal to fulfil the reasonable requirements of the buyer, the plaintiff had sufficient grounds for considering the respondent’s conduct to be a fundamental breach of contract (art. 72 CISG). Since the contract had been lawfully avoided by the buyer, the tribunal concluded that there was no legal basis for granting the counterclaim, which it dismissed outright. With regard to the buyer’s claim for compensation for damages caused by the seller’s breach of contract, the tribunal found that, although restitution was possible under article 81 CISG, the buyer’s claim for compensation for the cost of credit should be dismissed, since there was insufficient evidence to support the claim. The buyer’s claim for damages for lost profit (characterized as the amount that might have been earned as the result of investing in bank deposit accounts the foreign exchange tied up in the letter of credit) was granted, in accordance with article 74 CISG.

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Classification of issues present

APPLICATION OF CISG: Yes

APPLICABLE CISG PROVISIONS AND ISSUES

Key CISG provisions at issue: Articles 8 ; 25 ; 26 ; 72 ; 74 ; 81

Classification of issues using UNCITRAL classification code numbers:

8A1 [Intent of party making statement or engaging in conduct: relevant if other party "knows" or "could not have been unaware"];

25B [Definition of fundamental breach: substantial deprivation of expectation, etc.];

26A [Effective declaration of avoidance: notice to other party required];

72A [Avoidance prior to date for performance: when clear that party will commit fundamental breach];

74A1 [General rules for measuring damages (loss suffered as consequence of breach): includes loss of profit];

81C [Effect of avoidance on obligations: restitution of benefits received]

Descriptors: Intent ; Anticipatory breach; Fundamental breach ; Avoidance ; Damages ; Profits, loss of ; Burden of proof ; Restitution

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Editorial remarks

     -      Choice of law
     -      Autonomous interpretation of Convention
     -      Intent
     -      Fundamental breach
     -      Anticipatory breach
     -      Effects of avoidance

Choice of law. Here and in other cases, "the ICAC has consistently ruled that where the law chosen by the parties was the law of a Contracting State, the Convention should apply." Djakhongir Saidov, 7 Vindobona Journal of International Commercial Law and Arbitration (1/2003) 1-62 at p. 6 (citations omitted)

Autonomous interpretation of Convention. "[T]he ICAC referred to both Article 74 CISG and Article 15 of the Russian Civil Code as being the legal basis for the claim for loss of profit. ...

"Although [this] did not affect the results ... it is submitted, nevertheless, that such parallel referencing to both the provisions of the CISG and corresponding provisions of domestic legal systems is inadmissible. First ... Article 7(2) clearly delimits the scope between the CISG and national law. Provisions of national law can be referred to only when the issue is either not governed by the CISG, or is governed by the CISG, but there are no general principles to solve the matter.

"In addition to that, it seems that this issue is not only a matter particular to Article 7(2). Article 7(1) provides for international character of the Convention. The Convention represents a Code of international nature which should be retarded as self-sufficient. As long as the matter is governed and capable of being resolved by the CISG, no recourse to national law (in whatever form) can be admissible.

"In this regard, it seems relevant to cite the statement of an Italian court. This statement, although relates only to the area of remedies, should apply to the Convention's legal retime as a whole 'The Convention's provisions (in the area of remedies) cannot be integrated with other internal provisions, which would contradict the Convention's intended specificity' (Corte di Appello di Milano, 11 December 1998, Bielloni Castello S.p.A. v. EGP S.A., available at <http://cisgw3.law.pace.edu/cases/981211i3.html>)." Id. at pp. 14-15.

Intent. "In this case [concerning the interpretation of terms of delivery over which the parties disagreed], a Russian buyer brought a claim against an Indian seller. The buyer sought recognition that its avoidance of the contract was valid. According to the contract, 7000 metric tonnes of the goods (+/- 2%) were to be loaded on the vessel specifically chartered for the purpose of transporting the contract goods. The chartered vessel could not be used for transportation of any other cargo. The buyer argued that it was entitled to avoid the contract because the seller refused to perform its obligation as to the 'exclusive' use of the vessel, i.e., its use for the purpose of transporting only the contract goods. The seller, on the other hand, argued that the buyer had misinterpreted the provision on the 'exclusive' use of the vessel. In the seller's opinion, the contract excluded the possibility of using the vessel for transportation of other types of goods, but allowed the use of the vessel for delivering the goods of the same kind to other buyers. Therefore the seller chartered the vessel for transportation of 12000 tonnes of goods of the same kind (7000 tonnes of the goods to be delivered to this buyer, and 5000 tonnes to be delivered to another buyer). In addition to that, the seller argued that since the destination port was referred to, in the contact, as the 'first port of unloading', the possibility of transportation of other goods was presupposed. The buyer, in turn, alleged that such a provision was needed in case the goods had to be unloaded in several ports.

"In its decision, the Tribunal referred to paragraphs (1) and (3) of Article 8 CISG. First, the ICAC established the buyer's intent in the light of other provisions of the contract. The Tribunal ruled that in having inserted the provision as to the 'exclusive' use of the vessel, the buyer intended to secure the quality of the goods which were foodstuffs, by means of preventing the possibility of contamination of the goods by other goods of unknown quality placed nearby. In the Tribunal's opinion, such an intention was confirmed by the contract provisions entitling the buyer to inspect all the goods prior to loading for the purpose of establishing whether or not the goods were contaminated by pests, and to give permission to load the goods.

"Secondly, as required by Article 8(3) CISG, the ICAC took into account the relevant circumstances surrounding the case. In particular, the Tribunal examined the practices established between the parties as well as practices in the trade sector in question. It stated that such a provision had been used neither in practices between the parties, nor in the relevant trade sector. Therefore, its inclusion into the contract served as evidence of its being of 'specific and atypical' character. Having established the buyer's intent and taken into account the said circumstances, the ICAC held, on the basis of Article 8(1), that the seller 'could not have been unaware of the buyer's intent to exclude use of the vessel for transportation of goods other than the contract goods'.

"So far as the seller's argument that the contract allowed the use of the vessel for delivering the goods of the same kind was concerned, the Tribunal held that such a construction contradicted the meaning and express provisions of the contract which unambiguously indicated the buyer's intention to use the vessel exclusively for transporting the contract goods. The ICAC stated that 'the seller had consented to the inclusion of the condition on the 'exclusive' vessel, and a reasonable person of the same kind acting in the same capacity, could not have been unaware of the buyer's intention [...]'.

"Since the Tribunal used a criterion of a 'reasonable person of the same kind', it may seem at first sight that the ICAC based itself on an 'objective' interpretation contained in Article 8(2). In this regard, it must be noted that if the Tribunal intended to apply Article 8(2), the reasons for applying Article 8(2) were not clear. As follows from Article 8(2), it can only be used if the provision in Article 8(1) is not applicable, i.e., where the seller neither knew nor could have been [un]aware of the buyer's intention. It is not clear why the standard in Article 8(1) could not be applied in relation to this issue. The above reasoning based on Article 8(1) should have been applied to this point. Most importantly, however, the Tribunal seems to have 'combined' the standards of paragraphs (1) and (2) of Article 8. This is inadmissible, as Article 8 expressly establishes the order in which they are to be used. The rule for interpretation in Article 8(1) is based upon the party's intent of which the other party knew or could not have been unaware. The rule in Article 8(2) is based not on the intent but on the understanding of a reasonable person of the same kind of the other party's statement and conduct. The Tribunal, in its statement quoted above, refers to both standards at the same time – 'a reasonable person of the same kind ... could not have been unaware of the buyer's intention' (emphasis added). Clearly, such a combination is something that the Convention does not permit.

"Finally, as regards the seller's argument with respect to the contract provision referring to the destination port as 'the first port of unloading', the IDCAC ruled that this provision could not be construed in contradiction with express provisions on exclusive use of the vessel." Id. at pp. 16-18 (citations omitted).

Fundamental breach. "[T]he respondent (seller)'s refusal to perform its obligations as to exclusive use of the vessel and failure to ship the goods were considered as having amounted to a fundamental breach. In the Tribunal's opinion, the seller's failure to perform its obligations has 'cast doubt on the achievement of the purposes of the contract'. Referring to Article 25 CISG, the ICAC ruled that under such circumstances, the seller's actions could entail such detriment to the claimant that it would be substantially deprived of what it was entitled to receive under the contract." Id. at p. 23

Anticipatory breach. "[T]he Tribunal supported the buyer's treatment of the seller's breach as an anticipatory breach of contract under Article 72 CISG. Before the lapse of the period fixed for delivery the seller made it clear that it would not deliver the goods in accordance with the requirements of the contract. However, the buyer did not exercise its right under Article 71, i.e., the contract was not avoided before the due date for performance. The buyer avoided the contract after the expiration of the time limit for the seller's performance." Id. at p. 40.

Effects of avoidance. In this case, "the ICAC has reaffirmed the rule in Article 81(1), i.e., that avoidance of the contract releases the parties from their obligations and does not affect any rights and obligations of the parties consequent upon avoidance." Id. at p. 57.

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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 (1999-2000) No. 20 [103-110]

Translation (English): Text presented below

CITATIONS TO COMMENTS ON DECISION

Unavailable

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Case text (English translation)

Queen Mary Case Translation Programme

Russian Federation arbitration proceeding 238/1998 of 7 June 1999

Translation [*] by Gilyana Bovaeva [**]

Translation edited by Mykhaylo Danylko [***]

1. SUMMARY OF RULING

      1.1 Agreement of the parties to govern their relations under the contract by Russian law as law applicable to the contract, in virtue of the Russian Federation Constitution and Article 7 of the Russian Federation Civil Code, leads to application to the contract of the Vienna Convention 1980 [UN Convention on Contracts for the International Sale of Goods (1980) (hereinafter CISG)], to which Russia is a Contracting State. Whereas this Convention is included in the legal system of Russia and its provisions have priority before the rules of domestic laws, thus, the Russian domestic laws should be applied as subsidiary statute.

      1.2 On the basis of Article 8 CISG, the provision of the contract providing for shipment of the goods sold under the contract in one lot by a vessel chartered exclusively for this shipment, qualified as an exclusive clause.

Uncommon features of such a provision, which was not previously employed in the course of practice established by the parties and is not a typical contractual provision in the particular area of trade, required from the seller an unconditional observance of [such provision], taking into attention that its object (about which the seller was acknowledged) was to create a guarantee of retaining the quality of the goods wholly inspected by the buyer prior to their shipment.

      1.3 Non-observance of such a provision by seller and his refusal to abide by it provided a reasonable basis for the buyer to consider that the seller committed a fundamental breach of the contract (Article 25 CISG), and, it being clear that the seller would not satisfy this provision prior to the date of expiration of the shipment term under the contract, to consider the seller's conduct as anticipatory fundamental breach of the contract (Article 72 CISG). Under such circumstances the [buyer]'s notice of declaration of avoidance of the contract is found reasonable (Article 26 CISG).

      1.4 The Tribunal of International Commercial Arbitration at the Russian Federation Chamber of Commerce and Industry (hereinafter Tribunal) found reasonable the payment made to the buyer by the seller's bank of the sum which was specified in the guarantee issued in case of breach of the contractual provisions by seller. Since the amount of lost profit due to seller's breach of the contract proved by buyer is less than the sum of the mentioned guarantee, the claim to recover it [lost profit] was dismissed.

      1.5 The Tribunal dismissed the claim of buyer to recover the expenses incurred by her representatives during the course of performance of the contract, holding that such expenses are necessary for performance of the contract, usually to be paid by the party who spent them, that is firmly fixed practice of the Tribunal.

2. FACTS AND PLEADINGS

The action was brought by [buyer], a Russian company, against [seller], an Indian company, to declare reasonable an avoidance of the contract for the international sale of goods concluded between the parties on 30 January 1998, in connection with seller's refusal to fulfill the exclusive contractual provision on shipment of all the goods in one lot by the vessel exclusively chartered for this shipment and exactly on the term stipulated by the contract.

      2.1 [Buyer's position]

The buyer also claimed from seller the recovery of damages suffered in connection with avoidance of the contract.

     2.2 [Seller's arguments]

Considering the avoidance of the contract by buyer unreasonable, the seller brought a counterclaim for recovery of the damages suffered due to the breach of contract by buyer. In seller's opinion, the buyer interpreted incorrectly the provision of the contract regarding use of the freighted vessel exclusively for shipment of goods to the buyer only. According to the seller, the provisions of the contract eliminated the possibility of shipment of other kinds of goods, but not the same goods to the other buyers. Accordingly, [seller] freighted a vessel for shipment of 12,000 tons of the same kind of goods (whereas the quantity of the goods to be shipped under the contract was 7,000 tons). The seller also pointed to violations committed by the buyer regarding the issue and prolongation of the letter of credit that led to impossibility of performance of the obligation on the term provided by the contract. Whereas the non-performance of the contract arose from the fact that the buyer unreasonably failed to give permission, as required by the contract, for loading aboard [the vessel] prepared for shipment at the port of shipment, goods duly processed and checked by the inspectors of the buyer, thus, the consequences of this should be imposed on the buyer. The seller asserted, inter alia, the following arguments.

-   The port of destination named in the contract was specified as the first port of unloading of the vessel, from which follows that there was a possibility of also shipping other goods by this vessel;
 
The contract provided that expenses for special processing of the goods are to be paid by the seller, including the case when such processing is required at the port of unloading, from which it follows that the parties from the beginning allowed for special re-processing of the goods. The expenses for such an extra re-processing of the goods would be essentially less than the losses caused by the avoidance of the contract.

 2.3 [Seller's losses]    

The losses suffered by seller included:

-   difference between the price at which the goods and sacks for packaging of these goods were re-sold to third persons and the contractual price;
expenses due to wantage [spillage/wastage];
-   expenses in leasing warehouse space;
expenses due to re-packaging of the goods and stitching of the sacks;
-   demurrage;
port-duty;
-   travel and hotel expenses of [seller]'s representatives;
the sum of the bank guarantee unreasonably paid to the buyer.

      2.4 [Buyer's response]

The buyer objected to the counterclaims of the seller, considering the avoidance of the contract reasonable. [Buyer] asserted that inserting in the contract the provision providing for the agreed port of destination to be the first port of unloading was required in case it would become unreasonable to unload the lot of goods in several ports. [Buyer] also confirmed that she received from the bank the payment of the respective sum of guarantee (performance bond), issued in case of breach by seller of his obligations under the contract.

Both parties challenged the evidentiary force of the documents presented by the other to prove the claims of recovery of damages.

3. TRIBUNAL'S REASONING

The ruling of the Tribunal contained the following main points:

     3.1 [Jurisdiction competence of the Tribunal]

The Tribunal's competence to arbitrate the presented dispute follows from the arbitration clause of the contract. The seller, initially challenging it, [the competence of the Tribunal], later brought the counteraction, by which he confirmed his consent to the arbitration of this dispute by the Tribunal.

     3.2 [Applicable law]

In accordance with the contract, disputes should be settled according to the law of Russian Federation. The buyer pointed that the contract and the Russian law, as the law following from the contract, govern the relations between the parties.

The seller believes that the CISG and Russian law are applicable to the relations of the parties.

The Tribunal found the law of Russian Federation as the law governing the contract whereas it is directly provided in the contract. Pursuant to Article 15 of the Russian Federation Constitution and Article 7 of the Russian Federation Civil Code, international treaties and agreements, to which Russia is a Contracting State, are a compound part of its legal system and have priority before the rules of domestic laws. Whereas at the moment of conclusion of the contract Russia was Contracting State to the CISG, thus, the Tribunal considers the provisions of the CISG as applicable law and Russian law [applicable] as a subsidiary statute.

     2.3 [Merits of the case]

  3.3.1 ["Exclusiveness" provision of the contract]

After hearing the merits of the dispute, the Tribunal stated that pursuant to clause 4 of the contract, the shipment should be made in one lot of quantity of 7,000 tons (more or less 2%) by a vessel freighted exclusively for shipment of the goods under the contract. The freighted vessel could not be used for shipment of any other goods. Clause 1 of the contract defined the "goods" as 7,000 metric tons of a particular food product of a certain quality.

Pursuant to Article 8 CISG, statements made by and other conduct of 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. In determining the party's intent, due consideration is to be given to all relevant circumstances, including negotiations and any practices which the parties have established in relations between themselves.

Clause 4 of the contract, providing the requirement of "exclusiveness" of the use of a vessel only for the goods intended for the buyer, by its context is an uncommon, special provision of the contract. Uncommon features of such a provision are based not only on the fact that such provision was not previously employed in the course of commercial practice of the parties and was especially included in this contract, but also on the fact that it is a specific, non-typical contractual instrument in the particular area of trade.

Buyer's intent when he included such a provision in the contract was to create guarantees of retaining the quality of the food product, wholly inspected by him before the shipment, from the moment of its loading aboard until its unloading at the port of destination, in order to avoid infection of the product en route from another product of unknown quality, loaded alongside and belonging to third parties. The fact that the buyer wanted the maximum guarantee of quality of the food product delivered is proved by requirements of the contract (clause 4), which, inter alia, confer upon [buyer] the right to inspect all the goods as to infection of them by pests and to give permission for loading the goods aboard. Under such circumstances, the seller could not have been unaware of the intent of the buyer to avoid the use of the vessel for shipment of other goods, except her own.

The Tribunal cannot agree with seller's interpretation of clause 4 of the contract as restricting shipment of other goods, except this food product, and allowing shipment of another lot of the same food product together with goods of the buyer. Such interpretation contradicts common sense and direct requirements of the respective contractual provisions. From the contractual provisions providing for special freight of the vessel for shipment of the particular lot of the goods purchased by the buyer, and not allowing use of the vessel for shipment of other goods on it, and from the specificity of the parties' relations, it clearly and unambiguously follows that the intent of the buyer was to ship her goods by the vessel especially and exclusively chartered for [shipment of] these goods.

The seller agreed to include the provision of "exclusiveness of vessel" in the contract, and a reasonable person, acting in "[his] shoes" would not have been unaware of the buyer's intent in connection with this clause of the contract. The Tribunal also found unreasonable the reference by the seller to the provision of the contract on particular Russian port as the first port of unloading. This contractual provision cannot be interpreted contradictory to direct requirements of exclusiveness.

Accordingly, the Tribunal came to the conclusion that, pursuant to the contract, the vessel should have been freighted especially for shipment of the goods under the contract and that the seller was responsible to charter the whole vessel exclusively for shipment of the goods of buyer.

  3.3.2 [Seller's breach - Art. 25 CISG]

According to provisions of the contract, the seller should have shipped the goods to the buyer prior to 1 April 1998. The seller, additionally, had 15 extra days for loading the goods aboard the vessel, which arrived into port of shipment on 7 April 1998. As it is seen from case materials and explanations of the parties, the buyer has inspected and accepted the goods as prepared for loading aboard by 13 April 1998, but has not given permission to load the goods aboard because the vessel was not in conformity with the contract. The seller intended to load aboard the vessel, besides the 7,000 tons of goods for the buyer, 5,000 tons of the same kind of goods for another buyer.

The final purpose of the contract was shipment by the seller to the buyer of the food product, totally conforming in terms of quality and not infected by any pests, on the one hand, and, on the other, receipt by the seller of the contractual price after the shipment of goods.

Conditio sine qua non for the parties to achieve the purpose of the contract was the seller's performance of his obligation to secure shipment of the goods under the conditions and procedure required by contract.

Whereas the seller was required to make shipment by vessel which meets exactly the agreed requirements, which he, in violation of contract, has breached, thus, the buyer was entitled not to give permission to the seller for loading the goods aboard a vessel not conforming to provisions of the contract.

Seller's non-performance of his obligations to secure shipment of the goods on terms agreed in the contract, in fact brought into challenge the consummation of the contract, because, firstly, the seller refused to perform his contractual obligation as to the exclusive freight and use of a vessel, providing to buyer no reasonable substitute of performance; secondly, seller's breach of obligation to make shipment of the goods led to the situation that the shipment was indefinitely postponed, even though under the contract the seller had to make shipment by the exactly defined date.

Under such circumstances, the actions of seller, intended for undue performance of the contract, could in fact result in such detriment to the buyer as substantially to deprive her of what she was entitled to expect under the contract (Article 25 CISG), considering the obligations undertaken by seller.

  3.3.3 [Anticipatory breach; avoidance of contract - Arts. 72, 26 CISG]

Taking into attention the unreasonable interpretation of the provision on "exclusiveness of vessel" by seller and his refusal to fulfil reasonable requirements of the buyer to provide a conforming vessel, the Tribunal came to conclusion that buyer reasonably interpreted the conduct of the seller as anticipatory fundamental breach of the contract (Article 72 CISG).

It was already clear on 7 April 1998, i.e., by expiration of the deadline for making shipment under the contract, that the seller expressly refused to ship the goods on the terms specified in the contract. Therefore, the issue is anticipatory breach of the contract. It follows from the case materials that despite the repeated demands of the buyer to secure "exclusiveness" of vessel, the seller refused to do so, referring to his incorrect, as discussed above, interpretation of this contractual provision.

Taking into attention such position of seller it is relevant to raise the issue of the term of shipment. Whereas the buyer reasonably refused to take delivery of goods shipped on the vessel not conforming to requirements of the contract, and the seller refused to change his position within the additional 15-day term as provided by the contract (although it was impossible to substitute the vessel within this term), thus, the seller should be deemed in mora regarding the shipment, and the buyer is entitled to avoid the contract on the basis of clause 9 of the contract, which was done by the buyer by notice of 20 April 1998 (Article 26 CISG).

  3.3.4 [Arbitration fees; dismissal of seller's counterclaim]

Pursuant to § 6(2) of the Rules of Tribunal on Arbitration Fees and Expenses, arbitration fees should be imposed on the respondent, [seller], proportionally to the amount of claims granted.

Whereas the contract was reasonably avoided by buyer as result of the fundamental breach committed by seller, thus, the Tribunal came to conclusion that there was no basis for granting claims of seller's counteraction, which should be dismissed in full.

Expenses as to arbitration fees, pursuant to § 6(2) of the Rules of Tribunal on Arbitration Fees and Expenses, are imposed in full on seller - the party against whom the ruling was rendered.

  3.3.5 [Performance bond]

In accordance with clause 8 of the contract, seller issued in favor of buyer a guarantee (performance bond) of his bank on 20 February 1998, in the amount of 2% of the whole price of the contract, in case of non-performance of the contract. The guarantee payment was to be paid to buyer in case of seller's delay to ship the goods under the contract. The mentioned sum was wired to buyer's bank account on 29 May 1998.

As it follows from case materials, the guarantee sum was a penalty, agreed by parties for seller's breach of provisions of the contract and was to be paid by the bank of seller. Whereas the seller committed fundamental breach of contract, which was the ground for payment of the respective sum provided for by the guarantee, thus, the Tribunal found reasonable the wiring of this sum to the buyer on the basis of the mentioned guarantee.

  3.3.6 [Buyer's damages - Arts. 81, 74 CISG]

After hearing buyer's claims as to recovery of damages caused by seller as result of his breach of the contract, the Tribunal stated that Article 81 CISG in principle permits recovery of damages under avoidance of the contact.

      (i) The Tribunal, however, did not find a basis to grant buyer's claims as to recovery of cost of loans taken in connection with payment for the letter of credit, because the fact of payment of respective interest to the bank is not duly proven.

However, having considered buyer's alternative claim as to recovery from the seller of the lost profit, which could have been received from depositing of foreign currency, used for the letter of credit, with particular banks, the Tribunal found it [claim of lost profit] reasonable. Legal grounds for such possibility are found in Article 74 CISG and Article 15 of the Russian Federation Civil Code. The deposit rate and calculation of interest are proved with documents and seemed to be reasonable. This claim is found reasonable.

      (ii) Deciding on the issue of compensation to the buyer for travel and other expenses incurred by her representatives, the Tribunal reasoned that such expenses were required for performance of the contract, usually to be paid by the party who spent them, that is firmly fixed practice of the Tribunal. Accordingly, there are no bases to grant this claim of buyer.

      (iii) The Tribunal did not find reasonable and documentary proven the claim of the buyer to recover the penalty, paid by buyer in favor of lessor under the lease agreement concluded by her. The buyer did not present evidence that might confirm causal connection between non-performance of obligation under the contract and payment by buyer of the sum of penalties under the lease agreement. There is no proof, inter alia, that the warehouse was especially leased for the goods which were the subject matter of the contract in dispute.

      (iv) Examining the issue of relevance of the losses and the performance bond, the Tribunal notes that the buyer claims recovery of the losses only in the part that exceeds the amount of performance bond. However, the losses suffered by buyer, as follows from paragraphs (i), (ii) and (iii), were granted reasonable in an amount less than the amount of performance bond. Therefore, claims of the buyer for damages should not be granted.

      (v) Taking into attention that buyer's claims to recover damages were dismissed, and in accordance with § 6 of the Rules of Tribunal on Arbitration Fees and Expenses, arbitration fees paid by buyer for the claims of recovery of damages suffered are imposed on the buyer.


FOOTNOTES

* This is a translation of data on the award in Proceeding 238/1998 of 7 June 1998 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. 20 [103-110]. All translations should be verified by cross-checking against the original text. For purposes of this translation, Claimant of the Russian Federation is referred to as [buyer]; Respondent of India is referred to as [seller].

** 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. The second-iteration redaction of this translation was by Dr. John Felemegas of Australia.

*** Mykhaylo Danylko holds a Master of Laws (European Studies Program) from the Law School of International Science and Technology University, Kiev, Ukraine (July 2000); a Master of Management in Business of the Business School of International Science and Technology University, Kiev, Ukraine (June 2002); and is a candidate for an LL.M. in International and Comparative Law at the Pace University School of Law.

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